UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-36794
The Chemours Company
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
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(State or other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
1007 Market Street, Wilmington, Delaware 1989919801
(Address of Principal Executive Offices)
Registrant’s Telephone Number:(302) 773-1000
Securities registered pursuant to Section 12(b) of the Act:
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| Trading Symbols(s) | Name of Exchange on Which Registered | |
Common Stock ($.01 par value) | CC |
| New York Stock Exchange |
Securities are registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See | |||||||||||
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Smaller reporting company ☐ | Emerging growth company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | ||||||||||
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). |
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The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2017,28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $7.0$3.9 billion. As of February 13, 2018, 182,524,06810, 2020, 164,006,272 shares of the company’s common stock, $0.01 par value, were outstanding.
Documents Incorporated by Reference
Portions of the registrant’s definitive proxy statement relating to its 20182020 annual meeting of shareholders (2018(the “2020 Proxy Statement)Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 20182020 Proxy Statement will be filed with the U. S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
Table of ContentsTABLE OF CONTENTS
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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1
The Chemours Company
This section and other parts of this Annual Report on Form 10-K contain forward-looking statements within the meaning of the federal securities law that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. The words “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those set forth in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and within Item 1A – Risk Factors.
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:
fluctuations in energy and raw materials pricing;
• | fluctuations in energy and raw materials pricing; |
failure to develop and market new products and applications, and optimally manage product life cycles;
• | failure to develop and market new products and applications, and optimally manage product life cycles; |
significant litigation and environmental matters, including indemnifications we were required to assume;
• | increased competition, and increasing consolidation of our core customers; |
significant or unanticipated expenses, including, but not limited to, litigation or legal settlement expenses;
• | significant litigation and environmental matters, including indemnifications we were required to assume; |
increased competition and increasing consolidation of our core customers;
• | significant or unanticipated expenses, including, but not limited to, litigation or legal settlement expenses; |
changes in relationships with our significant customers and suppliers;
• | our ability to manage and complete capital projects and/or planned expansions, including the start-up of capital projects; |
failure to manage process safety and product stewardship issues appropriately;
• | changes in relationships with our significant customers and suppliers; |
global economic and capital markets conditions, such as inflation, interest and currency exchange rates, and commodity prices, as well as regulatory requirements;
• | failure to manage process safety and product stewardship issues appropriately; |
currency-related risks;
• | global economic and capital markets conditions, such as inflation, interest and currency exchange rates, and commodity prices, as well as regulatory requirements; |
our current indebtedness and availability of borrowing facilities, including access to our revolving credit facilities;
• | currency-related risks; |
business or supply disruptions and security threats, such as acts of sabotage, terrorism or war, weather events, and natural disasters;
• | our current indebtedness and availability of borrowing facilities, including access to our revolving credit facilities; |
uncertainty regarding the availability of additional financing in the future, and the terms of such financing;
• | business or supply disruptions and security threats, such as acts of sabotage, terrorism or war, weather events, and natural disasters; |
negative rating agency actions;
• | uncertainty regarding the availability of additional financing in the future, and the terms of such financing; |
changes in laws and regulations or political conditions;
• | negative rating agency actions; |
ability to protect, defend, and enforce our intellectual property rights;
• | changes in laws and regulations or political conditions; |
our ability to predict, identify, and address changes in consumer preference and demand;
• | our ability to protect, defend, and enforce our intellectual property rights; |
our ability to complete potential divestitures or acquisitions and our ability to realize the expected benefits of divestitures or acquisitions if they are completed;
• | our ability to predict, identify, and address changes in consumer preference and demand; |
our ability to deliver cost savings as anticipated, whether or not on the timelines proposed;
• | our ability to complete potential divestitures or acquisitions and our ability to realize the expected benefits of divestitures or acquisitions if they are completed; |
our ability to meet our growth expectations through 2020;
• | our ability to meet our growth expectations and outlook; |
our ability to pay a dividend and the amount of any such dividend declared; and,
• | our ability to pay a dividend and the amount of any such dividend declared; and, |
• | disruptions in our information technology networks and systems. |
disruptions in our information technology networks and systems.
Additionally, there may be other risks and uncertainties that we are unable to identify at this time, or that we do not currently expect to have a material impact on our business. We assume no obligation to revise or update any forward-looking statement for any reason, except as required by law.
Unless the context otherwise requires, references herein to “The Chemours Company,” “Chemours,” “the Company,” “our company,” “we,” “us,” and “our” refer to The Chemours Company and its consolidated subsidiaries. References herein to “DuPont” refer to E.I.E. I. du Pont de Nemours and Company, which is now a subsidiary of Corteva, Inc., a Delaware corporation, and its consolidated subsidiaries (other than Chemours and its consolidated subsidiaries), unless the context otherwise requires.
2
The Chemours Company
Overview
The Chemours Company (herein referred to as us, we,“us,” “we,” or our)“our”) is a leading, global provider of performance chemicals that are key inputs in end-products and processes in a variety of industries. We deliver customized solutions with a wide range of industrial and specialty chemicals products for markets, including plastics and coatings, refrigeration and air conditioning, general industrial, electronics, mining, and oil refining. Our principal products include titanium dioxide (TiO2), refrigerants, industrial fluoropolymer resins, sodium cyanide, and performance chemicals and intermediates.intermediates, and titanium dioxide (“TiO2”) pigment. We manage and report our operating results through three reportable segments: Fluoroproducts, Chemical Solutions, and Titanium Technologies, Fluoroproducts, and Chemical Solutions. Our Titanium Technologies segment is a leading, global producer of TiO2 pigment, a premium white pigment used to deliver whiteness, brightness, opacity, and protection in a variety of applications.Technologies. Our Fluoroproducts segment is a leading, global provider of fluoroproducts, including refrigerants and industrial fluoropolymer resins. Our Chemical Solutions segment is a leading, North American provider of industrial chemicals used in gold production, industrials,industrial, and consumer applications. Our Titanium Technologies segment is a leading, global provider of TiO2 pigment, a premium white pigment used to deliver whiteness, brightness, opacity, and protection in a variety of applications.
We operate 2630 major production facilities located in 10nine countries and serve approximately 4,0003,700 customers across a wide range of end-markets in nearly 130over 120 countries.
The following chart sets forth the global sales of our businesses for the years ended December 31, 2017, 2016, and 2015.
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We are committed to creating value for our customers and stakeholders through the reliable delivery of high qualityhigh-quality products and services around the globe. We create valueworld. To achieve this goal, we have a global team dedicated to upholding our five values: (i) customer centricity – driving customer growth, and our own, by understanding our customers’ needs and building long-lasting relationships with them; (ii) refreshing simplicity – cutting complexity by investing in what matters, and getting results faster; (iii) collective entrepreneurship – empowering our employees to act like they own our business, while embracing the power of inclusion and teamwork; (iv) safety obsession – living our steadfast belief that a safe workplace is a profitable workplace; and, (v) unshakable integrity – doing what’s right for our customers, colleagues, and stockholders through: (i) operational excellencecommunities – always.
We also have a forward-looking Corporate Responsibility commitment, which focuses on three key principles – inspired people, a shared planet, and asset efficiency, which includesan evolved portfolio – in an effort to achieve, among other goals, increased diversity and inclusion in our commitment to safety and environmental stewardship; (ii) strong customer focus to produce innovative, high performance products; (iii) focus on cash flows generation through optimizationglobal workforce, increased sustainability of our cost structure,products, and improvementbecoming carbon positive. We call this responsible chemistry – it is rooted in working capitalwho we are, and supply chain efficiencies throughwe expect that our transformation plan (described below); (iv) organic growth and inorganic expansions to current business; and, (v) creation of an organization that is committed to our corporate values of safety, customer appreciation, simplicity, collective entrepreneurship, and integrity.Corporate Responsibility commitment will drive sustainable, long-term earnings growth.
Many of our commercial and industrial relationships span decades. Our customer base includes a diverse set of companies, many of which are leaders in their respective industries. Our sales are not materially dependent on any single customer. As of December 31, 2017,2019, no one individual customer balance represented more than 5% of our total outstanding receivables balance, and no one individual customer represented more than 10% of our consolidated net sales.
3
The Chemours CompanyCorporate History
We began operating as an independent company on July 1, 2015 (Separation Date)(the “Separation Date”) after separating from E.I. du Pont de Nemours and Company (DuPont) (Separation)(“DuPont”) (the “Separation”). Effective prior to the opening of trading on the New York Stock Exchange (NYSE) on the Separation Date, DuPont completed the Separation of the businesses comprising its Performance Chemicals reporting segment, and certain other assets and liabilities, into us, a separate and distinct public company. The Separation was completed by way of a distribution of all of the then-outstanding shares of our common stock through a dividend-in-kind of our common stock (par value $0.01) to holders of DuPont’s common stock (par value $0.30) as of the close of business on June 23, 2015 (Record Date).
On the Separation Date, each holder of DuPont’s common stock received one share of our common stock for every five shares of DuPont’s common stock held on the Record Date. The Separation was completed pursuant to a separation agreement and other agreements with DuPont, including an employee matters agreement, a tax matters agreement, a transition services agreement, and an intellectual property cross-license agreement. These agreements govern the relationship between us and DuPont following the Separation and provided for the allocation of various assets, liabilities, rights, and obligations at the Separation Date. TheseOn August 31, 2017, DuPont completed a merger with The Dow Chemical Company (“Dow”). Following their merger, DuPont and Dow engaged in a series of reorganization steps and, in 2019, separated into three publicly-traded companies named Dow Inc., DuPont de Nemours, Inc., and Corteva, Inc. (“Corteva”). DuPont is now a subsidiary of Corteva, and, at this time, any agreements also included arrangements for transition services provided to us by DuPont, which were substantially completed during 2016.
Our Five-Point Transformation Plan
Following the Separation, we developed a five-point transformation plan to address changesrelated to our organization, cost structure,Separation remain between us and portfolio of businesses. We made considerable progress on our transformation plan from August 2015 through December 2017 and declared the transformation plan complete at the end of 2017.DuPont.
The objectives of our multi-year, five-point transformation plan were to improve our financial performance, streamline and strengthen our portfolio, and reduce our leverage by:
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Through our cost reduction and growth initiatives, as well as improved market conditions, we delivered over $800 million of incremental adjusted earnings before interest, income taxes, depreciation, and amortization (Adjusted EBITDA) improvement over 2015 through 2017. Through year-end 2017, we realized approximately $350 million in cost savings since the Separation, which improved our pre-tax earnings by similar amounts. We continue to implement additional cost reduction initiatives in order to realize additional structural cost savings through 2018 and beyond. These improvements were realized after offsets related to the impact of divestitures completed during 2016, unfavorable price and mix of other products, and may also be impacted by market factors and other costs to achieve our plan.
For the year ended December 31, 2017, we had pre-tax income and Adjusted EBITDA of $912 million and $1.4 billion, respectively, compared with a pre-tax loss and Adjusted EBITDA of $11 million and $822 million, respectively, for the year ended December 31, 2016, and a pre-tax loss and Adjusted EBITDA of $188 million and $573 million, respectively, for the year ended December 31, 2015. Through a combination of higher cash flows from operations and proceeds from asset sales, we reduced our leverage ratio (defined as the ratio of our net debt, or debt less cash and cash equivalents, to Adjusted EBITDA) to below 2.0 times at the end of 2017.
Adjusted EBITDA is a financial measure that is not defined by generally accepted accounting principles (GAAP) in the United States (U.S.) (i.e., it is a non-GAAP financial measure). For further discussion regarding our use of non-GAAP financial measures and reconciliations to their closest GAAP financial measures, see “Non-GAAP Financial Measures” within Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Growth Expectations Through 2020
On December 1, 2017, we held our first investor day, during which we described how we expect each of our businesses to contribute to our overall growth. For our Titanium Technologies segment, we are implementing a value stabilization strategy in order to seek to reduce volatility for our Ti-PureTM TiO2 pigment earnings. For our Fluoroproducts segment, we are optimizing our fluorochemicals product mix with the expansion of OpteonTM refrigerants capacity and renewing our fluoropolymers portfolio through application development. For our Chemical Solutions segment, we are expanding our capacity to meet demand for our Mining Solutions products. To the extent we are successful in implementing such plans, as to which no assurance can be made, we aim to meet key financial targets through 2020, including goals for our future net sales growth, Adjusted EBITDA margin improvement, adjusted earnings per share (Adjusted EPS), Free Cash Flows (FCF), and Return on Invested Capital (ROIC).
43
The Chemours Company
Adjusted Net Income, Adjusted EPS, FCF, and ROIC are non-GAAP financial measures. Adjusted Net Income is defined as our net income, adjusted for items excluded from Adjusted EBITDA, except interest expense, depreciation and amortization, and certain provision for (benefit from) income tax amounts. Adjusted EPS is presented on a diluted basis and is calculated by dividing our Adjusted Net Income by the weighted-average number of our common shares outstanding, accounting for the dilutive impact of our stock-based compensation awards. FCF is defined as our cash flows provided by operating activities, less purchases of property, plant, and equipment as shown in our consolidated statements of cash flows. ROIC is defined as Adjusted EBITDA, less depreciation and amortization (Adjusted EBIT), divided by the average of our invested capital, which amounts to our net debt plus equity. For further discussion regarding the risks associated with our failure to meet these key financial targets for 2020, see Item 1A – Risk Factors. For further discussion regarding our use of non-GAAP financial measures and reconciliations to their closest GAAP financial measures, see “Non-GAAP Financial Measures” within Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.Segments
Segments
In our Titanium Technologies segment, we have a long-standing history of delivering high quality TiO2 pigment using our proprietary chloride technology. We are one of the largest global producers of TiO2, and our low cost network of manufacturing facilities allows us to efficiently and cost-effectively serve our global customer base. During 2016, we further enhanced our operating cost advantage with the startup of a second production line at our Altamira, Mexico facility. We believe we are well-positioned to remain one of the lowest cost TiO2 producers and continue to meet our customers’ growing needs around the world.
In our Fluoroproducts segment, we are one of twoa globally-integrated producersproducer making both fluorochemicals and fluoropolymers. In our fluorochemicalsFluorochemicals business, we expect to seethere is increased adoption of Opteon™, one of the world’s lowest global warming potential (GWP) refrigerants,(“GWP”) refrigerant brands, as governments around the world pass legislation that makes the use of low GWP refrigerants a requirement. Our fluoropolymersFluoropolymers offerings provide customers with tailored products that have unique properties, including very high temperature resistance, and high chemical resistance.resistance, resistivity, and selective permeability. We will continue to invest in research and development (R&D)(“R&D”) to remain a leader in these areas and ensure that we are able to meet our customers’ needs as regulations change.needs.
In our Chemical Solutions segment, we completed a strategic review of our portfolio in 2016, which included the announced sales of our aniline facility in Beaumont, Texas, our Clean & Disinfect (C&D) business, and our Sulfur products business, as well as ceasing production at our Reactive Metals Solutions (RMS) facility in Niagara Falls, New York. We remain committed to retaining and improving our Mining Solutions business (previously known asand Performance Chemicals and Intermediates businesses produce industrial chemicals used in various applications by our Cyanides business) andcustomers, which are primarily located in the product lines at our Belle, West Virginia site.Americas. As one of the largest global producerNorth American producers of solid sodium cyanide, our Mining Solutions business is recognized for ourits high quality product offering, reliability of supply, and commitment to the safe production, storage, and use of our products. Global demand growth over the next three years is expected to remain healthy, driven by growth in gold ore processing volumes, and use as an intermediatevolumes. In our Mining Solutions business, particularly in the synthesis of other chemicals (primarily in China). In the Americas region, the demand for sodium cyanide is expected to far exceed global demand growth rates,rates. In our Performance Chemicals and as a result, we are currently building a new manufacturing facilityIntermediates business, growth in Mexico using a proprietary manufacturing technology that is inherently easier and safer to use. This new facilitydemand for our products is expected to increasegenerally grow in line with growth in global gross domestic product (“GDP”).
In our sodium cyanide supply by approximately 50%,Titanium Technologies segment, we have a long-standing history of delivering high-quality TiO2 pigment using our proprietary chloride technology. We are one of the largest global producers of TiO2 pigment, and it is expectedour low-cost network of manufacturing facilities allows us to be completed in 2018.efficiently and cost-effectively serve our global customer base. We believe we are well-positioned to remain one of the lowest-cost, high-quality TiO2 pigment producers, and we will continue to meet our customers’ needs around the world.
We will maintain our commitment to responsible stewardship and safety for our employees, customers, and the communities wherein which we operate. Meeting and exceeding our customers’ expectations while conducting business in accordance with our high ethical standards will continue to be a primary focus for us as we continue to transform intooperate as a higher valuehigher-value chemistry company.
Additional information on our segments can be found in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Note 2528 – Geographic and Segment Information” withinto the Consolidated Financial Statements.
Titanium Technologies
Fluoroproducts Segment
Segment Overview
Our Titanium Technologies segment is a leading, global manufacturer of TiO2. TiO2 pigment is used to deliver whiteness, opacity, brightness, and ultra-violet light protection in applications such as architectural and industrial coatings, flexible and rigid plastic packaging, polyvinylchloride (PVC) window profiles, laminate papers used for furniture and building materials, coated paper, and coated paperboard used for packaging. We sell our TiO2 pigment under the Ti-Pure™ brand name to approximately 700 customers globally. We also sell a chloride-based TiO2 pigment under the BaiMaxTM brand name, which is exclusively produced for customers in Greater China. We operate four TiO2 production facilities: two in the U.S., one in Mexico, and one in Taiwan. In addition, we have a large-scale repackaging and distribution facility in Belgium and operate a mineral sands mining operation in Starke, Florida. In total, we have a TiO2 pigment capacity of approximately 1.25 million metric tons per year. We expanded our TiO2 production facility in Altamira, Mexico in 2016, and by late 2017, we demonstrated full production capacity.
5
The Chemours Company
We are one of a limited number of producers operating a chloride process for the production of TiO2 pigment. We believe that our proprietary chloride technology enables us to operate plants at a much higher capacity than other chloride technology-based TiO2 producers, as we uniquely utilize a broad spectrum of titanium-bearing ore feedstocks to achieve the highest TiO2 pigment unit margins in our industry. This technology, which is in use at all of our production facilities, provides us with one of the industry’s lowest manufacturing cost positions. Our R&D efforts focus on improving production processes and developing TiO2 pigment grades that help our customers achieve optimal cost and product performance to enhance end-user total value.
The overall demand for TiO2 pigment is highly correlated to growth in the global residential housing, commercial construction, and packaging markets. In the long-run, industry demand for TiO2 pigment is generally expected to be in line with global gross domestic product (GDP) growth. In 2017, demand growth for Ti-PureTM was above global GDP due to increased preference for high quality Ti-PureTM offerings, as well as global supply and demand dynamics. Longer-term, we expect global TiO2 pigment demand growth to correlate to global GDP growth rates. Our future Ti-PureTM demand growth may be below average global GDP growth rates if our sales into developed markets outpace our sales into emerging markets.
Our Titanium Technologies segment net sales by region and end-market for the years ended December 31, 2017, 2016, and 2015 are set forth in the following charts.
We sell over 20 different grades of TiO2 pigment, with each grade tailored for targeted applications. Our portfolio of premium performance TiO2 pigment grades provides end-users with benefits beyond opacity, such as longer-lasting performance, brighter colors, and the brilliant whites achievable only through chloride-manufactured pigment.
6
The Chemours Company
We have operated a titanium mine in Starke, Florida since 1949. The mine provides us with access to a low cost source of domestic, high quality ilmenite ore feedstock and supplies less than 10% of our ore feedstock consumption needs. Co-products of our mining operations, which comprised less than 5% of our total sales in Titanium Technologies in 2017, are zircon (zirconium silicate) and staurolite minerals. We are a major supplier of high quality calcined zircon in North America, primarily focused on the precision investment casting industry, foundry, specialty applications, and ceramics. Our staurolite blasting abrasives are used in steel preparation and maintenance and paint removal.
Following the 2008 global financial crisis, the TiO2 pigment market saw a significant swing in average price from 2010 through 2015. As demand fell sharply during the global financial crisis, some high cost sites were shut down, shrinking overall industry capacity. This was followed by a strong surge in demand from 2010 through 2012, which brought on large price increases over a very short period. Soon thereafter, from 2012 through 2016, an influx of new capacity came online, driving TiO2 pigment prices down sharply. Since 2016, we have been working with our customers to price for the intrinsic value of Ti-PureTM to the end-user. We believe that volatility in both price and supply availability are significant concerns for producers and consumers throughout the value chain, and that a more stable price and supply trajectory for Ti-PureTM will enable our customers to focus on their downstream customer needs and enhance confidence in the long-term stability of the Ti-PureTM supply base.
Industry Overview and Competitors
We estimate that the worldwide demand for TiO2 in 2017 was approximately 6.1 million metric tons, of which, 60% was for premium performance pigments. Worldwide capacity in 2017 was estimated to be approximately 7.3 million metric tons. The products manufactured on this global capacity base are not fully substitutable due to pigment quality consistency and pigment product design. We believe that the utilization of the premium performance manufacturing base is considerably higher than that for general purpose, lower performance production. Over the next few years, we are planning to incrementally increase our production capacity by approximately 10% through technology-enabled de-bottlenecking processes. We believe that unlocking this additional 10% of capacity is in line with the anticipated needs of our customers during this time. This new capacity will effectively provide the equivalent of a new production line, while requiring a fraction of the capital investment. Our increased production capacity is also expected to be supported with investments to extend our ilmenite mine and through long-term work contracts with our suppliers.
Competition in the TiO2 pigment market is based primarily on product performance (both product design and quality consistency), supply capability, and technical service. Our major competitors within higher performance pigments include: The National Titanium Dioxide Company, Ltd., or Cristal, Venator Material plc, Kronos Worldwide, Inc., and Tronox Limited.
Beyond multi-national suppliers, the only other large producer is the Chinese producer, the Lomon-Billions Group. The other TiO2 pigment producers are fragmented, mostly utilizing the sulfate production process, and competing in the general purpose, lower performance pigment market. Within China, over the next few years, we believe that the announced added effective capacity is expected to be somewhat offset by capacity shutdowns at marginal producers.
Raw Materials
The primary raw materials used in the manufacture of TiO2 are titanium-bearing ores, chlorine, calcined petroleum coke, and energy. We source titanium-bearing ores from a number of suppliers around the globe, who are primarily located in Australia and Africa. Our titanium mine in Starke, Florida supplies less than 10% of our raw materials needs. To ensure proper supply volume and to minimize pricing volatility, we generally enter into contracts in which volume is requirement-based and pricing is determined by a range of mechanisms structured to help us achieve competitive cost. We typically enter into a combination of long-term and medium-term supply contracts and source our raw materials from multiple suppliers across different regions and from multiple sites per supplier. Furthermore, we typically purchase multiple grades of ore from each supplier to limit our exposure to any single supplier for any single grade of ore in any given time period. Historically, we have not experienced any problems renewing such contracts for raw materials or securing our supply of titanium-bearing ores.
We play an active role in ore source development around the globe, especially for those ores which can only be used by us, given the capability of our unique process technology. Supply chain flexibility allows for ore purchase and use optimization to manage short-term demand fluctuations and provides long-term competitive advantage. Our process technology and ability to use lower grade ilmenite ore gives us the flexibility to alter our ore mix to the lowest cost configuration based on sales, demand, and projected ore pricing. Lastly, we have taken steps to optimize routes for distribution and increase storage capacity at our production facilities.
Transporting chlorine, one of our primary raw materials, can be costly. To reduce our expense and our need to transport chlorine, we have a chlor-alkali production facility run by a third-party that is co-located at our New Johnsonville, Tennessee site. Calcined petroleum coke is an important raw material input to our process. We source calcined petroleum coke from well-established suppliers in North America and China, typically under contracts that run multiple years to facilitate materials and logistics planning through the supply chain. Distribution efficiency is enhanced through the use of bulk ocean, barge, and rail transportation modes.
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The Chemours Company
Energy is another key input cost in the TiO2 manufacturing process, representing approximately 12% of the production cost. We have access to natural gas-based energy at our U.S. and Mexico TiO2 production facilities and our Florida minerals plant, supporting advantaged energy costs given the low cost of shale gas in the U.S.
Sales, Marketing, and Distribution
We sell the majority of our products through a direct sales force. We also utilize third-party sales agents and distributors to expand our reach. TiO2 pigment represents a significant raw material cost for our direct customers, and as a result, purchasing decisions are often made by our customers’ senior management teams. TiO2 pigment, however, is only a small fraction of the cost when considering certain end-use applications, especially in segments with larger value chain players, such as specialty coatings, plastics, and laminates applications. Our sales organization works to develop and maintain close relationships with key decision-makers in our value chain.
In addition to close purchasing relationships, our sales and technical service teams work together to develop relationships with all layers of our customers’ organizations to ensure that we meet our customers’ commercial and technical requirements. When appropriate, we collaborate closely with customers to solve formulation or application problems by modifying product characteristics or developing new product grades.
To ensure an efficient distribution, we have a large fleet of railcars, which are predominantly used for outbound distribution of products in the U.S. and Canada. A dedicated logistics team, along with external partners, continually optimizes the assignment of our transportation equipment to product lines and geographic regions in order to maximize utilization and maintain an efficient supply chain.
Customers
Globally, we serve approximately 700 customers through our Titanium Technologies segment. In 2017, our 10 largest Titanium Technologies customers accounted for approximately 35% of the segment’s net sales, and one Titanium Technologies customer represented more than 10% of the segment’s net sales. Our larger customers in the U.S. and Europe are typically served through direct sales and tend to have medium-term to long-term contracts. We serve our small-size and mid-size customers through a combination of our direct sales and distribution network.
Our direct customers in Titanium Technologies are producers of decorative coatings, automotive and industrial coatings, polyolefin masterbatches, PVC window profiles, engineering polymers, laminate paper, coatings paper, and coated paperboard. We focus on developing long-term partnerships with key market participants in each of these sectors. We also deliver a high level of technical service to satisfy our customers’ specific needs, which helps us maintain strong customer relationships.
Seasonality
The demand for TiO2 is subject to seasonality due to the influence of weather conditions and holiday seasons on some of our applications, such as decorative coatings. As a result, our TiO2 sales volume is typically lowest in the first quarter, highest in the second and third quarters, and moderate in the fourth quarter. This pattern applies to the entire TiO2 market, but may vary by region, country, or application. It can also be altered by economic or other demand cycles.
Fluoroproducts Segment
Segment Overview
Our Fluoroproducts segment is a leading, global leader in providingprovider of fluorine-based, advanced materials solutions.solutions, such as refrigerants and industrial resins and derivatives. The segment creates products that have unique properties, such as high temperature resistance, high chemical resistance, and unique di-electric properties, for applications across a broad array of industries and applications. We are a global leader in providing fluoroproducts, such as refrigerants and industrial fluoropolymer resins and derivatives.
The manufacturing of fluoroproducts involves complex processes that include the use of highly corrosive and hazardous intermediates. We have an industry-leading safety culture and apply world-class R&D and technical expertise to ensure that our operations run safely and reliably. These capabilities, alongside our R&D expertise, allow usreliably, and to continuously improve our process technology.
We sell fluoroproducts through two primary product groups: Fluorochemicals and Fluoropolymers.
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The Chemours Company
Fluorochemicals products include refrigerants, industrial coolers, air conditioning, foam blowing agents, propellants, and fire suppression products.propellants. We have held a leading position in the fluorochemicals market since the commercial introduction of Freon™ in 1930. Since the original chlorofluorocarbons (CFCs)(“CFC”)-based product was introduced, we have been at the forefront of new technology research for lower GWP and lesser ozone-depleting potential products, leading to the development of hydrochlorofluorocarbons (HCFCs)(“HCFC”) and hydrofluorocarbons (HFCs)(“HFC”). We have a leading position in HFC refrigerants under the brand name Freon™, and we are a leader in the development of sustainable technologies like Opteon™, a line of low GWP hydrofluoroolefin (HFO)(“HFO”) refrigerants, which also have a zero-ozone-depletionzero ozone-depletion footprint. Opteon™ was jointlyinitially developed with Honeywell International, Inc. (Honeywell) in response to the European Union’s (EU)(“EU”) Mobile Air Conditioning Directive. Today, our OpteonTM-branded portfolio of products are used in a broad range of applications, including automotive, air conditioning, commercial refrigeration, and foam blowing agents. This patented technology offers similar functionality to current HFC products, but meets or exceedsbetters currently-mandated environmental standards and, in some cases, provides energy efficiency benefits.
We led the industry in the Montreal-Protocol (1987)-drivenMontreal Protocol-driven transition in 1987 from CFCs to the lesser ozone-depleting HCFCs and non-ozone-depleting HFCs. In 1988, we committed to cease production of CFCs and started manufacturing non-ozone-depleting HFCs in the early 1990s. Driven by new and emerging environmental legislations, and standards currentlylegislation being implementedenacted across the U.S., Europe, Latin America, and Japan, we have commercialized Opteon™. Over the years, regulations have pushed the industry to evolve and respond to environmental concerns. We will continue to invest in R&D to remain a leader and meet our customers’ needs as regulations change.
Fluorochemicals’ refrigerant sales fluctuate by season as sales in the first half of the year generally are slightly higher than sales in the second half of the year, due to mobile applications. However, Opteon™ sales into mobile air markets will be driven by automotive production, which may lead to less seasonality within Fluorochemicals overall.4
The Chemours Company
Fluoropolymers products include various industrial resins, specialty products, and coatings. We serve a wide range of essential industrial and end-user applications, including electronics, communications, wiresautomotive, wire and cable, energy, consumer, oil and gas, and aerospace, among others. Our products’ unique properties include chemical inertness, thermal stability, non-stick adhesion, low friction, weather and corrosion resistance, and extreme temperature resistance.
resistance, and unique di-electric properties. Our Fluoropolymers products are sold under the brand names Teflon™, Viton™, Krytox™, and Nafion™. Teflon™ coatings, and additives are used in multiple end-products including paints, fabrics, carpets, clothing, and other household applications. Teflon™ coatings, resins, additives, and films are also used in a wide range of industrial products. Our fluoroelastomer products, sold under the Viton™ brand name, are used in automotive, consumer electronics, chemical processing, oil and gas, petroleum refining and transportation, and aircraft and aerospace applications. Our Krytox™-branded lubricants are used in a broad range of industrial applications, including bearings, electric motors, and gearboxes. We sell membranes underUnder the brand name Nafion™, we sell membranes, which are used in fuel cells, energy flow battery storage, transportation, stationary power, and medical tubing.
9
The Chemours Company
Our Fluoroproducts segment’s net sales by region and product group for the years ended December 31, 2017, 2016, and 2015 are set forth in the following charts.
Industry Overview and Competitors
Our Fluoroproducts segment competes against a broad variety of global manufacturers, as well as regional Chinese and Indian manufacturers. We have a leadership position in fluorine chemistry and materials science, a broad scope and scale of operations, market-driven applicationapplications development, and deep customer knowledge.
We have global leadership positions Key competitors in the Fluoroproducts categories as set forthFluorochemicals include: Honeywell International, Inc., Arkema S.A., Orbia, Dongyue Group Co., Ltd. (“Dongyue”), and Juhua Group Corporation. Key competitors in the following table.
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3M
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The Chemours Company, Solvay, S.A., Asahi Glass Co., Ltd., Dongyue, and Chenguang Group.
Fluoroproducts demand growth is generally in line with global GDP.GDP growth. Within Fluorochemicals, growth may be higher than GDP in situations where, for environmental reasons, regulatory drivers constrain the market or drive the market toward lower GWP alternatives. In Fluoropolymers, overall market growth is expected to be in line with GDP over the next few years, but may be influenced by increased competition and pricing pressure in some businesses. There are certain emerging technologies, such as 5G, along with our focus on applicationsapplication development, that may drive our growth at a rate faster than GDP.
Developed markets represent the largest consumers of fluoroproducts markets today. Global middle class growth and the increasing demand for expanding infrastructure, alternative energy, consumer electronics, telecommunications, automobiles, refrigerators,refrigeration, and air conditionersconditioning are all key drivers of increased demand for various fluoroproducts.
Raw Materials
The primary raw materials required to support the Fluoroproducts segment are fluorspar, chlorinated organics, chlorinated inorganics, hydrofluoric acid, and vinylidene fluoride. These are available in many countries and are not concentrated in any particular region.
Our We pursue maximum competitiveness in our global supply chains are designed for maximum competitiveness through favorable sourcing of key raw materials. Our contracts typically include terms that span from two to 10 years, except for select resale purchases that are negotiated on a monthly basis. Most qualifiedQualified fluorspar sources have fixed contract prices or freely-negotiated, market-based pricing. Although the fluoroproducts industry has historically relied primarily on fluorspar exports from China, we have diversifiedWe diversify our sourcing through multiple geographic regions and suppliers to ensure a stable and cost competitive supply. Our current supply agreements are generally in effect for the next five years.
Sales, Marketing, and Distribution
With more than 85 years of innovation and development in fluorine science, our technical, marketing, and sales teams around the world have deep expertise in our products and their end-uses. We work with customers to select the appropriate fluoroproducts to meet their technical performance needs. We sell our products through direct channels and through resellers. Selling agreements vary by product line and markets served and include both spot-pricing arrangements and contracts with a typical duration of one year.
We maintain a large fleet of railcars, tank trucks, and containers to deliver our products and support our supply chain needs. For the portion of the fleet that is leased, the related lease terms are usually staggered, which provides us with a competitive cost position, as well as the ability to adjust the size of our fleet in response to changes in market conditions. A dedicated logistics team, along with external partners, continually optimizes the assignment of our transportation equipment to product lines and geographic regions in order to maximize utilization and flexibility of the supply chain.
Customers
We serve
The Fluoroproducts segment serves approximately 2,7002,800 customers and distributors globally and, in many instances, these commercial relationships have been in place for decades. No single Fluoroproducts customer represented more than 10% of the segment’s net sales in 2017.2019.
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The Chemours Company
Seasonality
Fluorochemicals’ refrigerant sales fluctuate by season, as sales in the first half of the year generally are slightlygenerally higher than sales in the second half of the year due to mobile applications. Seasonality in Fluorochemicals sales is mainly driven by increased demand for residential, commercial, and automotive air conditioning in the spring. This demandspring, which peaks in the summer months, and then declines in the fall and winter. Commercial refrigeration demand is fairly steady throughoutwinter in the year, but demand is slightly higher during the summer months.northern hemisphere. Mobile air conditioning demand is slightly higher in the first half of the year due to the timing of automotive shut downsproduction shutdowns in the second half. Our OpteonTM sales into mobile air markets will be driven by automotive production, which may lead to less seasonality within Fluorochemicals overall.half of the year. There is no significant seasonality for Fluoropolymers, as demand is relatively consistent throughout the year; however, demand is slightly higher during the first half of the year.year.
Chemical Solutions Segment
Segment Overview
Our Chemical Solutions segment comprisesis comprised of a portfolio of industrial chemical businesses, primarily operating in the Americas. The Chemical Solutions segment’s products are used as important raw materials and catalysts for a diverse group of industries including, among others, gold production, oil and gas, water treatment, electronics, and automotive. Chemical Solutions generates value through the use of market-leading manufacturing technology, safety performance, product stewardship, and differentiated logistics capabilities. We are a leading provider of sodium cyanide in the Americas through our Mining Solutions business.
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The Chemours Company
As part of our transformation plan announced in 2015, we conducted a strategic review of ourThe Chemical Solutions segment. This process resulted in the divestiture of three assets and businesses, the shutdown of one business, and the decision to retain the remaining businesses. Specifically, we sold our aniline facility in Beaumont, Texas to The Dow Chemical Company (Dow) in March 2016. We also sold our Sulfur business to Veolia North America, Inc. (Veolia) in July 2016 and our C&D business to LANXESS Corporation (Lanxess) in August 2016. These divestitures resulted in gross proceeds of approximately $685 million in 2016. In addition, we ceased production at our RMS facility in Niagara Falls, New York in September 2016. The segment continues to include our Mining Solutions business, an aniline manufacturing unit in Pascagoula, Mississippi, and the product lines at our Belle, West Virginia site, which include our Methylamines, Glycolic Acid, and Vazo™ free radical initiators product lines.
Chemical Solutions operateshas operations at three production facilities in North America, which sell products and solutions through two primary product groups: Mining Solutions and Performance Chemicals and Intermediates. The Mining Solutions product group includes our sodium cyanide hydrogen cyanide, and potassiumhydrogen cyanide product lines. We are thea market leader in solid sodium cyanide production in the Americas, which is used primarily by the mining industry for gold and silver production. We are also investing in a new sodium cyanide production facility in Mexico, thatfor which construction is expectedcurrently suspended as discussed further in “Note 22 – Commitments and Contingent Liabilities” to be completed in 2018.the Consolidated Financial Statements. For our Mining Solutions product group, we expect global demand growth to remain healthy over the next few years. In the Performance Chemicals and Intermediates product group, we manufacture a wide variety of chemicals used in many different applications. Following our recent divestitures, Performance Chemicals and Intermediates is now primarily comprised of our Methylamines, Glycolic Acid, Vazo™, and Aniline product lines.lines, following our exit of the Methylamines and Methylamides business at our Belle, West Virginia production facility. Our plans to exit the business were announced in the third quarter of 2019, culminating in our completed exit and sale of the business to Belle Chemical Company, a subsidiary of Cornerstone Chemical Company, in the fourth quarter of 2019. Our remaining Performance Chemicals and Intermediates business is expected to generally grow in line with growth in global GDP.
Our Chemical Solutions segment’s net sales by region and primary product group for the years ended December 31, 2017, 2016, and 2015 are set forth in the following charts.
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The Chemours Company
Industry Overview and Competitors
The industrial and specialty chemicals produced by our Chemical Solutions segment are important raw materials for a wide range of industries and end-markets. We hold a long-standing reputation for high quality, and the safe-handling of hazardous products, such as sodium cyanide, methylamines, aniline,Aniline, and Vazo™. Our positions in these products are the result of our process technology, manufacturing scale, efficient supply chain, and proximity to large customers. Our Chemical Solutions segment also holds and occasionally licenses, what we believe to be leading process technologies for the production of hydrogen and sodium cyanide, which are used in industrial polymers and gold production.
We have global leadership positions in The segment occasionally licenses these process technologies, as well as its process technology for the product categories as set forth inproduction of acrylonitrile. Key competitors for the following table.Chemicals Solutions segment include Cyanco Corp., Hebei Chengxin Group Co. Ltd., CyPlus GmbH, Orica Ltd., and Tongsuh Petrochemical Corp., Ltd.
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Raw Materials
Key raw materials for our Chemical Solutions segment include ammonia, methanol, natural gas, hydrogen, and caustic soda. We source raw materials from global and regional suppliers, where possible, and maintain multiple supplier relationships to protect against supply disruptions and potential price increases. To further mitigate the risk of raw materials availability and cost fluctuations, our Chemical Solutions segment has also taken steps to optimize routes for distribution, lock in long-term contracts with key suppliers, and increase the number of customer contracts with raw materials price pass-through terms. We do not believe that the loss of any particular supplier would be material to our business.
Sales, Marketing, and Distribution
Our technical, marketing, and sales teams around the world have deep expertise with our products and their end-markets. We predominantly sell directly to end-customers, although we also use a network of distributors for specific product lines and geographies. Sales may take place through either spot transactions or via long-term contracts.
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The Chemours Company
Most of Chemical Solutions’ raw materials and products can be delivered by efficient bulk transportation. As such, we maintain a large fleet of railcars, tank trucks, and containers to support our supply chain needs. For the portion of the fleet that is leased, the related lease terms are usually staggered, which provides us with a competitive cost position as well as the ability to adjust the size of our container fleet in response to changes in market conditions. A dedicated logistics team, along with external partners, continually optimizes the assignment of our transportation equipment to product lines and geographic regions in order to maximize utilization and flexibility of the supply chain.
The strategic placement of our production facilities in locations designed to serve our key customer base in the Americas gives us robust distribution capabilities.
Customers
Our Chemical Solutions segment focuses on developing long-term partnerships with key market participants. Many of our commercial and industrial relationships have been in place for decades and are based on our proven value proposition of safely and reliably supplying our customers with the materials needed for their operations. Our reputation and long-term track record are key competitive advantages, as several of the products’ end-users demand the highest level of excellence in safe manufacturing, distribution, handling, and storage. Our Chemical Solutions segment has U.S. Department of Transportation Special Permits and Approvals in place for the distribution of various materials associated with each of our business lines, as required. Our Chemical Solutions segment serves approximately 500 customers globally. No single Chemical Solutions customer represented more than 10% of the segment’s net sales in 2017.2019.
Seasonality
Our Chemical Solutions segmentsegment’s sales are subject to minimal seasonality.
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Titanium Technologies Segment
Segment Overview
Our Titanium Technologies segment is a leading, global manufacturer of high-quality TiO2 pigment. TiO2 pigment is used to deliver whiteness, brightness, opacity, and ultra-violet light protection in applications such as architectural and industrial coatings, flexible and rigid plastic packaging, polyvinylchloride (“PVC”), laminate papers used for furniture and building materials, coated paper, and coated paperboard used for packaging. We sell our TiO2 pigment under the Ti-Pure™ brand name. We also sell a chloride-based TiO2 pigment under the BaiMaxTM brand name, which is exclusively produced for customers in Greater China. We operate four TiO2 pigment production facilities: two in the U.S., one in Mexico, and one in Taiwan. In addition, we have a large-scale repackaging and distribution facility in Belgium. We also operate mineral sands mining and separation operations in Starke, Florida, as well as mineral sands mining operations in Folkston, Georgia and mineral sands separation operations in Offerman, Georgia. In total, we have a TiO2 pigment nameplate capacity of approximately 1.25 million metric tons per year.
We are one of a limited number of manufacturers operating a chloride process for the production of TiO2 pigment. We believe that our proprietary chloride technology enables us to operate plants at a much higher capacity than other chloride technology-based TiO2 pigment producers, as we uniquely utilize a broad spectrum of titanium-bearing ore feedstocks to achieve one of the highest TiO2 pigment unit margins in our industry. This technology, which is in use at all of our production facilities, provides us with one of the industry’s lowest manufacturing cost positions. Our R&D efforts focus on improving production processes and developing TiO2 pigment grades that help our customers achieve optimal cost and product performance to enhance end-user total value.
We sell over 20 different grades of TiO2 pigment, with each grade tailored for targeted applications. Our portfolio of premium performance TiO2 pigment grades provides end-users with benefits beyond opacity, such as longer-lasting performance, brighter colors, and the brilliant whites achievable only through chloride-manufactured pigment.
We have operated a titanium mine in Starke, Florida since 1949. Additionally, in 2019, we acquired a titanium mine in Folkston, Georgia, from which we source ore feedstock to be processed at its associated mineral sands separation facility in Offerman, Georgia. The recently added mine and separation facility were attained in the third quarter of 2019 as part of our acquisition of Southern Ionics Minerals, LLC (“SIM”), which expands our flexibility and scalability to internally source ore. These mines provide us with access to low-cost sources of domestic, high-quality ilmenite ore feedstock and supply less than 10% of our ore feedstock consumption needs, with expansion options that could effectively double our in-sourced material base. Co-products of our mining operations, which comprised less than 5% of our total net sales in Titanium Technologies during 2019, are zircon (zirconium silicate) and staurolite minerals. We are a major supplier of high-quality calcined zircon in North America, primarily focused on the precision investment casting industry, foundry, specialty applications, and ceramics. Our staurolite blasting abrasives are used in a variety of surface preparation applications, including steel preparation and maintenance and paint removal.
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The Chemours Company
Industry Overview and Competitors
The overall demand for TiO2 pigment is highly correlated to growth in the global residential housing, commercial construction, and packaging markets. In the long-run, industry demand for TiO2 pigment is generally expected to grow proportionately with GDP growth. We continue to experience customers’ preference for high-quality Ti-PureTM offerings. After 2016 and 2017 demand in the TiO2 pigment market above GDP growth, the TiO2 pigment market contracted below the GDP trend in 2018 and 2019. In the longer-term, we expect global TiO2 pigment demand to resume its historical correlation with global GDP growth rates.
We estimate that the worldwide demand for TiO2 pigment in 2019 was approximately 6.1 million metric tons, of which approximately 60% was for premium performance pigments. Worldwide nameplate capacity in 2019 was estimated to be approximately 8.0 million metric tons. The products manufactured on this global capacity base are not fully substitutable due to pigment quality consistency and pigment product design. We believe that the utilization of the premium performance manufacturing base is considerably higher than that for general purpose, lower-performance production. Over the next few years, as customer demand grows, we will be able to incrementally increase our production capacity by approximately 10% through technology-enabled de-bottlenecking processes. We believe that unlocking this additional 10% of capacity is in line with the anticipated needs of our customers during this time. This new capacity is expected to provide the equivalent of a new production line, while requiring a fraction of the capital investment. Our increased production capacity will be supported by investments to extend our ilmenite mines and through long-term contracts with our suppliers.
Competition in the TiO2 pigment market is based primarily on product performance (both product design and quality consistency), supply capability, price, and technical service. Our major competitors within higher-performance pigments include: Tronox Holdings plc, Venator Materials plc, Kronos Worldwide, Inc., and INEOS AG. Beyond multi-national suppliers, the only other large producer of TiO2 pigment is the Chinese producer, the Lomon-Billions Group. The other TiO2 pigment producers are fragmented, mostly utilizing the sulfate production process, and competing in the general purpose, lower-performance pigment market. Over the next few years, we believe that the announced added effective capacity in China is expected to be somewhat offset by capacity shutdowns at marginal producers.
Raw Materials
The primary raw materials used in the manufacture of TiO2 pigment are titanium-bearing ores, chlorine, calcined petroleum coke, and energy. We source titanium-bearing ores from a number of suppliers around the globe, who are primarily located in Australia and Africa. To ensure proper supply volume and to minimize pricing volatility, we generally enter into contracts in which volume is requirement-based and pricing is determined by a range of mechanisms structured to help us achieve competitive cost. We typically enter into a combination of long-term and medium-term supply contracts and source our raw materials from multiple suppliers across different regions and from multiple sites per supplier. Furthermore, we typically purchase multiple grades of ore from each supplier to limit our exposure to any single supplier for any single grade of ore in any given time period. Historically, we have not experienced any problems renewing such contracts for raw materials or securing our supply of titanium-bearing ores.
We play an active role in ore source development around the globe, especially for those ores which can only be used by us, given the capability of our unique process technology. Supply chain flexibility allows for ore purchase and use optimization to manage short-term demand fluctuations and provides long-term competitive advantage. Our process technology and ability to use lower-grade ilmenite ore gives us the flexibility to alter our ore mix to low-cost configuration based on sales, demand, and projected ore pricing. Lastly, we have taken steps to optimize routes for distribution and increase storage capacity at our production facilities.
Transporting chlorine, one of our primary raw materials, can be costly. To reduce our need to transport chlorine, we have a chlor-alkali production facility run by a third party that is co-located at our New Johnsonville, Tennessee site. Calcined petroleum coke is an important raw material input to our process. We source calcined petroleum coke from well-established suppliers in North America and China, typically under contracts that run multiple years to facilitate materials and logistics planning through the supply chain. Distribution efficiency is enhanced through the use of bulk ocean, barge, and rail transportation modes. Energy is another key input cost in the TiO2 pigment manufacturing process, representing approximately 10% of the production cost. We have access to natural gas-based energy at our U.S. and Mexico TiO2 pigment production facilities and our Florida and Georgia minerals plants, supporting advantaged energy costs given the low cost of shale gas in the U.S.
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The Chemours Company
Sales, Marketing, and Distribution
We sell the majority of our products through a direct sales force. In 2018, we launched our Ti-Pure™ Value Stabilization (“TVS”) strategy, which we believe to be foundational to maintain and grow our Titanium Technologies business. Our TVS strategy establishes a commercial framework that allows us to focus on enhancing durable, value-oriented customer relationships, while providing access to a predictable and reliable supply of high-quality TiO2. Customers can purchase Ti-PureTM TiO2 through our Chemours Assured Value Agreements (“AVA”). As an alternative, in 2019, we launched a new, innovative channel, Ti-PureTM Flex, which provides customers the unique ability to purchase Ti-Pure™ TiO2 via our web-based portal, the first of its kind in the industry. To further expand our reach beyond these sales channels, we also utilize third-party sales agents and distributors.
TiO2 pigment represents a significant raw material cost for our direct customers, and as a result, purchasing decisions are often made by our customers’ senior management teams. TiO2 pigment, however, is only a small fraction of the cost when considering certain end-use applications, especially in segments with larger value chain players, such as specialty coatings, plastics, and laminates applications. Our sales organization works to develop and maintain close relationships with key decision-makers in our value chain. In addition to close purchasing relationships, our sales and technical service teams work together to develop relationships with all layers of our customers’ organizations to ensure that we meet our customers’ commercial and technical requirements. When appropriate, we collaborate closely with customers to solve formulation or application problems by modifying product characteristics or developing new product grades.
To ensure an efficient distribution, we have a large fleet of railcars, which are predominantly used for outbound distribution of products in the U.S. and Canada. A dedicated logistics team, along with external partners, continually optimizes the assignment of our transportation equipment to product lines and geographic regions in order to maximize utilization and maintain an efficient supply chain.
Customers
Globally, we serve approximately 600 customers through our Titanium Technologies segment. In 2019, our 10 largest Titanium Technologies customers accounted for approximately 40% of the segment’s net sales, and one Titanium Technologies customer represented more than 10% of the segment’s net sales. Our larger customers are typically served through direct sales and tend to have medium-term to long-term contracts. We serve our small-size and mid-size customers through a combination of our direct sales and distribution network. Our direct customers in the Titanium Technologies segment are producers of decorative coatings, automotive and industrial coatings, polyolefin masterbatches, PVC, engineering polymers, laminate paper, coatings paper, and coated paperboard. We focus on developing long-term partnerships with key market participants in each of these sectors. We also deliver a high level of technical service to satisfy our customers’ specific needs, which helps us maintain strong customer relationships.
Seasonality
The demand for TiO2 pigment is subject to seasonality due to the influence of weather conditions and holiday seasons on some of our applications, such as decorative coatings. As a result, our TiO2 pigment sales volume is typically lowest in the first quarter, highest in the second and third quarters, and moderate in the fourth quarter. This pattern applies to the entire TiO2 pigment market, but may vary by region, country, or application. It can also be altered by economic or other demand cycles.
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The Chemours Company
Intellectual Property
Intellectual property, including trade secrets, certain patents, trademarks, copyrights, know-how, and other proprietary rights, is a critical part of maintaining our technology leadership and competitive edge. Our business strategy is to file patent and trademark applications globally for proprietary new product and applicationapplications development technologies. We hold many patents, particularly in our Fluoroproducts segment, as described herein. These patents, including various patents that will expire from 2018 through 2034,in varying years into the 2030s, in the aggregate, are believed to be of material importance to our business. However, we believe that no single patent (or related group of patents) is material in relation to our business as a whole. Our Chemical Solutions segment is a manufacturing and application development technology leader in a majority of the markets in which it participates. Trade secrets are one of the key elements of our intellectual property security in the Chemical Solutions segment, as most of the segment’s manufacturing and applications development technologies are no longer under patent coverage. In addition, particularly in our Titanium Technologies segment, we hold significant intellectual property in the form of trade secrets, and, while we believe that no single trade secret is material in relation to our combined business as a whole, we believe that our trade secrets are material in the aggregate. Unlike patents, trade secrets do not have a pre-determined validity period, but are valid indefinitely, so long as their secrecy is maintained. We work actively on a global basis to create, protect, and enforce our intellectual property rights. The protection afforded by these patents and trademarks varies based on country, scope of individual patent, and trademark coverage, as well as the availability of legal remedies in each country. Although certain proprietary intellectual property rights are important to our success, we do not believe that we are materially-dependent on any particular patent or trademark. We believe that securing our intellectual property is critical to maintaining our technology leadership and our competitive position, especially with respect to new technologies or the extensions of existing technologies. Our proprietary process technology can be a source of incremental income through licensing arrangements.
Our Fluoroproducts segment is a technology leader in the markets in which it participates. We have one of the largest patent portfolios in the fluorine derivatives industry. In our Fluoroproducts segment’s intellectual property portfolio, we consider our Freon™, Opteon™, Teflon™, Viton™, NafionTM, and Krytox™ trademarks to be valuable assets. Our Titanium Technologies segment in particular relies upon unpatented proprietary knowledge, continuing technological innovation, and other trade secrets to develop and maintain our competitive position in this sector. Our proprietary chloride production process is an important part of our technology, and our business could be harmed if our trade secrets are not maintained in confidence. In our Titanium Technologies segment’s intellectual property portfolio, we consider our trademarks Ti-Pure™ and BaiMaxTM to be valuable assets and have registered the Ti-PureTM trademark in a number of countries and the BaiMaxTM trademark in China.
Our Fluoroproducts segment is the technology leader in the markets in which it participates. We have one of the largest patent portfolios in the fluorine derivatives industry. In our Fluoroproducts segment’s intellectual property portfolio, we consider our Freon™, Opteon™, Teflon™, Viton™, NafionTM, and Krytox™ trademarks to be valuable assets.
Our Chemical Solutions segment is a manufacturing and application development technology leader in a majority of the markets in which it participates. Trade secrets are one of the key elements of our intellectual property security in the Chemical Solutions segment, as most of the segment’s manufacturing and application development technologies are no longer under patent coverage.
At the Separation, certain of our subsidiaries entered into an intellectual property cross-license agreement with DuPont, pursuant to which (i) DuPont has agreed to licenselicenses to us certain patents, know-how, and technical information owned by DuPont or its affiliates which are necessary or useful in our business, and (ii) we have agreed to license to DuPont certain patents owned by us or our affiliates which are necessary or useful in DuPont’s business. In most circumstances, the licenses are perpetual, irrevocable, sub-licensable (in connection with the party’s business), assignable (in connection with a sale of the applicable portion of a party’s business or assets, subject to certain exceptions) worldwide licenses in connection with the current operations of the businesses and, with respect to specified products and fields of use, future operations of such businesses, subject to certain limitations with respect to specified products and fields of use.
Research and Development
We perform R&D activities in all of our segments, with the majority of our efforts focused in the Fluoroproducts segment. The Fluoroproducts segment efforts center around developing new sustainable fluorochemicals, as well as determining new applications and formulations for fluoropolymers that meet our customers’ technical requirements. In the Titanium Technologies and Chemical Solutions segments, our efforts are focused on process technology to reduce cost and maintain safety and stewardship standards.
The following table sets forth our R&D expense by segment for the years ended December 31, 2017, 2016, and 2015.
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Titanium Technologies |
| $ | 29 |
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| $ | 27 |
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| $ | 33 |
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| 48 |
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| 46 |
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| 50 |
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Chemical Solutions |
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| 3 |
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| 7 |
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| 14 |
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Total research and development expense |
| $ | 80 |
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| $ | 80 |
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| $ | 97 |
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The Chemours Company
In general, we do not manufacture our products against a backlog of orders and do not consider backlog to be a significant indicator of the level of our future sales activity. Our production and inventory levels are based on the level of incoming orders, as well as projections of future demand. Therefore, we believe that backlog information is not material to understanding our overall business and should not be considered a reliable indicator of our ability to achieve any particular level of revenuenet sales or financial performance.
Environmental Matters
Information related to environmental matters is included in several areas of this report,Annual Report on Form 10-K, including: (i) Item 1A – Risk Factors; (ii) Item 3 – Legal Proceedings, under the heading “Environmental Proceedings”; (iii) Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations; and, (iv) “Note 3 – Summary of Significant Accounting Policies” and “Note 2022 – Commitments and Contingent Liabilities” withinto the Consolidated Financial Statements.
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Available Information
We are subject to the reporting requirements under the Securities Exchange Act of 1934 (Exchange Act)(the “Exchange Act”). Consequently, we are required to file reports and information with the U.S. Securities and Exchange Commission (SEC)(“SEC”), including reports on the following forms: Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.
The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, District of Columbia 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports are also accessible on our website at http://www.chemours.com by clicking on the section labeled “Investor Relations,” then on “Filings & Reports.“Financials” and “SEC Filings.” These reports are made available, without charge, as soon as it is reasonably practicable after we file or furnish them electronically with the SEC.SEC at http://www.sec.gov.
Employees
We have nearlyapproximately 7,000 employees, approximately 16%14% of whom are represented by unions or works councils. Management believes that its relations with its employees and labor organizations are good. There have been no strikes or work stoppages in any of our locations in recent history.
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Our operations could be affected by various risks, many of which are beyond our control. Based on current information, we believe that the following identifies the most significant risk factors that could affect our business, results of operations, or financial condition. Past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. See our “Forward-looking Statements” for more details.
Risks Related to Our Business
Our results of operations could be adversely affected by litigation and other commitments and contingencies.
We face risks arising from various unasserted and asserted legal claims, investigations and litigation matters, such as product liability claims, patent infringement claims, antitrust claims, and claims for third-party property damage or personal injury stemming from alleged environmental actions (which may concern regulated or unregulated substances) or other torts, including, as discussed below, litigation related to the production and use of PFOA (collectively, perfluorooctanoic acids and its salts, including the ammonium salt) by DuPont prior to the Separation. We have also received inquiries, investigations, and litigation related to HFPO Dimer Acid (sometimes referred to as GenX or C3 Dimer) and other compounds.torts. We have noted a nationwide trend in purported mass tort and class actions against chemical manufacturers generally seeking relief such as medical monitoring, property damages, off-site remediation, and punitive damages arising from alleged environmental actions (which may concern regulated or unregulated substances) or other torts without claiming present personal injuries. We also have noted a trend in public and private nuisance suits being filed on behalf of states, counties, cities, and utilities alleging harm to the general public.public and damages to natural resources. Various factors or developments can lead to changes in current estimates of liabilities such as a final adverse judgment, significant settlement,these nationwide trends or change in applicable law. A future adverse ruling or unfavorable developmentthe actions could result in future charges that could have a material adverse effect on us. An adverse outcome in any one or more of these matters could be material to our financial results and/or stock price, and could adversely impact the value of any of our brands that are associated with any such matters. As discussed below, we are a named defendant and/or indemnifying and defending DuPont in litigation related to the production and use of perfluorooctanoic acids and its salts, including the ammonium salt (“PFOA”); hexafluoropropylene oxide dimer acid (“HFPO Dimer Acid,” sometimes referred to as “GenX” or “C3 Dimer Acid”); Aqueous Film Forming Foam (“AFFF”); perfluorinated and polyfluorinated compounds (“PFAS”); and other compounds.
We have received inquiries, government investigations, directives, multiple lawsuits, and other actions related to PFOA, GenX, AFFF, and PFAS as discussed in more detail in “Note 2022 – Commitments and Contingent Liabilities” withinto theConsolidated Financial Statements, a number of additional PFOA lawsuits have been filed since the MDL Settlement that are not covered by the settlement, and similar additional lawsuits may be filed in the future. In addition, we have received governmental inquiries, and we and DuPont have been named in multiple lawsuits, relating to HFPO Dimer Acid and/or other perfluorinated or polyfluorinated compounds. See the discussion under “Note 20 – Commitments and Contingent Liabilities” within the Consolidated Financial Statements for more detail.. These or other governmental inquiries or lawsuits could lead to our incurring liability for damages or other costs, a criminal or civil proceeding, the imposition of fines and penalties, and/or other remedies, as well as restrictions on or added costs for our business operations going forward, including in the form of restrictions on discharges at our Fayetteville Works site in Fayetteville, North Carolina facility(“Fayetteville”) or otherwise. Additional lawsuits or inquiries also could be instituted related to these productsor other compounds in the future. Accordingly, the existing lawsuits and inquiries, and any such additional litigation, relating to our existing operations, PFOA, HFPO Dimer Acid, AFFF, PFAS and other perfluorinated and polyfluorinated compounds, or other compounds associated with our products or operations, could result in us incurring additional costs and liabilities, which may be material to our financial results.
In the ordinary course of business, we may make certain commitments, including representations, warranties, and indemnities relating to current and past operations, including those related to divested businesses, and issue guarantees of third-party obligations. Additionally, we aremay be required to indemnify DuPont with regard to liabilities allocated to, or assumed by us, under each of the separation agreement, the employee matters agreement, the tax matters agreement, and the intellectual property cross-license agreement that were executed prior to the Separation. These indemnification obligations to date have included defense costs associated with certain litigation matters as well as certain damages awards, settlements, and penalties. On August 24, 2017, we and DuPont entered into an amendment to the separation agreement concerning future PFOA litigation and costs not covered by the MDL Settlement as detailed in “Note 2022 – Commitments and Contingent Liabilities” withinto the Consolidated Financial Statements. Future PFOA-related costs and settlements could be significant and could exceed the amounts we have accrued with respect thereto, adversely affecting our results of operations. In addition, in the event that DuPont seeks indemnification for adverse trial rulings or outcomes, these indemnification claims could materially adversely affect our financial condition. Disputes with DuPont and others which may arise with respect to indemnification matters including disputes based on matters of law or contract interpretation, could materially adversely affect us.
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We are subject to extensive environmental and health and safety laws and regulations that may result in unanticipated loss or liability related to our current and past operations, and that may result in significant additional compliance costs or obligations, which in either case, could reduce our profitability.
Our operations and production facilities are dependent upon attainment and renewal of requisite operating permits and are subject to extensive environmental and health and safety laws, regulations, and regulationsenforcements at national, international, and local levels in numerous jurisdictions relating to pollution, protection of the environment, climate change, transporting and storing raw materials and finished products, storing and disposing of hazardous wastes, and product content and other safety concerns. Such laws include, in the U.S., the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, often referred to as Superfund), the Resource Conservation and Recovery Act (RCRA) and similar state and global laws for management and remediation of hazardous materials, the Clean Air Act (CAA) and the Clean Water Act, for protection of air and water resources, the Toxic Substances Control Act, and in the EU, the Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) for regulation of chemicals in commerce and reporting of potential known adverse effects and numerous local, state, federal, and foreign laws and regulations governing materials transport and packaging. but are not limited to:
• | U.S.-based regulations, such as the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA,” often referred to as “Superfund”), the Resource Conservation and Recovery Act (“RCRA”) and similar state and global laws for management and remediation of hazardous materials, the Clean Air Act (“CAA”) andClean Water Act (“CWA”) and similar state and global laws for the protection of air and water resources, and the Toxic Substances Control Act (“TSCA”); |
• | Foreign-based chemical control regulations, such as the Registration, Evaluation, Authorization, and Restriction of Chemicals (“REACH”) in the EU, the Chemical Substances Control Law (“CSCL”) in Japan, MEP Order No. 7 in China, and the Toxic Chemical Substance Control Act (“TCSCA”) in Taiwan for the production and distribution of chemicals in commerce and reporting of potential adverse effects; |
• | The EU Emissions Trading System and similar local and global laws for regulating greenhouse gas (“GHG”) emissions; and, |
• | Numerous local, state, federal, and foreign laws, regulations, and enforcements governing materials transport and packaging. |
If we are found to be in violation of these laws, regulations, or regulations,enforcements, which may be subject to change based on legislative, scientific, or other factors, we may incur substantial costs, including fines, damages, criminal or civil sanctions, remediation costs, reputational harm, loss of sales or market access, or experience interruptions in our operations. We also may be subject to changes in our operations and production based on increased regulation or other changes to, or restrictions imposed by, any such additional regulations. Any operational interruptions or plant shutdowns may result in delays in production, or may cause us to incur additional costs to develop redundancies in order to avoid interruptions in our production cycles. In addition, the manner in which adopted regulations (including environmental and safety regulations) are ultimately implemented may affect our products, the demand for and public perception of our products, the reputation of our brands, our market access, and our results of operations. In the event of a catastrophic incident involving any of the raw materials we use or chemicals we produce, we could incur material costs as a result of addressing the consequences of such event and future reputational costs associated with any such event.
Our costs of complying with complex environmental laws, regulations, and regulations,enforcements, as well as internal voluntary programs, are significant and will continue to be significant for the foreseeable future. These laws, regulations, and regulationsenforcements may change and could become more stringent over time, which could result in significant additional compliance costs, toincreased costs of purchased energy or other raw materials, investments in, or restrictions on, our operations.operations, or installation or modification of GHG emitting equipment. As a result of our current and historic operations, including the operations of divested businesses and certain discontinued operations, we also expect to continue to incur costs for environmental investigation and remediation activities at a number of our current or former sites and third-party disposal locations. However, the ultimate costs under environmental laws and the timing of these costs are difficult to accurately predict. While we establish accruals in accordance with GAAP,U.S. generally accepted accounting principles (“GAAP”), the ultimate actual costs and liabilities may vary from the accruals because the estimates on which the accruals are based depend on a number of factors (many of which are outside of our control), including the nature of the matter and any associated third-party claims, the complexity of the site, site geology, the nature and extent of contamination, the type of remedy, the outcome of discussions with regulatory agencies and other Potentially Responsible Parties (PRPs)(“PRPs”) at multi-party sites, and the number and financial viability of other PRPs. See “Environmental Matters” within Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Note 2022 – Commitments and Contingent Liabilities” withinto the Consolidated Financial Statements for further information. We also could incur significant additional costs as a result of additional contamination that is discovered or remedial obligations imposed in the future.
There is also a risk that one or more of our manufacturing processes, key raw materials, or one or more of our products may be found to have, or be characterized or perceived as having, a toxicological or health-related impact on the environment or on our customers or employees or unregulated emissions, which could potentially result in our incurring liability in connection with such characterization and the associated effects of any toxicological or health-related impact. If such a discovery or characterization occurs, we may incur increased costs in order to comply with new regulatory requirements or as a result of litigation. In addition, the relevant materials or products, including products of our customers incorporating our materials or products, may be recalled, phased-out, or banned. Changes in laws, science or regulations, or their interpretation, and our customers’ perception of such changes or interpretations may also affect the marketability of certain of our products.
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For example, in May 2016, the European Chemicals Agency (ECHA)(“ECHA”) accepted a proposal from France’s competent authority under REACH that would classifyto change the classification of TiO2 as a carcinogen for humans by inhalation, starting an ECHA. ECHA’s Committee for Risk Action (RAC) process to review and decide on this proposal. In June 2017, ECHA’s RAC announced its preliminary conclusion(“RAC”) provided the opinion that the evidence meets the criteria under the EU’s Classification, Labeling and Packaging (“CLP”) Regulation to classify TiO2 as a Category 2 Carcinogen (suspected human carcinogen) by inhalation. To implement this opinion, the EU Commission (“EC”) presented a draft of the full 14th Adaptation to Technical Progress (“ATP”), including a proposed classification (with notes) for the powder form of TiO2 as a Category 2 Carcinogen by inhalation, as a delegated act for scrutiny by EU Council and Parliament. The European Commission (EC)scrutiny period ended in February 2020, with publication to follow shortly thereafter. Publication will evaluatethen be followed by an 18-month implementation period before the RAC’s formal recommendation in determining whether anyact comes into enforcement. Upon publication of the act and our subsequent review of the additional regulatory measures shouldenacted, we may be taken. If the EC weresubject to adopt the regulatory measures that classifyincreased requirements for TiO2 as a suspected carcinogen, it product labeling, importing operations, and certain downstream use applications associated with TiO2. This could increase our costs associated with our TiO2 manufacturing and handling processes and costs or result in other liabilities.
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The Chemours Companyprocesses.
In June 2019, the Member States Committee of ECHA also voted to list HFPO Dimer Acid as a Substance of Very High Concern. The vote was based on Article 57(f) – equivalent level of concern having probable serious effects to the environment. This identification does not impose immediate regulatory restriction or obligations, but may lead to a future authorization or restriction of the substance, which could have an adverse effect on our results of operations, financial condition, and cash flows. In September 2019, Chemours filed an application with the EU Court of Justice for the annulment of the decision of ECHA to list HFPO Dimer Acid as a Substance of Very High Concern.
The businesses in which we compete are highly competitive. This competition may adversely affectIf our intellectual property were compromised or copied by competitors, or if our competitors were to develop similar or superior intellectual property or technology, our results of operations and operating cash flows.could be negatively affected.
Each of the businesses in which we operate is highly competitive. Competition in the performance chemicals industry is based on a number of factors such as price, product quality, and service. We face significant competition from major international and regional competitors. Some of our competitors have announced plans to expand their chloride capacity. Additionally, our Titanium Technologies business competes with numerous regional producers, including producers in China, who have expanded their readily-available production capacity during the previous five years. The risk of substitution of these Chinese producers by our customers could increase as these Chinese producers expand their use of chloride production technology, and some of our competitors have announced plans to expand their chloride capacity.technology. Similarly, we compete with Chinesevarious producers in our Fluoroproducts business, and the risk of substitution of Chinesethese producers by our customers could increase if these Chinese producers develop better capabilities to producemanufacture products similar products to our specialty fluoropolymers.
Our results of operations and financial condition could be seriously impacted by business disruptions and security breaches, including cybersecurity incidents.
Business and/or supply chain disruptions, plant downtime, and/or power outages, and information technology system and/or network disruptions, regardless of cause, including acts of sabotage, employee error or other actions, geo-political activity, military actions, terrorism (including cyberterrorism), weather events, and natural disasters could seriously harm our operations as well as the operations of our customers and suppliers. Any such event could have a negative impact on our business, results of operations, financial condition, and cash flows.
Failure to effectively prevent, detect, and recover from security breaches, including attacks on information technology and infrastructure by hackers, viruses, breaches due to employee error or other actions, or other disruptions, could result in misuse of our assets, business disruptions, loss of property including trade secrets and confidential business information, legal claims or proceedings, reporting errors, processing inefficiencies, negative media attention, loss of sales, and interference with regulatory compliance. Like most major corporations, we have been, and expect to be the target of industrial espionage, including cyberattacks, from time to time. We have determined that these attacks have resulted, and could result in the future, in unauthorized parties gaining access to certain confidential business information, and have included the obtaining of trade secrets and proprietary information related to the chloride manufacturing process for TiO2 by third-parties. Although we do not believe that we have experienced any material losses to date related to these breaches, there can be no assurance that we will not suffer any such losses in the future. We plan to actively manage the risks within our control that could lead to business disruptions and security breaches. As these threats continue to evolve, particularly around cybersecurity, we may be required to expend significant resources to enhance our control environment, processes, practices, and other protective measures. Despite these efforts, such events could materially adversely affect our business, financial condition, or results of operations.
Failure to maintain effective internal control could adversely affect our ability to meet our reporting requirements.
The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. One key aspect of the Sarbanes-Oxley Act is that we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, with auditor attestation of the effectiveness of our internal control. If we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our common shares could decline, or we could be subject to penalties or investigations by the NYSE, the SEC, or other regulatory authorities, which would require additional financial and management resources.
Effective internal control is necessary for us to provide reasonable assurance with respect to our financial reports, and to effectively prevent fraud. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal control can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud, our operating results could be harmed. In addition, if we fail to maintain the effectiveness of our internal control, including any failure to implement required new or improved control measures, adapt to changing standards, or oversee efforts by third-party service providers, or if we experience delay in the implementation of any new or enhanced systems, procedures, and control measures, or if we experience difficulties in their implementation, our business and operating results could be harmed, we could fail to meet our reporting obligations, and there could be a material adverse impact on our stock price.
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Our information technology is provided by a combination of internal and external services and service providers, and we rely on information technology in many aspects of our business, including internal and external communications, and the management of our accounting, finance, and supply chain functions. Further, our business involves the use, storage, and transmission of information about customers, suppliers, and employees. As we become more dependent on information technology to conduct our business, and as the number and sophistication of cyberattacks increases, the risks associated with cybersecurity, information security, and data privacy also increase. Failure to maintain effective internal control over our information technology and infrastructure could materially adversely affect our business, financial condition, or results of operations, and/or have a material adverse impact on our stock price.
Our success depends on our ability to attract and retain key employees, and to identify and develop talented personnel to succeed senior management.
Our success depends on the performance of our senior management team and other key employees, and the inability to attract, retain, identify, and develop these individuals could adversely affect our results of operations, financial condition, and cash flows. In addition, if we are unable to effectively plan for the succession of our senior management team, our results of operations, financial condition, and cash flows could be adversely affected as we may be unable to realize our business strategy. While our ongoing personnel practices identify a succession process for our key employees, including our senior management team, we cannot guarantee the effectiveness of this process, the continuity of highly qualified individuals serving in all of our key positions at particular moments in time, and/or the completeness of any knowledge transfer at the time of succession.
Conditions in the global economy and global capital markets may adversely affect our results of operations, financial condition, and cash flows.
Our business and operating results may in the future be adversely affected by global economic conditions, including instability in credit markets, declining consumer and business confidence, fluctuating commodity prices and interest rates, volatile exchange rates, and other challenges, such as the changing financial regulatory environment, that could affect the global economy. Our customers may experience deterioration of their businesses, shortages in cash flows, and difficulty obtaining financing. As a result, existing or potential customers may delay or cancel plans to purchase products and may not be able to fulfill their obligations to us in a timely fashion. Further, suppliers could experience similar conditions, which could impact their ability to supply materials or otherwise fulfill their obligations to us. Because we have significant international operations, there are a large number of currency transactions that result from our international sales, purchases, investments, and borrowings. Also, our effective tax rate may fluctuate because of variability in our geographic mix of earnings, changes in statutory rates, and taxes associated with the repatriation of our non-U.S. earnings. Future weakness in the global economy and failure to manage these risks could adversely affect our results of operations, financial condition, and cash flows in future periods.
Market conditions and global and regional economic downturns, as well as changes in regulatory requirements (including environmental standards), that adversely affect the demand for the end-use products that contain titanium dioxide, fluoroproducts, or our other products, could adversely affect the profitability of our operations and the prices at which we can sell our products, negatively impacting our financial results.
In addition to the general risks associated with being a multi-national corporation, our revenue and profitability are largely dependent on the TiO2 industry and the industries that are the end-users of our fluoroproducts. TiO2 and our fluoroproducts, such as refrigerants and resins, are used in many “quality of life” products for which demand historically has been linked to global, regional, and local GDP and discretionary spending, which can be negatively impacted by regional and world events, or economic conditions. Such events are likely to cause a decrease in the demand for our products and, as a result, may have an adverse effect on our results of operations and financial condition. The future profitability of our operations, and cash flows generated by those operations, will also be affected by the available supply of our products in the market. Our future Ti-PureTM demand growth may be below average global GDP growth rates if our sales into developed markets outpace our sales into emerging markets. In addition, because demand for our fluorochemicals is driven in part by industry needs to comply with certain mandated environmental regulations (such as markets for refrigerants and foams with low GWP), changes in, or the elimination of, such environmental regulations in the U.S. or other jurisdictions also can negatively impact demand for such products and, as a result, our results of operations and financial condition.
Our reported results could be adversely affected by currency exchange rates and currency devaluation could impair our competitiveness.
Due to our international operations, we transact in many foreign currencies, including, but not limited to the euro, the Mexican peso, and the Japanese yen. As a result, we are subject to the effects of changes in foreign currency exchange rates. During times of a strengthening U.S. dollar, our reported net revenues and operating income will be reduced because the local currency will be translated into fewer U.S. dollars. During periods of local economic crisis, local currencies may be devalued significantly against the U.S. dollar, potentially reducing our margin. For example, depreciation of the euro against the U.S. dollar has historically negatively impacted our results of operations, and further decline of the euro could affect future periods.
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Currently, we do not hedge on a transactional basis, but may enter into such arrangements in the future. There can be no assurance that any hedging action in the future will lessen the adverse impact of a variation in currency rates. Also, actions to recover margins may result in lower volume and a weaker competitive position, which may have an adverse effect on our profitability. For example, in our Titanium Technologies segment, a substantial portion of our manufacturing is located in the U.S. and Mexico, while our TiO2 is delivered to customers around the world. Furthermore, our ore cost is principally denominated in U.S. dollars. Accordingly, in periods when the U.S. dollar or Mexican peso strengthen against other local currencies such as the euro, our costs are higher relative to some of our competitors who operate largely outside of the U.S., and the benefits we realize from having lower costs associated with our manufacturing process are reduced, impacting our profitability.
The markets for many of our products have seasonally-affected sales patterns.
The demand for TiO2, certain of our fluoroproducts, and certain of our other products during a given year is subject to seasonal fluctuations. As a result of seasonal fluctuations, our operating cash flows may be negatively impacted due to demand fluctuations. In particular, because TiO2 is widely used in coatings, demand is higher in the painting seasons of spring and summer. Because certain fluoroproducts are used in refrigerants, such products are in higher demand in the spring and summer in the Northern Hemisphere. We may be adversely affected by anticipated or unanticipated changes in regional weather conditions. For example, poor weather conditions in a region can lead to an abbreviated painting season, which can depress consumer sales of paint products that use TiO2, which could have a negative effect on our financial position.
Effects of price fluctuations in energy and raw materials, our raw materials contracts, and our inability to renew such contracts, could have a significant impact on our earnings.
Our manufacturing processes consume significant amounts of energy and raw materials, the costs of which are subject to worldwide supply and demand as well as other factors beyond our control. Variations in the cost of energy, which primarily reflect market prices for oil and natural gas, and for raw materials may significantly affect our operating results from period to period. Additionally, consolidation in the industries providing our raw materials may have an impact on the cost and availability of such materials. 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.
When possible, we have purchased, and we plan to continue to purchase, raw materials, including titanium-bearing ores and fluorspar, through negotiated medium-term or long-term contracts to minimize the impact of price fluctuations. To the extent that we have been able to achieve favorable pricing in our existing negotiated long-term contracts, we may not be able to renew such contracts at the current prices, or at all, and this may adversely impact our profitability and cash flows from operations. However, to the extent that the prices of the raw materials that we utilize significantly decline, we may be bound by the terms of our existing long-term contracts and obligated to purchase such raw materials at higher prices as compared to other market participants.
We attempt to offset the effects of higher energy and raw materials costs through selling price increases, productivity improvements, and cost reduction programs. However, the outcome of these efforts is largely determined by existing competitive and economic conditions, and may be subject to a time delay between the increase in our raw materials costs and our ability to increase prices, which could vary significantly depending on the market served. If we are not able to fully offset the effects of higher energy or raw materials costs, there could be a material adverse effect on our financial results.
If our intellectual property were compromised or copied by competitors, or if our competitors were to develop similar or superior intellectual property or technology, our results of operations could be negatively affected.
Intellectual property rights, including patents, trade secrets, confidential information, trademarks, and tradenames are important to our business. We endeavor to protect our intellectual property rights in key jurisdictions in which our products are produced or used and in jurisdictions into which our products are imported. Our success depends to a significant degree upon our ability to protect and preserve our intellectual property rights. However, we may be unable to obtain protection for our intellectual property in key jurisdictions. Although we own and have applied for numerous patents and trademarks throughout the world, we may have to rely on judicial enforcement of our patents and other proprietary rights. Our patents and other intellectual property rights may be challenged, invalidated, circumvented, and rendered unenforceable or otherwise compromised. A failure to protect, defend, or enforce our intellectual property could have an adverse effect on our financial condition and results of operations. Similarly, third-partiesthird parties may assert claims against us and our customers and distributors alleging our products infringe upon third-party intellectual property rights.
We also rely materially upon unpatented proprietary technology, know-how, and other trade secrets to maintain our competitive position. While we maintain policies to enter into confidentiality agreements with our employees and third-partiesthird parties to protect our proprietary expertise and other trade secrets, these agreements may not be enforceable or, even if legally enforceable, we may not have adequate remedies for breaches of such agreements. We also may not be able to readily detect breaches of such agreements. The failure of our patents or confidentiality agreements to protect our proprietary technology, know-how, or trade secrets could result in significantly lower revenues, reduced profit margins, or loss of market share.
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If we must take legal action to protect, defend, or enforce our intellectual property rights, any suits or proceedings could result in significant costs and diversion of resources and management’s attention, and we may not prevail in any such suits or proceedings. A failure to protect, defend, or enforce our intellectual property rights could have an adverse effect on our financial condition and results of operations.
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Restrictions under the intellectual property cross-license agreement could limit our ability to develop and commercialize certain products and/or prosecute, maintain, and enforce certain intellectual property.
We depend to a certain extent on DuPont to prosecute, maintain, and enforce certain of the intellectual property licensed under the intellectual property cross-license agreement. Specifically, DuPont is responsible for filing, prosecuting, and maintaining patents that DuPont licenses to us. DuPont also has the first right to enforce such patents, trade secrets, and the know-how licensed to us by DuPont. If DuPont fails to fulfill its obligations or chooses to not enforce the licensed patents, trade secrets, or know-how under the intellectual property cross-license agreement, we may not be able to prevent competitors from making, using, and selling competitive products unless we are able to effectively exercise our secondary rights to enforce such patents, trade secrets, and know-how.
In addition, our restrictions under the intellectual property cross-license agreement could limit our ability to develop and commercialize certain products. For example, the licenses granted to us under the agreement may not extend to all new products, services, and businesses that we may enter in the future. These limitations and restrictions may make it more difficult, time consuming,time-consuming, or expensive for us to develop and commercialize certain new products and services, or may result in certain of our products or services being later to market than those of our competitors.
If we are unable to innovate and successfully introduce new products, or new technologies or processes reduce the demand for our products or the price at which we can sell products, our profitability could be adversely affected.
Our industries and the end-use markets into which we sell our products experience periodic technological changes and product improvements.improvements, as well as changes in mandates on or regulation of products and services. Our future growth will depend on our ability to gauge the direction of commercial and technological progress in key end-use markets, and on our ability to fund and successfully develop, manufacture, and market products in such changing end-use markets.markets, and our ability to adapt to changing regulations. We must continue to identify, develop, and market innovative products or enhance existing products on a timely basis to maintain our profit margins and our competitive position. We may be unable to develop new products or technologies, either alone or with third-parties,third parties, or license intellectual property rights from third-partiesthird parties on a commercially competitivecommercially-competitive basis. If we fail to keep pace with the evolving technological innovations in our end-use markets on a competitive basis, including with respect to innovation with regard to the development of alternative uses for, or application of, products developed that utilize such end-use products, our financial condition and results of operations could be adversely affected. We cannot predict whether technological innovations will, in the future, result in a lower demand for our products or affect the competitiveness of our business. We may be required to invest significant resources to adapt to changing technologies, markets, customer behaviors and demands, competitive environments, and laws, and regulations.regulations, or enforcements. We cannot anticipate market acceptance of new products or future products. In addition, we may not achieve our expected benefits associated with new products developed to meet new laws, regulations, or regulationsenforcements if the implementation of such laws, regulations, or regulationsenforcements is delayed.delayed, and we may face competition from illegal or counterfeit products in regulated markets.
Our results of operations and financial condition could be seriously impacted by business disruptions and security breaches, including cybersecurity incidents.
Business and/or supply chain disruptions, plant downtime, power outages, and/or information technology system and network disruptions, regardless of cause, including acts of sabotage, employee error or other actions, geo-political activity, military actions, and terrorism (including cyberterrorism) could seriously harm our operations, as well as the operations of our customers and suppliers. Further, the nature of our business dictates that we maintain significant concentrations of physical assets in certain geographical locations, some of which may be prone to weather-related events and natural disasters (which could be exacerbated by climate change). Such events could also seriously harm our operations, as well as the operations of our customers and suppliers, and accordingly, we continue to study the long-term implications of changing climate parameters on plant siting, operational issues, and water availability. Any of the aforementioned disruptions and/or events could have a negative impact on our business, results of operations, financial condition, and cash flows.
Failure to effectively prevent, detect, and recover from security breaches, including attacks on information technology and infrastructure by hackers, viruses, breaches due to employee error or other actions, or other disruptions, could result in misuse of our assets, business disruptions, loss of property including trade secrets and confidential business information, legal claims or proceedings, reporting errors, processing inefficiencies, negative media attention, loss of sales, and interference with regulatory compliance. Like most major corporations, we have been, and expect to be the target of industrial espionage, including cyberattacks, from time to time. We have determined that these attacks have resulted, and could result in the future, in unauthorized parties gaining access to certain confidential business information, and have included the obtaining of trade secrets and proprietary information related to the chloride manufacturing process for TiO2 pigment by third parties. Although we do not believe that we have experienced any material losses to date related to these breaches, there can be no assurance that we will not suffer any such losses in the future. We plan to actively manage the risks within our control that could lead to business disruptions and security breaches. As these threats continue to evolve, particularly around cybersecurity, we may be required to expend significant resources to enhance our control environment, processes, practices, and other protective measures. Despite these efforts, such events could materially adversely affect our business, financial condition, or results of operations.
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The Chemours Company
Our information technology is provided by a combination of internal and external services and service providers, and we rely on information technology in many aspects of our business, including internal and external communications, and the management of our accounting, finance, and supply chain functions. Further, our business involves the use, storage, and transmission of information about customers, suppliers, and employees. As we become more dependent on information technology to conduct our business, and as the number and sophistication of cyberattacks increases, the risks associated with cybersecurity, information security, and data privacy also increase. Failure to maintain effective internal control over our information technology and infrastructure could materially adversely affect our business, financial condition, or results of operations, and/or have a material adverse impact on our stock price.
Preparedness plans pertaining to the physical- and cyber-related aspects of our business have been developed and detail the actions needed in the event of unforeseen events or severe weather. These measures have historically been in place, and such activities and associated costs are driven by normal operational preparedness. However, there can be no assurance that such measures will be effective for a particular event that we may experience.
Our ability to make future strategic decisions regarding our manufacturing operationsare subject to regulatory, environmental, political, legal, and economic risks, and to a certain extent may be subject to consents or cooperation from DuPont under the agreements entered into between us and DuPont as part of the Separation. These could adversely affect our ability to execute our future strategic decisions and our results of operations and financial condition.
One of the ways we may improve our business is through the expansion or improvement of our facilities. Construction of additions or modifications to facilities involves numerous regulatory, environmental, political, legal, and economic uncertainties that are beyond our control, and are subject to various start-up risks and consent to operate. Difficulties in obtaining any of the requisite licenses, permits, and authorizations from governmental or regulatory authorities could increase the total cost, delay, jeopardize, or prevent the construction or opening of such facilities. Our expansion or improvement projects may also require the expenditure of significant amounts of capital, and financing may not be available on economically acceptable terms, or at all. As a result, these projects may not be completed on schedule, at the budgeted cost, or at all, which may adversely affect our results of operations, financial condition, and cash flows. Moreover, our revenue may not increase immediately upon the expenditure of funds on a particular project or may be negatively impacted by regulatory or other developments relating to the chemicals we use or manufacture. As a result, we may not be able to realize our expected investment return, which could also adversely affect our results of operations, financial condition, and cash flows.
We periodically assess our manufacturing operations in order to manufacture and distribute our products in the most efficient manner. Based on our assessments, we may make strategic decisions regarding our manufacturing operations such as capital improvements to modernize certain units, move manufacturing or distribution capabilities from one plant or facility to another plant or facility, discontinue manufacturing or distributing certain products, or close or divest all or part of a manufacturing plant or facility, some of which have significant shared services and lease agreements with DuPont. These agreements may adversely impact our ability to make these strategic decisions regarding our manufacturing operations. Further, if such agreements are terminated or revised, we would have to assess and potentially adjust our manufacturing operations, the closure or divestiture of all or part of a manufacturing plant or facility that could result in future charges that could be significant.
If our long-lived assets become impaired, we may be required to record a significant charge to earnings.
We have a significant amount of long-lived assets on our consolidated balance sheets. Under GAAP, we review our long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances, indicating that the carrying value of our long-lived assets may not be recoverable, include, but are not limited to, changes in the industrial, economic, political, and social landscapes in which we operate, as well as competition or other factors leading to a reduction in expected long-term sales or profitability. We may be required to record a significant non-cash charge in our financial statements during the period in which any impairment of our long-lived assets is determined, negatively impacting our results of operations.
In March 2018, a civil association in Mexico filed a complaint against the government authorities involved in the permitting process of our new Mining Solutions facility under construction in Gomez Palacio, Durango, Mexico. The claimant sought and obtained a suspension from the district judge to stop our construction work. The suspension was subsequently lifted on appeal, and the matter is before the Supreme Court of Mexico. A second similar complaint was filed in September 2019 and, again, a suspension of construction was granted. We have filed an appeal. In the event that the suspension of construction is ultimately upheld, we would incur $26 million of contract termination fees with a third-party services provider. Additionally, at December 31, 2019, we had $144 million long-lived assets under construction at the facility, $7 million of other related prepaid costs, and $51 million of our goodwill assigned to the Mining Solutions reporting unit. While we currently believe these amounts are recoverable, any future assessment that could potentially deem the facility to be impaired would result in a non-cash charge that negatively impacts our results of operations.
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The Chemours Company
Our operations could be materially impacted in the event of a failure of our information technology infrastructure.
We currently use an enterprise resource planning (“ERP”) software platform that is no longer supported; however, we are able to pay for extended, customer-specific support, which can be costly. We are currently evaluating our options to upgrade or switch this platform. Any systems failure, accident, or security breach could result in significant costs or disruptions to our operations, which could have a material adverse effect on our business. Further, such improvements and upgrades are often complex, costly, and time-consuming. We may experience challenges integrating any new ERP software platform with our existing technology systems, or may uncover problems with our existing technology systems. Any unsuccessful attempt to upgrade or switch our ERP software platform could result in outages, a disruption to our operations and our ability to serve our customers, and/or damage to our reputation.
Hazards associated with chemical manufacturing, storage, containment, and transportation could adversely affect our results of operations.
There are hazards associated with chemical manufacturing and the related storage, containment, and transportation of raw materials, products, and wastes. These hazards could lead to an interruption or suspension of operations and have an adverse effect on the productivity and profitability of a particular manufacturing facility or on us as a whole. While we endeavor to provide adequate protection for the safe-handling of these materials, issues could be created by various events, including unforeseen accidents or defects, natural disasters, severe weather events, acts of sabotage, military actions, terrorism, and performance by third-parties,third parties, and as a result, we could face the following potential hazards:
piping and storage tank leaks and ruptures;
• | piping and storage tank leaks and ruptures; |
mechanical failure;
• | mechanical failure; |
employee exposure to hazardous substances; and,
• | employee exposure to hazardous substances; and, |
• | chemical spills and other discharges or releases of toxic or hazardous substances or gases. |
chemical spills and other discharges or releases of toxic or hazardous substances or gases.
These hazards may cause personal injury and loss of life, damage to property, contamination of the environment, and damage to natural resources, which could lead to government fines and penalties, remedial obligations, work stoppage injunctions, claims and lawsuits by injured persons, damage to our public reputation and brands, loss of sales and market access, customer dissatisfaction, and diminished product acceptance. If such actions are determined adversely to us or there is an associated economic impact to our business, we may have inadequate insurance or cash flows to offset any associated costs. Such outcomes could adversely affect our financial condition and results of operations.
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Our success depends on our ability to attract and retain key employees, and to identify and develop talented personnel to succeed our senior management and other employees.
Our success depends on the performance of our senior management team and other key employees. If we are unable to attract, retain, identify, and develop such individuals, whether due to technical, geographical, social, or other misalignment, our results of operations, financial condition, and cash flows could be adversely affected. Further, if we are unable to effectively plan for the succession of our senior management team, our results of operations, financial condition, and cash flows could be adversely affected, as we may be unable to realize our business strategy. While our ongoing personnel practices identify a succession process for our key employees, including our senior management team, we cannot guarantee the effectiveness of this process, the continuity of highly-qualified individuals serving in all of our key positions at particular moments in time, and/or the completeness of any knowledge transfer at the time of succession.
In addition, we expect to experience significant turnover at an operations level due to the demographics of our general workforce. Accordingly, we cannot guarantee the completeness of any knowledge transfer at the time of departure, or the continuity of key processes and/or internal controls over our financial reporting and disclosure controls and procedures.
Operating as a multi-national corporation presents risks associated with global and regional economic downturns and global capital market conditions as well as risks resulting from changes to regional regulatory requirements (including environmental standards).
Our business and operating results may in the future be adversely affected by global economic conditions, including instability in credit markets, declining consumer and business confidence, fluctuating commodity prices and interest rates, volatile exchange rates, and other challenges, such as tariffs on international trade and a changing financial regulatory environment that could affect the global economy. Such global economic conditions may be further affected by physical risks that stem from a number of root causes, including natural disasters and/or travel-based restrictions that may be driven by geo-political activities, military actions, terrorism, and the spread of pandemics, such as the novel coronavirus.
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The Chemours Company
Our customers may experience deterioration of their businesses, shortages in cash flows, and difficulty obtaining financing. As a result, existing or potential customers may delay or cancel plans to purchase products and may not be able to fulfill their obligations to us in a timely fashion. Further, suppliers could experience similar conditions, which could impact their ability to supply materials or otherwise fulfill their obligations to us. Because we have significant international operations, there are a large number of currency transactions that result from our international sales, purchases, investments, and borrowings. Also, our effective tax rate may fluctuate because of variability in our geographic mix of earnings, changes in statutory rates, and taxes associated with the repatriation of our non-U.S. earnings. Future weakness in the global economy and failure to manage these risks could adversely affect our results of operations, financial condition, and cash flows in future periods.
In addition to the general risks associated with operating in the global economy, our revenue and profitability are largely dependent on the TiO2 pigment industry and the industries that are the end-users of our fluoroproducts. TiO2 pigment and our fluoroproducts, such as refrigerants and resins, are used in many “quality of life” products for which demand historically has been linked to global, regional, and local GDP and discretionary spending, which can be negatively impacted by regional and world events, or economic conditions. Such events, which may or may not impact all of our businesses at the same time or to the same degree, are likely to cause a decrease in the demand for our products and, as a result, may have an adverse effect on our results of operations and financial condition. The future profitability of our operations, and cash flows generated by those operations, will also be affected by the available supply of our products in the market. Our future Ti-PureTM demand growth may be below average global GDP growth rates if our sales into developed markets outpace our sales into emerging markets. In addition, because demand for our fluorochemicals is driven in part by industry needs to comply with certain mandated environmental regulations (such as markets for refrigerants and foams with low GWP), changes in, the elimination of, or lack of enforcement of such environmental regulations in the U.S., the EU, or other jurisdictions can also negatively impact demand for such products and, as a result, our results of operations and financial condition.
Our reported results could be adversely affected by currency exchange rates and currency devaluation could impair our competitiveness.
Due to our international operations, we transact in many foreign currencies, including, but not limited to, the euro, the Mexican peso, the Chinese yuan, and the Japanese yen. As a result, we are subject to the effects of changes in foreign currency exchange rates. During times of a strengthening U.S. dollar, our reported net sales and operating income will be reduced because the local currency will be translated into fewer U.S. dollars. During periods of local economic crisis, local currencies may be devalued significantly against the U.S. dollar, potentially reducing our margin. For example, depreciation of the euro against the U.S. dollar has historically negatively impacted our results of operations, and further decline of the euro could affect future periods.
We enter into certain of our qualifying foreign currency forward contracts under a cash flow hedge program to mitigate the risks associated with fluctuations in the euro against the U.S. dollar for forecasted U.S. dollar-denominated inventory purchases for certain of our international subsidiaries. There can be no assurance that any hedging action will lessen the adverse impact of a variation in currency rates. Also, actions to recover margins may result in lower volume and a weaker competitive position, which may have an adverse effect on our profitability. For example, in our Titanium Technologies segment, a substantial portion of our manufacturing is located in the U.S. and Mexico, while our TiO2 pigment is delivered to customers around the world. Furthermore, our ore cost is principally denominated in U.S. dollars. Accordingly, in periods when the U.S. dollar or Mexican peso strengthen against other local currencies, such as the euro, our costs are higher relative to some of our competitors who operate largely outside of the U.S., and the benefits we realize from having lower costs associated with our manufacturing process are reduced, impacting our profitability.
Effects of price fluctuations in energy and raw materials, our raw materials contracts, and our inability to renew such contracts, could have a significant impact on our earnings.
Our manufacturing processes consume significant amounts of energy and raw materials, the costs of which may be subject to worldwide supply and demand factors, global trade regulations and tariffs, GHG emissions-based regulations, and other factors beyond our control. Variations in the cost of energy, which primarily reflect market prices for oil and natural gas, and for raw materials may significantly affect our operating results from period to period. Additionally, consolidation in the industries providing our raw materials may have an impact on the cost and availability of such materials. 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.
When possible, we have purchased, and we plan to continue to purchase, raw materials, including titanium-bearing ores and fluorspar, through negotiated medium-term or long-term contracts to minimize the impact of price fluctuations. To the extent that we have been able to achieve favorable pricing in our existing negotiated long-term contracts, we may not be able to renew such contracts at the current prices, or at all, and this may adversely impact our profitability and cash flows from operations. However, to the extent that the prices of the raw materials that we utilize significantly decline, we may be bound by the terms of our existing long-term contracts and obligated to purchase such raw materials at higher prices as compared to other market participants.
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The Chemours Company
We attempt to offset the effects of higher energy and raw materials costs through selling price increases, productivity improvements, and cost reduction programs. However, the outcome of these efforts is largely determined by existing competitive and economic conditions, and may be subject to a time delay between the increase in our raw materials costs and our ability to increase prices, which could vary significantly depending on the market served. If we are not able to fully offset the effects of higher energy or raw materials costs, there could be a material adverse effect on our financial results.
In connection with our Separation, we were required to assume, and indemnify DuPont for, certain liabilities. As we aremay be required to make payments pursuant to these indemnities to DuPont, we may need to divert cash to meet those obligations and our financial results could be negatively affected. In addition, DuPont’s obligation to indemnify us for certain liabilities may not be sufficient to insure us against the full amount of liabilities for which it will be allocated responsibility, and DuPont may not be able to satisfy its indemnification obligations in the future.
Pursuant to the separation agreement, the employee matters agreement, the tax matters agreement, and the intellectual property cross-license agreement, we entered into with DuPont prior to the Separation, we were required to assume, and indemnify DuPont for, certain liabilities. These indemnification obligations to date have included, among other items, defense costs associated with certain litigation matters as well as certain damages awards, settlement amounts, and penalties. In connection with MDL Settlement described in “Note 2022 – Commitments and Contingent Liabilities” withinto the Consolidated Financial Statements, we and DuPont entered into an amendment to the separation agreement concerning PFOA costs, the terms of which are also described in “Note 2022 – Commitments and Contingent Liabilities” withinto the Consolidated Financial Statements. Payments pursuant to these indemnities, whether relating to PFOA costs or otherwise, may be significant and could negatively impact our business, particularly indemnities relating to our actions that could impact the tax-free nature of the distribution. In addition, in the event that DuPont seeks indemnification for adverse trial rulings or outcomes, these indemnification claims could materially adversely affect our financial condition.
Disputes with DuPont and others which may arise with respect to indemnification matters, including disputes based on matter of law or contract interpretation, could materially adversely affect us. As described in “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements, we have filed a lawsuit against DuPont regarding indemnification matters. As further described in “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements, multiple lawsuits have been filed by third parties containing allegations that DuPont’s separation of Chemours was fraudulent.
Third-parties
Third parties could also seek to hold us responsible for any of the liabilities of the DuPont businesses. DuPont has agreed to indemnify us for such liabilities, but such indemnity from DuPont may not be sufficient to protect us against the full amount of such liabilities, and DuPont may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from DuPont any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, financial condition, results of operations, and cash flows. See “Note 2022 – Commitments and Contingent Liabilities” withinto the Consolidated Financial Statements for further information.
In connection with our Separation, we were required to enter into numerous Separation-related and commercial agreements with our former parent company, DuPont, which may not reflect optimal or commercially beneficial terms to us.
Commercial agreements we entered into with DuPont in connection withprior to the Separation were negotiatedformed in the context of the Separation while we were still a wholly-owned subsidiary of DuPont. Accordingly, during the period in which the terms of those agreements were negotiated,formed, we did not have an independent board of directors or management independent of DuPont. Certain commercial agreements, having long terms and commercially-advantageous cancellation and assignment rights to DuPont, may not include adjustments for changes in industry and market conditions. There is a risk that the pricing and other terms under these agreements may not be commercially beneficial and may not be able to be renegotiatedchanged in the future. The terms relate to, among other things, the allocation of assets, liabilities, rights, and obligations, including the provision of products and services and the sharing and operation of property, manufacturing, office, and laboratory sites, and other commercial rights and obligations between us and DuPont.
Our ability to make future strategic decisions regarding our manufacturing operations are subject to regulatory, environmental, political, legal, and economic risks, and to a certain extent may be subject to consents or cooperation from DuPont under the agreements entered into between us and DuPont as part of the Separation. These could adversely affect our ability to execute our future strategic decisions and our results of operations and financial condition.
One of the ways we may improve our business is through the expansion or improvement of our existing facilities, such as the expansion of our Altamira TiO2 facility and the planned facilities for our OpteonTM refrigerants and construction of our new Mining Solutions facility. Construction of additions or modifications to facilities involves numerous regulatory, environmental, political, legal, and economic uncertainties that are beyond our control. Such expansion or improvement projects may also require the expenditure of significant amounts of capital, and financing may not be available on economically acceptable terms or at all. As a result, these projects may not be completed on schedule, at the budgeted cost, or at all. Moreover, our revenue may not increase immediately upon the expenditure of funds on a particular project or may be negatively impacted by regulatory or other developments relating to the chemicals we use or manufacture. As a result, we may not be able to realize our expected investment return, which could adversely affect our results of operations and financial condition.
We periodically assess our manufacturing operations in order to manufacture and distribute our products in the most efficient manner. Based on our assessments, we may make strategic decisions regarding our manufacturing operations such as capital improvements to modernize certain units, move manufacturing or distribution capabilities from one plant or facility to another plant or facility, discontinue manufacturing or distributing certain products, or close or divest all or part of a manufacturing plant or facility, some of which have significant shared services and lease agreements with DuPont. These agreements may adversely impact our ability to take these strategic decisions regarding our manufacturing operations. Further, if such agreements are terminated or revised, we would have to assess and potentially adjust our manufacturing operations, the closure or divestiture of all or part of a manufacturing plant or facility that could result in future charges that could be significant.
22
The Chemours Company
Our customers, prospective customers, suppliers, or other companies with whom we conduct business, or regulators may need assurances that our financial stability is sufficient to satisfy their requirements for doingrespective business or continuing to do business with them.regulatory requirements.
Some of our customers, prospective customers, suppliers, or other companies with whom we conduct business, or regulators may need assurances that our financial stability is sufficient to satisfy their requirements for doingrespective business or continuing to do business with them,regulatory requirements, and may require us to provide additional credit support, such as letters of credit or other financial guarantees. Any failure of parties to be satisfied with our financial stability could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
19
The Chemours Company
We are a holding company that is dependent on cash flows from our operating subsidiaries to fund our debt obligations, capital expenditures, and ongoing operations.
All of our operations are conducted, and all of our assets are owned, by our operating companies, which are our subsidiaries. We intend to continue to conduct our operations at the operating companies and any future subsidiaries. Consequently, our cash flows and our ability to meet our obligations or make cash distributions depends upon the cash flows of our operating companies and any future subsidiaries, and the payment of funds by our operating companies and any future subsidiaries in the form of dividends or otherwise. The ability of our operating companies and any future subsidiaries to make any payments to us depends on their earnings, the terms of their indebtedness, including the terms of any credit facilities, and legal restrictions regarding the transfer of funds.
Our debt is generally the exclusive obligation of The Chemours Company and our guarantor subsidiaries, as described in “Note 1820 – Debt” withinto the Consolidated Financial Statements. Because a significant portion of our operations are conducted by non-guarantor subsidiaries, our cash flows and our ability to service indebtedness, including our ability to pay the interest on our debt when due and principal of such debt at maturity, are dependent to a large extent upon cash dividends and distributions or other transfers from such non-guarantor subsidiaries. Any payment of dividends, distributions, loans, or advances by our non-guarantor subsidiaries to us could be subject to restrictions on dividends or repatriation of earnings under applicable local law, monetary transfer restrictions, and foreign currency exchange regulations in the jurisdictions in which our subsidiaries operate, and any restrictions imposed by the current and future debt instruments of our non-guarantor subsidiaries. In addition, payments to us by our subsidiaries are contingent upon our subsidiaries’ earnings.
Our subsidiaries are separate legal entities and, except for our guarantor subsidiaries, have no obligation, contingent or otherwise, to pay any amounts due on our debt or to make any funds available for those amounts, whether by dividends, loans, distributions, or other payments, and do not guarantee the payment of interest on, or principal of, our debt. Any right that we have to receive any assets of any of our subsidiaries that are not guarantors upon the liquidation or reorganization of any such subsidiary, and the consequent right of holders of the outstanding notes to realize proceeds from the sale of their assets, will be structurally subordinated to the claims of that subsidiary’s creditors, including trade creditors and holders of debt issued by that subsidiary.
If our long-lived assets become impaired, we may be required to record a significant charge to earnings.
We have a significant amount of long-lived assets on our consolidated balance sheets. Under GAAP, we review our long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances, indicating that the carrying value of our long-lived assets may not be recoverable, include, but are not limited to, changes in the industries in which we operate, particularly the impact of a downturn in the global economy, as well as competition or other factors leading to a reduction in expected long-term sales or profitability. We may be required to record a significant non-cash charge in our financial statements during the period in which any impairment of our long-lived assets is determined, negatively impacting our results of operations.
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The Chemours Company
Our failure to comply with the anti-corruption laws of the U.S. and various international jurisdictions could negatively impact our reputation and results of operations.
Doing business on a global basis requires us to comply with the laws and regulations of the U.S. government and those of various international and sub-national jurisdictions, and our failure to successfully comply with these rules and regulations may expose us to liabilities. These laws and regulations apply to companies, individual directors, officers, employees, and agents, and may restrict our operations, trade practices, investment decisions, and partnering activities. In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act (FCPA)(“FCPA”), the U.K. Bribery Act 2010 (Bribery Act)(“Bribery Act”), as well as other anti-corruption laws of the various jurisdictions in which we operate. The FCPA, the Bribery Act, and other laws prohibit us and our officers, directors, employees, and agents acting on our behalf from corruptly offering, promising, authorizing, or providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. Our global operations may expose us to the risk of violating, or being accused of violating, the foregoing or other anti-corruption laws. Such violations could be punishable by criminal fines, imprisonment, civil penalties, disgorgement of profits, injunctions, and exclusion from government contracts, as well as other remedial measures. Investigations of alleged violations can be very expensive, disruptive, and damaging to our reputation. Although we have implemented anti-corruption policies and procedures, there can be no guarantee that these policies, procedures, and training will effectively prevent violations by our employees or representatives in the future. Additionally, we face a risk that our distributors and other business partners may violate the FCPA, the Bribery Act, or similar laws or regulations. Such violations could expose us to FCPA and Bribery Act liability and/or our reputation may potentially be harmed by their violations and resulting sanctions and fines.
20
The Chemours Company
We could be subject to changes in our tax rates and the adoption of tax legislation or exposure to additional tax liabilities that may adversely affect our results of operations, financial condition, and cash flows.
We are subject to taxes in the U.S. and non-U.S. jurisdictions where our subsidiaries are organized. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. On December 22, 2017, the U.S. government enacted legislation referred to as the Tax Cuts and Jobs Act (Tax Act), which significantly revises the Internal Revenue Code of 1986, as amended (IRC). This law may have a significant impact on our U.S. taxes. The legislation is unclear in certain respects and will require the U.S. Internal Revenue Service (IRS) to issue regulations and interpretations, and possibly technical corrections. While there can be no assurance as to the impact of any additional guidance, we have recorded a provisional amount of income tax to reflect the impact of the law change based on management’s current interpretation of the new legislation. The ultimate impact of U.S. tax reform could be materially different from current estimates based on our actual results and our further analysis of the new law. In addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. Investors should consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.
Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws or their interpretations. Our tax returns and other tax matters are subject to examination by local tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these examinations. If our effective tax rates were to increase, or if the ultimate determination of the taxes owed by us is for an amount in excess of amounts previously accrued, our operating results, financial condition, and cash flows could be adversely affected.
Failure to meet some or all of our key financial and non-financial targets could negatively impact the value of our business and adversely affect our stock price.
From time to time, we may announce certain key financial and non-financial targets that are expected to serve as benchmarks for our performance for a given time period, including goals for our future net sales growth, Adjusted EBITDA margin improvement, Adjusted EPS, FCF,adjusted earnings before interest, taxes, depreciation, and ROIC,.amortization, adjusted earnings per share, free cash flows, return on invested capital, corporate responsibility, and/or sustainability. Our failure to meet one or more of these key financial targets may negatively impact our results of operations, stock price, and stockholder returns. The factors influencing our ability to meet these key financial targets include, but are not limited to, the outcome of any new or existing litigation, our failure to comply with new or existing laws or regulations, changes in the global economic environment, changes in our competitive landscape, including our relationships with new or existing customers, our ability to introduce new products, applications, or technologies, our undertaking of an acquisition, joint venture, or other strategic arrangement, the outcome of any new or existing litigation, our failure to comply with new or existing laws or regulations, and other factors described within this Item 1A – Risk Factors, many of which are beyond our control.
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The Chemours Company
Risks Related to Our Indebtedness
Our significantcurrent level of indebtedness could adversely affect our financial condition, and we could have difficulty fulfilling our obligations under our indebtedness, which may have a material adverse effect on us.
As of December 31, 2017,2019, we had approximately $4.1$4.2 billion of indebtedness. At December 31, 2017,2019, together with the guarantors, we had approximately $1.4$1.3 billion of indebtedness outstanding under our senior secured indebtedness outstanding,credit facilities, and had an additional $750$800 million of capacity under our revolving credit facility (Revolving(“Revolving Credit Facility), all ofFacility”) capacity, which would be senior secured indebtedness, if drawn (collectively, the Senior“Senior Secured Credit Facilities)Facilities”). Our significantcurrent level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. The level of our indebtedness could have other important consequences on our business, including:
making it more difficult for us to satisfy our obligations with respect to indebtedness;
• | making it more difficult for us to satisfy our obligations with respect to indebtedness; |
increasing our vulnerability to adverse changes in general economic, industry, and competitive conditions;
• | increasing our vulnerability to adverse changes in general economic, industry, and competitive conditions; |
requiring us to dedicate a significant portion of our cash flows from operations to make payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital and other general corporate purposes;
• | requiring us to dedicate a significant portion of our cash flows from operations to make payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital and other general corporate purposes; |
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
• | limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; |
restricting us from capitalizing on business opportunities;
• | restricting us from capitalizing on business opportunities; |
placing us at a competitive disadvantage compared to our competitors that have less debt;
• | placing us at a competitive disadvantage compared to our competitors that have less debt; |
limiting our ability to borrow additional funds for working capital, acquisitions, debt service requirements, execution of our business strategy, or other general corporate purposes;
• | limiting our ability to borrow additional funds for working capital, acquisitions, debt service requirements, execution of our business strategy, or other general corporate purposes; |
limiting our ability to enter into certain commercial arrangements because of concerns of counterparty risks; and,
• | limiting our ability to enter into certain commercial arrangements because of concerns of counterparty risks; and, |
• | limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors that have less debt. |
limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors that have less debt.
The occurrence of any one or more of these circumstances could have a material adverse effect on us.
Our ability to make scheduled payments on and to refinance our indebtedness, including on our outstanding notes, depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business, and other factors (many of which are beyond our control), including the availability of financing in the international banking and capital markets. We cannot be certain that our business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our debt, including the outstanding notes, to refinance our debt, or to fund our other liquidity needs.
21
The Chemours Company
If we are unable to meet our debt service obligations or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt, including the outstanding notes. Failure to successfully restructure or refinance our debt could cause us to default on our debt obligations and would impair our liquidity. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.
Moreover, in the event of a default of our debt service obligations, the holders of the applicable indebtedness, including holders of our outstanding notes and the Senior Secured Credit Facilities, could elect to declare all the funds borrowed to be due and payable, together with accrued and unpaid interest. We cannot be certain that our assets or cash flows would be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. First, a default in our debt service obligations in respect of the outstanding notes would result in a cross-default under the Senior Secured Credit Facilities. The foregoing would permit the lenders under the Revolving Credit Facility to terminate their commitments thereunder and cease making further loans, and would allow the lenders under the Senior Secured Credit Facilities to declare all loans immediately due and payable and to institute foreclosure proceedings against their collateral, which could force us into bankruptcy or liquidation. Second, any event of default or declaration of acceleration under the Senior Secured Credit Facilities or certain other agreements relating to our outstanding indebtedness could also result in an event of default under the indenture governing the outstanding notes, and any event of default or declaration of acceleration under any other of our outstanding indebtedness may also contain a cross-default provision. Any such default, event of default, or declaration of acceleration could materially and adversely affect our results of operations and financial condition.
See “Note 1820 – Debt” withinto the Consolidated Financial Statements for further discussion related to our indebtedness.
25
The Chemours Company
Despite our significantcurrent level of indebtedness, we may incur substantially more debt and enter into other transactions, which could further exacerbate the risks to our financial condition described above.
Notwithstanding our significantcurrent level of indebtedness, we may incur significant additional indebtedness in the future, including additional secured indebtedness (including the $800 million under the Revolving Credit Facility) that would be effectively senior to our outstanding notes (including up to $750 million of available capacity under the Revolving Credit Facility).notes. Although the indenture that governs the outstanding notes and the credit agreement that governs the Senior Secured Credit Facilities contain restrictions on our ability to incur additional indebtedness and to enter into certain types of other transactions, these restrictions are subject to a number of significant qualifications and exceptions. Additional indebtedness incurred in compliance with these restrictions, including additional secured indebtedness, could be substantial. These restrictions also do not prevent us from incurring obligations, such as trade payables, that do not constitute indebtedness as defined under our debt instruments. To the extent such new debt is added to our current debt levels, the substantial leverage risks described in the immediately preceding risk factor would increase.
We may need additional capital in the future and may not be able to obtain it on favorable terms.
Our industry is capital intensive, and we may require additional capital in the future to finance our growth and development, implement further marketing and sales activities, fund ongoing R&D activities, make investments driven by environmental compliance, and meet general working capital needs. Our capital requirements will depend on many factors, including acceptance of and demand for our products, the extent to which we invest in new technology and R&D projects, and the status and timing of these developments, as well as the general availability of capital from debt and/or equity markets.
However, debt or equity financing may not be available to us on terms we find acceptable, if at all. Also, regardless of the terms of our debt or equity financing, our agreements and obligations under the tax matters agreement may limit our ability to issue stock, as discussed further in the risk factor, “We agreed to numerous restrictions to preserve the tax-free treatment of the transactions in the U.S., which may reduce our strategic and operating flexibility.” If we are unable to raise additional capital when needed, our financial condition could be materially and adversely affected.
Additionally, our failure to maintain the credit ratings on our debt securities, including the outstanding notes, could negatively affect our ability to access capital and could increase our interest expense on future indebtedness. We expect the credit rating agencies to periodically review our capital structure and the quality and stability of our earnings. Deterioration in our capital structure or the quality and stability of our earnings could result in a downgrade of theour overall credit ratings onand our debt securities. Any negative rating agency actions could constrain the capital available to us, reduce or eliminate available borrowing to us, and could limit our access to and/or increase the cost of funding our operations. If, as a result, our ability to access capital when needed becomes constrained, our interest costs could increase, which could have material adverse effect on our results of operations, financial condition, and cash flows.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.
Our borrowings under the Senior Secured Credit Facilities are at variable rates and expose us to interest rate risk. As a result, if interest rates increase, our debt service obligations under the Senior Secured Credit Facilities or other variable rate debt would increase, even though the amount borrowed would remain the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease. As of December 31, 2017,2019, we had approximately $1.4$1.3 billion of our outstanding debt under the Senior Secured Credit Facilities at variable interest rates.
26
22
The Chemours Company
The agreements governing our indebtedness restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.
The agreements governing our indebtedness, including the outstanding notes, contain, and the agreements governing future indebtedness and future debt securities may contain, significant restrictive covenants and, in the case of the Revolving Credit Facility, financial maintenance and negative covenants that will limit our operations, including our ability to engage in activities that may be in our long-term best interests. These restrictive covenants may limit us, and our restricted subsidiaries, from taking, or give rights to the holders of our indebtedness in the event of the following actions:
incurring additional indebtedness and guaranteeing indebtedness and other obligations;
• | incurring additional indebtedness and guaranteeing indebtedness and other obligations; |
paying dividends or making other distributions in respect of, or repurchasing or redeeming, our capital stock;
• | paying dividends or making other distributions in respect of, or repurchasing or redeeming, our capital stock; |
making acquisitions or other investments;
• | making acquisitions or other investments; |
prepaying, redeeming, or repurchasing certain indebtedness;
• | prepaying, redeeming, or repurchasing certain indebtedness; |
selling or otherwise disposing of assets;
• | selling or otherwise disposing of assets; |
selling stock of our subsidiaries;
• | selling stock of our subsidiaries; |
incurring liens;
• | incurring liens; |
entering into transactions with affiliates;
• | entering into transactions with affiliates; |
entering into agreements restricting our subsidiaries’ ability to pay dividends;
• | entering into agreements restricting our subsidiaries’ ability to pay dividends; |
entering into transactions that result in a change of control of us; and,
• | entering into transactions that result in a change of control of us; and, |
• | consolidating, merging, or selling all or substantially all of our assets. |
consolidating, merging, or selling all or substantially all of our assets.
Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of some or all of our indebtedness, which could lead us to bankruptcy, reorganization, or insolvency.
23
The Chemours Company
Risks Related to the Separation
If the distribution, in connection with the Separation, together with certain related transactions, were to fail to qualify for non-recognition treatment for U.S. federal income tax purposes, then we could be subject to significant tax and indemnification liability and stockholders receiving our common stock in the distribution could be subject to significant tax liability.
DuPont received a ruling from the IRSU.S. Internal Revenue Service (“IRS”) substantially to the effect that, among other things, the distribution in connection with the Separation qualified as a tax-free transaction under Section 355 and Section 368(a)(1)(D) of the IRC.Internal Revenue Code of 1986, as amended (“IRC”). The tax-free nature of the distribution was conditioned on the continued validity of the IRS Ruling, as well as on receipt of a tax opinion, in form and substance acceptable to DuPont, substantially to the effect that, among other things, the distribution would qualify as a tax-free transaction under Section 355 and Section 368(a)(1)(D) of the IRC, and certain transactions related to the transfer of assets and liabilities to us in connection with the Separation and distribution would not result in the recognition of any gain or loss to us, DuPont, or our stockholders. The IRS Ruling and the tax opinion relied on certain facts, assumptions, and undertakings, and certain representations from us and DuPont, regarding the past and future conduct of both respective businesses and other matters, and the tax opinion relies on the IRS Ruling. Notwithstanding the IRS Ruling and the tax opinion, the IRS could determine that the distribution or such related transactions should be treated as a taxable transaction if it determines that any of these facts, assumptions, representations, or undertakings were not correct, or that the distribution should be taxable for other reasons, including if the IRS were to disagree with the conclusions in the tax opinion that are not covered by the IRS Ruling.
If the distribution ultimately was determined to be taxable, then a stockholder of DuPont that received shares of our common stock in the distribution would be treated as having received a distribution of property in an amount equal to the fair market value of such shares on the distribution date and could incur significant income tax liabilities. Such distribution would be taxable to such stockholder as a dividend to the extent of DuPont’s current and accumulated earnings and profits. Any amount that exceeded DuPont’s earnings and profits would be treated first as a non-taxable return of capital to the extent of such stockholder’s tax basis in its shares of DuPont stock with any remaining amount being taxed as a capital gain. DuPont would recognize a taxable gain in an amount equal to the excess, if any, of the fair market value of the shares of our common stock held by DuPont on the distribution date over DuPont’s tax basis in such shares. In addition, if certain related transactions fail to qualify for tax-free treatment under U.S. federal, state, and/or local tax law, and/or foreign tax law, we and DuPont could incur significant tax liabilities under U.S. federal, state, and/or local tax law, and/or foreign tax law.
27
The Chemours Company
Generally, taxes resulting from the failure of the Separation and distribution or certain related transactions to qualify for non-recognition treatment under U.S. federal, state, and/or local tax law, and/or foreign tax law, would be imposed on DuPont or DuPont’s stockholders and, under the tax matters agreement that we entered into with DuPont prior to the Separation, DuPont is generally obligated to indemnify us against such taxes to the extent that we may be jointly, severally, or secondarily liable for such taxes. However, under the terms of the tax matters agreement, we are also generally responsible for any taxes imposed on DuPont that arise from the failure of the distribution to qualify as tax-free for U.S. federal income tax purposes within the meaning of Section 355 of the IRC or the failure of such related transactions to qualify for tax-free treatment, to the extent such failure to qualify is attributable to actions, events, or transactions relating to our or our affiliates’ stock, assets, or business, or any breach of our or our affiliates’ representations, covenants, or obligations under the tax matters agreement (or any other agreement we enter into in connection with the Separation and distribution), the materials submitted to the IRS or other governmental authorities in connection with the request for the IRS Ruling or other tax rulings or the representation letter provided to counsel in connection with the tax opinion. Events triggering an indemnification obligation under the agreement include events occurring after the distribution that cause DuPont to recognize a gain under Section 355(e) of the IRC. Such tax amounts could be significant. To the extent we are responsible for any liability under the tax matters agreement, there could be a material adverse impact on our business, financial condition, results of operations, and cash flows in future reporting periods.
We are subject to continuing contingent tax-related liabilities of DuPont.
There are several significant areas where the liabilities of DuPont may become our obligations. For example, under the IRC and the related rules and regulations, each corporation that was a member of DuPont’s consolidated tax reporting group during any taxable period or portion of any taxable period ending on or before the effective time of the distribution is jointly and severally liable for the U.S. federal income tax liability of the entire consolidated tax reporting group for such taxable period. In connection with the Separation and distribution, we entered into a tax matters agreement with DuPont that allocates the responsibility for prior period taxes of DuPont’s consolidated tax reporting group between us and DuPont. If DuPont were unable to pay any prior period taxes for which it is responsible, however, we could be required to pay the entire amount of such taxes, and such amounts could be significant. Other provisions of federal, state, local, or foreign law may establish similar liability for other matters, including laws governing tax-qualified pension plans, as well as other contingent liabilities.
We agreed to numerous restrictions to preserve the tax-free treatment of the transactions in the U.S., which may reduce our strategic and operating flexibility.
Our ability to engage in significant equity transactions could be limited or restricted in order to preserve, for U.S. federal income tax purposes, the tax-free nature of the distribution by DuPont. Even if the distribution otherwise qualifies for tax-free treatment under Section 355 of the IRC, the distribution may result in corporate-level taxable gain to DuPont under Sections 355(e) and 368(a)(1)(D) of the IRC if 50% or more, by vote or value, of shares of our stock or DuPont’s stock are acquired or issued as part of a plan or series of related transactions that includes the distribution. The process for determining whether an acquisition or issuance triggering these provisions has occurred is complex, inherently factual, and subject to interpretation of the facts and circumstances of a particular case. Any acquisitions or issuances of our stock or DuPont’s stock within a two-year period after the distribution generally are presumed to be part of such a plan, although we or DuPont, as applicable, may be able to rebut that presumption. Accordingly, under the tax matters agreement entered into prior to the Separation, for the two-year period following the distribution, we are prohibited, except in certain circumstances, from:
entering into any transaction resulting in the acquisition of 40% or more of our stock or substantially all of our assets, whether by merger or otherwise;
merging, consolidating, or liquidating;
issuing equity securities beyond certain thresholds;
repurchasing our capital stock; or,
ceasing to actively conduct our business.
These restrictions may limit our ability to pursue certain strategic transactions or other transactions, including our transformation plans that we may believe to otherwise be in our best interests or that might increase the value of our business. In addition, under the tax matters agreement, we are required to indemnify DuPont against any such tax liabilities as a result of the acquisition of our stock or assets, even if we do not participate in or otherwise facilitate the acquisition.
2824
The Chemours Company
Risks Related to Our Common Stock
Our stock price could become more volatile and investments could lose value.
The market price of our common stock and the number of shares traded each day has experienced significant fluctuations since our Separation from DuPont and may continue to fluctuate significantly.
The market price for our common stock may be affected by a number of factors, including, but not limited to:
our quarterly or annual earnings, or those of other companies in our industry;
• | our quarterly or annual earnings, or those of other companies in our industry; |
actual or anticipated fluctuations in our operating results;
• | actual or anticipated fluctuations in our operating results; |
changes in earnings estimates by securities analysts or our ability to meet those estimates or our earnings guidance;
• | changes in earnings estimates by securities analysts or our ability to meet those estimates or our earnings guidance; |
anticipated or actual outcomes or resolutions of legal or other contingencies;
• | anticipated or actual outcomes or resolutions of legal or other contingencies; |
the operating and stock price performance of other comparable companies;
• | the operating and stock price performance of other comparable companies; |
credit rating agency actions;
• | a change in our dividend or stock repurchase activities; |
a change in our dividend or stock repurchase activities;
• | changes in applicable rules and regulations and the reputation of our business; |
changes in rules or regulations applicable to our business;
• | the announcement of new products by us or our competitors; |
the announcement of new products by us or our competitors;
• | overall market fluctuations and domestic and worldwide economic conditions; and, |
• | other factors described in this Item 1A – Risk Factors, and elsewhere within this Annual Report on Form 10-K. |
overall market fluctuations and domestic and worldwide economic conditions; and,
other factors described in this Item 1A – Risk Factors, and elsewhere within this Annual Report on Form 10-K.
A significant drop or rise in our stock price could expose us to costly and time-consuming litigation, which could result in substantial costs and divert management’s attention and resources, resulting in an adverse effect on our business. As further described in “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements, lawsuits have been filed alleging that Chemours and certain of its officers have violated the Exchange Act of 1934.
We cannot guarantee the timing or amount of our dividends and/or our share repurchases, which are subject to a number of uncertainties whichthat may affect the price of our common stock.
The declaration, payment, and amount of any dividends, and/or the decision to purchase common stock under our share repurchase programprograms are subject to the sole discretion of our board of directors and, in the context of our financial policy and capital allocation strategy, will depend upon many factors, including our financial condition, operating results, cash flows, and relevant prospects, our capital requirements and access to capital markets, covenants associated with certain of our debt obligations, legal requirements, and other factors that our board of directors may deem relevant, and there can be no assurances that we will continue to pay a dividend or repurchase our common shares in the future.
The reduction or elimination of our dividends or share repurchase programprograms could adversely affect the price of our common stock. Additionally, any repurchases of our common stock will reduce the amount of our common stock outstanding. There can be no assurances that any share repurchase activity will increase stockholder value due to market fluctuations in the price of our common stock, which may reduce the price of our common stock to levels below the repurchase price. Although our share repurchase program isprograms are designed to enhance long-term shareholder value, short-term fluctuations in the market price of our common stock could reduce the program’s overall effectiveness.
A stockholder’s percentage of ownership in us may be diluted in the future.
A stockholder’s percentage ownership in our common stock may be diluted because of equity issuances for acquisitions, capital market transactions, or otherwise, including, without limitation, equity awards that we may be granting to our directors, officers, and employees. Such issuances may have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.
In addition, our amended and restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences, and relative participating, optional, and other special rights, including preferences over our common stock with respect to dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of our common stock.
2925
The Chemours Company
Certain provisions in our amended and restated certificate of incorporation and amended and restated by-laws, and of Delaware law, may prevent or delay an acquisition of us, which could decrease the trading price of the common stock.
Our amended and restated certificate of incorporation and amended and restated by-laws contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include, among others:
the inability of our stockholders to act by written consent;
• | the inability of our stockholders to act by written consent; |
the limited ability of our stockholders to call a special meeting;
• | the limited ability of our stockholders to call a special meeting; |
rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;
• | rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings; |
the right of our board of directors to issue preferred stock without stockholder approval;
• | the right of our board of directors to issue preferred stock without stockholder approval; |
the ability of our directors, and not stockholders, to fill vacancies (including those resulting from an enlargement of the board of directors) on our board of directors; and,
• | the ability of our directors, and not stockholders, to fill vacancies (including those resulting from an enlargement of the board of directors) on our board of directors; and, |
• | the requirement that stockholders holding at least 80% of our voting stock are required to amend certain provisions in our amended and restated certificate of incorporation and our amended and restated by-laws. |
the requirement that stockholders holding at least 80% of our voting stock are required to amend certain provisions in our amended and restated certificate of incorporation and our amended and restated by-laws.
In addition, we are subject to Section 203 of the Delaware General Corporations Law (DGCL)(“DGCL”). Section 203 of the DCGLDGCL provides that, subject to limited exceptions, persons that (without prior board of directors approval) acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation, or acquisitions of additional shares, for a three-year period following the date on which that person or its affiliate becomes the holder of more than 15% of the corporation’s outstanding voting stock.
We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if an acquisition proposal or offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in our best interests and/or our stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.
Several of the agreements that we have entered into with DuPont require DuPont’s consent to any assignment by us of our rights and obligations, or a change of control of us, under the agreements. The consent rights set forth in these agreements might discourage, delay, or prevent a change of control that a stockholder may consider favorable.
In addition, an acquisition or further issuance of our stock could trigger the application of Section 355(e) of the IRC. Under the tax matters agreement executed prior to the Separation, we would be required to indemnify DuPont for the tax imposed under Section 355(e) of the IRC resulting from an acquisition or issuance of its stock, even if it did not participate in or otherwise facilitate the acquisition, and this indemnity obligation might discourage, delay, or prevent a change of control that a stockholder may consider favorable. See the risk factor, “If the distribution, in connection with the Separation, together with certain related transactions, were to fail to qualify for non-recognition treatment for U.S. federal income tax purposes, then we could be subject to significant tax and indemnification liability and stockholders receiving our common stock in the distribution could be subject to significant tax liability” for further information.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
3026
The Chemours Company
Our Production Facilities and Technical Centers
Our corporate headquarters is located in Wilmington, Delaware, and we maintain a global network of production facilities and technical centers located in cost-effective and strategic locations. We also use contract manufacturing and joint venture partners in order to provide regional access or to lower manufacturing costs, as appropriate.
The following chart below sets forth our production facilities at December 31, 2017.2019.
Production Facilities | ||||||||||||
Region |
|
| Fluoroproducts |
| Chemical Solutions |
| Titanium Technologies | Shared Locations | ||||
North America |
|
| El Dorado, Arkansas (1) Elkton, Maryland (1) Louisville, Kentucky Fayetteville, North Carolina Deepwater, New Jersey Parlin, New Jersey (2) Corpus Christi, Texas LaPorte, Texas (2) Washington, West Virginia |
| Memphis, Tennessee | DeLisle, Mississippi New Johnsonville, Tennessee Starke, Florida (Mine & Mineral Separation) Folkston, Georgia (Mine) Offerman, Georgia (Mineral Separation) |
| Pascagoula, Mississippi (4)
| Belle, West Virginia (4) | |||
| Europe, the Middle East, and Africa |
| Mechelen, Belgium Villers St. Paul, France (1) Dordrecht, Netherlands |
|
|
|
| |||||
Latin America | Barra Mansa, Brazil (2) Manaus, Brazil (1) Monterrey, Mexico (1) |
| Altamira, Mexico |
|
|
| ||||||
Asia Pacific |
|
| Changshu, China Shanghai, China (3) Sichuan, China (3) Chiba, Japan (3) Shimizu, Japan (3) |
|
|
| Kuan Yin, Taiwan |
|
| (1) | Site is leased from a |
| (2) | Site is leased from DuPont. |
| (3) | Site with joint venture equity affiliates. |
| (4) | Shared site between the Chemical Solutions and Fluoroproducts segments. |
We have technical centers and R&D facilities located at a number of our production facilities. We also maintain stand-alone technical centers to serve our customers and provide technical support.
The following chart below sets forth our stand-alone technical centers at December 31, 2017.2019.
Technical Centers | ||||||||||
Region |
|
| Fluoroproducts |
| Chemical Solutions |
| Titanium Technologies | Shared Locations | ||
North America |
|
|
| |||||||
|
|
| ||||||||
|
|
|
|
|
|
| Newark, Delaware (All Segments) Wilmington, Delaware (All Segments) (2,4) | |||
Europe, the Middle East, and Africa | Mechelen, Belgium Meyrin, Switzerland (2) | Kallo, Belgium (1) | ||||||||
Latin America | Mexico City, Mexico (1) |
| ||||||||
Asia Pacific |
| Shanghai, China (1) Shimizu, Japan (3) |
|
|
| Shanghai, China (All Segments) |
| (1) | Site is leased from a |
| (2) | Site is leased from DuPont. |
| (3) | Site with joint venture equity affiliates. |
| (4) | There are multiple sites at this location. |
27
The Chemours Company
Our plants and equipment are maintained in good operating condition. We believe that we have sufficient production capacity for our primary products to meet demand in 2018.2020. Our properties are primarily owned by us; however, certain properties are leased, as noted in the preceding tables.
31
The Chemours Company
We recognize that the security and safety of our operations are critical to our employees and communities, as well as our future. Physical security measures have been combined with process safety measures, administrative procedures, and emergency response preparedness into an integrated security plan. Prior to the Separation, DuPont conductedWe conduct vulnerability assessments at itsour operating facilities in the U.S., as well as high priorityhigh-priority sites worldwide, and as a result, identifiedidentify and implementedimplement the appropriate measures to protect these facilities from physical and cyberattacks. We intend to conduct similar vulnerability assessments periodically in the future. We are partnering with carriers, including railroad, shipping, and trucking companies, to secure chemicals in transit.
Legal Proceedings
We are subject to various legal proceedings, including, but not limited to, product liability, patent infringement, antitrust claims,intellectual property, personal injury, commercial, contractual, employment, governmental, environmental, anti-trust, and claims for property damage or personal injury.other such matters that arise in the ordinary course of business. Information regarding certain of these matters is set forth below and in “Note 2022 – Commitments and Contingent Liabilities” withinto the Consolidated Financial Statements.
Litigation
PFOA: Environmental and Litigation Proceedings
For purposes of this report, the term PFOA“PFOA” means, collectively, perfluorooctanoic acid and its salts, including the ammonium salt, and does not distinguish between the two forms. Information related to this and other litigation matters is included in “Note 2022 – Commitments and Contingent Liabilities” withinto the Consolidated Financial Statements.
Fayetteville, North Carolina
The following actions related to Fayetteville, North Carolina, as discussed in “Note 2022 – Commitments and Contingent Liabilities” withinto the Consolidated Financial Statements, are filed in the U.S. District Court for the Eastern District of North Carolina, Southern Division:
• | Carey et al. vs. E. I. DuPont de Nemours and Company (7:17-cv-00189-D; 7:17-cv-00197-D; and, 7:17-cv-00201-D); |
• | Cape Fear Public Utility Authority vs. The Chemours Company FC, LLC et al. and Brunswick County v. DowDuPont et al. (7:17-cv-00195-D and 7:17-cv-00209-D); and, |
• | Dew et al. vs. E. I. DuPont de Nemours and Company et al. (17:18-cv-00030-D). |
Carey et al. vs. E.I. DuPont de Nemours and Company (7:17-cv-00189-D; 7:17-cv-00197-D; and, 7:17-cv-00201-D); and,
Cape Fear Public Utility Authority vs. The Chemours Company FC, LLC et al. and Brunswick County v. DowDuPont et al. (7:17-cv-00195-D and 7:17-cv-00209-D).
Environmental Proceedings
LaPorte, Plant, LaPorte, Texas
The U.S. Environmental Protection Agency (EPA)(“EPA”) conducted a multimedia inspection at the DuPont LaPorte, Texas facility in January 2008. DuPont, the EPA, and the U.S. Department of Justice began discussions in the fall of 2011 relating to the management of certain materials in the facility’s waste water treatment system, hazardous waste management, flare, and air emissions. These negotiations continue. We operate a fluoroproducts production facility at this site.
A Proposed Consent Agreement and Final Order (“CAFO”) was received from the EPA in January 2020, alleging CAA Section 112(r) violations at the LaPorte, Texas site.The alleged violations are under the CAA’s chemical accident prevention provisions (40 CFR Part 68), and the EPA states that it is seeking a civil penalty of $0.6 million for negotiation purposes.We are reviewing the draft CAFO and the alleged violations, and will respond to the EPA. At this time, we believe a loss is reasonably possible.
28
The Chemours Company
Dordrecht, Netherlands
We have receivedcomplied with requests from the Labor Inspectorate (ISZW), the local environmental agency (OZHZ)(“DCMR,” formerly under the jurisdiction of “OZHZ”), the Labor Inspectorate (“iSZW”), the Inspectorate for Environment and Transportation (“ILT”), and the National Institute for Public Health and the Environment (RIVM)Water Authority (“RWS”) in the Netherlands for information and documents regarding the Dordrecht site’s operations. We have complied with the requests, and no further documentsthe agencies have been requestedpublished several reports between 2016 and 2018, all of us sincethem publicly available. The National Institute for Public Health and the publicationEnvironment (“RIVM”) has also published several reports with respect to PFOA and GenX. In December 2018, DCMR imposed a €1 million fine after undertaking waste water tests, which detected low levels of PFOA. DCMR continued taking samples and has imposed three additional fines between January and May 2019, each of which was €0.25 million. We have appealed all the reports in May 2017 (RIVM)fines, and July 2017 (ISZW). The agencies will decide whether additional investigation is warranted. We understandwe believe that some of the requests from OZHZ are part of a preliminary investigation initiated by a public prosecutor, although we have not received notice that it intendsvalid defenses to pursue such action.
32
The Chemours Companyprevail. We continue to cooperate with all authorities in responding to information requests.
In October 2019, we received a $0.15 million fine from the Federal Rail Administration (“FRA”) based on the results of an investigation of our Antimony Pentachloride railcar shipments, fleet, commodity code accuracy, and condition of valves. We are continuing to investigate this matter and have submitted a response to the FRA in December 2019.
Fayetteville, North Carolina
Upon notifying the North Carolina Department of Environmental Quality (NC DEQ) of findings from groundwater studies conducted on the site,
In February 2019, we received on September 6, 2017, a Notice of Violation (NOV) and Notice of Intent(“NOV”) from the EPA alleging certain TSCA violations at Fayetteville. Matters raised in the NOV could have the potential to Enforce from NC DEQ pursuantaffect operations at Fayetteville. We responded to North Carolina groundwater quality standards. Since then,the EPA in March 2019, asserting that we have been conducting further studies on-site and off-site in cooperation with NC DEQ to better understand the nature and extent ofnot violated environmental contamination involving certain perfluorinated compoundslaws. At this time, management does not believe that a loss is probable related to our Fayetteville, North Carolina operations. These studies are ongoing and will be used to determine what groundwater-focused remedial actions, if any, may be necessary to protect people and the environment and comply with the State’s standards. On February 12, 2018, NC DEQ issued an NOVmatters in this NOV. Further discussion related to groundwater onthis matter is included in “Note 22 – Commitments and around the site which directs us to respond with source control measures. We continue to take action in responseContingent Liabilities” to the NOV and will continue to cooperate with NC DEQ.Consolidated Financial Statements.
Item 4. MINE SAFETY DISCLOSURES
Information regarding mine safety and other regulatory actions at our surface minemines in Starke, Florida and Folkston, Georgia and our mineral sands separation facility in Offerman, Georgia is included in Exhibit 95 to this Annual Report on Form 10-K.
33
The Chemours Company
INFORMATION ABOUT OUR EXECUTIVE OFFICERSOF THE REGISTRANT
The following list sets forth our executive officers and a summary of their professional experience.
Mark P. Vergnano, age 60,62, serves as our President and Chief Executive Officer (CEO)(“CEO”). Prior to joining Chemours, he held roles of increasing responsibility at DuPont. In October 2009, Mr. Vergnano was appointed Executive Vice President of DuPont and was responsible for multiple businesses and functions, including the businesses in the Chemours segment: DuPont Chemicals and Fluoroproducts and Titanium Technologies. In June 2006, he was named Group Vice President of DuPont Safety and Protection. In October 2005, he was named Vice President and General Manager —– Surfaces and Building Innovations. In February 2003, he was named Vice President and General Manager —– Nonwovens. Prior to that, he had several assignments in manufacturing, technology, marketing, sales, and business strategy. Mr. Vergnano joined DuPont in 1980 as a process engineer. Mr. Vergnano was appointed Chairman of the National Safety Council in 2017 and has served on its board of directors since 2007. He has also servesserved on the board of directors of the American Chemistry Council since 2015 and was appointed Chairman in 2019, and he has served on the board of directors of Johnson Controls International plc since 2016. He previously served on the board of directors of Johnson Controls, Inc. from 2011 to 2016.
Mark E. Newman, age 54,56, serves as our Senior Vice President and Chief Operating Officer (“COO"). Mr. Newman was appointed Senior Vice President and COO in June 2019, prior to which time he had served as our Senior Vice President and Chief Financial Officer (CFO).(“CFO”) since November 2014. Mr. Newman joined Chemours in November 2014 from SunCoke Energy, Inc. (“SunCoke”), where he was SunCoke Energy’sSunCoke’s Senior Vice President and CFO and led its financial, strategy, business development, and information technology functions. Mr. Newman joined SunCoke’s leadership team in March 2011 to help drive SunCoke’s separation from its parent company, Sunoco, Inc. He led SunCoke through an initial public offering and championed a major restructuring of SunCoke, which resulted in the initial public offering of SunCoke Energy Partners, L.P. in January 2013, creating the first coke-manufacturing master limited partnership. Prior to joining SunCoke, Mr. Newman served as Vice President – Remarketing and Managing Director of SmartAuction, Ally Financial Inc. (previously, the General Motors Acceptance Corporation). Mr. Newman began his career at the General Motors Company in 1986 as an Industrial Engineer and progressed through several financial and operational leadership roles within the global automaker, including Vice President and CFO of Shanghai General Motors Limited; Assistant Treasurer of General Motors Corporation; and, Vice President – North America and CFO. Mr. Newman joinedhas served on the board of Altria Group, Inc. insince February 2018.
Bryan Snell
29
The Chemours Company
Sameer Ralhan, age 61,46, serves as our Senior Vice President, CFO, and Treasurer. Mr. Ralhan was appointed Senior Vice President and CFO in June 2019. Mr. Ralhan joined Chemours in November 2014 and has held several positions of increasing responsibility in strategy, mergers and acquisitions (“M&A”), finance, and treasury. He served as Vice President, Business Finance and Treasurer from 2018 to 2019, and Vice President, Business Finance and Head of M&A from 2016 to 2018. He also served as Treasurer and Head of M&A from 2015 to 2016, and Head of M&A from 2014 to 2015. Prior to joining Chemours, Mr. Ralhan served as a Managing Director in the Global Natural Resources Group of Goldman Sachs & Co. During his tenure at Goldman Sachs and Co., from 2007 to 2014, he advised companies in the chemicals, industrials, and basic materials sectors on M&A, portfolio transformations, corporate finance matters, and capital markets transactions. Mr. Ralhan also served as an associate in the investment banking group of Bank of America Securities, LLC from 2004 to 2007. Mr. Ralhan began his career as a Chemical Engineer and brings chemicals industry operating experience from his time (1998 – 2002) at Aspen Technology, Inc., where, as an advanced process control engineer, he executed manufacturing process improvement and operational enhancement initiatives for several global chemical and petrochemical companies.
Edwin C. Sparks, age 46, serves as our President —– Fluoroproducts and President – Chemical Solutions. Mr. Sparks was appointed to these roles in October 2019 and April 2018, respectively. Previously, he served as Director of Corporate Strategy from 2017 to 2018 and Global Planning Director – Titanium Technologies from 2016 to 2017. He also served as the Asia Pacific Business Director – Titanium Technologies from 2015 to 2016, based in Singapore. Prior to joining Chemours, he held leadership positions of increasing scope in the DuPont Titanium Technologies business, with responsibilities including sales, marketing, operations, strategy, and technology. Mr. Sparks joined DuPont in 1994 as a process engineer.
Bryan Snell, age 63, serves as our President – Titanium Technologies. Mr. Snell was appointed President —– Titanium Technologies in May 2015. Previously, he served as Planning Director —– DuPont Performance Chemicals from 2014 to 2015. Prior to that, he held leadership positions in DuPont Titanium Technologies, including Planning Director from 2011 to 2012 in Wilmington, Delaware and from 2012 to 2013 in Singapore, and Global Sales and Marketing Director from 2008 to 2010. Mr. Snell served as Regional Operations Director —– DuPont Coatings and Color Technologies Platform in 2007 and 2008. He was postedbased in Taiwan from 2002 to 2006, in the roles of Plant Manager —– Kuan Yin Plant and Asia/Asia Pacific Regional Director, DuPont Titanium Technologies. Mr. Snell joined DuPont in 1978 as a process engineer and has experience in nuclear and petrochemical operations, as well as sales, business strategy, and mergers and acquisitions (M&A).
Paul Kirsch, age 54, serves as our President — Fluoroproducts. Mr. Kirsch joined Chemours in June 2016 from Henkel AG and Company, where he served as Senior Vice President of supply chain and operations for three years. Prior to that, he was President of the automotive, metals, and aerospace division of Henkel AG and Company KGaA. Before joining Henkel in 2009, Mr. Kirsch spent nearly 25 years in various engineering, operations, and business development roles of increasing responsibility within the automotive and telematics industries. He was Vice President of Hughes Telematics, where his responsibilities included business development, quality, and strategic planning. He also served as Vice President of XM Satellite Radio, where he was responsible for growing and running the automotive business of the Washington, District of Columbia-based firm. Mr. Kirsch started his career at Delphi in 1985, where he worked for nearly 19 years, in both regional and global roles ranging in product engineering, process engineering, M&A, marketing and sales, and strategic planning. He spent nearly 11 years of his professional career living abroad in Europe and Asia.
Christian W. Siemer, age 59, serves as our President — Chemical Solutions. Mr. Siemer was appointed to this role in July 2014. Mr. Siemer joined DuPont in 2010 as the Managing Director of Clean Technologies, a business unit of DuPont Sustainable Solutions focused on process technology development and licensing. He led the successful acquisition of MECS Inc., the global leader in technology for the production of sulfuric acid. Mr. Siemer began his career in 1980 with Stauffer Chemicals as a process engineer. Following Stauffer’s acquisition by ICI plc, Mr. Siemer moved through a range of commercial roles and overseas assignments managing portfolios of international industrial and specialty chemical businesses.
34
The Chemours Companyacquisitions.
David C. Shelton, age 54,56, serves as our Senior Vice President, General Counsel, and Corporate Secretary. Prior to Chemours, Mr. Shelton was appointed Associate General Counsel for DuPont in 2011 and was responsible for the U.S. Commercial team, which included the business lawyers and paralegals counseling all DuPont business units, with the exception of Agriculture. Mr. Shelton also served as the Commercial Attorney to a variety of DuPont businesses including the Performance Materials platform, which he advised on international assignment in Geneva, and the businesses now comprising the DuPont Chemicals and Fluoroproducts business unit. Prior to that, Mr. Shelton advised the company on environmental and remediation matters as part of the environmental legal team. Mr. Shelton joined DuPont in 1996, after seven years in private practice as a litigator in Pennsylvania and New Jersey.
Susan M. Kelliher, age 51,53, serves as our Senior Vice President —– Human Resources and Health Services. Ms. Kelliher joined Chemours in 2017 from Albemarle Corporation (“Albemarle”), where she served as Senior Vice President – Human Resources for the global specialty chemical company. Prior to Albemarle, she served as Vice President – Human Resources at Hewlett Packard, where she held a number of leadership positions on global teams including Imaging and Printing and Global Sales and Enterprise Marketing from 2007 to 2012. Before joining Hewlett Packard, Ms. Kelliher served as Vice President – Human Resources for Cymer, Inc. (“Cymer”), where she led the people function. She joined Cymer from The Home Depot where, from 2004 to 2007, she was the Vice President – Human Resources for the growth engines of the company – Business Development and Home Services including responsibility for due diligence and integration for the company’s acquisitions. From 2000 to 2004, Ms. Kelliher served as Senior Director of Human Resources for Corporate Business Development and International Operations for Raytheon.the Raytheon Company (“Raytheon”). Prior to Raytheon, she served as the Director of Human Resources – Western Region for YUM! Brands, Pizza Hut division from 1995 to 2000. Ms. Kelliher started her career at Mobil Oil, where her career progressed through a variety of assignments including support for new ventures in Europe, Russia, and Africa from 1990 to 1995.
Erich Parker, age 66,68, serves as our Senior Vice President of Corporate Communications and Chief Brand Officer. Mr. Parker was appointed Creative Director and Global Director of Corporate Communications of DuPont in 2010. He led the initiative to develop corporate positioning and its creative expression through branded content and program sponsorship with large international news media outlets. In 2008, Mr. Parker was appointed Communications Leader for DuPont’s Safety and Protection Platform. Prior to joining DuPont, Mr. Parker was principal of his own public relations and marketing communications firm based in Washington, District of Columbia and New York. Mr. Parker has also served as Executive Vice President of Association and Issues Management; Director of Communications for the American Academy of Actuaries; founding publisher and Executive Editor of the magazine, Contingencies; and, Public Affairs Aide for Renewable Energy to the Secretary of Energy, U.S. Department of Energy.
3530
The Chemours Company
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Registrant’s Common Equity and Related Stockholder Matters
Our common stock is listed on the NYSENew York Stock Exchange (“NYSE”) under the symbol, “CC.“CC.” The number of record holders of our common stock was 51,19745,310 at February 13, 2018.10, 2020. Holders of our common stock are entitled to receive dividends when they are declared by our board of directors, and dividends are generally declared and paid on a quarterly basis. The stock transfer agent and registrar is Computershare Trust Company, N.A.
Our common stock began trading on July 1, 2015. The following table sets forth our quarterly high and low trading stock prices and dividends per common share for 2017 and 2016.
|
| Market Prices |
|
| Per Share |
| ||||||
|
| High |
|
| Low |
|
| Dividend Declared |
| |||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter (1) |
| $ | 58.08 |
|
| $ | 45.03 |
|
| $ | 0.20 |
|
Third Quarter |
|
| 52.15 |
|
|
| 37.64 |
|
|
| 0.03 |
|
Second Quarter |
|
| 46.02 |
|
|
| 34.70 |
|
|
| 0.03 |
|
First Quarter |
|
| 39.02 |
|
|
| 20.76 |
|
|
| 0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
| $ | 27.29 |
|
| $ | 14.41 |
|
| $ | 0.03 |
|
Third Quarter |
|
| 16.08 |
|
|
| 5.82 |
|
|
| 0.03 |
|
Second Quarter |
|
| 10.83 |
|
|
| 6.99 |
|
|
| 0.03 |
|
First Quarter |
|
| 7.84 |
|
|
| 3.06 |
|
|
| 0.03 |
|
|
|
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
2017 Share Repurchase Program
On November 30, 2017, our board of directors approved a share repurchase programplan authorizing the purchase of shares of our issued and outstanding common stock in an aggregate amount not to exceed $500 million, plus any associated fees or costs in connection with our share repurchase activity.activity (the “2017 Share Repurchase Program”). Under the share repurchase program,2017 Share Repurchase Program, shares of our common stock may bewere purchased in the open market from time to time, subject to management’s discretion, as well as general business and market conditions. Our share repurchase program2017 Share Repurchase Program became effective on November 30, 2017, and continueswas announced to the public on December 1, 2017. On May 31, 2018, we completed the aggregate $500 million in authorized purchases of our issued and outstanding common stock under the 2017 Share Repurchase Program, which amounted to a cumulative 10,085,647 shares purchased at an average share price of $49.58 per share. All common shares purchased under the 2017 Share Repurchase Program are held as treasury stock and are accounted for using the cost method.
2018 Share Repurchase Program
On August 1, 2018, our board of directors approved a share repurchase program authorizing the purchase of shares of our issued and outstanding common stock in an aggregate amount not to exceed $750 million, plus any associated fees or costs in connection with our share repurchase activity (the “2018 Share Repurchase Program”). On February 13, 2019, our board of directors increased the authorization amount of the 2018 Share Repurchase Program from $750 million to $1.0 billion. Under the 2018 Share Repurchase Program, shares of our common stock can be purchased on the open market from time to time, subject to management’s discretion, as well as general business and market conditions. Our 2018 Share Repurchase Program became effective on August 1, 2018, was announced to the public on August 2, 2018, and will continue through the earlier of its expiration on December 31, 2020.2020, or the completion of repurchases up to the approved amount. The program may be suspended or discontinued at any time. All common shares purchased under the share repurchase program2018 Share Repurchase Program are expected to be held as treasury stock and are accounted for using the cost method.
From December 1, 2017 through
As of December 31, 2017,2019, we have purchased 2,386,406a cumulative 15,245,999 shares of our issued and outstanding common stock under the share repurchase program,2018 Share Repurchase Program, which amounted to $116$572 million at an average share price of $48.81$37.52 per share. All common shares purchasedThere were part of ourno share repurchase program, which was announced torepurchases under the public on2018 Share Repurchase Program for the three months ended December 1, 2017.31, 2019. The aggregate amount of our common stock that remainsremained available for purchase under the share repurchase program2018 Share Repurchase Program at December 31, 2017 is $3842019 was $428 million.
Subsequent to December 31, 2017, in January 2018, we purchased an additional 654,241 shares of our issued and outstanding common stock under the share repurchase program, which amounted to $34 million and an average share price of $51.23 per share.
36
31
The Chemours Company
The following graph presents the cumulative total stockholder returns for our common stock compared with the Standard & Poor’s (S&P)(“S&P”) MidCap 400 and the S&P MidCap 400 Chemical indices since theour Separation from DuPont on July 1, 2015, the date that our common stock began “regular-way” trading on the NYSE.
The graph assumes that the values of our common stock, the S&P MidCap 400 index, and the S&P MidCap 400 Chemical index were each $100 on July 1, 2015, and that all dividends were reinvested.
3732
The Chemours Company
Item 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data for each of the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, and as of December 31, 20172019 and 20162018 was derived from the audited consolidated financial statements included withinin the Consolidated Financial Statements of this Annual Report on Form 10-K. The selected historical consolidated financial data for each of the years ended December 31, 20142016 and 2013,2015, and as of December 31, 2015, 2014,2017, 2016, and 20132015 was derived from our audited consolidated financial statements not included in this Annual Report on Form 10-K.
The selected historical consolidated financial data for the years ended December 31, 2013 and 2014, and for the first six months of the year ended December 31, 2015 includeincludes expenses of DuPont that were allocated to us for certain corporate functions, including information technology, R&D, finance, legal, insurance, compliance, and human resources activities. These costs may not be representative of our actual costs as an independent, publicly-traded company. In addition, our selected historical consolidated financial data does not reflect changes related to our Separation from DuPont, including changes in our cost structure, personnel needs, tax structure, capital structure, financing, and business operations. Consequently, the financial information included herein may not necessarily reflect what our financial position, results of operations, and cash flows would have been had we been an independent, publicly-traded company during the periods presented. Accordingly, these historical results should not be relied upon as an indicator of our future performance.
For a better understanding of our financial results, this section should be read in conjunction with Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements.
The following table sets forth our selected historical consolidated financial data as of and for the years ended December 31, 2019, 2018, 2017, 2016, and 2015.
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||||||||||||||||||
(Dollars in millions, except per share amounts) |
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
| ||||||||||
Summary consolidated statements of operations data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 6,183 |
|
| $ | 5,400 |
|
| $ | 5,717 |
|
| $ | 6,432 |
|
| $ | 6,859 |
|
| $ | 5,526 |
|
| $ | 6,638 |
|
| $ | 6,183 |
|
| $ | 5,400 |
|
| $ | 5,717 |
|
Restructuring and asset-related charges, net |
|
| 57 |
|
|
| 170 |
|
|
| 333 |
|
|
| 21 |
|
|
| 2 |
| ||||||||||||||||||||
Income (loss) before income taxes |
|
| 912 |
|
|
| (11 | ) |
|
| (188 | ) |
|
| 550 |
|
|
| 576 |
| ||||||||||||||||||||
Provision for (benefit from) income taxes |
|
| 165 |
|
|
| (18 | ) |
|
| (98 | ) |
|
| 149 |
|
|
| 152 |
| ||||||||||||||||||||
Net income (loss) attributable to Chemours |
|
| 746 |
|
|
| 7 |
|
|
| (90 | ) |
|
| 400 |
|
|
| 423 |
| ||||||||||||||||||||
Basic earnings (loss) per share of common stock (1) |
|
| 4.04 |
|
|
| 0.04 |
|
|
| (0.50 | ) |
|
| 2.21 |
|
|
| 2.34 |
| ||||||||||||||||||||
Diluted earnings (loss) per share of common stock (1) |
|
| 3.91 |
|
|
| 0.04 |
|
|
| (0.50 | ) |
|
| 2.21 |
|
|
| 2.34 |
| ||||||||||||||||||||
Restructuring, asset-related, and other charges |
|
| 87 |
|
|
| 49 |
|
|
| 57 |
|
|
| 170 |
|
|
| 333 |
| ||||||||||||||||||||
(Loss) income before income taxes |
|
| (124 | ) |
|
| 1,155 |
|
|
| 912 |
|
|
| (11 | ) |
|
| (188 | ) | ||||||||||||||||||||
(Benefit from) provision for income taxes |
|
| (72 | ) |
|
| 159 |
|
|
| 165 |
|
|
| (18 | ) |
|
| (98 | ) | ||||||||||||||||||||
Net (loss) income attributable to Chemours |
|
| (52 | ) |
|
| 995 |
|
|
| 746 |
|
|
| 7 |
|
|
| (90 | ) | ||||||||||||||||||||
Basic (loss) earnings per share of common stock (1,2) |
|
| (0.32 | ) |
|
| 5.62 |
|
|
| 4.04 |
|
|
| 0.04 |
|
|
| (0.50 | ) | ||||||||||||||||||||
Diluted (loss) earnings per share of common stock (1,2) |
|
| (0.32 | ) |
|
| 5.45 |
|
|
| 3.91 |
|
|
| 0.04 |
|
|
| (0.50 | ) | ||||||||||||||||||||
Summary consolidated balance sheets data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital, net |
| $ | 1,845 |
|
| $ | 782 |
|
| $ | 835 |
|
| $ | 543 |
|
| $ | 474 |
|
| $ | 1,236 |
|
| $ | 1,584 |
|
| $ | 1,845 |
|
| $ | 782 |
|
| $ | 835 |
|
Total assets |
|
| 7,293 |
|
|
| 6,060 |
|
|
| 6,298 |
|
|
| 5,959 |
|
|
| 5,580 |
|
|
| 7,258 |
|
|
| 7,362 |
|
|
| 7,293 |
|
|
| 6,060 |
|
|
| 6,298 |
|
Debt, net |
|
| 4,112 |
|
|
| 3,544 |
|
|
| 3,954 |
|
|
| 1 |
|
|
| 1 |
|
|
| 4,160 |
|
|
| 3,972 |
|
|
| 4,112 |
|
|
| 3,544 |
|
|
| 3,954 |
|
Other summary consolidated financial data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment |
| $ | 411 |
|
| $ | 338 |
|
| $ | 519 |
|
| $ | 604 |
|
| $ | 438 |
|
| $ | 481 |
|
| $ | 498 |
|
| $ | 411 |
|
| $ | 338 |
|
| $ | 519 |
|
Depreciation and amortization |
|
| 273 |
|
|
| 284 |
|
|
| 267 |
|
|
| 257 |
|
|
| 261 |
|
|
| 311 |
|
|
| 284 |
|
|
| 273 |
|
|
| 284 |
|
|
| 267 |
|
Dividends per share of common stock (4,5) |
|
| 0.29 |
|
|
| 0.12 |
|
|
| 0.58 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||
Dividends per share of common stock (5,6) |
|
| 1.00 |
|
|
| 0.67 |
|
|
| 0.29 |
|
|
| 0.12 |
|
|
| 0.58 |
|
| (1) | For the |
| (2) | In periods where the Company incurs a net loss, the impact of potentially dilutive securities is excluded from the calculation of earnings per share as its inclusion would have an anti-dilutive effect. |
(3) | Defined as current assets minus current liabilities. |
|
| Amounts |
|
| Dividends per share of common stock for the year ended December 31, 2015 includes the following: (i) |
|
| Dividends per share of common stock for the year ended December 31, 2017 includes a $0.17 per share dividend declared in December 2017, which |
38
33
The Chemours Company
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OFOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)(“MD&A”) supplements the Consolidated Financial Statements and the related notes thereto included elsewhere herein to help provide an understanding of our financial condition, changes in our financial condition, and the results of our operations for the periods presented. years ended December 31, 2019 and 2018 and the changes therein. For the year ended December 31, 2017, and changes from the year ended December 31, 2017 to the year ended December 31, 2018, management’s discussion and analysis pertaining to our financial condition, changes in our financial condition, and the results of our operations have been omitted from this MD&A and may be found in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations as included in our Annual Report on Form 10-K for the year ended December 31, 2018.
Our forward-looking statements are based on certain assumptions and expectations of future events that may not be accurate or realized. These statements, as well as our historical performance, are not guarantees of future performance. Forward-looking statements also involve risks and uncertainties that are beyond our control. Additionally, there may be other risks and uncertainties that we are unable to identify at this time or that we do not currently expect to have a material impact on our business. Factors that could cause or contribute to these differences include, but are not limited to, the risks, uncertainties, and other factors discussed within Item 1A – Risk Factors.
This MD&A should be read in conjunction with the Consolidated Financial Statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K.
Overview
We are a leading, global provider of performance chemicals that are key inputs in end-products and processes in a variety of industries. We deliver customized solutions with a wide range of industrial and specialty chemical products for markets, including plastics and coatings, refrigeration and air conditioning, general industrial, electronics, mining, and oil refining. Our principal products include TiO2 pigment, refrigerants, industrial fluoropolymer resins, sodium cyanide, performance chemicals and a portfolio of miningintermediates, and industrial chemicals, including sodium cyanide.
TiO2 pigment. We manage and report our operating results through three reportable segments: Fluoroproducts, Chemical Solutions, and Titanium Technologies. Our Fluoroproducts segment is a leading, global provider of fluoroproducts, including refrigerants and industrial fluoropolymer resins. Our Chemical Solutions segment is a leading, North American provider of industrial chemicals used in gold production, industrial, and consumer applications. Our Titanium Technologies Fluoroproducts,segment is a leading, global provider of TiO2 pigment, a premium white pigment used to deliver whiteness, brightness, opacity, and Chemical Solutions. Our positionsprotection in a variety of applications.
Recent Developments
Fayetteville Works, Fayetteville, North Carolina
In February 2019, we entered into a final Consent Order with the North Carolina Department of Environmental Quality (“NC DEQ”) and Cape Fear River Watch, a non-profit organization. The final Consent Order comprehensively addressed certain legal and environmental matters at our Fayetteville Works site in Fayetteville, North Carolina (“Fayetteville”) and was accepted by the North Carolina Superior Court for Bladen County.
In connection with the Consent Order, a thermal oxidizer (“TO”) became fully operational at the site in December 2019, and we switched to the permitted operating scenario for the TO on December 31, 2019 as required by the Consent Order. The TO is designed to reduce aerial PFAS emissions from Fayetteville, and, within each90 days of these businesses reflectinstallation, we, along with the strong value propositionNorth Carolina Division of Air Quality, will conduct testing to confirm whether the TO is destroying 99.99% of all PFAS air emissions routed to it, utilizing a 2017 baseline.
In the fourth quarter of 2019, we providecompleted and submitted our Cape Fear River PFAS Loading Reduction Plan - Supplemental Information Report and Corrective Action Plan (“CAP”) to our customersNC DEQ. The Supplemental Information Report provides information to support the evaluation of potential remedial options to reduce PFAS loadings to surface waters, including interim alternatives. The CAP describes potential remediation activities to address PFAS in on-site groundwater and surface waters at the site, in accordance with the requirements of the Consent Order and the North Carolina groundwater standards, and builds on the previous submissions to NC DEQ. In the fourth quarter of 2019, based on the Consent Order, CAP, and our long historyplans, we accrued an additional $132 million related to the estimated cost of on-site remediation.
See “Note 22 – Commitments and reputation inContingent Liabilities” to the chemical industry for safety, quality, and reliability.
On July 1, 2015, DuPont completed our previously announced spin-off by distributing our common stock, on a pro rata basis, to DuPont’s stockholders of record as of the close of business on the Record Date. Each holder of DuPont common stock received one share of our common stock for every five shares of DuPont’s common stock held on the Record Date. The Separation was completed pursuant to a separation agreement and several other agreements with DuPont, including an employee matters agreement, a tax matters agreement, a transition services agreement, and an intellectual property cross-license agreement, each of which was filed with the SEC as an exhibit to our Current Report on Form 8-K on July 1, 2015. These agreements govern the relationship among us and DuPont following the Separation, and provide for the allocation of various assets, liabilities, rights, and obligations. These agreements also include arrangements for transition services provided to us by DuPont, which were substantially completed during 2016.
Basis of Presentation
Prior to July 1, 2015, our operations were included in DuPont’s financial results in different legal forms, including, but not limited to, wholly-owned subsidiaries for which we were the sole business, components of legal entities in which we operated in conjunction with other DuPont businesses, and a majority-owned joint venture. For periods prior to July 1, 2015, the Consolidated Financial Statements, included elsewhere in this Annual Report on Form 10-K, have been prepared from DuPont’s historical accounting records and are presented on a stand-alone basis as if the business operations had been conducted independently from DuPont. The Consolidated Financial Statements include the historical operations, assets, and liabilities of the legal entities that are considered to comprise our business, including certain for further information about environmental remediation and litigation obligations of DuPont and its subsidiaries that we may be required to indemnify pursuant to the Separation-related agreements executed prior to the Separation. All of the allocations and estimates in the Consolidated Financial Statements prior to July 1, 2015 are based on assumptions that management believes are reasonable.at Fayetteville.
Recent Developments
U.S. Income Tax Reform
On December 22, 2017, the U.S. enacted the Tax Act, which, except for certain provisions, is effective for tax years beginning on or after January 1, 2018. The Tax Act significantly changes existing U.S. tax law and includes numerous provisions that will affect businesses, such as: (i) reducing the U.S. federal corporate tax rate from 35% to 21%; (ii) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (iii) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (iv) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (v) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (vi) creating the base erosion anti-abuse tax, a new minimum tax; (vii) creating a new limitation on deductible interest expense; (viii) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and, (ix) creating the global intangibles low-tax income inclusions.
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The Chemours Company
In the fourth quarter of 2019, we completed a settlement transaction related to a significant portion of our Netherlands pension plan. The future risk, responsibility, and administration associated with the $932 million of inactive participants’ vested pension benefits was transferred to a third-party asset management company via an irrevocable transaction in December 2019, thereby eliminating our exposure to the pension liabilities and formally effecting the settlement. The cumulative loss associated with the inactive participants’ vested pension benefits was recognized in earnings, resulting in a charge of $380 million recognized in other expense, net in the consolidated statements of operations. At December 31, 2019, the projected benefit obligations associated with the plan’s active employees remained on our consolidated balance sheet.
2019 Restructuring Program
In an effort to better align our cost structure with market opportunities, we recorded net severance charges of $22 million during the year ended December 31, 2019. Impacted employees are subject to our customary involuntary termination benefits. The majority of the employees separated from the Company during the fourth quarter of 2019, and the majority of the associated severance payments will be made by the end of 2020.
Also, in the third quarter of 2019, we announced plans to exit the Methylamines and Methylamides business at our Belle, West Virginia manufacturing plant, which culminated in our completed exit and sale of the business to Belle Chemical Company, a subsidiary of Cornerstone Chemical Company, in the fourth quarter of 2019. As a result, for the year ended December 31, 2019, we recorded accelerated depreciation of $34 million, which is reflected as a component of restructuring, asset-related, and other charges in the consolidated statement of operations. Upon completion of the sale, we also recorded an additional pre-tax loss on sale of $2 million, net of a benefit from working capital adjustments, in other expense, net in the consolidated statements of operations. Both of the aforementioned charges relate to Chemical Solutions, and we do not expect to incur additional charges related to our exit of the Methylamines and Methylamides business.
Accounts Receivable Securitization Facility
In July 2019, we, through a wholly-owned special purpose entity, entered into an accounts receivable securitization facility (“Securitization Facility”) to enhance our liquidity. The original borrowings amounted to $125 million, which, along with available cash, was used to pay down our then outstanding revolving loan. At December 31, 2019, our net borrowings under the Securitization Facility were $110 million.
Capital Allocation
For the year ended December 31, 2017, the net provisional impact of tax reform recognized2019, we returned $486 million in cash to our provision for income taxes is a $3shareholders by purchasing $322 million benefit, which includes tax expense associated with the deemed repatriation transition tax on our unremitted foreign earnings. This net benefit is inclusive of a release of the valuation allowance on carryforward foreign tax credits utilized against the deemed repatriation transition tax and the revaluation of our net U.S. deferred tax liabilities as a result of the lower federal rate. We continue to examine the impacts that the Tax Act may have on our effective tax rate in the future. Our accounting for the impacts of the Tax Act is provisional in nature, and is subject to adjustments during a measurement period not to exceed one year from the enactment date in accordance with the SEC’s Staff Accounting Bulletin No. 118 (SAB No. 118). Our provisional estimates could change significantly within this measurement period due to many factors, including, but not limited to, changes in our interpretation of the provisions of the Tax Act, IRS and U.S. Treasury Department (Treasury) guidance that may be issued, and actions we may take.
Share Repurchase Program
On November 30, 2017, our board of directors approved a share repurchase program authorizing the purchase of shares of our issued and outstanding common stock in an aggregate amount not to exceed $500 million, plus any associated fees or costs in connection with our share repurchase activity. Our share repurchase program became effective on November 30, 2017 and continues through its expiration on December 31, 2020. Through December 31, 2017, we purchased 2,386,406 shares of our issued and outstanding common stock under the share repurchase program, which amounted to $116 million. Of the 2,386,406 shares purchased by Chemours, 206,106 shares amounting to $10 million settled subsequent to December 31, 2017. Shares purchased under the share repurchase program are held as treasury stockour 2018 Share Repurchase Program, and are accounted for using the cost method.
Build-to-suit Lease of Research and Development Facility
In October 2017, we executed a build-to-suit lease agreement to construct a new 312,000-square-foot R&D facility on the Science, Technology, and Advanced Research campus of the University of Delaware (UD) in Newark, Delaware (The Chemours Discovery Hub). The land on which The Chemours Discovery Hub will be located is leased to a third-party owner-lessor by UD, and we will act as the construction agent and ultimate lessee of the facility based on our agreement with the owner-lessor. Project costs paid by the owner-lessor are reflected in our consolidated balance sheets as construction-in-progress within property, plant, and equipment, and a corresponding build-to-suit lease liability within long-term debt. Through December 31, 2017, project costs paid by the owner-lessor amounted to $8 million. Construction of The Chemours Discovery Hub is expected to be completed by early 2020.
2017 Restructuring Program
During the third and fourth quarters of 2017, we announced certain restructuring activities designed to further the cost savings and productivity improvements outlined under management’s transformation plan (which is discussed in further detail below). These activities include, among other efforts: (i) outsourcing and further centralizing certain of our business process activities; (ii) consolidating our existing, outsourced third-party information technology (IT) providers; and, (iii) implementing various upgrades to our current IT infrastructure. Additionally, we announced a voluntary separation program (VSP) for certain eligible U.S. employees in an effort to better manage the anticipated future changes to our workforce. We recognized $32 million in charges related to our restructuring activities and VSP for the year ended December 31, 2017, and we anticipate that we will incur an additional $20 million to $25 million in charges for restructuring-related activities and termination benefits through the endpayment of 2018.
Settlement of PFOA MDL Litigation
As previously reported, approximately 3,500 lawsuits have been filed in various federal and state courts in Ohio and West Virginia alleging personal injury from exposure to perfluorooctanoic acid and its salts, including the ammonium salt (PFOA), in drinking water as a result of the historical manufacture or use of PFOA at the Washington Works plant outside Parkersburg, West Virginia. That plant was previously owned and/or operated by the performance chemicals segment of DuPont and is now owned and/or operated by us. These personal injury lawsuits were consolidated in multi-district litigation in the U.S. District Court for the Southern District of Ohio (MDL).
In March 2017, DuPont entered into an agreement with the MDL plaintiffs’ counsel providing for a global settlement of all cases and claims in the MDL, including all filed and unfiled personal injury cases and claims that are part of the plaintiffs’ counsel’s claims inventory, as well as cases that have been tried to a jury verdict (MDL Settlement). The total settlement amount was $670.7$164 million in cash with half paid by us and half paid by DuPont. DuPont’s payment was not subjectdividends, thereby fulfilling our goal of returning the majority of our free cash flows to indemnification or reimbursement by us and we accrued $335 million associated with this matter atshareholders.
At December 31, 2016.2019, the aggregate amount of our common stock that remained available for purchase under the 2018 Share Repurchase Program was $428 million.
In the second and third quarters of 2017, we paid $15 million and $320 million in settlement payments, respectively, for accruals made in connection with the PFOA MDL Settlement for a complete release of all claims by the settling plaintiffs.
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The Chemours Company
Details of the PFOA MDL Settlement are discussed further in “Note 20 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements.
Debt Transactions
In May 2017, we completed an offering of a $500 million aggregate principal amount of 5.375% Senior Unsecured Notes due 2027 (Offering). A portion of the net proceeds from the Offering was used to pay the $335 million we accrued for the PFOA MDL Settlement. The remaining net proceeds were available for our general corporate purposes.
In April 2017, we entered into an amendment to our existing credit agreement to provide for a new class of term loans denominated in euros and U.S. dollars, in an aggregate principal amount of €400 million and $940 million, respectively (April Amendment). The proceeds from the new class of term loans were used to repay our existing senior secured term loan outstanding of $1.4 billion, in full. No incremental debt was incurred in connection with the April Amendment.
Details of the Offering and the April Amendment are discussed further within “Liquidity and Capital Resources” of this MD&A, under the heading “Credit Facilities and Notes.”
Sale of Corporate Headquarters
In April 2017, we completed the sale of our corporate headquarters building located in Wilmington, Delaware for net proceeds of $29 million. We used $13 million of the net proceeds from this sale to repay a portion of our outstanding term loans in accordance with the credit agreement. Also, in connection with the sale, we entered into lease agreements to leaseback a portion of the building beginning in April 2017. In connection with the sale and leaseback transaction, we deferred a gain of $2 million.
Chemical Solutions Portfolio Optimization
On June 13, 2016, we entered into an asset purchase agreement with Veolia, pursuant to which Veolia agreed to acquire our Sulfur business for a purchase price of $325 million in cash, subject to customary working capital and other adjustments. We completed the sale on July 29, 2016, receiving total proceeds of $321 million in cash, net of estimated working capital adjustments.
On April 22, 2016, we entered into a stock and asset purchase agreement with Lanxess, pursuant to which Lanxess agreed to acquire our C&D product line by acquiring certain of our subsidiaries and assets comprising the C&D business for a purchase price of $230 million in cash, subject to customary working capital and other adjustments. We completed the sale on August 31, 2016 and received $223 million in cash, net of working capital adjustments.
On March 1, 2016, we completed the sale of our aniline facility in Beaumont, Texas to Dow for cash proceeds of $140 million. As part of this transaction, we also entered into a supply agreement with an initial two-year term to supply Dow with its additional aniline requirements from our Pascagoula, Mississippi production facility.
We used the proceeds from the above sales to fund capital expenditures, and for our general corporate purposes.
Transformation Plan
Following the Separation in 2015, we announced a plan to transform our company by reducing structural costs, growing market positions, optimizing our portfolio, refocusing investments, and enhancing our organization. We made considerable progress on our transformation plan from August 2015 through December 2017, and declared the transformation plan complete at the end of 2017. Under the transformation plan, we delivered over $800 million of incremental Adjusted EBITDA improvement over 2015 through 2017. Through year-end 2017, we realized approximately $350 million in cost savings since the Separation, which improved our pre-tax earnings by similar amounts. Further, through a combination of higher cash flows from operations and proceeds from asset sales, we reduced our leverage ratio to below 2.0 times at the end of 2017. We continue to implement additional cost reduction initiatives in order to realize additional structural cost savings through 2018 and beyond. These improvements were realized after offsets related to the impact of divestitures completed during 2016 (as discussed above), unfavorable price and mix of other products, and may also be impacted by market factors and other costs to achieve our plan. The results of our transformation actions are further discussed in the “Our Results and Business Highlights,” “Segment Reviews,” and “2018 Outlook” sections of this MD&A.
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The Chemours Company
Growth Expectations Through 2020
On December 1, 2017, we held our first investor day, during which we described how we expect each of our businesses to contribute to our overall growth. For our Titanium Technologies segment, we are implementing a value stabilization strategy in order to seek to reduce volatility for our Ti-PureTM TiO2 pigment earnings. For our Fluoroproducts segment, we are optimizing our fluorochemicals product mix with the expansion of OpteonTM refrigerants capacity and renewing our fluoropolymers portfolio through application development. For our Chemical Solutions segment, we are expanding our capacity to meet demand for our Mining Solutions products. To the extent we are successful in implementing such plans, as to which no assurance can be given, we identified key financial targets through 2020, including goals for our future net sales growth, Adjusted EBITDA margin improvement, Adjusted EPS, FCF, and ROIC. For further discussion regarding the risks associated with meeting our key financial targets for 2020 and the factors that may affect our ability to achieve these targets, see Item 1A – Risk Factors. For further discussion regarding our use of non-GAAP financial measures and reconciliations to their closest GAAP financial measures, see “Non-GAAP Financial Measures” within this MD&A.
Our Results of Operations and Business Highlights
Results of Operations
Our results of operations for the year ended December 31, 2017 exhibit our strong performance, with positive contributions from all three of our segments. Our net sales increased to $6.2 billion for the year ended December 31, 2017 when compared with $5.4 billion for the same period in 2016, primarily attributable to higher average selling prices and higher demand for our Ti-PureTM TiO2 pigment in the Titanium Technologies segment, improved pricing for our base refrigerants, increased adoption of our OpteonTM refrigerants, and higher demand for our fluoropolymer products in the Fluoroproducts segment, and increased volume across most businesses in the Chemical Solutions segment. These increases were partially offset by the impact of our 2016 portfolio changes in the Chemical Solutions segment. Our net income and our Adjusted EBITDA increased to $746 million and $1.4 billion for the year ended December 31, 2017, respectively, when compared with $7 million and $822 million for the same period in 2016, respectively. These increases were primarily attributable to the aforementioned increases in pricing and volume, plus the impact of cost reductions from our cost savings initiatives and portfolio changes. These increases were partially offset by higher performance-related compensation and transformation costs during 2017. Additionally, in 2016, our net income was negatively impacted by the accrual of $335 million in legal costs related to the PFOA MDL Settlement.
The following table sets forth our results of operations for the years ended December 31, 2017, 2016,2019 and 2015.2018.
|
| Year Ended December 31, |
| |||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Net sales |
| $ | 6,183 |
|
| $ | 5,400 |
|
| $ | 5,717 |
|
Cost of goods sold |
|
| 4,429 |
|
|
| 4,290 |
|
|
| 4,762 |
|
Gross profit |
|
| 1,754 |
|
|
| 1,110 |
|
|
| 955 |
|
Selling, general, and administrative expense |
|
| 602 |
|
|
| 934 |
|
|
| 632 |
|
Research and development expense |
|
| 80 |
|
|
| 80 |
|
|
| 97 |
|
Restructuring and asset-related charges, net |
|
| 57 |
|
|
| 170 |
|
|
| 333 |
|
Goodwill impairment |
|
| — |
|
|
| — |
|
|
| 25 |
|
Total expenses |
|
| 739 |
|
|
| 1,184 |
|
|
| 1,087 |
|
Equity in earnings of affiliates |
|
| 33 |
|
|
| 29 |
|
|
| 22 |
|
Interest expense, net |
|
| (215 | ) |
|
| (213 | ) |
|
| (132 | ) |
Other income, net |
|
| 79 |
|
|
| 247 |
|
|
| 54 |
|
Income (loss) before income taxes |
|
| 912 |
|
|
| (11 | ) |
|
| (188 | ) |
Provision for (benefit from) income taxes |
|
| 165 |
|
|
| (18 | ) |
|
| (98 | ) |
Net income (loss) |
|
| 747 |
|
|
| 7 |
|
|
| (90 | ) |
Less: Net income attributable to non-controlling interests |
|
| 1 |
|
|
| — |
|
|
| — |
|
Net income (loss) attributable to Chemours |
| $ | 746 |
|
| $ | 7 |
|
| $ | (90 | ) |
|
| Year Ended December 31, |
| |||||
(Dollars in millions, except per share amounts) |
| 2019 |
|
| 2018 |
| ||
Net sales |
| $ | 5,526 |
|
| $ | 6,638 |
|
Cost of goods sold |
|
| 4,463 |
|
|
| 4,667 |
|
Gross profit |
|
| 1,063 |
|
|
| 1,971 |
|
Selling, general, and administrative expense |
|
| 548 |
|
|
| 657 |
|
Research and development expense |
|
| 80 |
|
|
| 82 |
|
Restructuring, asset-related, and other charges |
|
| 87 |
|
|
| 49 |
|
Total other operating expenses |
|
| 715 |
|
|
| 788 |
|
Equity in earnings of affiliates |
|
| 29 |
|
|
| 43 |
|
Interest expense, net |
|
| (208 | ) |
|
| (195 | ) |
Loss on extinguishment of debt |
|
| — |
|
|
| (38 | ) |
Other (expense) income, net |
|
| (293 | ) |
|
| 162 |
|
(Loss) income before income taxes |
|
| (124 | ) |
|
| 1,155 |
|
(Benefit from) provision for income taxes |
|
| (72 | ) |
|
| 159 |
|
Net (loss) income |
|
| (52 | ) |
|
| 996 |
|
Less: Net income attributable to non-controlling interests |
|
| — |
|
|
| 1 |
|
Net (loss) income attributable to Chemours |
| $ | (52 | ) |
| $ | 995 |
|
Per share data |
|
|
|
|
|
|
|
|
Basic (loss) earnings per share of common stock |
| $ | (0.32 | ) |
| $ | 5.62 |
|
Diluted (loss) earnings per share of common stock |
|
| (0.32 | ) |
|
| 5.45 |
|
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The Chemours Company
The following table sets forth the impacts of price, volume, currency, and portfolio and/or other changescurrency on our total net sales for the yearsyear ended December 31, 2017 and 2016.2019.
|
| Year Ended December 31, |
| |||||
Change in total net sales from prior period |
| 2017 |
|
| 2016 |
| ||
Price |
|
| 8 | % |
|
| (3 | )% |
Volume |
|
| 11 | % |
|
| 2 | % |
Currency |
|
| — | % |
|
| (1 | )% |
Portfolio/other |
|
| (4 | )% |
|
| (4 | )% |
Total change in net sales |
|
| 15 | % |
|
| (6 | )% |
Year Ended December 31, | ||||
Change in net sales from prior period | 2019 | |||
Price | (2 | )% | ||
Volume | (14 | )% | ||
Currency | (1 | )% | ||
Total change in net sales | (17 | )% |
2017 Compared with 2016
Our net sales increaseddecreased by $783 million, or 15%,$1.1 billion (or 17%) to $6.2$5.5 billion for the year ended December 31, 2017 when2019, compared with $5.4net sales of $6.6 billion for the same period in 2018. The components of the decrease in our net sales by segment for the year ended December 31, 2019 were as follows: in our Fluoroproducts segment, price declined 2% and volume was down 4%; in our Chemical Solutions segment, price declined 4% and volume was down 7%; and, in our Titanium Technologies segment, price declined 1% and volume was down 24%. Unfavorable currency movements also added a 1% headwind to net sales in our Fluoroproducts and Titanium Technologies segments.
The drivers of these changes for each of our segments are discussed further under the heading “Segment Reviews” within this MD&A.
Cost of Goods Sold
Our cost of goods sold (“COGS”) decreased by $204 million (or 4%) to $4.5 billion for the year ended December 31, 2016. This increase reflects an 8% improvement2019, compared with COGS of $4.7 billion for the same period in price, primarily attributable to higher average selling prices for our Ti-PureTM TiO2 pigment in the Titanium Technologies segment and improved pricing for our base refrigerants in the Fluoroproducts segment, and an 11% improvement in volume, primarily attributable to higher demand for our Ti-PureTM TiO2 pigment in the Titanium Technologies segment, the increased adoption of our OpteonTM refrigerants and higher demand for our fluoropolymer products in the Fluoroproducts segment, and increased volume across most businesses in the Chemical Solutions segment. These increases were partially offset by the impact of portfolio changes in the Chemical Solutions segment related to the 2016 sales of our Sulfur and C&D businesses and our aniline facility in Beaumont, Texas, as well as the production shutdown at our RMS facility in Niagara Falls, New York, which combined, led to a 4% reduction2018. The decrease in our net sales.
2016 Compared with 2015
Our net sales decreased by $317 million, or 6%, to $5.4 billionCOGS for the year ended December 31, 2016 when compared with $5.7 billion for the year ended December 31, 2015. This decrease reflects a 3% reduction in price,2019 was primarily attributable to lower average selling prices for our Ti-PureTM TiO2 pigment and fluoropolymer products in the Titanium Technologies and Fluoroproducts segments, respectively, and lower average selling prices in the Chemical Solutions segment resulting from the impact of lower raw materials costs on contractual pass-through terms. Additionally, our decrease in net sales reflects a 1% reduction for unfavorable foreign currency exchange impacts in the Fluoroproducts segmentvolumes, as well as lower distribution, freight, and a 4% reduction for our aforementioned portfolio changes in the Chemical Solutions segment.logistics expenses. These decreases were partially offset by volume increases due to increased demand foroperational headwinds in our Ti-PureTM TiO2 pigmentFluoroproducts segment, and OpteonTM refrigerants for Europehigher raw materials costs and the U.S.lower fixed cost absorption in theour Titanium Technologies and Fluoroproducts segments, respectively, which drove a 2% increase in our net sales.
Cost of Goods Sold
2017 Compared with 2016
Our cost of goods sold (COGS) increased by $139 million, or 3%, to $4.4 billion forsegment. Additionally, during the year ended December 31, 2017 when compared with $4.3 billion2019, we incurred $150 million for the year ended December 31, 2016. This increase was primarily attributableenvironmental remediation activities related to increases in volume, as well as increases in costs associated with our transformation activities and higher performance-related compensation costs during 2017, which were partially offset by the impact of portfolio changes in our Chemical Solutions segment.Fayetteville.
2016 Compared with 2015
Our COGS decreased by $472 million, or 10%, to $4.3 billion for the year ended December 31, 2016 when compared with $4.8 billion for the year ended December 31, 2015. This decrease is primarily attributable to lower operating costs, including lower raw materials and overhead costs, and improvements in plant utilization during 2016. In addition, the 2016 portfolio changes in our Chemical Solutions segment further decreased our COGS for the year then-ended. These decreases were partially offset by costs for certain inventory and asset write-downs in connection with our portfolio changes during 2016, as well as higher performance-related compensation costs.
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The Chemours Company
Selling, General, and Administrative Expense
2017 Compared with 2016
Our selling, general, and administrative (SG&A)(“SG&A”) expense decreased by $332$109 million or 36%,(or 17%) to $602$548 million for the year ended December 31, 2017 when2019, compared with $934SG&A expense of $657 million for the same period in 2018. The decrease in our SG&A expense for the year ended December 31, 2016. This decrease2019 was primarily attributable to the accrual of $335 million in legallower performance-related compensation costs, related to the PFOA MDL Settlement at the end of 2016, as well as lower management and administrative and transaction-related costs the latter associated with the sales ofincurred for our Sulfur and C&D businesses in 2016,2018 debt transactions, which did not recur in 2017.2019. The year ended December 31, 2018 also included the accrual of $63 million for estimated liabilities associated with ongoing environmental matters at Fayetteville. These comparative decreases were partially offset by incremental costs related to our transformation activities and higher performance-related compensation costs in 2017.
2016 Compared with 2015
Our SG&A expense increased by $302 million, or 48%, to $934 million for the year ended December 31, 2016 when compared with $632 million for the year ended December 31, 2015. This increase was primarily attributable to the aforementioned legal and transaction-related costs associated with our PFOA MDL Settlement and the sales of our Sulfur and C&D businesses during 2016, respectively, as well as higher costs for performance-related compensation, legal, and other settlements for the year then-ended. These increases were2019 are partially offset by lower pension costs and our cost reduction initiatives, including costs associated with our global workforce reduction and other initiatives$18 million incurred during the first quarter of 2019, in connection with our transformation plan.the approved final Consent Order to settle certain legal and environmental matters at Fayetteville.
Research and Development Expense
2017 Compared with 2016
Our R&D expense was flatlargely unchanged at $80 million for the years ended December 31, 2017 and 2016.
2016 Compared with 2015
Our R&D expense decreased by $17 million, or 18%, to $80 million for the year ended December 31, 2016 when compared with $972019 and $82 million for the year ended December 31, 2015. This decrease reflects reductions in spend,2018.
Restructuring, Asset-related, and Other Charges
Our restructuring, asset-related, and other charges amounted to $87 million and $49 million for the years ended December 31, 2019 and 2018, respectively.
For the year ended December 31, 2019, our restructuring, asset-related, and other charges were primarily attributable to decisions$22 million of employee separation charges incurred in connection with our 2019 Restructuring Program, as well as $34 million of accelerated depreciation recorded in conjunction with our exit of the Methylamines and Methylamides business at our Belle, West Virginia manufacturing plant. We also recognized $20 million in decommissioning and dismantling-related charges, primarily attributable to focus on fewer, higher return projects. Our global workforce reduction initiative, which was enactedthe demolition and removal of certain unused buildings at our Chambers Works site in 2015, also impactedDeepwater, New Jersey, as well as $9 million of accelerated depreciation associated with the discontinuation of the titanium tetrachloride product line at our R&D functionNew Johnsonville, Tennessee site.
For the year ended December 31, 2018, our restructuring, asset-related, and contributedother charges were primarily attributable to this decrease.employee separation and other charges incurred in connection with our 2017 restructuring program of $27 million, and employee separation charges of $5 million for our 2018 restructuring program. In addition, we recognized $13 million in decommissioning and dismantling-related charges, primarily attributable to the demolition and removal of certain unused buildings at our Chambers Works site in Deepwater, New Jersey, and an asset-related charge of $4 million for a goodwill impairment in our Chemical Solutions segment.
Restructuring and Asset-related Charges, Net
2017 Compared with 2016Equity in Earnings of Affiliates
Our restructuring and asset-related charges, net amountedequity in earnings of affiliates decreased by $14 million (or 33%) to $57$29 million for the year ended December 31, 2017,2019, compared with equity in earnings of affiliates of $43 million for the same period in 2018. The decrease in our equity in earnings of affiliates for the year ended December 31, 2019 was primarily attributable to decommissioningglobal semiconductor and other charges in the Chemical Solutions segment associated with the production shutdown atautomotive market softness for our RMS plant in Niagara Falls, New York for $17 million, and restructuring charges and employee termination benefits in all segments associated with our 2017 restructuring program for $32 million. Additional charges incurred during 2017 include $4 million in the Titanium Technologies segment and $3 millionequity method investees in the Fluoroproducts segment for decommissioning and other charges associated with the closure of our Edge Moor, Delaware plant and certain production lines in our U.S. manufacturing plants, respectively, and $1segment.
Interest Expense, Net
Our interest expense, net increased by $13 million in charges related(or 7%) to write-downs for certain of our assets. Our restructuring and asset-related charges, net amounted to $170$208 million for the year ended December 31, 2016,2019, compared with interest expense, net of $195 million for the same period in 2018. The increase in our interest expense, net for the year ended December 31, 2019 was primarily attributable to decommissioninga reduction in interest income earned on lower cash and other chargescash equivalents balances, as well as less interest capitalized following the completion or stoppage of $30certain of our large-scale construction projects. These increases were partially offset by lower interest expense following our 2018 debt transactions.
Loss on Extinguishment of Debt
For the year ended December 31, 2019, we did not extinguish any of our outstanding debt.
For the year ended December 31, 2018, we recognized a combined loss on extinguishment of debt of $38 million $8 million, and $7 million associatedin connection with the aforementioned closuresamendment and restatement of our Edge Moor and RMS plants,credit agreement, and our Fluoroproducts production lines, respectively. In addition, during 2016, we recorded asset-related charges for impairments of $58 milliontender offers to purchase any and $48 million in the Chemical Solutions segment related to the saleall of our Sulfur businessoutstanding euro-denominated 6.125% senior unsecured notes due May 2023 and for our aniline plant in Pascagoula, Mississippi, respectively, and $13 million in Corporate and Other related to the salea portion of our corporate headquarters building in Wilmington, Delaware.outstanding U.S. dollar-denominated 6.625% senior unsecured notes due May 2023.
2016 Compared with 2015
37
The Chemours Company
Other Income (Expense), Net
Our restructuring and asset-related charges,other income, net amounteddecreased by $455 million to $170other expense, net of $293 million for the year ended December 31, 2016,2019, compared with other income, net of $162 million for the same period in 2018. The decrease in our other income, net for the year ended December 31, 2019 was primarily attributable to $368 million in non-operating pension and other post-retirement employee benefit loss, which is inclusive of a $380 million expense recognized upon settlement of the aforementioned plant and production line closures, and impairment charges related to certainportion of our assets and businesses. Netherlands pension plan pertaining to inactive participants’ vested pension benefits. We also experienced a decrease in miscellaneous income, which is primarily attributable to $26 million lower EU fluorinated greenhouse gas (“F-Gas”) quota authorization sales. The comparative decrease in our other income, net is also reflective of a $42 million gain on the sale of our Linden, New Jersey site during the year ended December 31, 2018. These decreases were partially offset by recognition of a previously deferred non-cash gain of $9 million during the year ended December 31, 2019. The gain, which was associated with the sale of our Repauno site in Gibbstown, New Jersey, had been deferred until certain environmental obligations were fulfilled.
Provision for (Benefit from) Income Taxes
Our restructuring and asset-related charges, netbenefit from income taxes amounted to $333$72 million for the year ended December 31, 2015, primarily attributable2019, representing an effective tax rate of 58%. Our provision for income taxes amounted to employee termination benefits, decommissioning, asset-related, and other charges of $140 million, $24 million, and $12 million for the aforementioned closure of our Edge Moor plant, our Fluoroproducts production lines, and our RMS plant, respectively. In addition, we recorded $112 million in charges for employee termination benefits associated with our 2015 global restructuring program in all segments, and $45 million in asset-related charges for an impairment associated with the closure of our RMS facility.
44
The Chemours Company
2017 Compared with 2016
Our interest expense, net increased by $2 million, or 1%, to $215$159 million for the year ended December 31, 2017 when compared with $213 million for the year ended December 31, 2016. This increase reflects additional interest from the issuance of our 2027 Notes in the Offering, which is partially offset by decreased interest from the repricing of our senior secured term loan in connection with the April Amendment and lower outstanding principal due to payments on the same. In addition, in 2016, we recorded a non-recurring net gain of $10 million on debt extinguishment resulting from the repurchase of certain portions of our senior unsecured notes in the open market, which is partially offset by a non-recurring loss of $4 million resulting from the write-off of certain unamortized debt issuance costs associated with the reduction in commitment on our Revolving Credit Facility.
2016 Compared with 2015
Our interest expense, net increased by $81 million, or 61%, to $213 million for the year ended December 31, 2016 when compared with $132 million for the year ended December 31, 2015. This increase reflects the first full year of interest expense following the issuance of our Senior Secured Credit Facilities and senior unsecured notes in May 2015.
Other Income, Net
2017 Compared with 2016
Our other income, net amounted to $79 million for the year ended December 31, 2017, primarily attributable to $30 million and $24 million in normal, recurring leasing, contract, and miscellaneous income and royalty income, respectively. In addition, we recognized net gains on the sale of certain of our assets and businesses for $22 million, which included a $13 million gain in connection with the sale of our land in Repauno, New Jersey that was previously deferred and realized upon meeting certain milestones, and a $12 million gain associated with the sale of our Edge Moor, Delaware plant site, net of certain losses on other disposals. Finally, we recognized net foreign currency exchange gains of $3 million during 2017. Our other income, net amounted to $247 million for the year ended December 31, 2016, primarily attributable to $35 million and $15 million in normal, recurring leasing, contract, and miscellaneous income and royalty income, respectively. In addition, we recognized net gains on the sale of certain of our assets and businesses for $254 million, which included $169 million associated with the sale of our C&D business and $89 million associated with the sale of our aniline plant in Beaumont, Texas. Our 2016 other income, net, was partially offset by net foreign currency exchange losses of $57 million, primarily attributable to a strengthening of the U.S. dollar against the Mexican peso.
2016 Compared with 2015
Our other income, net amounted to $247 million for the year ended December 31, 2016, primarily attributable to the aforementioned normal, recurring leasing, contract, and miscellaneous income and royalty income, and gains on the sale of our C&D business and aniline facility, which were partially offset by net foreign currency exchange losses. Our other income, net amounted to $54 million for the year ended December 31, 2015, primarily attributable to $25 million and $19 million in normal, recurring leasing, contract, and miscellaneous income and royalty income, respectively, and $19 million in net foreign currency exchange gains, primarily attributable to our foreign currency forward contracts. Our 2015 other income, net was partially offset by $9 million in net losses associated with the sales of certain of our assets and businesses.
Provision for (Benefit from) Income Taxes
2017 Compared with 2016
Our provision for income taxes amounted to $165 million for the year ended December 31, 2017,2018, representing an effective income tax rate of 18%14%. Our benefit from income taxes amounted to $18
The $231 million for the year ended December 31, 2016, representing an effective income tax rate of 164%. The $183 million increasedecrease in our provision for income taxes for the year ended December 31, 20172019, when compared with the same period in 2016 is2018, was primarily attributable to increasedreduced profitability as well as changes inand the geographic mix of our earnings. In addition, our benefit from income taxes for the year ended December 31, 2019 included $14 million in windfall benefit from our share-based payments, which was partially offset by an $8 million valuation allowance on certain foreign subsidiary earnings and certain foreign tax credits. Our provision for income taxes for the year ended December 31, 2017 reflects a $222018 included $14 million in windfall benefit from the federal and state impact ofour share-based payments, a $15 million benefit from the release of reserves for uncertaina valuation allowance against our foreign tax positions resulting incredits, and a net $10 million benefit of $6 million, and the provisional impactsfrom certain other provisions of U.S. tax reform, which resulted in a net benefit of $3 million. The net $3 million benefit from U.S. tax reform includes tax expense associated with the deemed repatriation transition tax on our unremitted foreign earnings, a release of the valuation allowance on carryforward foreign tax credits utilized against the deemed repatriation transition tax, and the revaluation of our net U.S. deferred tax liabilities as a result of the lower federal rate.
45
The Chemours Companyreform.
Our benefit from income taxes amounted to $18 million for the year ended December 31, 2016, representing an effective income tax rate of 164%. Our benefit from income taxes amounted to $98 million for the year ended December 31, 2015, representing an effective income tax rate of 52%. The $80 million decrease in our benefit from income taxes and the change in our effective income tax rate for the year ended December 31, 2016 when compared with the same period in 2015 is primarily attributable to our recognition of a $50 million valuation allowance on our U.S. foreign tax credits, the geographical mix of our earnings, and our recognition of gains in connection with the sales of certain of our assets and businesses during the year. These decreases were partially offset by the additional income tax benefit resulting from our $335 million accrual for the PFOA MDL Settlement at the end of 2016.
Segment Reviews
Adjusted EBITDA represents ourearnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”) is the primary measure of segment performance used by our Chief Operating Decision Maker (“CODM”) and is defined as income (loss) before income taxes, excluding the following:
interest expense, depreciation, and amortization;
• | interest expense, depreciation, and amortization; |
non-operating pension and other post-retirement employee benefit costs, which represent the component of net periodic pension (income) costs excluding the service cost component;
• | non-operating pension and other post-retirement employee benefit costs, which represents the component of net periodic pension (income) costs excluding the service cost component; |
exchange (gains) losses included in other income (expense), net;
• | exchange (gains) losses included in other income (expense), net; |
restructuring, asset-related charges, and other charges, net;
• | restructuring, asset-related, and other charges; |
asset impairments;
• | asset impairments; |
(gains) losses on sale of business or assets; and,
• | (gains) losses on sales of assets and businesses; and, |
• | other items not considered indicative of our ongoing operational performance and expected to occur infrequently. |
other items not considered indicative of our ongoing operational performance and expected to occur infrequently.
A reconciliation of Adjusted EBITDA to net income (loss) attributable to Chemours for the years ended December 31, 2017, 2016,2019 and 20152018 is included in the “Non-GAAP Financial Measures” insection of this MD&A and in “Note 25 – Geographic and Segment Information” to the Consolidated Financial Statements.
The following table sets forth our total Adjusted EBITDA by segment for the years ended December 31, 2017, 2016,2019 and 2015.2018.
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
| |||||
Titanium Technologies |
| $ | 862 |
|
| $ | 466 |
|
| $ | 326 |
| ||||||||
Fluoroproducts |
|
| 669 |
|
|
| 445 |
|
|
| 300 |
|
| $ | 578 |
|
| $ | 783 |
|
Chemical Solutions |
|
| 57 |
|
|
| 39 |
|
|
| 29 |
|
|
| 80 |
|
|
| 64 |
|
Titanium Technologies |
|
| 505 |
|
|
| 1,055 |
| ||||||||||||
Segment Adjusted EBITDA |
|
| 1,163 |
|
|
| 1,902 |
| ||||||||||||
Corporate and Other |
|
| (166 | ) |
|
| (128 | ) |
|
| (82 | ) |
|
| (143 | ) |
|
| (162 | ) |
Total Adjusted EBITDA |
| $ | 1,422 |
|
| $ | 822 |
|
| $ | 573 |
|
| $ | 1,020 |
|
| $ | 1,740 |
|
46
38
The Chemours Company
Titanium TechnologiesFluoroproducts
The following charttable sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Fluoroproducts segment for the years ended December 31, 2019 and 2018.
|
| Year Ended December 31, |
| |||||
(Dollars in millions) |
| 2019 |
|
| 2018 |
| ||
Segment net sales |
| $ | 2,648 |
|
| $ | 2,862 |
|
Adjusted EBITDA |
|
| 578 |
|
|
| 783 |
|
Adjusted EBITDA margin |
|
| 22 | % |
|
| 27 | % |
The following table sets forth the impacts of price, volume, and currency on our Fluoroproducts segment’s net sales for the year ended December 31, 2019.
Year Ended December 31, | ||||
Change in segment net sales from prior period | 2019 | |||
Price | (2 | )% | ||
Volume | (4 | )% | ||
Currency | (1 | )% | ||
Total change in segment net sales | (7 | )% |
Segment Net Sales
Our Fluoroproducts segment’s net sales decreased by $214 million (or 7%) to $2.6 billion for the year ended December 31, 2019, compared with segment net sales of $2.9 billion for the same period in 2018. The decrease in segment net sales for the year ended December 31, 2019 was primarily attributable to decreases in volume and price of 4% and 2%, respectively. Illegal imports of legacy HFC refrigerants into the EU, in violation of the EU’s F-gas regulations, impacted both volume and price during the year ended December 31, 2019. Volumes also declined due to lower demand for our legacy base refrigerants and polymers, which was driven by softness in global markets, primarily the automotive and electronics markets. These decreases were partially offset by volume increases from the continued adoption of OpteonTM products in mobile applications and growth in high-grade Fluoropolymers sales. Unfavorable currency movements added a 1% headwind to the segment’s net sales during the year ended December 31, 2019.
Segment Adjusted EBITDA and Adjusted EBITDA Margin
Segment Adjusted EBITDA decreased by $205 million (or 26%) to $578 million and segment Adjusted EBITDA margin decreased by approximately 500 basis points to 22% for the year ended December 31, 2019, compared with segment Adjusted EBITDA of $783 million and segment Adjusted EBITDA margin of 27% for the same period in 2018. The decreases in segment Adjusted EBITDA and segment Adjusted EBITDA margin for the year ended December 31, 2019 were primarily attributable to the aforementioned decreases in the price and volume and unfavorable currency movements in the segment’s net sales. We also experienced increased costs during the year ended December 31, 2019 due to the start-up of our new OpteonTM refrigerants facility in Corpus Christi, Texas, and unplanned outages at certain facilities. Additionally, our F-gas quota authorization sales decreased by $26 million when compared to the year ended December 31, 2018.
The segment’s operating results for the years ended December 31, 2019 and 2018 included $22 million and $34 million, respectively, of additional costs for process waste water treatment at Fayetteville. We expect to continue to incur these costs as we actively work with the NC DEQ to resolve the suspension of our National Pollutant Discharge Elimination System permit.
39
The Chemours Company
Chemical Solutions
The following table sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Chemical Solutions segment for the years ended December 31, 2019 and 2018.
|
| Year Ended December 31, |
| |||||
(Dollars in millions) |
| 2019 |
|
| 2018 |
| ||
Segment net sales |
| $ | 533 |
|
| $ | 602 |
|
Adjusted EBITDA |
|
| 80 |
|
|
| 64 |
|
Adjusted EBITDA margin |
|
| 15 | % |
|
| 11 | % |
The following table sets forth the impacts of price, volume, and currency on our Chemical Solutions segment’s net sales for the year ended December 31, 2019.
Year Ended December 31, | ||||
Change in segment net sales from prior period | 2019 | |||
Price | (4 | )% | ||
Volume | (7 | )% | ||
Currency | — | % | ||
Total change in segment net sales | (11 | )% |
Segment Net Sales
Our Chemical Solutions segment’s net sales decreased by $69 million (or 11%) to $533 million for the year ended December 31, 2019, compared with segment net sales of $602 million for the same period in 2018. The decrease in segment net sales for the year ended December 31, 2019 was primarily attributable to decreases in volume and price of 7% and 4%, respectively, which were driven by operational issues at a key customer mine in Mining Solutions and lower prices for certain Performance Chemicals and Intermediates products, mainly driven by mix and raw material cost pass-throughs as stipulated in certain contracts.
Segment Adjusted EBITDA and Adjusted EBITDA Margin
Segment Adjusted EBITDA increased by $16 million (or 25%) to $80 million and segment Adjusted EBITDA margin increased by approximately 400 basis points to 15% for the year ended December 31, 2019, compared with segment Adjusted EBITDA of $64 million and segment Adjusted EBITDA margin of 11% for the same period in 2018. The increases in segment Adjusted EBITDA and segment Adjusted EBITDA margin for the year ended December 31, 2019 were primarily attributable to increased license income and lower cost of goods sold, partially offset by the aforementioned decreases in net sales.
40
The Chemours Company
Titanium Technologies
The following table sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Titanium Technologies segment for the years ended December 31, 2017, 2016,2019 and 2015.
2018.
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
| |||||
Segment net sales |
| $ | 2,958 |
|
| $ | 2,364 |
|
| $ | 2,392 |
|
| $ | 2,345 |
|
| $ | 3,174 |
|
Adjusted EBITDA |
|
| 862 |
|
|
| 466 |
|
|
| 326 |
|
|
| 505 |
|
|
| 1,055 |
|
Adjusted EBITDA margin |
|
| 29 | % |
|
| 20 | % |
|
| 14 | % |
|
| 22 | % |
|
| 33 | % |
The following table sets forth the impacts of price, volume, currency, and portfolio and/or other changescurrency on our Titanium Technologies segment’s net sales for the yearsyear ended December 31, 2017 and 2016.2019.
|
| Year Ended December 31, |
| |||||
Change in segment net sales from prior period |
| 2017 |
|
| 2016 |
| ||
Price |
|
| 17 | % |
|
| (3 | )% |
Volume |
|
| 8 | % |
|
| 2 | % |
Currency |
|
| — | % |
|
| — | % |
Portfolio/other |
|
| — | % |
|
| — | % |
Total change in segment net sales |
|
| 25 | % |
|
| (1 | )% |
Year Ended December 31, | ||||
Change in segment net sales from prior period | 2019 | |||
Price | (1 | )% | ||
Volume | (24 | )% | ||
Currency | (1 | )% | ||
Total change in segment net sales | (26 | )% |
47
The Chemours Company
Segment Net Sales
Our Titanium Technologies segment’s net sales increaseddecreased by $594$829 million or 25%,(or 26%) to $2.3 billion for the year ended December 31, 2017 when2019, compared with segment net sales of $3.2 billion for the same period in 2016. This increase was primarily attributable to higher average selling prices for our Ti-PureTM TiO2 pigment driving a 17% price increase2018. The decrease in segment net sales and higher global demand for our Ti-PureTM TiO2 pigment across most regions driving an 8% volume increase in segment net sales. Our segment net sales volume in 2017 was above historical trends, which are typically in line with global GDP growth due to customers’ preference for our high quality Ti-PureTM TiO2 pigment, as well as certain global supply constraints.
Segment Adjusted EBITDA increased by $396 million, or 85%, and segment Adjusted EBITDA margin increased by approximately 900 basis points for the year ended December 31, 2017 when2019 was primarily attributable to a 24% decrease in volume, driven by lower TiPureTM TiO2 net sales volumes due to market destocking and share loss. Price declined modestly by 1%, primarily due to customer, regional, and channel mix, but remained largely stable as a result of our TVS strategy. We also experienced a 1% headwind from unfavorable currency movements.
Segment Adjusted EBITDA and Adjusted EBITDA Margin
Segment Adjusted EBITDA decreased by $550 million (or 52%) to $505 million and segment Adjusted EBITDA margin decreased by approximately 1,100 basis points to 22% for the year ended December 31, 2019, compared with segment Adjusted EBITDA of $1.1 billion and segment Adjusted EBITDA margin of 33% for the same period in 2016. These increases2018. The decreases in segment Adjusted EBITDA and segment Adjusted EBITDA margin for the year ended December 31, 2019 were primarily attributable to the aforementioned higher average selling prices and increased demand for our Ti-PureTM TiO2 pigment, partially offset by higher performance-related compensation, transformation, and raw materials costs in the segment.
2016 Compared with 2015
Segment net sales decreased by $28 million, or 1%, for the year ended December 31, 2016 when compared with the same period in 2015. This decrease was primarily attributable to lower average selling prices for our Ti-PureTM TiO2 pigment affecting a 3% price decreasedecreases in segment net sales partially offset by a 2% volume increase in segment net sales primarily attributable to higher demand in Europeassociated with market destocking and the U.S. Our segment net sales volume in 2016 was in line with seasonal and historical trends.
Segment Adjusted EBITDA increased by $140 million, or 43%, and segment Adjusted EBITDA margin increased by approximately 600 basis points for the year ended December 31, 2016 when compared with the same period in 2015. These increases were primarily attributable to productivity improvement initiatives, including the closure of our Edge Moor, Delaware plant and global headcount reductions, which collectively resulted in lower raw materials and plant operating costs in the segment. These increases were partially offset by the aforementioned lower average selling prices for our Ti-PureTM TiO2 pigment and higher performance-related compensation costs in the segment.
Fluoroproducts
The following chart sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Fluoroproducts segment for the years ended December 31, 2017, 2016, and 2015.
|
| Year Ended December 31, |
| |||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Segment net sales |
| $ | 2,654 |
|
| $ | 2,264 |
|
| $ | 2,230 |
|
Adjusted EBITDA |
|
| 669 |
|
|
| 445 |
|
|
| 300 |
|
Adjusted EBITDA margin |
|
| 25 | % |
|
| 20 | % |
|
| 13 | % |
48
The Chemours Company
The following table sets forth the impacts of price, volume, currency, and portfolio and/or other changes on our Fluoroproducts segment’s net sales for the years ended December 31, 2017 and 2016.
|
| Year Ended December 31, |
| |||||
Change in segment net sales from prior period |
| 2017 |
|
| 2016 |
| ||
Price |
|
| 1 | % |
|
| (1 | )% |
Volume |
|
| 16 | % |
|
| 4 | % |
Currency |
|
| — | % |
|
| (1 | )% |
Portfolio/other |
|
| — | % |
|
| (1 | )% |
Total change in segment net sales |
|
| 17 | % |
|
| 1 | % |
2017 Compared with 2016
Segment net sales increased by $390 million, or 17%, for the year ended December 31, 2017 when compared with the same period in 2016. This increase was primarily attributable to significantly stronger global demand for our OpteonTM refrigerants and improved demand for our fluoropolymer products driving a 16% volume increase in segment net sales, and higher selling prices for our base refrigerants driving a 1% price increase in segment net sales. This increase was partially offset by lower selling prices for both our OpteonTM refrigerants due to expected automotive contractual price declines and our fluoropolymer products, as well as lower volume for our base refrigerants due to the phase-down of HCFC refrigerants (e.g., FreonTM) in the segment.
Segment Adjusted EBITDA increased by $224 million, or 50%, and segment Adjusted EBITDA margin increased by approximately 500 basis points for the year ended December 31, 2017 when compared with the same period in 2016. These increases were primarily attributable to the aforementioned increased demand for our OpteonTM refrigerants and fluoropolymer products and the favorable pricing for our base refrigerants, as well as cost reductions from our cost savings initiatives in the segment. These increases were partially offset by the aforementioned unfavorable pricing for both our OpteonTM refrigerants and fluoropolymer products, lower volume for our base refrigerants, and higher performance-related compensation and transformation costs in the segment.
2016 Compared with 2015
Segment net sales increased by $34 million, or 1%, for the year ended December 31, 2016 when compared with the same period in 2015. This increase was primarily attributable to stronger demand for our OpteonTM refrigerants in Europe and the U.S. driving a 4% volume increase in segment net sales, partially offset by lower selling prices for our fluoropolymer products due to competitive pricing pressures, lower volume for our base refrigerants due to the phase-down of HCFC refrigerants, and unfavorable foreign currency exchange impacts from the euro, Brazilian real, and Mexican peso, each affecting a 1% decrease in net sales for the segment.
Segment Adjusted EBITDA increased by $145 million, or 48%, and segment Adjusted EBITDA margin increased by approximately 700 basis points for the year ended December 31, 2016 when compared with the same period in 2015. These increases were primarily attributable to the aforementioned increased demand for our OpteonTM refrigerants,share loss, as well as margin improvements and cost reductions from our cost savings initiatives in the segment. These increases were partially offset by the aforementioned unfavorable pricingcompression due to higher costs for our fluoropolymer products, lower volume for our base refrigerants, unfavorable foreign currency exchange impacts, and higher performance-related compensation costs in the segment.
49
The Chemours Company
The following chart sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Chemical Solutions segment for the years ended December 31, 2017, 2016, and 2015.
|
| Year Ended December 31, |
| |||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Segment net sales |
| $ | 571 |
|
| $ | 772 |
|
| $ | 1,095 |
|
Adjusted EBITDA |
|
| 57 |
|
|
| 39 |
|
|
| 29 |
|
Adjusted EBITDA margin |
|
| 10 | % |
|
| 5 | % |
|
| 3 | % |
The following table sets forth the impacts of price, volume, currency, and portfolio and/or other changes on our Chemical Solutions segment’s net sales for the years ended December 31, 2017 and 2016.
|
| Year Ended December 31, |
| |||||
Change in segment net sales from prior period |
| 2017 |
|
| 2016 |
| ||
Price |
|
| 1 | % |
|
| (7 | )% |
Volume |
|
| 4 | % |
|
| (3 | )% |
Currency |
|
| — | % |
|
| — | % |
Portfolio/other |
|
| (31 | )% |
|
| (19 | )% |
Total change in segment net sales |
|
| (26 | )% |
|
| (29 | )% |
2017 Compared with 2016
Segment net sales decreased by $201 million, or 26%, for the year ended December 31, 2017 when compared with the same period in 2016. This decrease was primarily attributable to portfolio changes resulting from the sales of our Sulfur and C&D businesses and our aniline facility in Beaumont, Texas, as well as the production shutdown at our RMS facility in Niagara Falls, New York, which combined, affected a 31% decrease in segment net sales. This decrease was partially offset by modestly higher selling prices and increased sales volumes across most businesses driving a 1% price increase and a 4% volume increase in net sales, respectively.
Segment Adjusted EBITDA increased by $18 million, or 46%, and segment Adjusted EBITDA margin increased by approximately 500 basis points for the year ended December 31, 2017 when compared with the same period in 2016. These increases were primarily attributable to cost reductions from our aforementioned portfolio changes, as well as the aforementioned price and volume increases in the segment.
2016 Compared with 2015
Segment net sales decreased by $323 million, or 29%, for the year ended December 31, 2016 when compared with the same period in 2015. This decrease was primarily attributable to the aforementioned portfolio changes, which combined, affected a 19% decrease in segment net sales, as well as decreases in selling prices resulting from the impact of lowercertain raw materials costs on contractual pass-through items and lower sales volume across substantially all businesses except Sulfur affecting a 7% price decrease and a 3% volume decrease in segment net sales, respectively.
50
The Chemours Companyfixed cost absorption as we reduced production rates to match reduced customer demand.
Segment Adjusted EBITDA increased by $10 million, or 34%, and segment Adjusted EBITDA margin increased by approximately 200 basis points for the year ended December 31, 2016 when compared with the same period in 2015. These increases were primarily attributable to cost reduction efforts, including our global headcount reductions implemented in 2015, as well as improvements in plant operating costs, despite the overall decrease in segment net sales resulting from our aforementioned portfolio changes.
Corporate and Other
Corporate costs and certain legacy legal and environmental expenses, that are not allocated to the segmentsstock-based compensation costs, and foreign exchange gains and losses arising from the remeasurement of balances in currencies other than the functional currency of theour legal entityentities are reflected in Corporate and Other.
Corporate and Other costs increaseddecreased by $38$19 million or 30%,(or 12%) to $166$143 million for the year ended December 31, 2017 when2019, compared with $128Corporate and Other costs of $162 million for the same period in 2016. This increase was primarily attributable to costs associated with legacy environmental issues, legal costs, and higher performance-related compensation costs.2018. The decrease in Corporate and Other costs increased by $46 million, or 56%, to $128 million for the year ended December 31, 2016 when compared with $82 million for the same period in 2015. This increase2019 was primarily attributable to higher legal,lower performance-related compensation and other miscellaneous costs.lower costs for certain legacy legal matters.
2018
41
The Chemours Company
2020 Outlook
For 2018, we expect our earnings growth to be in line with the three-year targets that we discussed at our investor day in December 2017.
Our 20182020 results will be driven by the expectation thatfollowing expectations: (i) average prices2020 volume for our TiO2 pigmentTitanium Technologies segment will be above 2017 average prices,continue to recover as we further execute our TVS strategy; (ii) there will be continued transition to OpteonTM refrigerants in our Fluoroproducts segment, which will be offset by the impacts of illegal imports of legacy HFC refrigerants into the EU in violation of the region’s F-gas regulations; and, (iii) there will be increasedcontinued demand for our fluoropolymer products, and (iv) there will be strong demand for our Mining Solutions products.products in our Chemical Solutions segment. We expect that our capital expenditures to be between $475 million and $525 million, which will be driven largely by capital expenditures associated with our new OpteonTM plant under construction in Corpus Christi, Texas, and our Mining Solutions plant under construction in Laguna, Mexico. approximately $400 million.
Our outlook for 20182020 reflects our current visibility and expectations based on market factors, such as currency movements, TiO2 pigment pricing,macro-economic factors, and end-market demand. In particular, end-market demand andmay be impacted by factors beyond our control, such as the recent spread of the novel coronavirus. Our ability to meet these targetsour expectations are subject to numerous risks, such asincluding, but not limited to, those described in Item 1A – Risk Factors.
Liquidity and Capital Resources
Prior to the Separation on July 1, 2015, transfers of cash to and from DuPont’s cash management system were reflected in DuPont’s net investment in the historical consolidated balance sheets, consolidated statements of stockholders’ equity, and consolidated statements of cash flows. DuPont funded our cash needs through the Separation Date. We have a historical pattern of seasonality, with a working capital use of cash in the first half of the year, and a working capital source of cash in the second half of the year.
Our primary sources of liquidity are cash generated from operations, available cash, receivables securitization, and borrowings under our debt financing arrangements, which are described in further detail below.in “Note 20 – Debt” to the Consolidated Financial Statements. We believe these sources are sufficient to fund our planned operations and to meet our interest, dividend, and contractual obligations. Our financial policy seeks toto: (i) selectively invest forin organic and inorganic growth to enhance our portfolio, including certain strategic capital investments,investments; (ii) return cash to shareholders through dividends and share repurchases,repurchases; and, (iii) maintain appropriate leverage by using free cash flows to repay outstanding borrowings. Subject to approval by our board of directors, we may raise additional capital or borrowings from time to time, or seek to refinance our existing debt. There can be no assuranceassurances that future capital or borrowings will be available to us, and the cost and availability of new capital or borrowings could be materially impacted by market conditions. Further, the decision to refinance our existing debt is based on a number of factors, including general market conditions and our ability to refinance on attractive terms at any given point in time. Any attempts to raise additional capital or borrowings, or refinance our existing debt, could cause us to incur significant charges. Such charges could have a material impact on our financial position, results of operations, or cash flows.
Our operating cash flowsflow generation is driven by, among other things, the general global economic conditions at any point in time and itstheir resulting impactimpacts on demand for our products, raw materials and energy prices, and industry-specific issues, such as production capacity and utilization. We have generated strong operating cash flows through various industry and economic cycles, evidencing the operating strength of our businesses. Over the industry cycles in recent years, our cash flows from operating activities increased in years leading up to the historical peak profitability achieved in 2011, which was followed by a steady decline in our cash flows from operating activities from 2012 to 2015, when we hit our historical low. Despite the challenging market conditions in the TiO2 industry since the historical peak, we anticipate that through our cost reduction efforts and growth initiatives, our operations will provide sufficient liquidity to support the cash needs of our business. From 2016 to 2017, we experienced steady increases in our cash flows from operating activities, leading to cash flows from operating activities of $594 million and $639 million, respectively.
51
The Chemours Company
In May 2018, we completed our $500 million 2017 Share Repurchase Program. On November 30, 2017,August 1, 2018, our board of directors increased our quarterly cash dividend to $0.17$0.25 per share, which is payableshare. Additionally, on March 15,August 1, 2018, to our shareholders of record as of February 15, 2018. Accordingly, we have accrued a dividend payable amounting to $31 million at December 31, 2017. On September 1, 2015, our independent board of directors declared a dividend of $0.03 per share, which was paid on December 14, 2015 to our stockholders of record on November 13, 2015. During 2016 and 2017, our board of directors continuedapproved the 2018 Share Repurchase Program, which authorizes us to declare quarterly dividendspurchase shares of $0.03 per share, which were paid in each quarter during those years. While we were a wholly-owned subsidiary of DuPont, our then-board of directors, consisting of DuPont employees, declared a dividendissued and outstanding common stock in an aggregate amount not to exceed $750 million, plus any fees or costs in connection with our share repurchase activity. On February 13, 2019, our board of $100directors increased the authorization amount of the 2018 Share Repurchase Program to $1.0 billion. The 2018 Share Repurchase Program became effective on August 1, 2018 and will continue through the earlier of its expiration on December 31, 2020, or the completion of repurchases up to the approved amount. To date, we have repurchased $572 million or $0.55 per share, forof our common stock under the third quarter of 2015, which was paid on September 11, 2015 to our stockholders of record as of August 3, 2015.2018 Share Repurchase Program.
We anticipate making significant payments for interest, capital expenditures, environmental remediation costs and investments, dividends, and other actions over the next 12 months, which we expect to fund through cash generated from operations, available cash, receivables securitization, and borrowings. We further anticipate that our operations and existing debt financing arrangements will provide us with sufficient liquidity over the next 12 months. The availability under our Revolving Credit Facility, which is discussed further under the heading “Credit Facilities and Notes,”revolving credit facility is subject to the last 12 months of our consolidated EBITDA, as defined in the credit agreement.
The separation agreements set forth a process to true-up cashamended and working capital transferred to us from DuPont at the Separation. In January 2016, we and DuPont entered into an agreement, contingent upon therestated credit agreement, amendment described herein, which provided for the extinguishment of payment obligations of cash and working capital true-ups previously contemplatedis discussed further in the separation agreements. As a result, we were not required to make any payments to DuPont, nor did DuPont make any payments to us related“Note 20 – Debt” to the Separation true-up mechanism. In addition, the agreement set forth an advance payment of approximately $190 million, which was paid to us in February 2016, for certain specified goods and services that we provided to DuPont through mid-2017 under our existing agreements. $58 million of the prepayment amount remained outstanding at December 31, 2016, which was utilized during 2017 by DuPont.Consolidated Financial Statements.
At December 31, 2017,2019, we had total cash and cash equivalents of $1.6 billion,$943 million, of which, $795$839 million was held by our foreign subsidiaries. All of ourthe cash and cash equivalents that is held by our foreign subsidiaries is readily convertible into currencies used in our operations, including the U.S. dollar. CashThe cash and earnings of our foreign subsidiaries are generally used to finance their operations and capital expenditures. At December 31, 2017,2019, management believed that sufficient liquidity was available in the U.S., which includes borrowing capacity under our revolving credit facility, and it is our intention to indefinitely reinvest the undistributedhistorical pre-2018 earnings of our foreign subsidiaries. Beginning in 2018, management asserts that only certain foreign subsidiaries outside of the U.S.; however, we continue to evaluate this assertion as a result of U.S. tax reform. From time to time, we evaluate opportunities to repatriate cash from foreign jurisdictions. Our current plans consider repatriating cash only at levels that would result in minimal or no net adverse tax consequences in the near term.
No deferred tax liabilities have been recognized with regardare indefinitely reinvested. See “Note 9 – Income Taxes” to the $795 million of cash and cash equivalents ofConsolidated Financial Statements for further information related to our foreign subsidiaries at December 31, 2017, or on our undistributed earnings. income tax positions.
42
The potential tax implications of the repatriation of unremitted earnings are driven by facts at the time of distribution; however, due to the U.S. deemed repatriation transition tax as a result of the Tax Act, the incremental cost to repatriate earnings would be reduced if a distribution was made in the future.Chemours Company
Cash Flows
The following table sets forth a summary of ourthe net cash provided by (used for) our operating, investing, and financing activities for the years ended December 31, 2017, 2016,2019 and 2016.2018.
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
| |||||
Cash provided by operating activities |
| $ | 639 |
|
| $ | 594 |
|
| $ | 182 |
|
| $ | 650 |
|
| $ | 1,140 |
|
Cash provided by (used for) investing activities |
|
| (370 | ) |
|
| 357 |
|
|
| (497 | ) | ||||||||
Cash provided by (used for) financing activities |
|
| 353 |
|
|
| (396 | ) |
|
| 687 |
| ||||||||
Cash used for investing activities |
|
| (483 | ) |
|
| (487 | ) | ||||||||||||
Cash used for financing activities |
|
| (419 | ) |
|
| (993 | ) |
52
The Chemours CompanyOperating Activities
2017 Compared with 2016
We received $639$650 million and $594 million$1.1 billion in cash flows from our operating activities for the years ended December 31, 20172019 and 2016, respectively. Increases resulting from improvements in our net income of $746 million for the year ended December 31, 2017 when compared with net income of $7 million for the same period in 2016 were substantially offset by negative impacts to our operating cash flows resulting from changes in our operating assets and liabilities. During 2017, we made payments of $335 million to satisfy the PFOA MDL Settlement and fully utilized the remaining balance on our $190 million prepayment from DuPont.
2016 Compared with 2015
We received $594 million and $182 million in cash flows from our operating activities for the years ended December 31, 2016 and 2015,2018, respectively. The $412 million increasedecrease in our operating cash inflows for the year ended December 31, 2016 when compared with the same period in 20152019 was primarily attributable to positive impacts resulting from changesa decrease in our net working capital. During 2016, we accrued $335 million for the PFOA MDL Settlement and received $190 millionincome, despite reduction in prepayments for goods and services from DuPont, of which, $132 million was utilized by year-end. In addition, we earned net income of $7 million forour finished products inventories to align with decreased sales volumes during the year ended December 31, 20162019 when compared with a net lossto the prior year. We also made cash payments for certain raw materials purchases that occurred during the fourth quarter of $90 million for the same period in 2015. These increases were partially offset by increases in our interest payments to $220 million from $122 million and increases in our restructuring payments to $68 million from $39 million for the years ended December 31, 2016 and 2015, respectively.2018.
Investing Activities
2017 Compared with 2016
We used $370 million for, and received $357 million in cash flows from our investing activities for the years ended December 31, 2017 and 2016, respectively. For the year ended December 31, 2017, our investing cash outflows were primarily attributable to capital expenditures of $411 million. These cash outflows were partially offset by net proceeds of $29 million and $10 million from the sales of our corporate headquarters building in Wilmington, Delaware and the land which formerly held our manufacturing plant in Edge Moor, Delaware, respectively, during the year then-ended. For the year ended December 31, 2016, our investing cash inflows were primarily attributable to net proceeds of $321 million, $223 million, and $140 million from the sales of our Sulfur and C&D businesses and our aniline facility in Beaumont, Texas, respectively. These cash inflows were partially offset by capital expenditures of $338 million during the year then-ended.
2016 Compared with 2015
We received $357 million from, and used $497$483 million in cash flows for our investing activities for the years ended December 31, 2016 and 2015, respectively. Forduring the year ended December 31, 2016, our2019. Our investing cash inflows were primarily attributable to the aforementioned sales of our businesses and assets, which were partially offset by capital expenditures. Foroutflows for the year ended December 31, 2015, our investing cash outflows2019 were primarily attributable to capital expenditurespurchases of $519property, plant, and equipment amounting to $481 million, and $32as well as $10 million in total cash consideration payments for investments in affiliates.the acquisition of Southern Ionics Minerals, LLC. These investing cash outflows were partially offset by net gains of $42 million and $12 millionproceeds from foreign exchange contract settlements and the sales of certain assets respectively,and businesses of $9 million, which were primarily attributable to $4 million received from the sale of our Oakley, California site and $2 million received from the sale of our Methylamines and Methylamides business.
We used $487 million in cash flows for our investing activities during the year ended December 31, 2018. Our investing cash outflows for the year then-ended.ended December 31, 2018 were primarily attributable to purchases of property, plant, and equipment amounting to $498 million, and $37 million in total cash consideration payments for the acquisition of ICOR International, Inc. These investing cash outflows were partially offset by proceeds from the sales of assets and businesses of $46 million, which were primarily attributable to the sale of our Linden, New Jersey site for $39 million.
Financing Activities
2017 Compared with 2016
We received $353 million from, and used $396$419 million in cash flows for our financing activities for the years ended December 31, 2017 and 2016, respectively. Forduring the year ended December 31, 2017, our2019. Our financing cash inflowsoutflows for the year ended December 31, 2019 were primarily attributable to $489our capital allocation activities, resulting in $486 million of cash returned to shareholders through our 2018 Share Repurchase Program and through cash dividends paid. In addition, we made $30 million in payments for withholding taxes on certain of our vested stock-based compensation awards. We also drew $150 million on our revolving credit facility for general corporate purposes. We subsequently repaid the revolver borrowing in full, primarily using the $125 million proceeds originally received from the Securitization Facility, as well as available cash. During the year ended December 31, 2019, we also repaid a net $15 million of the borrowings from the Securitization Facility. The Securitization Facility is further described in “Note 20 – Debt” to the Consolidated Financial Statements.
We used $993 million in cash flows for our financing activities during the year ended December 31, 2018. Our financing cash outflows for the year ended December 31, 2018 were primarily attributable to the following: $679 million in debt repayments and $29 million in “make-whole” premium payments in connection with our debt refinancing activities, as well as scheduled principal repayments; $644 million for purchases of our issued and outstanding common stock under our share repurchase programs; and, $148 million for payments of cash dividends. These financing cash outflows were partially offset by $520 million in net proceeds from the issuance of our May 2027 Notes in the Offering and $31 million in net proceeds from the exercise of employee stock options. These cash inflows were partially offset by $106 million in payments for purchases of our common stock in connection with our share repurchase program, $27 million in repayments of our senior secured term loans, $22 million in payments for dividends, and $12 million in payments for taxes related to withholdings on our employees’ vested restricted stock units. For the year ended December 31, 2016, our financing cash outflows were primarily attributable to $354 million in repurchases of a portion of our senior secured term loan andeuro-denominated 4.000% senior unsecured notes representing an aggregate principal amount of $370 million, repayments of our senior secured term loan, and $22 million in payments for dividends. These cash outflows were partially offset by $11 million in net proceeds from the exercise of employee stock options.due May 2026.
5343
The Chemours Company
We used $396 million for, and received $687 million in cash flows from our financing activities for the years ended December 31, 2016 and 2015, respectively. For the year ended December 31, 2016, our financing cash outflows were primarily attributable to the aforementioned repurchase of our senior secured term loan and senior unsecured notes, repayments of our senior secured term loan, and payments for dividends, which were partially offset by net proceeds from the exercise of employee stock options. For the year ended December 31, 2015, our financing cash inflows were primarily attributable to $3.4 billion in net proceeds from our financing transactions. These cash inflows were partially offset by $2.6 billion in net payments for transactions with DuPont and $100 million in payments for dividends.
Current Assets
The following table sets forth the components of our current assets at December 31, 20172019 and 2016.2018.
|
| December 31, |
|
| December 31, |
| ||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Cash and cash equivalents |
| $ | 1,556 |
|
| $ | 902 |
|
| $ | 943 |
|
| $ | 1,201 |
|
Accounts and notes receivable, net |
|
| 919 |
|
|
| 807 |
|
|
| 674 |
|
|
| 861 |
|
Inventories |
|
| 935 |
|
|
| 767 |
|
|
| 1,079 |
|
|
| 1,147 |
|
Prepaid expenses and other |
|
| 83 |
|
|
| 77 |
|
|
| 81 |
|
|
| 84 |
|
Total current assets |
| $ | 3,493 |
|
| $ | 2,553 |
|
| $ | 2,777 |
|
| $ | 3,293 |
|
AccountsOur accounts and notes receivable, net increaseddecreased by $112$187 million or 14%,(or 22%) to $919$674 million at December 31, 2017 from $8072019, compared with accounts and notes receivable, net of $861 million at December 31, 2016. This increase is2018. The decrease in our accounts and notes receivable, net at December 31, 2019 was primarily attributable to higherlower net sales in the fourth quarter of 2019 versus the same period in 2018, as well as the timing of payments from our customers.
Our inventories decreased by $68 million (or 6%) to $1.1 billion at the end of 2017 whenDecember 31, 2019, compared with inventories of $1.1 billion at December 31, 2018. The decrease in our inventories at December 31, 2019 was primarily attributable to a decrease in our finished products inventories, in order to align with decreased sales volumes across all segments, and changes to our last-in, first-out inventory reserve balances. These decreases were partially offset by an increase in our raw materials inventories, driven by the endstrategic acquisition of 2016,ore in our Titanium Technologies segment.
Our prepaid expenses and a favorable foreign currency translation adjustment of $24other assets were largely unchanged at $81 million and $84 million at December 31, 2017 when compared with an unfavorable foreign currency translation adjustment of $2 million at December 31, 2016.2019 and 2018, respectively.
Inventories increased by $168 million, or 22%, to $935 million at December 31, 2017 from $767 million at December 31, 2016. This increase is primarily attributable to inventory build for anticipated increases in demand during 2018, and a favorable foreign currency translation adjustment of $10 million at December 31, 2017 when compared with an unfavorable foreign currency translation adjustment of $23 million at December 31, 2016.
Prepaid expenses and other were largely unchanged at $83 million and $77 million at December 31, 2017 and 2016, respectively.
Current Liabilities
The following table sets forth the components of our current liabilities at December 31, 20172019 and 2016.2018.
|
| December 31, |
|
| December 31, |
| ||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Accounts payable |
| $ | 1,075 |
|
| $ | 884 |
|
| $ | 923 |
|
| $ | 1,137 |
|
Current maturities of long-term debt |
|
| 15 |
|
|
| 15 |
| ||||||||
Short-term and current maturities of long-term debt |
|
| 134 |
|
|
| 13 |
| ||||||||
Other accrued liabilities |
|
| 558 |
|
|
| 872 |
|
|
| 484 |
|
|
| 559 |
|
Total current liabilities |
| $ | 1,648 |
|
| $ | 1,771 |
|
| $ | 1,541 |
|
| $ | 1,709 |
|
AccountsOur accounts payable increaseddecreased by $191$214 million or 22%,(or 19%) to $923 million at December 31, 2019, compared with accounts payable of $1.1 billion at December 31, 2017 from $8842018. The decrease in our accounts payable at December 31, 2019 was primarily attributable to our decline in net sales volumes during the year ended December 31, 2019, as well as the timing of our inventory purchases in the fourth quarter of 2018.
Our short-term and current maturities of long-term debt increased by $121 million (or greater than 100%) to $134 million at December 31, 2016. This increase is primarily attributable to higher inventories2019, compared with short-term and the timingcurrent maturities of payments to vendors, and an unfavorable foreign currency translation adjustmentlong-term debt of $3$13 million at December 31, 2017 when compared with a favorable foreign currency translation adjustment2018. The increase in our short-term and current maturities of $20long-term debt at December 31, 2019 was primarily attributable to $110 million net borrowings under the Securitization Facility, $6 million for financed insurance premiums, and $5 million for the current portion of finance lease liabilities and financing obligations.
Our other accrued liabilities decreased by $75 million (or 13%) to $484 million at December 31, 2016. In addition, we2019, compared with other accrued $31 million for dividends payable at December 31, 2017.
Current maturitiesliabilities of long-term debt remained consistent at $15$559 million at December 31, 2017 and 2016.
Other2018. The decrease in our other accrued liabilities decreased by $314 million, or 36%, to $558 million at December 31, 2017 from $872 million at December 31, 2016. This decrease is2019 was primarily attributable to lower accrued compensation and employee-related costs, payments of certain accrued expenses, and changes in the expected timing of payments related to accrued environmental costs. These decreases were partially offset by balance sheet recognition of our paymentoperating lease liabilities upon the adoption of $335 million to satisfy the PFOA MDL Settlement, and a favorable foreign currency translation adjustmentnew leasing standard on January 1, 2019. As of $2 million at December 31, 2017 when compared with an unfavorable foreign currency translation adjustment2019, the current portion of $19 million at December 31, 2016.our operating lease liabilities amounted to $66 million.
54
Credit Facilities and Notes
See “Note 20 – Debt” to the Consolidated Financial Statements for a summary of our debt arrangements.
44
The Chemours Company
Senior Secured Term Loans
Our credit agreement, as amended, provides for seven-year senior secured term loans and a five-year, $750 million Revolving Credit Facility through 2022. The proceeds of any loans made under the Revolving Credit Facility can be used for capital expenditures, acquisitions, working capital needs, and other general corporate purposes. Availability under the Revolving Credit Facility is subject to certain covenant limitations. At December 31, 2017, our Revolving Credit Facility had a full borrowing capacity of $750 million, from which we had $101 million in letters of credit issued and outstanding.
On April 3, 2017, we completed the April Amendment to our credit agreement which provides for a new class of term loans, denominated in euros, in an aggregate principal amount of €400 million (Euro Term Loan), and a new class of term loans, denominated in U.S. dollars, in an aggregate principal amount of $940 million (Dollar Term Loan, and, collectively with the Euro Term Loan, the New Term Loans). The New Term Loans replaced in full the prior term loan outstanding of $1.4 billion (Prior Term Loan). The New Term Loans mature on May 12, 2022, which is the same maturity date of the Prior Term Loan. The Euro Term Loan bears a variable interest rate equal to EURIBOR plus 2.25%, subject to a EURIBOR floor of 0.75%, and the Dollar Term Loan bears a variable interest rate equal to LIBOR plus 2.50%, subject to a LIBOR floor of 0.00%. The April Amendment also modified certain provisions of the credit agreement, including increased certain incurrence limits to allow further flexibility for us. All other provisions, including financial covenants, remained unchanged. No incremental debt was issued as a result of the April Amendment, although the Euro Term Loan is subject to remeasurement gains or losses.
Our obligations under the Senior Secured Credit Facilities (inclusive of the Revolving Credit Facility and the New Term Loans) are guaranteed on a senior secured basis by all of our material domestic subsidiaries, subject to certain agreed upon exceptions. The obligations under the Senior Secured Credit Facilities are also, subject to certain agreed upon exceptions, secured by a first priority lien on substantially all of our and our material, wholly-owned domestic subsidiaries’ assets, including 100% of the stock of certain of our domestic subsidiaries and 65% of the stock of certain of our foreign subsidiaries.
Senior Unsecured Notes
On May 12, 2015, we issued an aggregate principal amount of approximately $2.5 billion in senior unsecured notes (collectively, the Notes) in a private placement. The 2023 Notes, with an aggregate principal amount of approximately $1.4 billion, bear interest at a rate of 6.625% per annum and will mature on May 15, 2023, with all outstanding principal payable at maturity (2023 Notes). The 2025 Notes, with an aggregate principal amount of $750 million, bear interest at a rate of 7.000% per annum and will mature on May 15, 2025, with all outstanding principal payable at maturity (2025 Notes). The 2023 Notes, denominated in euros, with an aggregate principal amount of €360 million, bear interest at a rate of 6.125% per annum and will mature on May 15, 2023, with all outstanding principal payable at maturity (Euro Notes). Interest on the Notes is payable semi-annually in cash in arrears on May 15 and November 15 of each year.
The Notes are fully and unconditionally guaranteed, jointly and severally, by our existing and future subsidiaries that guarantee the Senior Secured Credit Facilities or that guarantee our other indebtedness or any of our guarantors’ indebtedness in an aggregate principal amount in excess of $75 million. The Notes are unsecured and unsubordinated by us and our guarantor subsidiaries. The Notes rank equally in right of payment to all of our existing and future unsecured unsubordinated debt and senior in right of payment to all of our existing and future debt that is by its terms expressly subordinated in right of payment to the Notes. The Notes are subordinated to indebtedness under the Senior Secured Credit Facilities as well as any future secured debt to the extent of the value of the assets securing such debt. We are obligated to offer to purchase the Notes at a price of (i) 101% of their principal amount, together with accrued and unpaid interest, if any, up to, but not including, the date of purchase, upon the occurrence of certain change of control events, and (ii) 100% of their principal amount, together with accrued and unpaid interest, if any, up to, but not including, the date of purchase, with the proceeds from certain asset dispositions. These restrictions and prohibitions are subject to certain qualifications and expectations set forth in the indenture, including without limitation, reinvestment rights with respect to the proceeds of asset dispositions. We are permitted to redeem some or all of the 2023 Notes and the Euro Notes by paying a “make-whole” premium prior to May 15, 2018, and on or after May 15, 2018 and thereafter at specified redemption prices. We may redeem some or all of the 2025 Notes on or after May 15, 2020 at specified redemption prices. We may also redeem some or all of the Notes by means other than a redemption, including tender offer or open market repurchases. Pursuant to the terms of the tax matters agreement entered into at the time of the Separation, our ability to pre-pay, pay down, redeem, retire, or otherwise acquire the 2025 Notes is limited in the absence of obtaining certain tax opinions.
In connection with the issuance of the Notes, we entered into a registration rights agreement, in which we agreed to file a registration statement with the SEC for the exchange of the Notes for newly-registered notes with identical terms. On March 18, 2016, we filed a registration statement on Form S-4 with respect to the exchange offer, and the registration statement was declared effective on April 12, 2016. The exchange offer was completed on May 9, 2016. In addition, the Euro Notes were listed for trading on the Global Exchange Market of the Irish Stock Exchange on May 5, 2016.
55
The Chemours CompanySupplier Financing
On May 23, 2017, we completed the Offering and issued a $500 million aggregate principal amount of 5.375% senior unsecured notes due May 2027 (2027 Notes). The 2027 Notes require payment of principal at maturity and interest semi-annually in cash and in arrears on May 15 and November 15 of each year. We received proceeds of $489 million, net of an original issue discount of $5 million and underwriting fees and other related expenses of $6 million, which are deferred and amortized to interest expense using the effective interest method over the term of the 2027 Notes. A portion of the net proceeds from the 2027 Notes was used to pay the $335 million accrued for the global settlement of the PFOA MDL Settlement, with the remainder available for our general corporate purposes.
The 2027 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured unsubordinated basis by each of the existing and future domestic subsidiaries that (i) incurs or guarantees indebtedness under the Senior Secured Credit Facilities or (ii) guarantees other indebtedness of us or any of our guarantors in an aggregate principal amount in excess of $100 million. The guarantees of the 2027 Notes rank equally with all other senior indebtedness of the guarantors. The 2027 Notes rank equally in right of payment to all of our existing and future unsecured unsubordinated debt and are senior in right of payment to all of our existing and future debt that is by its terms expressly subordinated in right of payment to the 2027 Notes. The 2027 Notes are subordinated to indebtedness under the Senior Secured Credit Facilities as well as any future secured debt to the extent of the value of the assets securing such debt, and structurally subordinated to the liabilities of any non-guarantor subsidiaries.
We may redeem the 2027 Notes, in whole or in part, at an amount equal to 100% of the aggregate principal amount plus a specified “make-whole” premium and accrued and unpaid interest, if any, to the date of purchase prior to February 15, 2027. We may also redeem some or all of the 2027 Notes by means other than a redemption, including tender offer and open market repurchases. We are obligated to offer to purchase the 2027 Notes at a price of 101% of the principal amount, together with accrued and unpaid interest, if any, up to, but not including, the date of purchase, upon the occurrence of certain change of control events.
Debt Covenants
The credit agreement contains financial covenants which, solely with respect to the Revolving Credit Facility, as amended, require us not to exceed a maximum senior secured net leverage ratio of: (i) 3.50 to 1.00 each quarter through December 31, 2016; (ii) 3.00 to 1.00 through June 30, 2017; and, (iii) further decreasing by 0.25 to 1.00 every subsequent six months to 2.00 to 1.00 by January 1, 2019 and thereafter. We are also required to maintain a minimum interest coverage ratio of 1.75 to 1.00 each quarter through June 30, 2017 and further increasing by 0.25 to 1.00 every subsequent six months to 3.00 to 1.00 by January 1, 2019 and thereafter. In addition, the credit agreement contains customary affirmative and negative covenants that, among other things, limit or restrict our and our subsidiaries’ ability, subject to certain exceptions, to incur liens, merge, consolidate or sell, transfer or lease assets, make investments, pay dividends, transact with subsidiaries, and incur indebtedness. The credit agreement also contains customary representations and warranties and events of default. The Senior Secured Credit Facilities and the Notes contain events of default customary for these types of financings, including cross-default and cross-acceleration provisions to our material indebtedness. We were in compliance with our debt covenants at December 31, 2017.
In the event of default under our Revolving Credit Facility, our lenders under the Revolving Credit Facility can terminate their commitments thereunder, cease making further revolving loans, and accelerate any outstanding revolving loans. This would allow the lenders under the Revolving Credit Facility to declare the outstanding term loans to be immediately due and payable and to institute foreclosure proceedings against the collateral securing the credit facility, which could force us into bankruptcy or liquidation. Any event of default or declaration of acceleration under the credit agreement also may result in an event of default under the indentures governing the Notes. Any such default, event of default, or declaration of acceleration could materially and adversely affect our results of operations and financial condition.
Maturities
Under the April Amendment, we are required to make principal payments related to the New Term Loans of approximately $14 million in each year from 2018 to 2021, with the remaining principal of $1.4 billion due in 2022. Debt maturities related to the Notes in 2023 and beyond will be $2.8 billion. In addition, following the end of each fiscal year starting with the year ended December 31, 2016, on an annual basis, we are also required to make additional principal repayments, depending on our leverage level as defined in the credit agreement, equivalent to up to 50% of excess cash flows based on certain leverage targets with step-downs to 25% and 0% as actual leverage decreases to below a 3.00 to 1.00 leverage target at the end of each fiscal year. No principal repayments were required to be made in 2017 based upon our December 31, 2016 excess cash flows determined under the credit agreement. No principal payments for excess cash flows are expected to be made in 2018.
56
The Chemours Company
We maintain global paying services agreements with twoseveral financial institutions. Under these agreements, the financial institutions act as our paying agents with respect to accounts payable due to our suppliers who elect to participate in the program. The agreements allow our suppliers to sell their receivables to one of the participating financial institutions at the discretion of both parties on terms that are negotiated between the supplier and the respective financial institution. Our obligations to our suppliers, including the amounts due and scheduled payment dates, are not impacted by our suppliers’ decisions to sell their receivables under this program. At December 31, 2017,2019 and 2018, the total payment instructions from us amounted to $172 million.$106 million and $210 million, respectively. Pursuant to their agreement with one of the financial institutions, certain suppliers may elect to getbe paid early at their discretion. The available capacity under these programs can vary based on the number of suppliersinvestors and/or financial institutions participating in these programs at any point in time.
Capital Expenditures
Our operations are capital intensive, requiring ongoing investment to upgrade or enhance existing operations and to meet environmental and operational regulations. Our capital requirements have consisted, and are expected to continue to consist, primarily of:
ongoing capital expenditures, such as those required to maintain equipment reliability, the integrity and safety of our manufacturing sites, and to comply with environmental regulations;
• | ongoing capital expenditures, such as those required to maintain equipment reliability, the integrity and safety of our manufacturing sites, and to comply with environmental regulations; |
investments in our existing facilities to help support introduction of new products and de-bottleneck to expand capacity and grow our business; and,
• | investments in our existing facilities to help support the introduction of new products and de-bottleneck to expand capacity and grow our business; and, |
• | investments in projects to reduce future operating costs and enhance productivity. |
investment in projects to reduce future operating costs and enhance productivity.
The following table sets forth our ongoing and expansion capital expenditures, (which includesincluding environmental capital expenditures), as well as expenditures, related to our Separation from DuPont for the years ended December 31, 2017, 2016,2019 and 2015.2018.
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
| |||||
Titanium Technologies |
| $ | 65 |
|
| $ | 105 |
|
| $ | 255 |
| ||||||||
Fluoroproducts |
|
| 249 |
|
|
| 120 |
|
|
| 142 |
|
| $ | 201 |
|
| $ | 274 |
|
Chemical Solutions |
|
| 65 |
|
|
| 104 |
|
|
| 117 |
|
|
| 40 |
|
|
| 75 |
|
Titanium Technologies |
|
| 121 |
|
|
| 91 |
| ||||||||||||
Corporate and Other |
|
| 32 |
|
|
| 9 |
|
|
| 5 |
|
|
| 119 |
|
|
| 58 |
|
Total purchases of property, plant, and equipment |
| $ | 411 |
|
| $ | 338 |
|
| $ | 519 |
|
| $ | 481 |
|
| $ | 498 |
|
(1) | Includes $83 million and $41 million during the years ended December 31, 2019 and 2018, respectively, related to our capital expenditures for our new R&D facility on the Science, Technology, and Advanced Research campus of the University of Delaware in Newark, Delaware (“Chemours Discovery Hub”). |
Our capital expenditures increaseddecreased by $17 million (or 3%) to $481 million for the year ended December 31, 2017 when2019, compared with capital expenditures of $498 million for the same period in 2016, primarily attributable to progress on our new OpteonTM plant under construction in Corpus Christi, Texas, and our Mining Solutions plant under construction in Laguna, Mexico.2018. Our capital expenditures decreased for the year ended December 31, 2016 when compared with2019 included the continued construction and completion of our new R&D facility on the Science, Technology, and Advanced Research campus of the University of Delaware in Newark, Delaware, as well as preparation of a new minerals sands mine site in Jesup, Georgia. We also invested in a thermal oxidizer to reduce aerial PFAS emissions from Fayetteville, which is further discussed in “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements. These increases are more than offset by capital expenditures for the year ended December 31, 2018 that did not recur, whether to the same periodmagnitude or at all, in 2015, primarily attributable to2019. Such expenditures included the completion of our Altamira, Mexico facilityOpteonTM refrigerants plant in 2016. We expect our 2018 capital expenditures to be between $475 million and $525 million, which will be driven largely by capital expenditures associated with continuing construction at our Corpus Christi, Texas, as well as progress on our planned Mining Solutions plant in Mexico prior to its construction suspension, which is further discussed in “Note 22 – Commitments and Laguna plants.Contingent Liabilities” to the Consolidated Financial Statements.
57
45
The Chemours Company
Information
The following table sets forth information related to our significant contractual obligations at December 31, 2017 is set forth in the table below.2019.
|
|
|
|
|
| Payments Due In |
|
|
|
|
|
| Payments Due In |
| ||||||||||||||||||||||||||
(Dollars in millions) |
| Total |
|
| 2018 |
|
| 2019 - 2020 |
|
| 2021 - 2022 |
|
| 2023 and Beyond |
|
| Total |
|
| 2020 |
|
| 2021 - 2022 |
|
| 2023 - 2024 |
|
| 2025 and Beyond |
| ||||||||||
Long-term debt obligations (1) |
| $ | 4,150 |
|
| $ | 14 |
|
| $ | 27 |
|
| $ | 1,351 |
|
| $ | 2,758 |
|
| $ | 4,036 |
|
| $ | 122 |
|
| $ | 26 |
|
| $ | 934 |
|
| $ | 2,954 |
|
Interest on long-term debt obligations (1) |
|
| 1,413 |
|
|
| 226 |
|
|
| 458 |
|
|
| 428 |
|
|
| 301 |
|
|
| 1,046 |
|
|
| 203 |
|
|
| 401 |
|
|
| 309 |
|
|
| 133 |
|
Operating leases |
|
| 487 |
|
|
| 59 |
|
|
| 90 |
|
|
| 70 |
|
|
| 268 |
|
|
| 379 |
|
|
| 82 |
|
|
| 115 |
|
|
| 64 |
|
|
| 118 |
|
Financing leases |
|
| 76 |
|
|
| 9 |
|
|
| 16 |
|
|
| 16 |
|
|
| 35 |
| ||||||||||||||||||||
Purchase obligations (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials |
|
| 1,419 |
|
|
| 145 |
|
|
| 254 |
|
|
| 253 |
|
|
| 767 |
|
|
| 1,290 |
|
|
| 160 |
|
|
| 303 |
|
|
| 257 |
|
|
| 570 |
|
Utilities |
|
| 753 |
|
|
| 137 |
|
|
| 156 |
|
|
| 145 |
|
|
| 315 |
|
|
| 1,055 |
|
|
| 113 |
|
|
| 162 |
|
|
| 153 |
|
|
| 627 |
|
Other |
|
| 140 |
|
|
| 54 |
|
|
| 50 |
|
|
| 36 |
|
|
| — |
|
|
| 107 |
|
|
| 64 |
|
|
| 30 |
|
|
| 13 |
|
|
| — |
|
Total purchase obligations |
|
| 2,312 |
|
|
| 336 |
|
|
| 460 |
|
|
| 434 |
|
|
| 1,082 |
|
|
| 2,452 |
|
|
| 337 |
|
|
| 495 |
|
|
| 423 |
|
|
| 1,197 |
|
Other liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workers’ compensation |
|
| 32 |
|
|
| 6 |
|
|
| 14 |
|
|
| 6 |
|
|
| 6 |
| ||||||||||||||||||||
Asset retirement obligations |
|
| 48 |
|
|
| 5 |
|
|
| 4 |
|
|
| 17 |
|
|
| 22 |
| ||||||||||||||||||||
Environmental remediation |
|
| 253 |
|
|
| 66 |
|
|
| 96 |
|
|
| 52 |
|
|
| 39 |
| ||||||||||||||||||||
Legal settlements |
|
| 3 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||
Workers’ compensation (3) |
|
| 24 |
|
|
| 3 |
|
|
| 5 |
|
|
| 4 |
|
|
| 12 |
| ||||||||||||||||||||
Asset retirement obligations (3) |
|
| 61 |
|
|
| 7 |
|
|
| 21 |
|
|
| 11 |
|
|
| 22 |
| ||||||||||||||||||||
Environmental remediation (3) |
|
| 406 |
|
|
| 74 |
|
|
| 111 |
|
|
| 86 |
|
|
| 135 |
| ||||||||||||||||||||
Legal settlements (3) |
|
| 20 |
|
|
| 4 |
|
|
| 6 |
|
|
| 5 |
|
|
| 5 |
| ||||||||||||||||||||
Employee separation charges |
|
| 27 |
|
|
| 27 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other |
|
| 81 |
|
|
| 12 |
|
|
| 18 |
|
|
| 17 |
|
|
| 34 |
| ||||||||||||||||||||
Other (3) |
|
| 170 |
|
|
| 27 |
|
|
| 18 |
|
|
| 21 |
|
|
| 104 |
| ||||||||||||||||||||
Total other liabilities |
|
| 444 |
|
|
| 119 |
|
|
| 132 |
|
|
| 92 |
|
|
| 101 |
|
|
| 696 |
|
|
| 130 |
|
|
| 161 |
|
|
| 127 |
|
|
| 278 |
|
Total contractual obligations |
| $ | 8,806 |
|
| $ | 754 |
|
| $ | 1,167 |
|
| $ | 2,375 |
|
| $ | 4,510 |
|
| $ | 8,685 |
|
| $ | 883 |
|
| $ | 1,214 |
|
| $ | 1,873 |
|
| $ | 4,715 |
|
| (1) | To calculate payments due for principal and interest, we assumed that interest rates, foreign currency exchange rates, and outstanding borrowings under our credit facilities were unchanged from December 31, |
| (2) | Represents enforceable and legally-binding agreements to purchase goods and/or services that specify fixed or minimum quantities, fixed minimum or variable price provisions, and the approximate timing of the agreement. |
(3) | Represents reasonable estimates of future cash payments for our contractual obligations. |
Off Balance Sheet Arrangements
Information with respect to our guarantees is included in “Note 20 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements.
Historically, we have not made significant payments to satisfy guarantee obligations; however, we believe we have the financial resources to satisfy these guarantees in the event required.
46
The Chemours Company
Recent Accounting Pronouncements
See “Note 3 – Summary of Significant Accounting Policies” to the Consolidated Financial Statements for a summary of our recent accounting pronouncements.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in “Note 3 – Summary of Significant Accounting Policies” to the Consolidated Financial Statements. Management believes that the application of these policies on a consistent basis enables us to provide the users of our financial statements with useful and reliable information about our operating results and financial condition.
The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts, including, but not limited to, receivable and inventory valuations, impairment of tangible and intangible assets, long-term employee benefit obligations, income taxes, restructuring liabilities, environmental matters, and litigation. Management’s estimates are based on historical experience, facts, and circumstances available at the time, and various other assumptions that are believed to be reasonable. We review these matters and reflect changes in estimates as appropriate. Management believes that the following represents some of the more critical judgment areas in the application of our accounting policies, which could have a material effect on our financial position, results of operations, or cash flows.
58
The Chemours Company
Provision for (Benefit from) Income Taxes
The provision for (benefit from) income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for (benefit from) income taxes represents income taxes paid or payable for the current year, plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax bases of our assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more-likely-than-not that a tax benefit will not be realized. In evaluating the ability to realize deferred tax assets, we rely on, in order of increasing subjectivity, taxable income in prior carryback years, the future reversals of existing taxable temporary differences, tax planning strategies, and forecasted taxable income using historical and projected future operating results.
The breadth of our operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating the taxes that we will ultimately pay. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation, and resolutions of disputes arising from federal, state, and international tax audits in the normal course of business. A liability for unrecognized tax benefits is recorded when management concludes that the likelihood of sustaining such positions upon examination by taxing authorities is less than more-likely-than-not. It is our policy to include accrued interest related to unrecognized tax benefits in other income (expense), net and income tax-related penalties in the provision for (benefit from) income taxes.
Prior
With respect to July 1, 2015, income taxes as presented herein attribute current and deferred income taxes of DuPont toU.S. tax reform, while we have completed our stand-alone consolidated financial statements in a manner that is systematic, rational, and consistent withanalysis within the asset and liability method prescribed by Accounting Standards Codification Topic 740, Income Taxes (Topic 740), issued by the Financial Accounting Standards Board. Accordingly, our income tax provision was prepared following the separate return method. The separate return method applies Topic 740 to the stand-alone financial statements of each member of the consolidated group as if the group member were a separate taxpayer and a stand-alone enterprise. As a result, actual tax transactions included in the consolidated financial statements of DuPont may not be included in our separate consolidated financial statements. Similarly, the tax treatment of certain items reflected in our separate consolidated financial statements may not be reflected in the consolidated financial statements and tax returns of DuPont; therefore, items such as net operating losses, credit carryforwards, and valuation allowances may exist in the stand-alone financial statements that may or may not exist in DuPont’s consolidated financial statements.
The taxable income (loss) amounts of our various entities, prior to July 1, 2015, were included in DuPont’s consolidated tax returns, where applicable in jurisdictions around the world. As such, separate income tax returns were not prepared for many of our entities. Consequently, income taxes currently payable are deemed to have been remitted to DuPont, in cash, in the period the liability arose and income taxes currently receivable are deemed to have been received from DuPont in the period that a refund could have been recognized by us had we been a separate taxpayer. As described in “Note 2 – Basis of Presentation” to the Consolidated Financial Statements, the operations comprising us are in various legal entities which have no direct ownership relationship. Consequently, no provision has been made for income taxes on the unremitted earnings of our subsidiaries and affiliates. The unremitted earnings of our subsidiaries outside the U.S. are considered to be reinvested indefinitely.
In December 2017, the U.S. enacted new federal tax legislation under the Tax Act. We have performed preliminary analyses of the impacts of the Tax Act in accordance with SAB No. 118, which allows us to record provisional amounts during a measurement period not to exceed one year from the enactment date. Under these preliminary analyses, we recorded additional GAAP tax benefits in the fourth quarter of 2017 amounting to $3 million. The impacts of the Tax Act may differ from our provisional estimates due to many factors, including, but not limited to, changes to our interpretation of the provisions in the Tax Act, IRS and Treasury guidance that may be issued, and actions we may take. Our management is still evaluating the effects of the Tax Act’s provisions on our consolidated financial statements; however, we expect to complete our analyses within the measurement period, pursuant to SABStaff Accounting Bulletin No. 118.118 as issued by the SEC, we account for the tax impacts of new provisions based on interpretation of existing statutory law, including proposed regulations issued by the U.S. Treasury and the IRS. While there can be no assurances as to the effect of any final regulations on our provision for (benefit from) income taxes, we will continue to evaluate the impacts as any issued regulations become final and adjust our estimates, as appropriate.
See “Note 9 – Income Taxes” to the Consolidated Financial Statements for further information related to our income tax positions.
47
The Chemours Company
Long-lived Assets
We evaluate the carrying value of our long-lived assets to be held and used when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. For the purposes of recognition or measurement of an impairment charge, the assessment is performed on the asset or asset group at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. To determine the level at which the assessment is performed, we consider factors such as revenue dependency, shared costs, and the extent of vertical integration. The carrying value of a long-lived asset is considered impaired when the total projected undiscounted cash flows from the use and eventual disposition of the asset or asset group are separately identifiable and are less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. The fair value methodology used is an estimate of fair market value, which is made based on prices of similar assets or other valuation methodologies, including present value techniques. Long-lived assets to be disposed of other than by sale are classified as held for use until their disposal. Long-lived assets to be disposed of by sale are classified as held for sale and are reported at the lower of their carrying amount or fair market value, less the estimated costs to sell. Depreciation is discontinued for any long-lived assets classified as held for sale.
59
The Chemours Company
The testing for potential impairment of these assets is significantly dependent on numerous assumptions and reflects management’s best estimates at a particular point in time. The dynamic economic environments in which our segments operate, and key economic and business assumptions with respect to projected selling prices, market growth, and inflation rates, can significantly impact the outcome of our impairment tests. Estimates based on these assumptions may differ significantly from actual results. Changes in the factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments, as well as the time in which such impairments are recognized. In addition, we continually review our diverse portfolio of assets to ensure that they are achieving their greatest potential and are aligned with our growth strategy. Strategic decisions involving a particular group of assets may trigger an assessment of the recoverability of the related assets. Such an assessment could result in impairment losses.
No impairment charges were recognized on our long-lived assets were recognized during 2017. During 2016, we recordedthe years ended December 31, 2019 and 2018.
Goodwill
The excess of the purchase price over the estimated fair value of the net assets acquired in a $48 million pre-tax impairment charge on our aniline facility in Pascagoula, Mississippi, a $58 million pre-tax impairment charge in connection with the sale of our Sulfur business and a $13 million pre-tax impairment charge in connection with the sale of our corporate headquarters building located in Wilmington, Delaware. During 2015, we recorded a $45 million pre-tax impairment charge on our RMS facility in Niagara Falls, New York. All charges, except for the corporate headquarters building impairment (whichcombination, including any identified intangible assets, is recorded in Corporate and Other), are recorded in the Chemical Solutions segment.
Goodwill
as goodwill. We test our goodwill for impairment at least annually on October 1; however, we test for impairmentthese tests are performed more frequently when events or changes in circumstances indicate that the asset may be impaired. Goodwill is evaluated for impairment at the reporting unit level, which is defined as an operating segment, or one level below our operating segments, with the exception of Titanium Technologies, which is both an operating segment and a reporting unit for these purposes.segment. A reporting unit is the level at which discrete financial information is available and reviewed by business management on a regular basis. An impairment exists when the carrying value of a reporting unit exceeds its fair value.
We evaluate goodwill for The amount of impairment usingloss recognized in the consolidated statements of operations is equal to the excess of a quantitative assessment, although GAAP allows for an optional qualitative assessment. For 2017, we opted to forego the available qualitative assessment and performed only the quantitative assessment, which includes a weighting of the results of income-based and market-based valuation techniques. Under the income-based valuation technique, we utilized a discounted cash flows methodology to calculate thereporting unit’s carrying value over its fair value, of our reporting units. The key assumptions used in the discounted cash flows methodology include, among other assumptions, projected cash flows, growth rates, discount rates, income tax rates, and terminal values, including those specific to us as well as other market participants. Under the market-based valuation technique, we selected a group of comparable publicly-traded companies and determined market multiples for various metrics, including ratios of enterprise value and/or total market capitalization to EBITDA. These market multiples were then applied to our reporting units’ operating results to determine their fair value. The key assumptions used in the guideline public company methodology include, among other assumptions, the selection of appropriate comparable publicly-traded companies, and the market multiples selected, including their relative weighting and magnitude within a range of calculated results.
The factors we considered in developing our estimates and projections for cash flows and EBITDA include, but are notwhich is limited to the following: (i) macroeconomic conditions; (ii) industry and market considerations; (iii) costs, such as increases in raw materials, labor, or other costs; (iv) our overall financial performance; and, (v) other relevant entity-specific events that impact our reporting units. The discount rate we used represents the weighted average costtotal amount of capital forgoodwill allocated to the reporting units, considering the risks and uncertainty inherent in the cash flows of the reporting units and in our internally-developed forecasts.unit.
Based on the evaluations performed in 2017 and 2016, no impairment of goodwill was recorded as the estimated fair value of each reporting unit that carries goodwill substantially exceeded the respective reporting unit’s carrying amount, indicating that none of our goodwill was impaired. In 2015, in connection with the strategic evaluation of our Chemical Solutions portfolio and the resulting changes to its reporting units in the third quarter of 2015, the Chemical Solutions segment recorded a $25 million pre-tax impairment charge related to its Sulfur reporting unit, which was subsequently disposed through the sale of its assets and business during 2016.
The determination of whether or not goodwill is impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the estimated fair values of our reporting units. We believe that theunits were determined by using a combination of income-based and/or market-based valuation techniques. These valuation models incorporated a number of assumptions and judgments surrounding general market and economic conditions, short and long-term revenue growth rates, gross margins and prospective financial information surrounding future reporting unit cash flows. Projections are based on internal forecasts of future business performance and are based on growth assumptions which exclude business growth opportunities not yet fully realized. Discount rate and market multiple assumptions were determined based on relevant peer companies in the chemicals sector.
As of October 1, 2019, we performed our annual goodwill impairment tests for all reporting units. Based upon the results of our annual goodwill impairment tests, no adjustments to the carrying value of goodwill were necessary during the year ended December 31, 2019.
The estimated fair value of the Fluoropolymers reporting unit was determined by utilizing a discount rate of 9.84% and a market multiple of 7.3 times Adjusted EBITDA, resulting in an estimated fair value 30% higher than its carrying value. Fluoropolymers has $56 million of goodwill. Changing the weighting of the market and income approaches used in our impairment assessment are reasonable; however, these assumptions are judgmental and variations in any assumptionsfor Fluoropolymers could result in materially different calculationsa maximum reduction of the excess of estimated fair value over carrying value to 17%. Assuming all other factors remain the same, a 200-basis point increase in the discount rate would decrease the excess of estimated fair value over carrying value to 17%; a 1% decrease in the long-term growth rate would decrease the excess of estimated fair value over carrying value to 24%; and, a 15% decrease in the market multiple assumption would decrease the excess of estimated fair value over carrying value to 20%. Under each of these sensitivity scenarios, the Fluoropolymers reporting unit's fair value exceeded its carrying value.
The estimated fair value of the Mining Solutions reporting unit was determined by utilizing a discount rate of 11.09%, resulting in an estimated fair value 17% higher than its carrying value. We will continueMining Solutions has $51 million of goodwill. Assuming all other factors remain the same, it would take more than a 110-basis point increase in the discount rate to evaluate goodwill on an annual basis ascause the estimated fair value to fall below the unit’s carrying value; and, a 1% decrease in the long-term growth rate would decrease the excess of October 1, and whenever events or changes in circumstances, such as significant adverse changes in operating results, market conditions, or changes in management’s business strategy indicate that there may be a probable indicator of impairment. It is possible that the assumptions used by management relatedestimated fair value over carrying value to the evaluation may change or that actual results may vary significantly from management’s estimates.5%.
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The Chemours Company
Our determination of the fair value of the Mining Solutions reporting unit considered further delays and additional costs of construction for our new Mining Solutions facility under construction in Gomez Palacio, Durango, Mexico. The construction-in-process for this facility represents a significant portion of the total carrying value of Mining Solutions, and, in the event that the facility was unable to be completed, the impairment of the related long-lived assets would significantly decrease the carrying value of the reporting unit. As a result, an impairment of the reporting unit’s goodwill would become less likely.
Employee Benefits
The amounts recognized in our consolidated financial statements related to pension and other long-term employee benefits plans are determined from actuarial valuations. Inherent in these valuations are assumptions including, but not limited to, the expected returns on plan assets, discount rates at which liabilities could have beenare expected to be settled, rates of increase in future compensation levels, and mortality rates. These assumptions are updated annually and are disclosed in “Note 2327 – Long-term Employee Benefits” to the Consolidated Financial Statements. In accordance with GAAP, actual results that differed from the assumptions are accumulated and amortized over future periods and therefore, affect expense recognized and obligations recorded in future periods.
We generally utilizeuse discount rates that are developed by matching the expected cash flows of each benefit plan to various yield curves constructed from a portfolio of high quality,high-quality, fixed income instruments provided by the plan’s actuary as of the measurement date. As of December 31, 2017,2019, the weighted averageweighted-average discount rate was 1.9%1.4%.
The expected long-term rates of return on plan assets are determined by performing a detailed analysis of historical and expected returns based on the strategic asset allocation of the underlying asset class applicable to each country. We also consider our historical experience with the pension funds’ asset performance. The expected long-term rates of return on plan assets are assumptions and not what is expected to be earned in any one particular year. The weighted averageweighted-average long-term rates of return on plan assets assumptions used for determining our net periodic pension expense for 20172019 was 5.7%4.1%.
A 50 basis point increase in the discount rate would result in a decrease of approximately $4 million to the net periodic benefit cost for 2018,2020, while a 50 basis point decrease in the discount rate would result in an increase of approximately $5 million. A 50 basis point increase in the expected return on plan assets assumption would result in a decrease of approximately $7$3 million to the net periodic benefit cost for 2018,2020, while a 50 basis point decrease in the expected return on plan assets assumption would result in an increase of approximately $7$3 million.
Prior
In the fourth quarter of 2019, we, through our wholly-owned subsidiary Chemours Netherlands B.V., completed a settlement transaction related to a significant portion of our Netherlands pension plan. We transferred the future risk and administration associated with the $932 million of inactive participants’ vested pension benefits to a third-party asset management company in the Netherlands. The irrevocability of the transaction was contingent upon non-objection by the Dutch National Bank, which was received in October 2019. Following the receipt of non-objection, the responsibility for the associated pension obligation was transferred to the Separation, certain ofthird-party asset management company in December 2019, thereby eliminating our employees participated in defined benefit pension and other post-employment benefit plans (Plans) sponsored by DuPont and accounted for by DuPont in accordance with accounting guidance for defined benefit pension and other post-employment benefit plans. Substantially all expenses relatedexposure to the Plans were allocatedpension liabilities and formally effecting the settlement. At the time of settlement, a remeasurement of plan assets and projected benefit obligations was performed, resulting in shared entitiesa $158 million decrease to net pension assets and reported within costsincrease to accumulated other comprehensive loss on the consolidated balance sheet. The cumulative loss associated with the inactive participants’ vested pension benefits was then immediately reclassified from accumulated other comprehensive loss and recognized in earnings, resulting in a charge of goods sold, selling, general, and administrative$380 million recognized in other expense, and R&D expensenet in the consolidated statements of operations. We consideredAt December 31, 2019, the Plans to be part of a multi-employer plan with DuPont prior to January 1, 2015.
In connectionprojected benefit obligations associated with the Separation, we retained the existing Netherlands pension plan. An agreement (Netherlands Pension Agreement) was executed in 2015 to ensure continuation of the plan for both DuPont’s andplan’s active employees remained on our employees and retirees, and we accounted for the Netherlands pension plan as a multi-employer plan. Starting in 2017, in accordance with the Netherlands Pension Agreement, DuPont exited the Netherlands pension plan. As such, we now account for the Netherlands pension plan under the single-employer method.consolidated balance sheet.
In 2015, we also formed new pension plans in Taiwan, Germany, Belgium, Switzerland, Japan, Korea, and Mexico that mirror the plans historically operated by DuPont in these countries. The new plans are accounted for under the single-employer method.
Litigation
We accrue for litigation matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Litigation liabilities and expenditures included in our consolidated financial statements representinclude litigation matters that are liabilities of DuPont and its subsidiaries, thatwhich we may be required to indemnify pursuant to the Separation-related agreements executed prior to the Separation. Disputes between us and DuPont may arise with respect to indemnification of these matters, including disputes based on matters of law or contract interpretation. If, and to the extent these disputes arise, they could materially adversely affect our results of operations. Legal costs such as outside counsel fees and expenses are charged to expense in the period services are received.
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The Chemours Company
Environmental Liabilities and Expenditures
We accrue for environmental remediation activitiescosts when it is probable that a liability has been incurred and a reasonable estimate of the liability can be made. Where the available information is sufficient to estimate the amount of liability, that estimate has been used. Where the information is only sufficient to establish a range of probable liability, and no point within the range is more likely than any other, the lower end of the range has been used. Estimated liabilities are determined based on existing remediation laws and technologies.technologies and our planned remedial responses, which are derived from in-depth environmental studies, sampling, testing, and other analyses. Inherent uncertainties exist in such evaluations, primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. These accruals are adjusted periodically as remediation efforts progress and as additional technology, regulatory, and legal information become available.
Environmental liabilities and expenditures include claims for matters that are liabilities of DuPont and its subsidiaries, which we may be required to indemnify pursuant to the Separation-related agreements executed prior to the Separation. Accrued liabilities are undiscounted and do not include claims against third-parties.third parties.
Costs related to environmental remediation are charged to expense in the period incurred.that the associated liability is accrued. Other environmental costs are also charged to expense in the period incurred, unless they increase the value of the property or reduce or prevent contamination from future operations, in which case, they are capitalized and amortized.
Environmental Matters
Consistent with our values and our Environment, Health, Safety, and SafetyCorporate Responsibility policy, we are committed to preventing releases to the environment at our manufacturing sites to keep our people and communities safe, and to be good stewards of the environment. We are also subject to environmental laws and regulations relating to the protection of the environment. We believe that, as a general matter, our policies, standards, and procedures are properly designed to prevent unreasonable risk of harm to people and the environment, and that our handling, manufacture, use, and disposal of hazardous substances are in accordance with applicable environmental laws and regulations.
Environmental Expenditures
We incur costs for pollution abatement activities including waste collection and disposal, installation and maintenance of air pollution controls and wastewaterwaste water treatment, emissions testing and monitoring, and obtaining permits. Annual expenses charged to current operations include environmental operating costs and the increaseincreases in the remediation accrualaccruals (further described below), if any, during the period reported. We expect that our expenses
The charges described in 2018 will be comparable or withinthis section include $201 million accrued for costs associated with the historical range.proposed Consent Order between us and the NC DEQ, which is further described in “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements. These accrued liabilities represent on-site remediation, off-site groundwater remediation, and toxicology studies related to Fayetteville.
Annual expenditures in the near future are also not expected to vary significantly from the expenditures incurred during the past few years. However, longer-term,
Our environmental remediation expenditures are subject to considerable uncertainty and may fluctuate significantly. In the U.S., additional capital expenditures associated with ongoing operations (further described below) are expected to be required over the next decade for treatment, storage, and disposal facilities for solid and hazardous waste and for compliance with the CAA.Clean Air Act (“CAA”). Until all CAA regulatory requirements are established and known, considerable uncertainty will remain regarding estimates for our future capital and remediation expenditures.
Management does not believe that the costs to comply with environmental requirements and the year over year changes, if any, in environmental expenses will have a material impact on our financial position, results of operations, or cash flows.
Environmental Capital Expenditures
For the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, we spent $15$101 million, $13$57 million, and $27$15 million, respectively, on environmental capital projects that were either required by law or necessary to meet our internal environmental objectives. The increases in our environmental capital expenditures for the years ended December 31, 2019 and 2018 when compared with the same period in 2017 were primarily attributable to new capital projects at Fayetteville. We expect further increases in these capital expenditures over the near-term, while in the longer-term, our capital expenditures for environmental matters will vary based on the success of our deployed solutions, changes in our operations, technological advancements, developments in environmental requirements, and stakeholder expectations.
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The Chemours Company
Mainly
In large part, because of past operations, operations of predecessor companies, or past disposal practices, we, like many other similar companies, have clean-up responsibilities and associated remediation costs, and are subject to claims by other parties, including claims for matters that are liabilities of DuPont and its subsidiaries that we may be required to indemnify pursuant to the Separation-relatedseparation-related agreements executed prior to the Separation.
We accrue for clean-up activities consistent with the policy described under “Critical Accounting Policies and Estimates” inwithin this MD&A and in “Note 3 – Summary of Significant Accounting Policies” to the Consolidated Financial Statements. Our environmental reserve includesliabilities include estimated costs, including certain accruable costs associated with on-site capital projects, related to a number of sites for which it is probable that environmental remediation will be required, whether or not subject to enforcement activities, as well as those obligations that result from environmental laws such as the CERCLA, RCRA, and similar federal, state, local, and foreign laws. These laws require certain investigative, remediation, and restoration activities at sites where we conduct or once conducted operations or at sites where our generated waste was disposed. At December 31, 20172019 and 2016, we recorded2018, our consolidated balance sheets included environmental remediation accrualsliabilities of $253$406 million and $278$291 million, respectively, relating to these matters, which, as discussed in management’s opinion, are appropriate based on existing factsfurther detail below, included $201 million and circumstances.$75 million, respectively, for Fayetteville.
The following table sets forth the activities in our remediation accruals for the years ended December 31, 20172019 and 2016.2018.
|
| December 31, |
|
| December 31, |
| ||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Balance at January 1, |
| $ | 278 |
|
| $ | 297 |
|
| $ | 291 |
|
| $ | 253 |
|
Increase in remediation accrual |
|
| 48 |
|
|
| 44 |
|
|
| 200 |
|
|
| 101 |
|
Remediation payments |
|
| (73 | ) |
|
| (63 | ) |
|
| (85 | ) |
|
| (63 | ) |
Currency translation adjustment |
|
| — |
|
|
| — |
| ||||||||
Balance at December 31, |
| $ | 253 |
|
| $ | 278 |
|
| $ | 406 |
|
| $ | 291 |
|
Our estimated liability for environmental remediation covered 212211 sites at December 31, 20172019 and 2016. 2018.
The following table sets forth our estimated environmental liability by site category.
(Dollars in millions) |
| December 31, 2017 |
|
| December 31, 2016 |
|
| December 31, 2019 |
|
| December 31, 2018 |
| ||||||||||||||||||||
Site category |
| Number of Sites |
|
| Remediation Accrual |
|
| Number of Sites |
|
| Remediation Accrual |
|
| Number of Sites |
|
| Remediation Accrual |
|
| Number of Sites |
|
| Remediation Accrual |
| ||||||||
Chemours-owned (1) |
|
| 29 |
|
| $ | 189 |
|
|
| 29 |
|
| $ | 219 |
|
|
| 25 |
|
| $ | 327 |
|
|
| 25 |
|
| $ | 204 |
|
Multi-party Superfund/non-owned (2) |
|
| 82 |
|
|
| 64 |
|
|
| 86 |
|
|
| 59 |
|
|
| 86 |
|
|
| 79 |
|
|
| 86 |
|
|
| 87 |
|
Closed or settled |
|
| 101 |
|
|
| — |
|
|
| 97 |
|
|
| — |
|
|
| 100 |
|
|
| — |
|
|
| 100 |
|
|
| — |
|
Total sites |
|
| 212 |
|
| $ | 253 |
|
|
| 212 |
|
| $ | 278 |
|
|
| 211 |
|
| $ | 406 |
|
|
| 211 |
|
| $ | 291 |
|
| (1) | Includes remediation accrual of divested or sold sites where certain environmental obligations were retained by us in accordance with the related sale agreements. |
| (2) | Sites not owned by us, including sites previously owned by DuPont and sites owned by a |
As part of our legacy as a former subsidiary of DuPont, we are cleaning-up historical impacts to soil and groundwater that have occurred in the past at the 2925 sites that we own. These operating and former operating sites make up approximately 75%80% of our remediation reserve.liabilities at December 31, 2019.
We were also inheritedassigned numerous clean-up obligations from DuPont, which pertain to 8286 sites previously owned by DuPont and sites that we or DuPont never owned or operated. We are meeting our obligations to clean-upclean up those sites. The majority of these never-owned sites are multi-party Superfund sites that we, through DuPont, have been notified of potential liability under CERCLA or similar state laws and which, in some cases, may represent a small fraction of the total waste that was allegedly disposed of at a site. These sites represent approximately 25%20% of our remediation reserve.liabilities at December 31, 2019. Included in the 8286 sites are approximately 3536 inactive sites for which there has been no known investigation, clean-up, or monitoring activity, and no remediation obligation is imposed or required; as such, no remediation accrual isliabilities are recorded.
The remaining 101100 sites, which are Superfund sites and other sites not owned by us, are either already closed or settled, or sites for which we do not believe we have clean-up responsibility based on current information.
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The Chemours Company
OurWith the exception of Fayetteville, our remediation portfolio is relatively mature, with many of our sites under active clean-up moving towards final completion.
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The Chemours Company
The following graph sets forth the number of remediation sites by site clean-up phase and theour remediation reserveliabilities by site clean-up phase as of December 31, 20172019 and 2016.2018.
| (1) | Number of sites does not include the |
| (2) | Dollars in millions. |
(3) | As of December 31, 2019, related to Fayetteville, Investigation included $155 million for on-site remediation, and Active Remediation included $46 million for off-site groundwater remediation. As of December 31, 2018, Investigation included $75 million related to Fayetteville. |
As remediation efforts progress, sites move from the investigation phase (Investigation)(“Investigation”) to the active clean-up phase (Active Remediation)(“Active Remediation”), and as construction is completed at Active Remediation sites, those sites move to the operation, maintenance, and monitoring (OM&M)(“OM&M”), or closure phase. As final clean-up activities for some significant sites are completed over the next several years, we expect our annual expenses related to these active sites to decline over time. The time frame for a site to go through all phases of remediation (Investigation and Active Remediation) may take about 15 to 20 years, followed by several years of OM&M activities. Remediation activities, including OM&M activities, vary substantially in duration and cost from site to site. These activities, and their associated costs, depend on the mix of unique site characteristics, evolving remediation technologies, and diverse regulatory requirements, as well as the presence or absence of other PRPs.Potentially Responsible Parties (“PRPs”). In addition, for claims that we may be required to indemnify DuPont pursuant to the Separation-relatedseparation-related agreements, we throughand DuPont may have limited available information for certain sites or are in the early stages of discussions with regulators. For these sites, in particular, there may be considerable variability between the clean-up activities that are currently being undertaken or planned and the ultimate actions that could be required. Therefore, considerable uncertainty exists with respect to environmental remediation costs, and, under adverse changes in circumstances, although deemed remote, the potential liability may range up to approximately $510$530 million above the amount accrued at December 31, 2017.2019. In general, uncertainty is greatest and the range of potential liability is widest in the Investigation phase, narrowing over time as regulatory agencies approve site remedial plans. As a result, uncertainty is reduced, and sites ultimately move into OM&M, as needed. As more sites advance from Investigation to Active Remediation to OM&M or closure, the upper end of the range of potential liability is expected to decrease over time.
Some remediation sites will achieve site closure and will require no further action to protect people and the environment and comply with laws and regulations. At certain sites, we expect that there will continue to be some level of remediation activity due to ongoing OM&M of remedial systems. In addition, portfolio changes, such as an acquisition or divestiture, or notification as a PRP for a multi-party Superfund site, could result in additional remediation activity and potentially additional accrual.
Management does not believe that any loss, in excess of amounts accrued, related to remediation activities at any individual site will have a material impact on our financial position results of operations, or cash flows atfor any given year, as such obligation can be satisfied or settled over many years.
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The Chemours Company
Significant Environmental Remediation Sites
While there are many remediation sites that contribute to theour total accrued environmental remediation accrual,liabilities at December 31, 2019 and 2018, the following table sets forth the sites that are the most significant.
|
| December 31, |
|
|
| December 31, |
| ||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
|
| 2019 |
|
| 2018 |
| ||||
Beaumont, Texas |
| $ | 12 |
|
| $ | 12 |
|
| ||||||||
Chambers Works, New Jersey |
|
| 19 |
|
|
| 24 |
|
| ||||||||
Chambers Works, Deepwater, New Jersey |
| $ | 20 |
|
| $ | 18 |
| |||||||||
East Chicago, Indiana |
|
| 20 |
|
|
| 20 |
|
|
|
| 17 |
|
|
| 21 |
|
Fayetteville Works, Fayetteville, North Carolina |
|
| 201 |
|
|
| 75 |
| |||||||||
Pompton Lakes, New Jersey |
|
| 55 |
|
|
| 77 |
|
|
|
| 43 |
|
|
| 45 |
|
USS Lead, East Chicago, Indiana |
|
| 26 |
|
|
| 21 |
|
|
|
| 13 |
|
|
| 15 |
|
All other sites |
|
| 121 |
|
|
| 124 |
|
|
|
| 112 |
|
|
| 117 |
|
Total accrued environmental remediation |
| $ | 253 |
|
| $ | 278 |
|
|
| $ | 406 |
|
| $ | 291 |
|
The five sites listed above represent more than 50%72% and 60% of our reserve as oftotal accrued environmental remediation liabilities at December 31, 20172019 and 2016. We2018, respectively. For these five sites, we expect to spend, in the aggregate, approximately $80$115 million over the next three years. For all other sites, we also expect to spend approximately $80$68 million over the next three years.
Beaumont Works, Beaumont, Texas
Beaumont Works began operations in 1954 in Beaumont, Jefferson County, Texas. Over the years, Beaumont Works has produced a number of basic chemicals and elastomer products including acrylonitrile, ammonia, methanol, methyl methacrylate, caprolactam, Hypalon® synthetic rubber, Nordel® hydrocarbon rubber, and blended tetraethyl lead with halo-carbon solvent/stabilizers. As of June 30, 2017, with our sale of the aniline production unit to Dow in 2016, we have no ongoing manufacturing operations on the site. Dow and Lucite International, Inc. (Lucite) remain as long-term manufacturing tenants.
As site owner, we remain responsible for remediation of historical chemical releases from past operations and are conducting this work under a RCRA hazardous waste post-closure permit and Compliance Plan (CP) issued by the State of Texas. The hazardous waste permit includes provisions to manage wastes and to investigate and mitigate releases. The CP is a component of the permit and includes mitigation and monitoring requirements, including a groundwater remediation system that was installed in 1991 to control chemical migration and protect adjacent water bodies. In addition, several solid waste management unit closures have been conducted and areas of past release addressed through interim measures to protect people and the environment. Over the years, extensive site studies have been completed and a final investigation report (Affected Property Assessment Report, or APAR, under the Texas Risk Reduction Program) for the entire site was approved by the State in 2014. We have recently completed a remedial action plan (RAP), currently under agency review, to address all remaining historical solid waste management units and areas of concern identified in these studies, and we expect to have this RAP approved in 2018.
The remediation accrual for Beaumont addresses remaining work identified in the RAP under review by the State, as well as post-closure care and monitoring and ongoing operation of the groundwater remediation system. A portion of the accrual also addresses an outstanding Natural Resource Damage claim by state and federal trustees directed to impacts on marshlands within the plant property.
Chambers Works, Deepwater, New Jersey
The Chambers Works complex is located on the eastern shore of the Delaware River in Deepwater, Salem County, New Jersey. The site comprises the former Carneys Point Works in the northern area and the Chambers Works manufacturing area in the southern area. Site operations began in 1892 when the former Carneys Point smokeless gunpowder plant was constructed at the northern end of Carneys Point. Site operations began in the manufacturing area around 1914 and included the manufacture of dyes, aromatics, elastomers, chlorofluorocarbons, and tetraethyl lead. We continue to manufacture a variety of fluorochemicals and finished products at Chambers Works. In addition, three tenants operate processes at Chambers Works including steam/electricity generation, industrial gas production, and the manufacture of intermediate chemicals. As a result of over 100 years of continuous industrial activity, site soils and groundwater have been impacted by chemical releases.
In response to identified groundwater contamination, a groundwater interceptor well system (IWS)(“IWS”) was installed in 1970, which was designed to contain contaminated groundwater and restrict off-site migration. Additional remediation is being completed under a federal RCRA Corrective Action Permit.permit. The site has been studied extensively over the years, and more than 25 remedial actions have been completed to date and engineering and institutional controls put in place to ensure protection of people and the environment. In the fourth quarter of 2017, a site perimeter sheet pile barrier intended to more efficiently contain groundwater was completed.
Remaining work beyond continued operation of the IWS and groundwater monitoring includes completion of various targeted studies onsiteon site and in adjacent water bodies to close investigation data gaps, as well as selection and implementation of final remedies under RCRA Corrective Action for various solid waste management units and areas of concern not yet addressed through interim measures.
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The Chemours Company
East Chicago is a former manufacturing facility that we previously owned by us in East Chicago, Lake County, Indiana. The approximate 440-acre site is bounded to the south by the east branch of the Grand Calumet River, to the east and north by residential and commercial areas, and to the west by industrial areas, including a former lead processing facility. The inorganic chemicals unit on site produced various chloride, ammonia, and zinc products and inorganic agricultural chemicals beginning in 1892 until 1986. Organic chemical manufacturing began in 1944, consisting primarily of CFCschlorofluorocarbons production. Current operations, including support activities, now cover 28 acres of the site. The remaining business was sold to W.R. Grace Company (Grace)(“Grace”) in early 2000, and Grace operates the unit as a tenant.2000. Approximately 172 acres of the site were never developed and are managed by The Nature Conservancy for habitat preservation.
A comprehensive evaluation of soil and groundwater conditions at the site was performed as part of the RCRA Corrective Action process. Studies of historical site impacts began in 1983 in response to preliminary CERCLA actions undertaken by the EPA.U.S. Environmental Protection Agency (“EPA”). The EPA eventually issued an Administrative Order on Consent for the site in 1997. The order specified that remediation work be performed under RCRA Corrective Action authority. Work has proceeded under the RCRA Corrective Action process since that time.
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The Chemours Company
Subsequent investigations included the preparation of initial environmental site assessments and multiple phases of investigation. In 2002, as an interim remedial measure, two 2,000-foot long permeable reactive barrier treatment walls were installed along the northern property boundary to address migration of chemicals in groundwater. Since that time, the investigation process has been completed and approved by the EPA, and the final remedy for the site has been selectedwas issued by the EPA in July 2018.
On June 29, 2018, we sold the East Chicago, Indiana site to a third party for $1 million. In connection with the sale, the buyer agreed to assume all costs associated with environmental remediation activities at the site in excess of $21 million, which will remain our responsibility. At the time of the sale, we had accrued the full $21 million, of which $17 million remained as of December 31, 2019. We will reimburse the buyer through a series of progress payments to be made at defined intervals as certain tasks are completed.
Fayetteville Works, Fayetteville, North Carolina
Fayetteville is located southeast of the City of Fayetteville in Cumberland and postedBladen counties, North Carolina. The facility encompasses approximately 2,200 acres, which were purchased by DuPont in 1970, and are bounded to the east by the Cape Fear River and to the west by North Carolina Highway 87. Currently, the site manufactures plastic sheeting, fluorochemicals, and intermediates for plastics manufacturing. A former manufacturing area, which was sold in 1992, produced nylon strapping and elastomeric tape. DuPont sold its Butacite® and SentryGlas® manufacturing units to Kuraray America, Inc. in September 2014. In July 2015, upon our separation from DuPont, we became the owner of the Fayetteville land assets along with fluoromonomers, Nafion® membranes, and the related polymer processing aid manufacturing units. A polyvinyl fluoride resin manufacturing unit remained with DuPont.
Beginning in 1996, several stages of site investigation were conducted under NC DEQ oversight, as required by the facility's hazardous waste permit. In addition, the site has voluntarily agreed to agency requests for additional investigations of the potential release of “PFAS” (perfluoroalkyl and polyfluoroalkyl substances) beginning with “PFOA” (collectively, perfluorooctanoic acids and its salts, including the ammonium salt) in 2006. As a result of detection of the polymerization processing aid hexafluoropropylene oxide dimer acid (“HFPO Dimer Acid,” sometimes referred to as “GenX” or “C3 Dimer Acid”) in on-site groundwater wells during our investigations in 2017, the NC DEQ issued a Notice of Violation (“NOV”) on September 6, 2017 alleging violations of North Carolina water quality statutes and requiring further response. Since that time, and in response to three additional NOVs issued by NC DEQ and pursuant to the Consent Order (as discussed below), we have worked cooperatively with the agency to investigate and address releases of PFAS to on-site and off-site groundwater and surface water.
As discussed in “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements, as well as “Recent Developments” within this MD&A, we and the NC DEQ have filed a final Consent Order that comprehensively addressed various issues, NOVs, and court filings made by the NC DEQ regarding Fayetteville and resolved litigations filed by the NC DEQ and Cape Fear River Watch, a non-profit organization. In connection with the Consent Order, a thermal oxidizer became fully operational at the site in December 2019 to reduce aerial PFAS emissions from Fayetteville.
In the fourth quarter of 2019, we completed and submitted our Cape Fear River PFAS Loading Reduction Plan - Supplemental Information Report and CAP to NC DEQ. The Supplemental Information Report provides information to support the evaluation of potential remedial options to reduce PFAS loadings to surface waters, including interim alternatives. The CAP describes potential remediation activities to address PFAS in on-site groundwater and surface waters at the site, in accordance with the requirements of the Consent Order and the North Carolina groundwater standards, and builds on the previous submissions to NC DEQ. The NC DEQ has made the CAP available for public comment.review and comment until March 6, 2020.
In the fourth quarter of 2019, based on the Consent Order, CAP, and our plans, we accrued an additional $132 million related to the estimated cost of on-site remediation.
Pompton Lakes, New Jersey
During the 20th century, blasting caps, fuses, and related materials were manufactured at Pompton Lakes, Passaic County, New Jersey. Operating activities at the site were ceased in the mid-1990s. The primary contaminants in the soil and sediments are lead and mercury. Groundwater contaminants include volatile organic compounds. Under the authority of the EPA and the New Jersey Department of Environmental Protection (“NJ DEP”), remedial actions at the site are focused on investigating and cleaning-up the area. Groundwater monitoring at the site is ongoing, and we have installed and continue to install vapor mitigation systems at residences within the groundwater plume. In addition, we are further assessing groundwater conditions. In JuneSeptember 2015, the EPA issued a modification to the site’s RCRA permit that requires us to dredge mercury contamination from a 36-acre area of the lake and remove sediment from two other areas of the lake near the shoreline. The remediation activities commenced when permits and implementation plans were approved in May 2016, and work on the lake dredging project is expectednow complete. In April 2019, Chemours submitted a revised Corrective Measures Study (“CMS”) proposing actions to be complete in 2018.address on-site soils impacted from past operations that exceed applicable clean-up criteria. That CMS is currently under review by EPA and NJ DEP.
54
The Chemours Company
U.S. Smelter and Lead Refinery, Inc., East Chicago, Indiana
The U.S. Smelter and Lead Refinery, Inc. (USS Lead)(“USS Lead”) Superfund site is located in the Calumet neighborhood of East Chicago, Lake County, Indiana. The site includes the former USS Lead facility along with nearby commercial, municipal, and residential areas. The primary compounds of interest are lead and arsenic which may be found in soils within the impacted area. The EPA is directing and organizing remediation on this site, and we are one of a number of parties working cooperatively with the EPA on the safe and timely completion of this work. DuPont’s former East Chicago manufacturing facility was located adjacent to the site, and DuPont assigned responsibility for the site to us in the 2015 separation agreement.
The USS Lead Superfund site was listed on the National Priorities List in 2009. To facilitate negotiations with PRPs, the EPA divided the residential part of the USS Lead Superfund site into three zones, referred to as Zone 1, Zone 2, and Zone 3. The division into three zones resulted in Atlantic Richfield Co. (“Atlantic Richfield”) and DuPont entering into an agreement in 2014 with the EPA and the State of Indiana to reimburse the EPA’s costs to implement clean-up in Zone 1 and Zone 3. More recently, in March 2017, we and three other parties (Atlantic– Atlantic Richfield, Co., DuPont, and the U.S. Metals Refining Co. (“US Metals”) – entered into an administrative order on consent to reimburse the EPA’s costs to clean-up a portion of Zone 2. The EPA is continuing its efforts to identify additional PRPs for the USS Lead Superfund site clean-up, including the remainder of Zone 2. The EPA has scheduled negotiations with some of these parties. The EPA has stated its intention to issue a unilateral order to PRPs to complete the Zone 2 work. There is uncertainty as to whether the parties who receive the unilateral order will be able to reach an allocation and agree to comply with it.
The environmental accrual for USS Lead is based on the Record of Decision (ROD) and Statement of Work currently in place for Zone 1 and Zone 3, as well as the current estimate of our share of the EPA’s Zone 2 clean-up cost. The EPA has announced its intent to reconsider the ROD for Zone 1 and, the result of that review could increase or decrease our future obligations. In response to the latest cost information received fromMarch 2018, the EPA issued a Unilateral Administrative Order for Zone 3 work, as well as the EPA’s stated objective to order us and other PRPs to complete the remainder of the Zone 2 work we increased ourto five parties, including us, Atlantic Richfield, DuPont, U.S. Metals, and USS Lead Muller Group, and these parties entered into an interim allocation agreement to perform that work. As of the end of 2019, the required work in Zone 3 has been completed, and Zone 2 is nearly complete. There is uncertainty as to whether these parties will be able to agree on a final allocation for Zone 2 and/or the other Zones, and whether any additional PRPs may be identified.
The environmental accrual for USS Lead by $8 millioncontinues to include completion of the remaining obligations under the 2012 Record of Decision (“ROD”) and $4 millionStatement of Work, which principally encompasses completion of Zone 1. The EPA released a proposed amendment to the 2012 ROD for a portion of Zone 1 in December 2018 (following its August 2018 Feasibility Study Addendum), with its recommended option based on future residential use. However, the thirdproposed amendment was sent out for public comment with the EPA’s statement that the remedy basis and fourth quarters of 2017, respectively.
66
cost may change based on community input on future land use. The Chemours CompanyEPA’s final decision was expected in 2019, but has not yet been released. We expect that our future costs for Zone 1 will be contingent on this remedy decision, as well as any final allocation between PRPs.
New Jersey Department of Environmental Protection Directives and Litigation
In March 2019, the NJ DEP issued two Directives and filed four lawsuits against Chemours and other defendants. Further discussion related to these matters is included in “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements.
Climate Change
We
In 2018, we issued our inaugural Corporate Responsibility Commitment (“CRC”) Report, which expresses our corporate responsibility commitment – an extension of our growth strategy – as 10 ambitious goals targeted for completion by 2030. Built on the pillars of Inspired People, Shared Planet, and an Evolved Portfolio, our Shared Planet pillar underlines our commitment to deliver essential solutions responsibly, without causing harm to the Earth. With a focus on the responsible treatment of climate, water, and waste, our Shared Planet goals are taking prudent, practical, and cost-effective actions to address climate change as we grow our operations and help our customers docomprised of the same. following:
• | Reduce greenhouse gas (“GHG”) emissions intensity by 60%; |
• | Advance our plan to become carbon positive by 2050; |
• | Reduce air and water process emissions of fluorinated organic chemicals by 99% or more; and, |
• | Reduce our landfill volume intensity by 70%. |
We are committed to improving our resource efficiency, to acting on opportunities to reduce our greenhouse gas (GHG)GHG emissions, to enhancing the eco-efficiency of our supply chain, and to encouraging our employees to reduce their own environmental footprints. We understand that maintaining safe, sustainable operations has an impact on us, our communities, the environment, and our collective future. We continue to invest in R&D to develop safer, cleaner, and more efficient products and processes that help our customers and consumers reduce both their GHGs and their overall environmental footprint. We value collaboration to drive change and commit to working with policymakers, our value chain, and other organizations to encourage collective action for reducing GHGs.
PFOA
See our discussion under the heading “PFOA” in “Note 2022 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements.
55
The Chemours Company
GenX
On June 26, 2019 the Member States Committee of the European Chemicals Agency (“ECHA”) voted to list HFPO Dimer Acid as a Substance of Very High Concern. The vote was based on Article 57(f) – equivalent level of concern having probable serious effects to the environment. This identification does not impose immediate regulatory restriction or obligations, but may lead to a future authorization or restriction of the substance. On September 24, 2019, Chemours filed an application with the EU Court of Justice for the annulment of the decision of ECHA to list HFPO Dimer Acid as a Substance of Very High Concern.
Delaware Chancery Court Lawsuit
In May 2019, we filed a lawsuit in Delaware Chancery Court (“Chancery Court”) against DowDuPont, Inc., Corteva, Inc., and DuPont concerning DuPont’s contention that it is entitled to unlimited indemnity from us for specified liabilities that DuPont assigned to us in the spin-off. The lawsuit requests that the Chancery Court enter a declaratory judgment limiting DuPont’s indemnification rights against us and the transfer of liabilities to us to the actual “high-end (maximum) realistic exposures” it stated in connection with the spin-off, or, in the alternative, requiring the return of the approximate $4 billion dividend DuPont extracted from us in connection with the spin-off. In response, DuPont has filed a Motion to Dismiss the lawsuit seeking to have the dispute heard in a non-public arbitration rather than the Chancery Court. Many of the potential litigation liabilities discussed in “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements are at issue in the lawsuit.
56
The Chemours Company
Non-GAAP Financial Measures
We prepare our consolidated financial statements in accordance with GAAP. To supplement our financial information presented in accordance with GAAP, we provide the following non-GAAP financial measures – Adjusted EBITDA, Adjusted Net Income, Adjusted EPS,Earnings per Share (“EPS”), Free Cash Flows (FCF)(“FCF”), and Return on Invested Capital (ROIC)(“ROIC”) – in order to clarify and provide investors with a better understanding of our performance when analyzing changes in our underlying business between reporting periods and provide for greater transparency with respect to supplemental information used by management in its financial and operational decision-making. We utilize Adjusted EBITDA as the primary measure of segment profitability used by our Chief Operating Decision Maker.CODM.
Adjusted EBITDA is defined as income (loss) before income taxes, excluding the following:
interest expense, depreciation, and amortization;
• | interest expense, depreciation, and amortization; |
non-operating pension and other post-retirement employee benefit costs, which represent the components of net periodic pension (income) costs excluding the service cost component;
• | non-operating pension and other post-retirement employee benefit costs, which represents the components of net periodic pension (income) costs excluding the service cost component; |
exchange (gains) losses included in other income (expense), net;
• | exchange (gains) losses included in other income (expense), net; |
restructuring, asset-related charges, and other charges, net;
• | restructuring, asset-related, and other charges; |
asset impairments;
• | asset impairments; |
(gains) losses on sale of business or assets; and,
• | (gains) losses on sales of business or assets; and, |
• | other items not considered indicative of our ongoing operational performance and expected to occur infrequently. |
other items not considered indicative of our ongoing operational performance and expected to occur infrequently.
Adjusted Net Income is defined as our net income or loss, adjusted for items excluded from Adjusted EBITDA, except interest expense, depreciation, and amortization, and certain provision for (benefit from) income tax amounts. Adjusted EPS is presented on a diluted basis and is calculated by dividing Adjusted Net Income by the weighted-average number of our common shares outstanding, accounting for the dilutive impact of our stock-based compensation awards. FCF is defined as our cash flows provided by (used for) operating activities, less purchases of property, plant, and equipment as shown in our consolidated statements of cash flows. ROIC is defined as Adjusted EBIT,Earnings before Interest and Taxes (“EBIT”), divided by the average of our invested capital, which amounts to net debt plus equity.
We believe the presentation of these non-GAAP financial measures, when used in conjunction with GAAP financial measures, is a useful financial analysis tool that can assist investors in assessing our operating performance and underlying prospects. This analysis should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In the future, we may incur expenses similar to those eliminated in this presentation. Our presentation of Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, FCF, and ROIC should not be construed as an inference that our future results will be unaffected by unusual or infrequently occurring items. The non-GAAP financial measures we use may be defined differently from measures with the same or similar names used by other companies. This analysis, as well as the other information provideprovided in this Annual Report on Form 10-K, should be read in conjunction with the Consolidated Financial Statements and notes thereto included in this report.
6757
The Chemours Company
The following table sets forth a reconciliation of Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS to our net income (loss) attributable to Chemours for the years ended December 31, 2017, 2016,2019 and 2015.2018.
|
| Year Ended December 31, |
| |||||||||
(Dollars in millions, except per share amounts) |
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Net income (loss) attributable to Chemours |
| $ | 746 |
|
| $ | 7 |
|
| $ | (90 | ) |
Non-operating pension and other post-retirement employee benefit income |
|
| (34 | ) |
|
| (20 | ) |
|
| (3 | ) |
Exchange losses (gains) |
|
| (3 | ) |
|
| 57 |
|
|
| (19 | ) |
Restructuring charges |
|
| 57 |
|
|
| 51 |
|
|
| 285 |
|
Asset-related charges (1) |
|
| 3 |
|
|
| 124 |
|
|
| 73 |
|
(Gain) loss on sale of assets or businesses (2) |
|
| (22 | ) |
|
| (254 | ) |
|
| 9 |
|
Transaction costs (3) |
|
| 3 |
|
|
| 19 |
|
|
| 9 |
|
Legal and other charges (4) |
|
| 18 |
|
|
| 359 |
|
|
| 8 |
|
Adjustments made to income taxes (5,7) |
|
| (25 | ) |
|
| 18 |
|
|
| — |
|
Benefit from income taxes relating to reconciling items (6,7) |
|
| (14 | ) |
|
| (148 | ) |
|
| (129 | ) |
Adjusted Net Income |
|
| 729 |
|
|
| 213 |
|
|
| 143 |
|
Net income attributable to non-controlling interests |
|
| 1 |
|
|
| — |
|
|
| — |
|
Interest expense, net |
|
| 215 |
|
|
| 213 |
|
|
| 132 |
|
Depreciation and amortization |
|
| 273 |
|
|
| 284 |
|
|
| 267 |
|
All remaining provision for income taxes (7) |
|
| 204 |
|
|
| 112 |
|
|
| 31 |
|
Adjusted EBITDA |
| $ | 1,422 |
|
| $ | 822 |
|
| $ | 573 |
|
Per share data |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share of common stock |
| $ | 4.04 |
|
| $ | 0.04 |
|
| $ | (0.50 | ) |
Diluted earnings (loss) per share of common stock |
|
| 3.91 |
|
|
| 0.04 |
|
|
| (0.50 | ) |
Adjusted basic earnings per share of common stock |
|
| 3.95 |
|
|
| 1.17 |
|
|
| 0.79 |
|
Adjusted diluted earnings per share of common stock |
|
| 3.82 |
|
|
| 1.16 |
|
|
| 0.79 |
|
|
| Year Ended December 31, |
| |||||
(Dollars in millions, except per share amounts) |
| 2019 |
|
| 2018 |
| ||
Net (loss) income attributable to Chemours |
| $ | (52 | ) |
| $ | 995 |
|
Non-operating pension and other post-retirement employee benefit cost (income) (1) |
|
| 368 |
|
|
| (27 | ) |
Exchange losses (gains), net |
|
| 2 |
|
|
| (1 | ) |
Restructuring, asset-related, and other charges (2) |
|
| 87 |
|
|
| 49 |
|
Loss on extinguishment of debt |
|
| — |
|
|
| 38 |
|
Gain on sales of assets and businesses (3) |
|
| (10 | ) |
|
| (45 | ) |
Transaction costs (4) |
|
| 3 |
|
|
| 9 |
|
Legal and environmental charges (5) |
|
| 175 |
|
|
| 82 |
|
Other charges |
|
| — |
|
|
| 1 |
|
Adjustments made to income taxes (6) |
|
| — |
|
|
| (41 | ) |
Benefit from income taxes relating to reconciling items (7) |
|
| (154 | ) |
|
| (26 | ) |
Adjusted Net Income |
|
| 419 |
|
|
| 1,034 |
|
Net income attributable to non-controlling interests |
|
| — |
|
|
| 1 |
|
Interest expense, net |
|
| 208 |
|
|
| 195 |
|
Depreciation and amortization |
|
| 311 |
|
|
| 284 |
|
All remaining provision for income taxes |
|
| 82 |
|
|
| 226 |
|
Adjusted EBITDA |
| $ | 1,020 |
|
| $ | 1,740 |
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding - basic |
|
| 164,816,839 |
|
|
| 176,968,554 |
|
Dilutive effect of our employee compensation plans (8) |
|
| 2,428,184 |
|
|
| 5,603,467 |
|
Weighted-average number of common shares outstanding - diluted (8) |
|
| 167,245,023 |
|
|
| 182,572,021 |
|
|
|
|
|
|
|
|
|
|
Per share data |
|
|
|
|
|
|
|
|
Basic (loss) earnings per share of common stock |
| $ | (0.32 | ) |
| $ | 5.62 |
|
Diluted (loss) earnings per share of common stock (8) |
|
| (0.32 | ) |
|
| 5.45 |
|
Adjusted basic earnings per share of common stock |
|
| 2.54 |
|
|
| 5.85 |
|
Adjusted diluted earnings per share of common stock (8) |
|
| 2.51 |
|
|
| 5.67 |
|
| (1) | The year ended December 31, |
|
| (2) | Includes restructuring, asset-related, and other charges, which are discussed in further detail in “Note 7 – Restructuring, Asset-related, and Other Charges” to the Consolidated Financial Statements. |
(3) | The year ended December 31, |
|
|
| Includes costs associated with our debt transactions, as well as accounting, legal, and bankers’ |
|
|
|
|
|
|
| Includes the removal of certain discrete income tax impacts within our provision for |
|
|
| The income tax impacts included in this caption are determined using the applicable rates in the taxing jurisdictions in which income or expense occurred and |
|
|
|
|
|
6858
The Chemours Company
The following table sets forth a reconciliation of FCF to our cash flows provided by operating activities for the years ended December 31, 2017, 2016,2019 and 2015.2018.
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
| |||||
Cash flows provided by operating activities |
| $ | 639 |
|
| $ | 594 |
|
| $ | 182 |
|
| $ | 650 |
|
| $ | 1,140 |
|
Less: Purchases of property, plant, and equipment |
|
| (411 | ) |
|
| (338 | ) |
|
| (519 | ) |
|
| (481 | ) |
|
| (498 | ) |
Free Cash Flows |
| $ | 228 |
|
| $ | 256 |
|
| $ | (337 | ) |
| $ | 169 |
|
| $ | 642 |
|
|
|
|
The following table sets forth a reconciliation of invested capital, net, a component of ROIC, to our total debt, equity, and cash and cash equivalents amounts for the years ended December 31, 2017, 2016, 2015.2019 and 2018.
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
| |||||
Adjusted EBITDA (1) |
| $ | 1,422 |
|
| $ | 822 |
|
| $ | 573 |
|
| $ | 1,020 |
|
| $ | 1,740 |
|
Less: Depreciation and amortization |
|
| (273 | ) |
|
| (284 | ) |
|
| (267 | ) |
|
| (311 | ) |
|
| (284 | ) |
Adjusted EBIT |
|
| 1,149 |
|
|
| 538 |
|
|
| 306 |
|
|
| 709 |
|
|
| 1,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
| 4,112 |
|
|
| 3,544 |
|
|
| 3,954 |
|
|
| 4,160 |
|
|
| 3,972 |
|
Total equity |
|
| 865 |
|
|
| 104 |
|
|
| 130 |
|
|
| 695 |
|
|
| 1,020 |
|
Less: Cash and cash equivalents |
|
| (1,556 | ) |
|
| (902 | ) |
|
| (366 | ) |
|
| (943 | ) |
|
| (1,201 | ) |
Invested capital, net |
| $ | 3,421 |
|
| $ | 2,746 |
|
| $ | 3,718 |
|
| $ | 3,912 |
|
| $ | 3,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average invested capital (2) |
| $ | 3,157 |
|
| $ | 3,419 |
|
| $ | 3,890 |
|
| $ | 4,102 |
|
| $ | 3,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Invested Capital |
|
| 36.4 | % |
|
| 15.7 | % |
|
| 7.9 | % |
|
| 17 | % |
|
| 39 | % |
| (1) | See the preceding tables for a reconciliation of Adjusted EBITDA to net income (loss) attributable to Chemours |
|
| (2) | Average invested capital is based on a |
|
69
59
The Chemours Company
Item 7A. QUANTITATIVE AND QUALITATIVEQUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in foreign currency exchange rates because of our global operations. As a result, we have assets, liabilities, and cash flows denominated in a variety of foreign currencies. We are also exposed to changes in the prices of certain commodities that we use in production. Changes in these rates and commodity prices may have an impact on our future cash flows and earnings. We manage these risks through normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We do not enter into derivative financial instruments for trading or speculative purposes.
By using derivative financial instruments, we are subject to credit and market risk. The fair market values of the derivative financial instruments are determined by using valuation models whose inputs are derived using market observable inputs, and reflects the asset or liability position as of the end of each reporting period. When the fair value of a derivative contract is positive, the counterparty owes us, thus creating a receivable risk for us. We are exposed to counterparty credit risk in the event of non-performance by counterparties to our derivative agreements. We minimize counterparty credit (or repayment) risk by entering into transactions with major financial institutions of investment grade credit ratings.
Foreign Currency Risks
Fluctuations in the value of the U.S. dollar compared to foreign currencies may impact our earnings. In 2017 and 2016, we entered
We enter into foreign currency forward contracts to minimize the volatility in our earnings related to the foreign exchange gains and losses resulting from remeasuringthe remeasurement of our monetary assets and liabilities that we hold which are denominated in non-functional currencies.currencies, and any gains and losses from the foreign currency forward contracts are intended to be offset by any gains or losses from the remeasurement of the underlying monetary assets and liabilities. These derivatives are stand-alone and, except as described below, have not been designated as a hedge. No foreign exchange forward contracts were outstanding as of December 31, 2017. At December 31, 2016, there were 452019, we had 16 foreign exchangecurrency forward contracts outstanding, with an aggregate gross notional U.S. dollar equivalent of $530 million, the fair value of which amounted to less than $1 million. At December 31, 2018, we had 20 foreign currency forward contracts outstanding, with an aggregate gross notional U.S. dollar equivalent of $503 million, the fair value of which amounted to less than $1 million. We recognized a net loss of $2 million, and net gains of $3 million and $4 million for the years ended December 31, 2019, 2018, and 2017, respectively, within other income (expense), net related to our non-designated foreign currency forward contracts.
We enter into certain of our qualifying foreign currency forward contracts under a cash flow hedge program to mitigate the risks associated with fluctuations in the euro against the U.S. dollar for forecasted U.S. dollar-denominated inventory purchases in certain of our international subsidiaries that use the euro as their functional currency. At December 31, 2019, we had 150 foreign currency forward contracts outstanding under our cash flow hedge program with an aggregate notional U.S. dollar equivalent of $518$124 million, the fair value of which amounted to $2$1 million of net unrealized loss.gain. At December 31, 2018, we had 75 foreign currency forward contracts outstanding under our cash flow hedge program with an aggregate notional U.S. dollar equivalent of $143 million, the fair value of which amounted to $3 million of net unrealized gain. We recognized a net gainpre-tax gains of $4$6 million and $10 million for the yearyears ended December 31, 2017, a net loss of $15 million for2019 and 2018, respectively, on our cash flow hedge within accumulated other comprehensive loss. For the yearyears ended December 31, 2016,2019 and a net2018, $10 million and $4 million of gain was reclassified to the cost of $42 million for the year ended December 31, 2015.goods sold from accumulated other comprehensive loss, respectively.
We designated our Euro Notes, and beginning in April 2017, also designated our Euro Term Loaneuro-denominated debt as a hedge of our net investment in in certain of our international subsidiaries that use the euro as their functional currency in order to reduce the volatility in stockholders’ equity caused by the changes in foreign currency exchange rates of the euro with respect to the U.S. dollar. We use the spot method to measure the effectiveness of the net investment hedge. Under this method, for each reporting period, the change in the carrying value of the Euro Notes and the Euro Term Loan due to remeasurement of the effective portion is reported in accumulated other comprehensive loss in the consolidated balance sheets and the remaining change in the carrying value of the ineffective portion, if any, is recognized in other income, net in the consolidated statements of operations. We evaluate the effectiveness of our net investment hedge at the beginning of every quarter. We did not record any ineffectiveness for the years ended December 31, 2017, 2016, or 2015. We recognized pre-tax losses of $86 million and pre-tax gains of $14$20 million and $8$32 million, and a pre-tax loss of $86 million on our net investment hedgeshedge within accumulated other comprehensive loss for the years ended December 31, 2019, 2018, and 2017, 2016, and 2015, respectively.
Our risk management programs and the underlying exposureexposures are closely correlated, such that the potential loss in value for the risk management portfolio described above would be largely offset by the changes in the value of the underlying exposure.exposures. See “Note 2226 – Financial Instruments” withinto theConsolidated Financial Statements for further information.
Concentration of Credit Risk
Our sales are not dependent on any single customer. As ofAt December 31, 20172019 and 2016, no2018, one individual customer balance represented more thanapproximately 5% and 8% of our total outstanding receivables balance.accounts and notes receivable balance, respectively. Any credit risk associated with our receivablesaccounts and notes receivable balance is representative of the geographic, industry, and customer diversity associated with our global businesses. As a result of our customer base being widely dispersed, we do not believe our exposure to credit-related losses related to our business as of December 31, 20172019 and 20162018 was material.
We also maintain strong credit controls in evaluating and granting customer credit. As a result, we may require that customers provide some type of financial guarantee in certain circumstances. The length of terms for customer credit varies by industry and region.
60
The Chemours Company
Commodities Risk
A portion of our products and raw materials are commodities whose prices fluctuate as market supply and demand fundamentals change. Accordingly, product margins and the level of our profitability tend to fluctuate with changes in the business cycle. We try to protect against such instability through various business strategies. These include provisions in sales contracts allowing us to pass on higher raw materials costs through timely price increases and formula price contracts to transfer or share commodity price risk. We did not have any commodity derivative financial instruments in place as of December 31, 20172019 and 2016.
70
The Chemours Company2018.
Item 8. FINANCIAL STATEMENTSSTATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item 8 – Financial Statements and Supplementary Data is incorporated by reference herein as set forth in Item 15(a)(1) – Consolidated Financial Statements.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. These controls and procedures also provide reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to management, including our CEO and CFO, to allow timely decisions regarding required disclosures.
As of December 31, 2017,2019, our CEO and CFO, together with management, conducted an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation, the CEO and CFO have concluded that these disclosure controls and procedures are effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarteryear ended December 31, 20172019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
We have completed an evaluation of our internal control over financial reporting and have concluded that our internal control over financial reporting was effective as of December 31, 20172019 (see “Management’s Report on Internal Control over Financial Reporting” on page F-2 to the Consolidated Financial Statements).
Item 9B. OTHER INFORMATION
None.
7161
The Chemours Company
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Except for information concerning executive officers, which is included in Part I of this Annual Report on Form 10-K under the caption “Executive“Information About Our Executive Officers, of the Registrant,” the information about our directors required by this Item 10 – Directors, Executive Officers, and Corporate Governance is contained under the caption “Proposal 1 – Election of Directors” in the definitive proxy statement for our 20182020 annual meeting of stockholders (2018(the “2020 Proxy Statement)Statement”), which we anticipate filing with the SEC within 120 days after the end of the fiscal year to which this report relates, and is incorporated herein by reference.
Information regarding our audit committee, code of ethics, and compliance with Section 16(a) of the Exchange Act is contained in the 20182020 Proxy Statement under the captions “Corporate Governance,” “Board Structure and Committee Composition,” and “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item 11 – Executive Compensation is contained in the 20182020 Proxy Statement under the captions “Executive Compensation,” Director“Director Compensation,” “Compensation Committee Report,” and “Compensation Committee Interlocks, and Insider Participation” and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters and not otherwise set forth below is contained in the 20182020 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference.
Securities authorized for issuance under equity compensation plans
(Shares in thousands) |
| December 31, 2017 |
|
| December 31, 2019 |
| ||||||||||||||||||
Plan Category |
| Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (1) |
|
| Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights (2) |
|
| Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (3) |
|
| Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (1) |
|
| Weighted-average Exercise Price of Outstanding Options, Warrants, and Rights (2) |
|
| Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (3) |
| ||||||
Equity compensation plans approved by security holders |
|
| 8,749 |
|
| $ | 15.72 |
|
|
| 17,678 |
|
|
| 7,100 |
|
| $ | 20.92 |
|
|
| 13,900 |
|
| (1) | Includes the approximate number of outstanding stock options, restricted stock units |
| (2) | Represents the weighted-average exercise price of outstanding stock options only. RSUs and PSUs do not have associated exercise prices. |
| (3) | Reflects the approximate shares available for issuance pursuant to The Chemours Company 2017 Equity and Incentive Plan |
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 – Certain Relationships and Related Transactions, and Director Independence is contained in the 20182020 Proxy Statement under the captions “Director Independence” and “Certain Relationships and Transactions” and is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 – Principal Accounting Fees and Services is contained in the 20182020 Proxy Statement under the captions “Proposal 3 – Ratification of Selection of Independent Registered Public Accounting Firm,” “Fees Paid to Independent Registered Public Accounting Firm,” and “Audit Committee’s Pre-approval Policies and Procedures” and is incorporated herein by reference.
7262
The Chemours Company
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Consolidated Financial Statements
See the “Index”“Index to the Consolidated Financial Statements” commencing on page F-1 of this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedule
See “Schedule II” listed below.
Schedule II - Valuation and Qualifying Account
|
| Year Ended December 31, |
| |||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Deferred tax assets - valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, |
| $ | 50 |
|
|
| — |
|
| $ | 36 |
|
Additions charged to expense |
|
| — |
|
|
| 50 |
|
|
| — |
|
Release of valuation allowance (1) |
|
| (33 | ) |
|
| — |
|
|
| (36 | ) |
Balance at December 31, |
| $ | 17 |
|
| $ | 50 |
|
| $ | — |
|
|
|
Schedules not listed above have been omitted because they are not required, not applicable, or the required information is otherwise included.
(a)(3) Exhibits
See the “Exhibit Index” beginning on page 7464 of this Annual Report on Form 10-K.
Item 16. FORM 10-K SUMMARY.SUMMARY
None.
7363
The Chemours Company
Exhibit Number |
| Description |
|
|
|
2.1 |
| |
2.1(1) |
| |
3.1 |
| |
3.2 |
| |
4.1 |
| |
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
|
|
74
The Chemours Company
|
| |
| ||
|
| |
|
| |
4.1(5) | Specimen 6.625% Notes due 2023 (included in Exhibit | |
|
| Specimen 7.000% Notes due 2025 (included in Exhibit |
|
| Specimen 6.125% Notes due 2023 (included in Exhibit |
|
| |
|
| |
4.2(2) | ||
4.2(3) | ||
4.2(4) | Specimen 4.000% Senior Note Due 2026 (included in Exhibit 4.2(2)). | |
4.3 | ||
10.1 | ||
|
| |
|
| |
10.4 | ||
10.14 | ||
| ||
| ||
10.16* |
| |
10.17* |
|
64
The Chemours Company
Exhibit Number | Description | |
10.18* |
| |
|
| |
10.19(2)* | ||
10.20* |
| |
10.21* |
| |
10.22* |
| |
10.23* |
|
75
The Chemours Company
|
| |
| ||
10.24(2)* | ||
10.25* |
| |
10.26* |
| |
10.27* |
| |
10.28* |
| |
| ||
10.30 |
| |
10.31* |
| |
10.32* |
| |
10.33* |
| |
10.34* |
| |
10.35* |
| |
10.36* |
| |
10.37* |
| |
|
| |
21 |
| |
23 |
| Consent of Independent Registered Public Accounting |
31.1 |
| Rule 13a-14(a)/15d-14(a) Certification of the Company’s Principal Executive Officer. |
31.2 |
| Rule 13a-14(a)/15d-14(a) Certification of the Company’s Principal Financial Officer. |
32.1 |
| |
32.2 |
| |
95 |
| |
101.INS |
| XBRL Instance |
101.SCH | XBRL Taxonomy Extension Schema Document. |
7665
The Chemours Company
Exhibit Number |
| Description |
|
|
|
| ||
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase |
104 | The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which has been formatted in Inline XBRL and included within Exhibit 101. |
* Management contract or compensatory plan or arrangement.
7766
The Chemours Company
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE CHEMOURS COMPANY | ||
(Registrant) | ||
|
|
|
Date: |
| February |
|
|
|
By: |
| /s/ |
|
|
|
|
| Senior Vice President, |
|
| (As Duly Authorized Officer and Principal Financial Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated:
Signature |
| Title(s) |
| Date |
|
|
|
|
|
/s/ Mark P. Vergnano |
| President, Chief Executive Officer, and |
| February |
Mark P. Vergnano |
| Director |
|
|
(Principal Executive Officer) | ||||
|
|
|
|
|
/s/ |
| Senior Vice President, |
| February |
|
| Chief Financial Officer and Treasurer |
|
|
(Principal Financial Officer) | ||||
|
|
|
|
|
/s/ |
| Vice President and Controller |
| February |
|
| (Principal Accounting Officer) |
|
|
|
|
|
|
|
/s/ Richard H. Brown |
| Chairman of the Board |
| February |
Richard H. Brown |
|
|
|
|
|
|
|
|
|
/s/ Curtis V. Anastasio |
| Director |
| February |
Curtis V. Anastasio |
|
|
|
|
|
|
|
|
|
/s/ Bradley J. Bell |
| Director |
| February |
Bradley J. Bell |
|
|
|
|
|
|
|
|
|
/s/ Mary B. Cranston |
| Director |
| February |
Mary B. Cranston |
|
|
|
|
|
|
|
|
|
/s/ Curtis J. Crawford |
| Director |
| February |
Curtis J. Crawford |
|
|
|
|
|
|
|
|
|
/s/ Dawn L. Farrell |
| Director |
| February |
Dawn L. Farrell |
|
|
|
|
|
|
|
|
|
/s/ |
| Director |
| February |
| ||||
/s/ Sean D. | Director | February 14, 2020 | ||
Sean D. Keohane |
|
|
|
|
7867
Index to the Consolidated Financial StatementsINDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
| Page |
Management’s Report on Internal Control over Financial Reporting |
| F-2 |
| F-3 | |
|
| |
| ||
| F-7 | |
| F-8 | |
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018, and 2017 | F-9 | |
|
| |
|
|
F-1
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
| (i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| (ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and, |
| (iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, uses, or dispositions of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017,2019, based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on its assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2017.2019.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017,2019, as stated in its report, which is presented on the following page.
/s/ Mark P. Vergnano |
| /s/ |
|
Mark P. Vergnano |
|
|
|
President and Chief Executive Officer |
| Senior Vice President, Chief Financial Officer and Treasurer |
|
February 16, 201814, 2020
F-2
Report of Independent RegisteredRegistered Public Accounting Firm
To the Board of Directors and Stockholders of The Chemours Company:
Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated financial statements, including the related notes, as listed in the accompanying index, and the financial statement schedule listed in the index appearing under Item 15(a)(2),balance sheets of The Chemours Company and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’sCompany's internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 2016,2018, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company’sCompany's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’sCompany's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
F-3
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
F-3
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to theconsolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Accrued Liabilities Associated with the Fayetteville Works Site
As described in Note 22 to the consolidated financial statements, the Company is cooperating with a variety of ongoing inquiries and investigations from federal, state, and local authorities, regulators, and other governmental entities with respect to the discharge of hexafluoropropylene oxide dimer acid (“HFPO Dimer Acid,” sometimes referred to as “GenX” or “C3 Dimer Acid”) and other perfluorinated and polyfluorinated compounds (“PFAS”) from the Company’s Fayetteville Works site in North Carolina (“Fayetteville”) into the Cape Fear River, site surface water, groundwater, and air emissions. The Company’s accruals for these off-site and on-site remedial activities as of December 31, 2019 were $201 million. The Company’s estimated liability for off-site replacement drinking water supplies is based on management’s assessment of the current facts and circumstances for this matter, which is subject to various assumptions that include the number of affected surrounding properties, response rates to the Company’s offer, the type of water treatment systems selected, the cost of the selected water treatment systems, and any related operation, maintenance, and monitoring (“OM&M”) requirements, and other charges contemplated by the Consent Order with the North Carolina Department of Environmental Quality (“Consent Order”). The Company’s estimated liability for the on-site remediation activities that are probable and estimable is based on the Corrective Action Plan (“CAP”) and management’s assessment of the current facts and circumstances, which are subject to various assumptions including the transport pathways (being pathways by which PFAS reaches the Cape Fear River) which will require remedial actions, the types of site surface water and on-site remedies and treatment systems selected and implemented, the estimated cost of such potential remedies and treatment systems, and any related OM&M requirements, and other charges contemplated by the Consent Order and CAP.
The principal considerations for our determination that performing procedures relating to liabilities associated with Fayetteville is a critical audit matter are there was significant judgment by management to estimate the ultimate costs expected to be incurred under environmental regulations, the Consent Order, and the CAP which in turn led to significant auditor judgment, subjectivity and effort in performing procedures to assess management’s judgments, including assumptions related to the number of affected surrounding properties, the type of water treatment systems selected, the cost of the selected water treatment systems, transport pathways which will require remedial actions, the types of site surface water and on-site remedies and treatment systems selected and implemented, and the estimated cost of such potential remedies and treatment systems and any related OM&M requirements. Additionally, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s determination and valuation of the liabilities related to Fayetteville, as well as the related financial statement disclosures. These procedures also included, among others, (i) testing the reasonableness of management’s assumptions used to estimate the ultimate costs, including the number of affected surrounding properties, the type and cost of water treatment systems selected, transport pathways which will require remedial actions, the types of site surface water and on-site remedies and treatment systems selected and implemented, and the estimated cost of such potential remedies and treatment systems and any related OM&M requirements, (ii) obtaining and evaluating responses to letters of audit inquiry from legal counsel, and (iii) evaluating the sufficiency of the Company’s disclosures related to the matter. Professionals with specialized skill and knowledge were used to assist us in evaluating the estimated costs resulting from the Consent Order and CAP.
Goodwill Impairment Assessment - Mining Solutions and Fluoropolymers Reporting Units
As described in Notes 3 and 15 to the consolidated financial statements, the Company’s consolidated goodwill balance was $153 million as of December 31, 2019, of which the goodwill associated with the Mining Solutions and Fluoropolymers reporting units was $51 million and $56 million, respectively. Management tests its goodwill for impairment at least annually on October 1; however, these tests are performed more frequently when events or changes in circumstances indicate that the asset may be impaired. As previously disclosed by management, in addition to the annual impairment test performed on October 1, management determined trigger events occurred during 2019 that required certain reporting units’ goodwill to be tested for impairment prior to the annual test. An impairment exists when the carrying value of a reporting unit exceeds its fair value. When performing a quantitative impairment assessment, management weights the results of an income-based valuation technique, the discounted cash flows method, and a market-based valuation technique, the guideline public companies method, to determine the reporting units’ fair values. Such techniques require significant judgment and assumptions by management relating to short and long-term revenue growth rates, gross margins, discount rates, market multiples, and prospective financial information surrounding future reporting unit cash flows.
F-4
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments related to the Mining Solutions and Fluoropolymers reporting units is a critical audit matter are there was significant judgment by management when developing the fair value measurements of the reporting units. This in turn led to a high degree of auditor effort in performing procedures to evaluate the significant assumptions used in management’s interim and annual impairment assessments, including short and long-term revenue growth rates, gross margins, discount rates, and market multiples. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the valuation of the Company’s reporting units. These procedures also included, among others, testing management’s process for developing the fair value estimates; evaluating the appropriateness of the discounted cash flow models and the guideline public companies models; testing the completeness, accuracy, and relevance of underlying data used in the models; and evaluating the significant assumptions used by management, including short and long-term revenue growth rates, gross margins, discount rates, and market multiples. Evaluating management’s assumptions related to short and long-term revenue growth rates, gross margins, discount rates, and market multiples involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the respective reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow models, the guideline public companies models, and certain significant assumptions.
/s/ PricewaterhouseCoopers LLP |
Philadelphia, Pennsylvania |
February |
|
We have served as the Company’s auditor since 2014.
F-4F-5
Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Net sales |
| $ | 6,183 |
|
| $ | 5,400 |
|
| $ | 5,717 |
|
Cost of goods sold |
|
| 4,429 |
|
|
| 4,290 |
|
|
| 4,762 |
|
Gross profit |
|
| 1,754 |
|
|
| 1,110 |
|
|
| 955 |
|
Selling, general, and administrative expense |
|
| 602 |
|
|
| 934 |
|
|
| 632 |
|
Research and development expense |
|
| 80 |
|
|
| 80 |
|
|
| 97 |
|
Restructuring and asset-related charges, net |
|
| 57 |
|
|
| 170 |
|
|
| 333 |
|
Goodwill impairment |
|
| — |
|
|
| — |
|
|
| 25 |
|
Total expenses |
|
| 739 |
|
|
| 1,184 |
|
|
| 1,087 |
|
Equity in earnings of affiliates |
|
| 33 |
|
|
| 29 |
|
|
| 22 |
|
Interest expense, net |
|
| (215 | ) |
|
| (213 | ) |
|
| (132 | ) |
Other income, net |
|
| 79 |
|
|
| 247 |
|
|
| 54 |
|
Income (loss) before income taxes |
|
| 912 |
|
|
| (11 | ) |
|
| (188 | ) |
Provision for (benefit from) income taxes |
|
| 165 |
|
|
| (18 | ) |
|
| (98 | ) |
Net income (loss) |
|
| 747 |
|
|
| 7 |
|
|
| (90 | ) |
Less: Net income attributable to non-controlling interests |
|
| 1 |
|
|
| — |
|
|
| — |
|
Net income (loss) attributable to Chemours |
| $ | 746 |
|
| $ | 7 |
|
| $ | (90 | ) |
Per share data |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share of common stock |
| $ | 4.04 |
|
| $ | 0.04 |
|
| $ | (0.50 | ) |
Diluted earnings (loss) per share of common stock |
|
| 3.91 |
|
|
| 0.04 |
|
|
| (0.50 | ) |
Dividends per share of common stock |
|
| 0.29 |
|
|
| 0.12 |
|
|
| 0.58 |
|
See accompanying notes to the consolidated financial statements.
F-5
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in millions)
|
| Year Ended December 31, |
| |||||||||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||||||||||||||||||||||||||
|
| Pre-tax |
|
| Tax |
|
| After-tax |
|
| Pre-tax |
|
| Tax |
|
| After-tax |
|
| Pre-tax |
|
| Tax |
|
| After-tax |
| |||||||||
Net income (loss) |
| $ | 912 |
|
| $ | (165 | ) |
| $ | 747 |
|
| $ | (11 | ) |
| $ | 18 |
|
| $ | 7 |
|
| $ | (188 | ) |
| $ | 98 |
|
| $ | (90 | ) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on net investment hedge |
|
| (86 | ) |
|
| 24 |
|
|
| (62 | ) |
|
| 14 |
|
|
| — |
|
|
| 14 |
|
|
| 8 |
|
|
| — |
|
|
| 8 |
|
Cumulative translation adjustment |
|
| 200 |
|
|
| — |
|
|
| 200 |
|
|
| (73 | ) |
|
| — |
|
|
| (73 | ) |
|
| (304 | ) |
|
| — |
|
|
| (304 | ) |
Defined benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) |
|
| 24 |
|
|
| (5 | ) |
|
| 19 |
|
|
| (17 | ) |
|
| 5 |
|
|
| (12 | ) |
|
| (11 | ) |
|
| 1 |
|
|
| (10 | ) |
Prior service credit |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24 |
|
|
| (4 | ) |
|
| 20 |
|
Effect of foreign exchange rates |
|
| (38 | ) |
|
| — |
|
|
| (38 | ) |
|
| 15 |
|
|
| (3 | ) |
|
| 12 |
|
|
| 33 |
|
|
| (8 | ) |
|
| 25 |
|
Reclassifications to net income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service (gain) loss |
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| 4 |
|
|
| — |
|
|
| 4 |
|
Amortization of actuarial loss |
|
| 24 |
|
|
| (6 | ) |
|
| 18 |
|
|
| 23 |
|
|
| (6 | ) |
|
| 17 |
|
|
| 16 |
|
|
| (3 | ) |
|
| 13 |
|
Settlement loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| (1 | ) |
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Curtailment gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Defined benefit plans, net |
|
| 8 |
|
|
| (11 | ) |
|
| (3 | ) |
|
| 23 |
|
|
| (5 | ) |
|
| 18 |
|
|
| 66 |
|
|
| (14 | ) |
|
| 52 |
|
Other comprehensive income (loss) |
|
| 122 |
|
|
| 13 |
|
|
| 135 |
|
|
| (36 | ) |
|
| (5 | ) |
|
| (41 | ) |
|
| (230 | ) |
|
| (14 | ) |
|
| (244 | ) |
Comprehensive income (loss) |
|
| 1,034 |
|
|
| (152 | ) |
|
| 882 |
|
|
| (47 | ) |
|
| 13 |
|
|
| (34 | ) |
|
| (418 | ) |
|
| 84 |
|
|
| (334 | ) |
Less: Comprehensive income attributable to non-controlling interests |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Comprehensive income (loss) attributable to Chemours |
| $ | 1,033 |
|
| $ | (152 | ) |
| $ | 881 |
|
| $ | (47 | ) |
| $ | 13 |
|
| $ | (34 | ) |
| $ | (418 | ) |
| $ | 84 |
|
| $ | (334 | ) |
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Net sales |
| $ | 5,526 |
|
| $ | 6,638 |
|
| $ | 6,183 |
|
Cost of goods sold |
|
| 4,463 |
|
|
| 4,667 |
|
|
| 4,438 |
|
Gross profit |
|
| 1,063 |
|
|
| 1,971 |
|
|
| 1,745 |
|
Selling, general, and administrative expense |
|
| 548 |
|
|
| 657 |
|
|
| 626 |
|
Research and development expense |
|
| 80 |
|
|
| 82 |
|
|
| 81 |
|
Restructuring, asset-related, and other charges |
|
| 87 |
|
|
| 49 |
|
|
| 57 |
|
Total other operating expenses |
|
| 715 |
|
|
| 788 |
|
|
| 764 |
|
Equity in earnings of affiliates |
|
| 29 |
|
|
| 43 |
|
|
| 33 |
|
Interest expense, net |
|
| (208 | ) |
|
| (195 | ) |
|
| (214 | ) |
Loss on extinguishment of debt |
|
| — |
|
|
| (38 | ) |
|
| (1 | ) |
Other (expense) income, net |
|
| (293 | ) |
|
| 162 |
|
|
| 113 |
|
(Loss) income before income taxes |
|
| (124 | ) |
|
| 1,155 |
|
|
| 912 |
|
(Benefit from) provision for income taxes |
|
| (72 | ) |
|
| 159 |
|
|
| 165 |
|
Net (loss) income |
|
| (52 | ) |
|
| 996 |
|
|
| 747 |
|
Less: Net income attributable to non-controlling interests |
|
| — |
|
|
| 1 |
|
|
| 1 |
|
Net (loss) income attributable to Chemours |
| $ | (52 | ) |
| $ | 995 |
|
| $ | 746 |
|
Per share data |
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share of common stock |
| $ | (0.32 | ) |
| $ | 5.62 |
|
| $ | 4.04 |
|
Diluted (loss) earnings per share of common stock |
|
| (0.32 | ) |
|
| 5.45 |
|
|
| 3.91 |
|
See accompanying notes to the consolidated financial statements.
F-6
Consolidated Balance SheetsStatements of Comprehensive Income (Loss)
(Dollars in millions, except per share amounts)millions)
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 1,556 |
|
| $ | 902 |
|
Accounts and notes receivable, net |
|
| 919 |
|
|
| 807 |
|
Inventories |
|
| 935 |
|
|
| 767 |
|
Prepaid expenses and other |
|
| 83 |
|
|
| 77 |
|
Total current assets |
|
| 3,493 |
|
|
| 2,553 |
|
Property, plant, and equipment |
|
| 8,511 |
|
|
| 7,997 |
|
Less: Accumulated depreciation |
|
| (5,503 | ) |
|
| (5,213 | ) |
Property, plant, and equipment, net |
|
| 3,008 |
|
|
| 2,784 |
|
Goodwill and other intangible assets, net |
|
| 166 |
|
|
| 170 |
|
Investments in affiliates |
|
| 173 |
|
|
| 136 |
|
Other assets |
|
| 453 |
|
|
| 417 |
|
Total assets |
| $ | 7,293 |
|
| $ | 6,060 |
|
Liabilities |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 1,075 |
|
| $ | 884 |
|
Current maturities of long-term debt |
|
| 15 |
|
|
| 15 |
|
Other accrued liabilities |
|
| 558 |
|
|
| 872 |
|
Total current liabilities |
|
| 1,648 |
|
|
| 1,771 |
|
Long-term debt, net |
|
| 4,097 |
|
|
| 3,529 |
|
Deferred income taxes |
|
| 208 |
|
|
| 132 |
|
Other liabilities |
|
| 475 |
|
|
| 524 |
|
Total liabilities |
|
| 6,428 |
|
|
| 5,956 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Common stock (par value $0.01 per share; 810,000,000 shares authorized; 185,343,034 shares issued and 182,956,628 shares outstanding at December 31, 2017; 182,600,533 shares issued and outstanding at December 31, 2016) |
|
| 2 |
|
|
| 2 |
|
Treasury stock at cost (2,386,406 shares at December 31, 2017; nil at December 31, 2016) |
|
| (116 | ) |
|
| — |
|
Additional paid-in capital |
|
| 837 |
|
|
| 789 |
|
Retained earnings (accumulated deficit) |
|
| 579 |
|
|
| (114 | ) |
Accumulated other comprehensive loss |
|
| (442 | ) |
|
| (577 | ) |
Total Chemours stockholders’ equity |
|
| 860 |
|
|
| 100 |
|
Non-controlling interests |
|
| 5 |
|
|
| 4 |
|
Total equity |
|
| 865 |
|
|
| 104 |
|
Total liabilities and equity |
| $ | 7,293 |
|
| $ | 6,060 |
|
|
| Year Ended December 31, |
| |||||||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||||||||||||||
|
| Pre-tax |
|
| Tax |
|
| After-tax |
|
| Pre-tax |
|
| Tax |
|
| After-tax |
|
| Pre-tax |
|
| Tax |
|
| After-tax |
| |||||||||
Net (loss) income |
| $ | (124 | ) |
| $ | 72 |
|
| $ | (52 | ) |
| $ | 1,155 |
|
| $ | (159 | ) |
| $ | 996 |
|
| $ | 912 |
|
| $ | (165 | ) |
| $ | 747 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedging activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on net investment hedge |
|
| 20 |
|
|
| (5 | ) |
|
| 15 |
|
|
| 32 |
|
|
| (8 | ) |
|
| 24 |
|
|
| (86 | ) |
|
| 24 |
|
|
| (62 | ) |
Unrealized gain on cash flow hedge |
|
| 6 |
|
|
| (1 | ) |
|
| 5 |
|
|
| 10 |
|
|
| (1 | ) |
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Reclassifications to net income - cash flow hedge |
|
| (10 | ) |
|
| 1 |
|
|
| (9 | ) |
|
| (4 | ) |
|
| 1 |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Hedging activities, net |
|
| 16 |
|
|
| (5 | ) |
|
| 11 |
|
|
| 38 |
|
|
| (8 | ) |
|
| 30 |
|
|
| (86 | ) |
|
| 24 |
|
|
| (62 | ) |
Cumulative translation adjustment |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| (75 | ) |
|
| — |
|
|
| (75 | ) |
|
| 200 |
|
|
| — |
|
|
| 200 |
|
Defined benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to accumulated other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) gain |
|
| (144 | ) |
|
| 31 |
|
|
| (113 | ) |
|
| (115 | ) |
|
| 29 |
|
|
| (86 | ) |
|
| 24 |
|
|
| (5 | ) |
|
| 19 |
|
Prior service benefit |
|
| 5 |
|
|
| (1 | ) |
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Effect of foreign exchange rates |
|
| 7 |
|
|
| — |
|
|
| 7 |
|
|
| 8 |
|
|
| — |
|
|
| 8 |
|
|
| (38 | ) |
|
| — |
|
|
| (38 | ) |
Reclassifications to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service gain |
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
Amortization of actuarial loss |
|
| 18 |
|
|
| (4 | ) |
|
| 14 |
|
|
| 16 |
|
|
| (4 | ) |
|
| 12 |
|
|
| 24 |
|
|
| (6 | ) |
|
| 18 |
|
Settlement loss |
|
| 383 |
|
|
| (91 | ) |
|
| 292 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Defined benefit plans, net |
|
| 267 |
|
|
| (65 | ) |
|
| 202 |
|
|
| (93 | ) |
|
| 25 |
|
|
| (68 | ) |
|
| 8 |
|
|
| (11 | ) |
|
| (3 | ) |
Other comprehensive income (loss) |
|
| 285 |
|
|
| (70 | ) |
|
| 215 |
|
|
| (130 | ) |
|
| 17 |
|
|
| (113 | ) |
|
| 122 |
|
|
| 13 |
|
|
| 135 |
|
Cumulative effect of adopting ASU No. 2018-02 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9 | ) |
|
| (9 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Comprehensive income |
|
| 161 |
|
|
| 2 |
|
|
| 163 |
|
|
| 1,025 |
|
|
| (151 | ) |
|
| 874 |
|
|
| 1,034 |
|
|
| (152 | ) |
|
| 882 |
|
Less: Comprehensive income attributable to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Comprehensive income attributable to Chemours |
| $ | 161 |
|
| $ | 2 |
|
| $ | 163 |
|
| $ | 1,024 |
|
| $ | (151 | ) |
| $ | 873 |
|
| $ | 1,033 |
|
| $ | (152 | ) |
| $ | 881 |
|
See accompanying notes to the consolidated financial statements.
F-7
Consolidated Statements of Stockholders’ EquityBalance Sheets
(Dollars in millions)millions, except per share amounts)
|
| Common Stock |
|
| Treasury Stock |
|
| DuPont Company Net |
|
| Additional Paid-In |
|
| (Accumulated Deficit) Retained |
|
| Accumulated Other Comprehensive |
|
| Non-controlling |
|
|
|
|
| |||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Investment |
|
| Capital |
|
| Earnings |
|
| (Loss) Income |
|
| Interests |
|
| Total |
| ||||||||||
Balance at January 1, 2015 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 3,650 |
|
| $ | — |
|
| $ | — |
|
| $ | 19 |
|
| $ | 4 |
|
| $ | 3,673 |
|
Issuance of common stock at Separation |
|
| 180,966,833 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock issued - compensation plans |
|
| 102,918 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Cash provided at Separation by DuPont |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 247 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 247 |
|
Non-cash exchange of long-term debt |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (507 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (507 | ) |
Net transfers to DuPont |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,583 | ) |
|
| 769 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,814 | ) |
Dividends paid |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| (100 | ) |
|
| (5 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (105 | ) |
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25 |
|
|
| — |
|
|
| (115 | ) |
|
| — |
|
|
| — |
|
|
| (90 | ) |
Establishment of pension plans, net and related other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 268 |
|
|
| — |
|
|
| — |
|
|
| (311 | ) |
|
| — |
|
|
| (43 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13 |
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| 13 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (244 | ) |
|
| — |
|
|
| (244 | ) |
Balance at December 31, 2015 |
|
| 181,069,751 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 775 |
|
|
| (115 | ) |
|
| (536 | ) |
|
| 4 |
|
|
| 130 |
|
Common stock issued - compensation plans |
|
| 583,859 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercise of stock options, net |
|
| 946,923 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
Dividends paid |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16 | ) |
|
| (6 | ) |
|
| — |
|
|
| — |
|
|
| (22 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (41 | ) |
|
| — |
|
|
| (41 | ) |
Balance at December 31, 2016 |
|
| 182,600,533 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 789 |
|
|
| (114 | ) |
|
| (577 | ) |
|
| 4 |
|
|
| 104 |
|
Common stock issued - compensation plans |
|
| 569,263 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercise of stock options, net |
|
| 2,173,238 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31 |
|
Purchases of treasury stock at cost |
|
| (2,386,406 | ) |
|
| — |
|
|
| 2,386,406 |
|
|
| (116 | ) |
| �� | — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (116 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
Cancellation of unissued stock awards withheld to cover taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| — |
|
|
|
|
|
|
| — |
|
|
| (12 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 746 |
|
|
| — |
|
|
| 1 |
|
|
| 747 |
|
Dividends paid or accrued |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (53 | ) |
|
| — |
|
|
| — |
|
|
| (53 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 135 |
|
|
| — |
|
|
| 135 |
|
Balance at December 31, 2017 |
|
| 182,956,628 |
|
| $ | 2 |
|
|
| 2,386,406 |
|
| $ | (116 | ) |
| $ | — |
|
| $ | 837 |
|
| $ | 579 |
|
| $ | (442 | ) |
| $ | 5 |
|
| $ | 865 |
|
|
| December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 943 |
|
| $ | 1,201 |
|
Accounts and notes receivable, net |
|
| 674 |
|
|
| 861 |
|
Inventories |
|
| 1,079 |
|
|
| 1,147 |
|
Prepaid expenses and other |
|
| 81 |
|
|
| 84 |
|
Total current assets |
|
| 2,777 |
|
|
| 3,293 |
|
Property, plant, and equipment |
|
| 9,413 |
|
|
| 8,992 |
|
Less: Accumulated depreciation |
|
| (5,854 | ) |
|
| (5,701 | ) |
Property, plant, and equipment, net |
|
| 3,559 |
|
|
| 3,291 |
|
Operating lease right-of-use assets |
|
| 294 |
|
|
| — |
|
Goodwill and other intangible assets, net |
|
| 174 |
|
|
| 181 |
|
Investments in affiliates |
|
| 162 |
|
|
| 160 |
|
Other assets |
|
| 292 |
|
|
| 437 |
|
Total assets |
| $ | 7,258 |
|
| $ | 7,362 |
|
Liabilities |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 923 |
|
| $ | 1,137 |
|
Short-term and current maturities of long-term debt |
|
| 134 |
|
|
| 13 |
|
Other accrued liabilities |
|
| 484 |
|
|
| 559 |
|
Total current liabilities |
|
| 1,541 |
|
|
| 1,709 |
|
Long-term debt, net |
|
| 4,026 |
|
|
| 3,959 |
|
Operating lease liabilities |
|
| 245 |
|
|
| — |
|
Deferred income taxes |
|
| 118 |
|
|
| 217 |
|
Other liabilities |
|
| 633 |
|
|
| 457 |
|
Total liabilities |
|
| 6,563 |
|
|
| 6,342 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Common stock (par value $0.01 per share; 810,000,000 shares authorized; 188,893,478 shares issued and 163,574,243 shares outstanding at December 31, 2019; 187,204,567 shares issued and 170,780,474 shares outstanding at December 31, 2018) |
|
| 2 |
|
|
| 2 |
|
Treasury stock, at cost (25,319,235 shares at December 31, 2019; 16,424,093 shares at December 31, 2018) |
|
| (1,072 | ) |
|
| (750 | ) |
Additional paid-in capital |
|
| 859 |
|
|
| 860 |
|
Retained earnings |
|
| 1,249 |
|
|
| 1,466 |
|
Accumulated other comprehensive loss |
|
| (349 | ) |
|
| (564 | ) |
Total Chemours stockholders’ equity |
|
| 689 |
|
|
| 1,014 |
|
Non-controlling interests |
|
| 6 |
|
|
| 6 |
|
Total equity |
|
| 695 |
|
|
| 1,020 |
|
Total liabilities and equity |
| $ | 7,258 |
|
| $ | 7,362 |
|
See accompanying notes to the consolidated financial statements.
F-8
Consolidated Statements of Cash FlowsStockholders’ Equity
(Dollars in millions)
millions, except per share amounts)
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 747 |
|
| $ | 7 |
|
| $ | (90 | ) |
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 273 |
|
|
| 284 |
|
|
| 267 |
|
Asset-related charges |
|
| 3 |
|
|
| 124 |
|
|
| 206 |
|
(Gain) loss on sale of assets and businesses |
|
| (22 | ) |
|
| (254 | ) |
|
| 9 |
|
Equity in earnings of affiliates, net |
|
| (33 | ) |
|
| (12 | ) |
|
| — |
|
Amortization of deferred financing costs and issuance discount |
|
| 13 |
|
|
| 20 |
|
|
| 8 |
|
Deferred tax provision (benefit) |
|
| 83 |
|
|
| (111 | ) |
|
| (198 | ) |
Other operating charges and credits, net |
|
| 41 |
|
|
| 52 |
|
|
| 7 |
|
Decrease (increase) in operating assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable, net |
|
| (88 | ) |
|
| 5 |
|
|
| (64 | ) |
Inventories and other operating assets |
|
| (208 | ) |
|
| 147 |
|
|
| 19 |
|
(Decrease) increase in operating liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other operating liabilities |
|
| (170 | ) |
|
| 332 |
|
|
| 18 |
|
Cash provided by operating activities |
|
| 639 |
|
|
| 594 |
|
|
| 182 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment |
|
| (411 | ) |
|
| (338 | ) |
|
| (519 | ) |
Proceeds from sales of assets and businesses, net |
|
| 39 |
|
|
| 708 |
|
|
| 12 |
|
Investments in affiliates |
|
| — |
|
|
| (1 | ) |
|
| (32 | ) |
Foreign exchange contract settlements, net |
|
| 2 |
|
|
| (12 | ) |
|
| 42 |
|
Cash (used for) provided by investing activities |
|
| (370 | ) |
|
| 357 |
|
|
| (497 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt, net |
|
| 495 |
|
|
| — |
|
|
| 3,491 |
|
Debt repayments |
|
| (27 | ) |
|
| (381 | ) |
|
| (10 | ) |
Payment of deferred financing fees |
|
| (6 | ) |
|
| (4 | ) |
|
| (79 | ) |
Purchases of treasury stock at cost |
|
| (106 | ) |
|
| — |
|
|
| — |
|
Cash provided at Separation by DuPont |
|
| — |
|
|
| — |
|
|
| 247 |
|
Net transfers to DuPont |
|
| — |
|
|
| — |
|
|
| (2,857 | ) |
Proceeds from exercised stock options, net |
|
| 31 |
|
|
| 11 |
|
|
| — |
|
Tax payments related to withholdings on vested restricted stock units |
|
| (12 | ) |
|
| — |
|
|
| — |
|
Payment of dividends |
|
| (22 | ) |
|
| (22 | ) |
|
| (105 | ) |
Cash provided by (used for) financing activities |
|
| 353 |
|
|
| (396 | ) |
|
| 687 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 32 |
|
|
| (19 | ) |
|
| (6 | ) |
Increase in cash and cash equivalents |
|
| 654 |
|
|
| 536 |
|
|
| 366 |
|
Cash and cash equivalents at January 1, |
|
| 902 |
|
|
| 366 |
|
|
| — |
|
Cash and cash equivalents at December 31, |
| $ | 1,556 |
|
| $ | 902 |
|
| $ | 366 |
|
Supplemental cash flows information |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized |
| $ | 208 |
|
| $ | 208 |
|
| $ | 103 |
|
Income taxes, net of refunds |
|
| 79 |
|
|
| 50 |
|
|
| 53 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in property, plant, and equipment included in accounts payable |
| $ | (14 | ) |
| $ | (12 | ) |
| $ | 45 |
|
Obligations incurred under build-to-suit lease arrangement |
|
| 8 |
|
|
| — |
|
|
| — |
|
Purchases of treasury stock not settled by year-end |
|
| 10 |
|
|
| — |
|
|
| — |
|
Dividends accrued but not yet paid |
|
| 31 |
|
|
| — |
|
|
| — |
|
|
| Common Stock |
|
| Treasury Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Additional Paid-in Capital |
|
| (Accumulated Deficit) Retained Earnings |
|
| Accumulated Other Comprehensive (Loss) Income |
|
| Non-controlling Interests |
|
| Total Equity |
| |||||||||
Balance at January 1, 2017 |
|
| 182,600,533 |
|
| $ | 2 |
|
|
| — |
|
| $ | — |
|
| $ | 789 |
|
| $ | (114 | ) |
| $ | (577 | ) |
| $ | 4 |
|
| $ | 104 |
|
Common stock issued - compensation plans |
|
| 569,263 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercise of stock options, net |
|
| 2,173,238 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31 |
|
Purchases of treasury stock, at cost |
|
| — |
|
|
| — |
|
|
| 2,386,406 |
|
|
| (116 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (116 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
Cancellation of unissued stock awards withheld to cover taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 746 |
|
|
| — |
|
|
| 1 |
|
|
| 747 |
|
Dividends ($0.29 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (53 | ) |
|
| — |
|
|
| — |
|
|
| (53 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 135 |
|
|
| — |
|
|
| 135 |
|
Balance at December 31, 2017 |
|
| 185,343,034 |
|
|
| 2 |
|
|
| 2,386,406 |
|
|
| (116 | ) |
|
| 837 |
|
|
| 579 |
|
|
| (442 | ) |
|
| 5 |
|
|
| 865 |
|
Common stock issued - compensation plans |
|
| 783,346 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercise of stock options, net |
|
| 1,078,187 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
Purchases of treasury stock, at cost |
|
| — |
|
|
| — |
|
|
| 14,050,098 |
|
|
| (634 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (634 | ) |
Shares issued under employee stock purchase plan |
|
| — |
|
|
| — |
|
|
| (12,411 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24 |
|
Cancellation of unissued stock awards withheld to cover taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17 | ) |
Cumulative effect of adopting ASU No. 2018-02 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| (9 | ) |
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 995 |
|
|
| — |
|
|
| 1 |
|
|
| 996 |
|
Dividends ($0.67 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (117 | ) |
|
| — |
|
|
| — |
|
|
| (117 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (113 | ) |
|
| — |
|
|
| (113 | ) |
Balance at December 31, 2018 |
|
| 187,204,567 |
|
|
| 2 |
|
|
| 16,424,093 |
|
|
| (750 | ) |
|
| 860 |
|
|
| 1,466 |
|
|
| (564 | ) |
|
| 6 |
|
|
| 1,020 |
|
Common stock issued - compensation plans |
|
| 1,098,542 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Exercise of stock options, net |
|
| 590,369 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
Purchases of treasury stock, at cost |
|
| — |
|
|
| — |
|
|
| 8,895,142 |
|
|
| (322 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (322 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
Cancellation of unissued stock awards withheld to cover taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (30 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (30 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (52 | ) |
|
| — |
|
|
| — |
|
|
| (52 | ) |
Dividends ($1.00 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (164 | ) |
|
| — |
|
|
| — |
|
|
| (164 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 215 |
|
|
| — |
|
|
| 215 |
|
Balance at December 31, 2019 |
|
| 188,893,478 |
|
| $ | 2 |
|
|
| 25,319,235 |
|
| $ | (1,072 | ) |
| $ | 859 |
|
| $ | 1,249 |
|
| $ | (349 | ) |
| $ | 6 |
|
| $ | 695 |
|
See accompanying notes to the consolidated financial statements.
F-9
Consolidated Statements of Cash Flows
(Dollars in millions)
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (52 | ) |
| $ | 996 |
|
| $ | 747 |
|
Adjustments to reconcile net income to cash provided by (used for) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 311 |
|
|
| 284 |
|
|
| 273 |
|
Gain on sales of assets and businesses |
|
| (10 | ) |
|
| (45 | ) |
|
| (22 | ) |
Equity in earnings of affiliates, net |
|
| (3 | ) |
|
| 18 |
|
|
| (33 | ) |
Loss on extinguishment of debt |
|
| — |
|
|
| 38 |
|
|
| 1 |
|
Amortization of debt issuance costs and issue discounts |
|
| 9 |
|
|
| 11 |
|
|
| 13 |
|
Deferred tax (benefit) provision |
|
| (165 | ) |
|
| 23 |
|
|
| 83 |
|
Asset-related charges |
|
| 43 |
|
|
| 4 |
|
|
| 3 |
|
Stock-based compensation expense |
|
| 19 |
|
|
| 24 |
|
|
| 29 |
|
Net periodic pension cost (income) |
|
| 381 |
|
|
| (18 | ) |
|
| (22 | ) |
Defined benefit plan contributions |
|
| (19 | ) |
|
| (15 | ) |
|
| (38 | ) |
Other operating charges and credits, net |
|
| (2 | ) |
|
| (7 | ) |
|
| 12 |
|
Decrease (increase) in operating assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable, net |
|
| 191 |
|
|
| 47 |
|
|
| (88 | ) |
Inventories and other operating assets |
|
| 116 |
|
|
| (284 | ) |
|
| (146 | ) |
(Decrease) increase in operating liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other operating liabilities |
|
| (169 | ) |
|
| 64 |
|
|
| (172 | ) |
Cash provided by operating activities |
|
| 650 |
|
|
| 1,140 |
|
|
| 640 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment |
|
| (481 | ) |
|
| (498 | ) |
|
| (411 | ) |
Acquisition of business, net |
|
| (10 | ) |
|
| (37 | ) |
|
| — |
|
Proceeds from sales of assets and businesses, net |
|
| 9 |
|
|
| 46 |
|
|
| 39 |
|
Proceeds from life insurance policies |
|
| 1 |
|
|
| — |
|
|
| — |
|
Foreign exchange contract settlements, net |
|
| (2 | ) |
|
| 2 |
|
|
| 2 |
|
Cash used for investing activities |
|
| (483 | ) |
|
| (487 | ) |
|
| (370 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt, net |
|
| — |
|
|
| 520 |
|
|
| 495 |
|
Proceeds from revolving loan |
|
| 150 |
|
|
| — |
|
|
| — |
|
Repayments on revolving loan |
|
| (150 | ) |
|
| — |
|
|
| — |
|
Proceeds from accounts receivable securitization facility |
|
| 128 |
|
|
| — |
|
|
| — |
|
Debt repayments |
|
| (37 | ) |
|
| (679 | ) |
|
| (27 | ) |
Payments related to extinguishment of debt |
|
| — |
|
|
| (29 | ) |
|
| (1 | ) |
Payments of debt issuance costs |
|
| — |
|
|
| (12 | ) |
|
| (6 | ) |
Payments on finance leases |
|
| (3 | ) |
|
| — |
|
|
| — |
|
Purchases of treasury stock, at cost |
|
| (322 | ) |
|
| (644 | ) |
|
| (106 | ) |
Proceeds from exercised stock options, net |
|
| 9 |
|
|
| 16 |
|
|
| 31 |
|
Payments related to tax withholdings on vested stock awards |
|
| (30 | ) |
|
| (17 | ) |
|
| (12 | ) |
Payments of dividends |
|
| (164 | ) |
|
| (148 | ) |
|
| (22 | ) |
Cash (used for) provided by financing activities |
|
| (419 | ) |
|
| (993 | ) |
|
| 352 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| (6 | ) |
|
| (15 | ) |
|
| 32 |
|
(Decrease) increase in cash and cash equivalents |
|
| (258 | ) |
|
| (355 | ) |
|
| 654 |
|
Cash and cash equivalents at January 1, |
|
| 1,201 |
|
|
| 1,556 |
|
|
| 902 |
|
Cash and cash equivalents at December 31, |
| $ | 943 |
|
| $ | 1,201 |
|
| $ | 1,556 |
|
Supplemental cash flows information |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized |
| $ | 204 |
|
| $ | 206 |
|
| $ | 208 |
|
Income taxes, net of refunds |
|
| 85 |
|
|
| 75 |
|
|
| 79 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in property, plant, and equipment included in accounts payable |
| $ | 85 |
|
| $ | 37 |
|
| $ | (14 | ) |
Obligations incurred under build-to-suit lease arrangement |
|
| 40 |
|
|
| 47 |
|
|
| 8 |
|
Purchases of treasury stock not settled by year-end |
|
| — |
|
|
| — |
|
|
| 10 |
|
Non-cash financing arrangements |
|
| 11 |
|
|
| — |
|
|
| — |
|
Deferred payments related to acquisition of business |
|
| 15 |
|
|
| — |
|
|
| — |
|
Dividends accrued but not yet paid |
|
| — |
|
|
| — |
|
|
| 31 |
|
See accompanying notes to the consolidated financial statements.
F-10
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share)share amounts and par values)
Note 1. Background and Description of the Business
The Chemours Company (Chemours,(“Chemours,” or the Company)“Company”) is a leading, global provider of performance chemicals that are key inputs in end-products and processes in a variety of industries. The Company delivers customized solutions with a wide range of industrial and specialty chemicals products for markets, including plastics and coatings, refrigeration and air conditioning, general industrial, electronics, mining, and oil refining. The Company’s principal products include titanium dioxide (TiO2), refrigerants, industrial fluoropolymer resins, sodium cyanide, and performance chemicals and intermediates. Chemours’ business consists of threeintermediates, and titanium dioxide (“TiO2”) pigment. Chemours manages and reports its operating results through 3 reportable segments: Fluoroproducts, Chemical Solutions, and Titanium Technologies, Fluoroproducts, and Chemical Solutions. The Titanium Technologies segment is a leading, global producer of TiO2 pigment, a premium white pigment used to deliver whiteness, brightness, opacity, and protections in a variety of applications.Technologies. The Fluoroproducts segment is a leading, global provider of fluoroproducts, including refrigerants and industrial fluoropolymer resins. The Chemical Solutions segment is a leading, North American provider of industrial chemicals used in gold production, industrials,industrial, and consumer applications. The Titanium Technologies segment is a leading, global producer of TiO2 pigment, a premium white pigment used to deliver whiteness, brightness, opacity, and protections in a variety of applications.
Chemours has manufacturing facilities, sales centers, administrative offices, and warehouses located throughout the world. Chemours’ operations are primarily located in the United States (U.S.)U.S., Canada, Mexico, Brazil, the Netherlands, Belgium, China, Taiwan, Japan, Switzerland, Singapore, Hong Kong, India, and France. At December 31, 2017,2019, the Company operated 2630 major production facilities globally, of which, five20 were dedicated to Fluoroproducts, 1 was dedicated to Chemical Solutions, 7 were dedicated to Titanium Technologies, 18 were dedicated to Fluoroproducts, two were dedicated to Chemical Solutions, and one2 supported multiple segments.
Chemours began operating as an independent company on July 1, 2015 (Separation Date)(the “Separation Date”) after separating from E.I. DuPont de Nemours and Company (DuPont) (Separation)(“DuPont”) (the “Separation”). Effective prior to the opening of trading on the New York Stock Exchange (NYSE) on the Separation Date, DuPont completed the Separation of the businesses comprising its Performance Chemicals reporting segment, and certain other assets and liabilities, into Chemours, a separate and distinct public company. The Separation was completed by way of a distribution of all of the then-outstanding shares of Chemours’ common stock through a dividend-in-kind of Chemours’ common stock (par value $0.01) to holders of DuPont’s common stock (par value $0.30) as of the close of business on June 23, 2015 (Record Date).
On the Separation Date, each holder of DuPont’s common stock received one share of Chemours’ common stock for every five shares of DuPont’s common stock held on the Record Date. The Separation was completed pursuant to a separation agreement and other agreements with DuPont, including an employee matters agreement, a tax matters agreement, a transition services agreement, and an intellectual property cross-license agreement. These agreements govern the relationship between Chemours and DuPont following the Separation and provided for the allocation of various assets, liabilities, rights, and obligations at the Separation Date. These agreements also include arrangements for transition services to be provided to Chemours byOn August 31, 2017, DuPont which were substantially completed during 2016.a merger with The Dow Chemical Company (“Dow”). Following their merger, DuPont and Dow engaged in a series of reorganization steps and, in 2019, separated into three publicly-traded companies named Dow Inc., DuPont de Nemours, Inc., and Corteva, Inc. (“Corteva”).
Unless the context otherwise requires, references herein to “The Chemours Company,” “Chemours,” “the Company,” “our company,Company,” “we,” “us,” and “our,”“our” refer to The Chemours Company and its consolidated subsidiaries after giving effect to the Separation.subsidiaries. References herein to “DuPont” refer to E.I.E. I. du Pont de Nemours and Company, which is now a Delaware corporation, and its consolidated subsidiaries (other than Chemours and its consolidated subsidiaries), unless the context otherwise requires.subsidiary of Corteva.
Note 2. Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordanceconformity with U.S. generally accepted accounting principles (GAAP) in(“GAAP”). In the United States (U.S.).opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation of the Company’s financial position and results of operations have been included for the periods presented herein. The notes that follow are an integral part of the Company’s consolidated financial statements.
Chemours did not operate as a separate, stand-alone entity for all periods included within these consolidated financial statements. Prior to the Separation on July 1, 2015, Chemours’ operations were included in DuPont’s financial results in different legal forms, including, but not limited to, wholly-owned subsidiaries for which Chemours was the sole business, components of legal entities in which Chemours operated in conjunction with other DuPont businesses, and a majority-owned joint venture. For periods prior to the Separation Date, the accompanying consolidated financial statements have been prepared from DuPont’s historical accounting records and are presented on a stand-alone basis as if Chemours’ operations had been conducted independently from DuPont. Prior to January 1, 2015, aside from a Japanese entity that is a dual-resident for U.S. federal income tax purposes, there was no direct ownership relationship among all of the other various legal entities comprising Chemours. Prior to the Separation Date, DuPont and its subsidiaries’ net investments in these operations are shown in lieu of stockholders’ equity in the consolidated financial statements. The consolidated financial statements include the historical operations, assets, and liabilities of the legal entities that are considered to comprise Chemours’ business, including certain environmental remediation and litigation obligations of DuPont and its subsidiaries that Chemours may be required to indemnify pursuant to the Separation-related agreements executed prior to the Separation.
F-10
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
All of the allocations and estimates in the consolidated financial statements prior to the Separation Date are based on assumptions that management believes are reasonable. Therefore, Chemours’ financial position, results of operations, and cash flows prior to the Separation Date may not be indicative of Chemours’ financial position, results of operations, and cash flows in the future, or if Chemours had been a separate, stand-alone entity during the periods presented.
The net transfers to DuPont in the consolidated statements of stockholders’ equity include a non-cash contribution from DuPont of $109 for the year ended December 31, 2015. This non-cash contribution occurred during the physical separation of certain activities at shared production facilities in the U.S. prior to the Separation, and for certain assets identified at the Separation Date. It was determined that assets previously managed by other DuPont businesses would be transferred to and managed by Chemours.
Certain prior period amounts have been reclassified to conform to the current period presentation, the effect of which, was not material to the Company’s consolidated financial statements taken as a whole.statements.
Comprehensive income as of December 31, 2016 includes an out of period adjustment of $31 related to 2015 cumulative translation adjustments with a corresponding adjustment to other current assets. This adjustment is not material to the Company’s consolidated financial statements taken as a whole.
Note 3. Summary of Significant Accounting Policies
Preparation of Financial Statements
The consolidated financial statements have been prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses including the allocations of costs as discussed above, during the reporting period. Management’s estimates are based on historical experiences, facts, and circumstances available at the time and various other assumptions that management believes are reasonable. Actual results could differ from those estimates.
F-11
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Principles of Consolidation and Combination
The consolidated financial statements include the accounts of Chemours and its subsidiaries, as well as entities in which a controlling interest is maintained. For those consolidated subsidiaries in which the Company’s ownership is less than 100%, the outside shareholders’ interests are shown as non-controlling interests. Investments in companies in which Chemours, directly or indirectly, owns 20% to 50% of the voting stock, or has the ability to exercise significant influence over the operating and financial policies of the investee, are accounted for using the equity method of accounting. As a result, Chemours’ share of the earnings or losses of such equity affiliates is included in the consolidated statements of operations, and Chemours’ share of such equity affiliates’ equity is included in the consolidated balance sheets.
The financial statementsCompany assesses the requirements related to the consolidation of any variable interest entity (“VIE”), including a qualitative assessment of power and economics that considers which entity has the power to direct the activities that most significantly impact the VIE’s economic performance, and has the right to receive any benefits or the obligation to absorb any losses of the VIE. No such VIE was consolidated by the Company for the periods prior to the Separation Date include the combined assets, liabilities, revenues, and expenses of Chemours. presented.
All intercompany accounts and transactions were eliminated in the preparation of the accompanying consolidated financial statements.
Revenue Recognition
Revenue
Chemours recognizes revenue using a five-step model resulting in revenue being recognized as performance obligations within a contract have been satisfied. The steps within that model include: (i) identifying the existence of a contract with a customer; (ii) identifying the performance obligations within the contract; (iii) determining the contract’s transaction price; (iv) allocating the transaction price to the contract’s performance obligations; and, (v) recognizing revenue as the contract’s performance obligations are satisfied. A contract with a customer exists when: (i) the Company enters into an enforceable agreement that defines each party’s rights regarding the goods or services to be transferred, and the related payment terms; (ii) the agreement has commercial substance; and, (iii) it is recognizedprobable that the Company will collect the consideration to which it is entitled to in the exchange. A performance obligation is a promise in a contract to transfer a distinct good or service, or a series of distinct goods or services to a customer. The transaction price is the customary amount of consideration that the Company expects to be entitled to in exchange for a transfer of the promised goods or services to a customer, excluding any amounts collected by the Company on behalf of third parties (e.g., sales and use taxes). Judgment is required to apply the principles-based, five-step model for revenue recognition. Management is required to make certain estimates and assumptions about the Company’s contracts with its customers, including, among others, the nature and extent of its performance obligations, its transaction price amounts and any allocations thereof, the critical events which constitute satisfaction of its performance obligations, and when control of any promised goods or services is transferred to its customers.
The Company’s revenue from contracts with customers is reflected in the earnings process is complete. Revenue forconsolidated statements of operations as net sales, the vast majority of which represents product sales is recognized when productsthat consist of a single performance obligation. Product sales to customers are shipped to the customermade under a purchase order (“PO”), or in certain cases, in accordance with the terms of a master services agreement (“MSA”) or similar arrangement, which documents the agreement,rights and obligations of each party to the contract. When a customer submits a PO for product or requests product under an MSA, a contract for a specific quantity of distinct goods at a specified price is created, and the Company’s performance obligation under the contract is satisfied when control of the product is transferred to the customer, which is indicated by shipment of the product and the transfer of title and the risk of loss have been transferred, collectability is reasonably assured, and pricing is fixed or determinable. Revenue associated with advance payments are recorded as deferred revenue and are recognized as shipments are made and title, ownership, and risk of loss pass to the customer. Accruals are madeRevenue is recognized on consignment sales when control transfers to the customer, generally at the point of customer usage of the product. The transaction price for product sales returns and other allowancesis generally the amount specified in the PO or in the request under an MSA; however, as is common in Chemours’ industry, the Company offers variable consideration in the form of rebates, volume discounts, early payment discounts, pricing based on historical experience. Cash sales incentivesformulas or indices, price matching, and guarantees to certain customers. Such amounts are accounted for as a reductionincluded in sales, and non-cash sales incentives are recorded as a charge to cost of goods sold at the time thatCompany’s estimated transaction price using either the revenueexpected value method or selling expense,the most-likely amount, depending on the nature of the incentive, is recorded. Amounts billedvariable consideration included in the contract. The Company regularly assesses its customers’ creditworthiness, and product sales are made based on established credit limits. Payment terms for the Company’s invoices are typically less than 90 days.
The Company also licenses the right to access certain of its trademarks to customers for shippingunder specified terms and handling fees are includedconditions in certain arrangements, which is recognized as a component of net sales and costs incurred by Chemours for the delivery of goods are classified as cost of goods sold in the consolidated statements of operations. TaxesUnder such arrangements, the Company may receive a royalty payment for a trademark license that is entered into on revenue-producing transactionsa stand-alone basis or incorporated into an overall product sales arrangement. Royalty income is generally based on customer sales and recognized under the sales-based exception as the customer sale occurs. When minimum guaranteed royalty amounts are excluded from net sales. Licensing andincluded in the transaction price, the Company recognizes royalty income ratably over the license period for the minimum amount. When there is no consideration specified for the use of the Company’s trademark, the entire transaction price is recognized in connection with the transfer of control of product. Royalty income resulting from the right to use the Company’s technology is considered outside the scope of revenue recognition under GAAP as it is not a part of the Company’s ongoing major or central activities, and is recognized as a component of other income (expense), net in the consolidated statements of operations in accordance with agreed uponagreed-upon terms whenat the point or points in time that performance obligations are satisfied, the amount is fixed or determinable, and collectability is reasonably assured.satisfied.
F-11F-12
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Consistent with the fact that the vast majority of the Company’s payment terms are less than 90 days from the point at which control of the promised goods or services is transferred, no adjustments have been made for the effects of a significant financing component. Additionally, the Company has elected to recognize the incremental costs associated with obtaining contracts as an expense when incurred if the amortization period of the assets that the Company would have recognized is one year or less. Amounts billed to customers for shipping and handling fees are considered a fulfillment cost and are included in net sales, and the costs incurred by the Company for the delivery of goods are classified as a component of the cost of goods sold in the consolidated statements of operations.
Research and Development Expense
Research and development (R&D)(“R&D”) costs are expensed as incurred. R&D expenses include costs (primarily consisting of employee costs, materials, contract services, research agreements, and other external spend) relating to the discovery and development of new products, enhancement of existing products, and regulatory approval of new and existing products.
Provision for (Benefit from) Income Taxes
The provision for (benefit from) income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for (benefit from) income taxes represents income taxes paid or payable for the current year, plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax bases of Chemours’ assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. The Company’s deferred tax assets and liabilities are presented on a net basis by jurisdictional filing group. Net deferred tax assets are presented as a component of other assets, while net deferred tax liabilities are presented as a component of deferred income taxes on the Company’s consolidated balance sheets. Valuation allowances are recorded to reduce deferred tax assets when it is more-likely-than-not that a tax benefit will not be realized.
Chemours recognizes income tax positions that meet the more-likely-than-not threshold and accrues any interest related to unrecognized income tax positions as a component of other income (expense), net in the consolidated statements of operations. Income tax-related penalties are included in the provision for (benefit from) income taxes.
Chemours does not provide for income taxes on the undistributed earnings of all of its foreign subsidiaries that are intended to be indefinitely reinvested.
Prior to the Separation, the amounts recorded for income taxes attributed certain current and deferred income taxes of DuPont to Chemours’ stand-alone financial statements in a manner that is systematic, rational, and consistent with the asset and liability method prescribed by Accounting Standards Codification Topic 740, Income Taxes (Topic 740). Accordingly, Chemours’ income tax provision was prepared following the separate return method. The separate return method applies Topic 740 to the stand-alone financial statements of each member of the consolidated group as if the group member were a separate taxpayer and a stand-alone enterprise.
Earnings Per Share
Chemours presents both basic earnings per share and diluted earnings per share. Basic earnings per share excludes dilution and is computed by dividing the total net income (loss) attributable to Chemours by the weighted-average number of shares outstanding for the period. Diluted earnings per share reflects the dilution that could occur if the Company’s outstanding stock-based compensation awards, including any unvested restricted shares, were vested and exercised, thereby resulting in the issuance of common stock as determined under the treasury stock method. In periods where the Company incurs a net loss, stock-based compensation awards are excluded from the calculation of earnings per share as their inclusion would have an anti-dilutive effect.
Cash and Cash Equivalents
Cash and cash equivalents generally include cash, time deposits, or highly liquidhighly-liquid investments with original maturities of three months or less.
Receivables
Accounts and Notes Receivable and Allowance for Doubtful Accounts
Receivables
Accounts and notes receivables are recognized net of an allowance for doubtful accounts. The allowance for doubtful accounts reflects the best estimate of losses inherent in Chemours’ receivablesaccounts and notes receivable portfolio, which is determined on the basis of historical experience, specific allowances for known troubled accounts, and other available evidence. ReceivablesAccounts and notes receivable are written-off when management determines that they are uncollectible.
Inventories
Chemours’ U.S. inventories are valued at the lower of cost or market, as inventories held at substantially all U.S. locations are valued using the last-in, first-out (LIFO)(“LIFO”) method. Chemours’ non-U.S. inventories are valued at the lower of cost or net realizable value, as inventories held outside the U.S. are valued using the average cost method. The elements of cost in inventories include raw materials, direct labor, and manufacturing overhead. Stores and supplies are valued at the lower of cost or net realizable value. Cost is generally determined by the average cost method.
F-12
F-13
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Property, Plant, and Equipment
Property, plant, and equipment is carried at cost and is depreciated using the straight-line method. Property, plant, and equipment placed in service prior to 1995 is depreciated under the sum-of-the-years’ digits method, or other substantially-similar methods. Substantially all equipment and buildings are depreciated over useful lives ranging from 15 to 25 years. Capitalizable costs associated with computer software for internal use are amortized on a straight-line basis over five to seven years. When assets are surrendered, retired, sold, or otherwise disposed of, their gross carrying values and related accumulated depreciation are removed from the consolidated balance sheets and are included in the determination of any gain or loss on such disposals.
Repair and maintenance costs that materially add to the value of the asset or prolong its useful life are capitalized and depreciated based on their extension to the asset’s useful life. Capitalized repair and maintenance costs are recorded on the consolidated balance sheets as a component of other assets.
Impairment of Long-lived Assets
Chemours evaluates the carrying value of its long-lived assets to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable. For the purposes of recognition or measurement of an impairment charge, the assessment is performed on the asset or asset group at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. To determine the level at which the assessment is performed, Chemours considers factors such as revenue dependency, shared costs, and the extent of vertical integration. The carrying value of a long-lived asset is considered impaired when the total projected undiscounted cash flows from the use and eventual disposition of the asset or asset group are separately identifiable and are less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. The fair value methodology used is an estimate of fair market value, which is made based on prices of similar assets or other valuation methodologies, including present value techniques. Long-lived assets to be disposed of by means other than sale are classified as held for use until their disposal. Long-lived assets to be disposed of by sale are classified as held for sale and are reported at the lower of carrying amount or fair market value, less the estimated cost to sell. Depreciation is discontinued for any long-lived assets classified as held for sale.
Goodwill and Other Intangible Assets
The excess of the purchase price over the estimated fair value of the net assets acquired in a business combination, including any identified intangible assets, is recorded as goodwill. Chemours tests its goodwill for impairment at least annually on October 1; however, these tests are performed more frequently when events or changes in circumstances indicate that the asset may be impaired. Goodwill is evaluated for impairment at the reporting unit level, which is defined as an operating segment, or one level below an operating segment. A reporting unit is the level at which discrete financial information is available and reviewed by business management on a regular basis. An impairment exists when the carrying value of a reporting unit exceeds its fair value. The amount of impairment loss recognized in the consolidated statements of operations is equal to the excess of a reporting unit’s carrying value over its fair value, which is limited to the total amount of goodwill allocated to the reporting unit.
Chemours has the option to first qualitatively assess whether it is more-likely-than-not that an impairment exists for a reporting unit. Such qualitative factors include, among other things, prevailing macroeconomic conditions, industry and market conditions, changes in costs associated with raw materials, labor, or other inputs, the Company’s overall financial performance, and certain other entity-specific events that impact Chemours’ reporting units. When performing a quantitative assessment,test, the Company weights the results of an income-based valuation technique, the discounted cash flows method, and a market-based valuation technique, the guideline public companies method, to determine its reporting units’ fair value.values.
Definite-lived intangible assets, such as purchased and licensed technology, patents, trademarks, and customer lists, are amortized over their estimated useful lives, generally for periods ranging from five to 20 years. The reasonableness of the useful lives of these assets is continuallyperiodically evaluated.
F-13
F-14
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Chemours records its asset retirement obligations at their fair value at the time the liability is incurred. Fair value is measured using the expected future cash outflows discounted at Chemours’ credit-adjusted, risk-free interest rate, which is considered to be a Level 3 input within the fair value hierarchy. Accretion expense is recognized as an operating expense within the cost of goods sold in the consolidated statements of operations using the credit-adjusted, risk-free interest rate in effect when the liability was recognized. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and are depreciated over the estimated remaining useful life of the asset, generally for periods ranging from two to 25 years.
Insurance
Chemours insures for certain risks where permitted by law or regulation, including workers’ compensation, vehicle liability, and employee-related benefits. Liabilities associated with these risks are estimated in part by considering any historical claims experience, demographic factors, and other actuarial assumptions. For certain other risks, the Company uses a combination of third-party insurance and self-insurance, reflecting its comprehensive review of relevant risks. A receivable for an insurance recovery is generally recognized when the loss has occurred and collection is considered probable.
Litigation
Chemours accrues for legal matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Litigation-related liabilities and expenditures included in the consolidated financial statements include legal matters that are liabilities of DuPont and its subsidiaries, which Chemours may be required to indemnify pursuant to the Separation-related agreements executed prior to the Separation. Legal costs, such as outside counsel fees and expenses, are charged to expense in the period that services are rendered.
Environmental Liabilities and Expenditures
Chemours accrues for environmental remediation matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Where the available information is only sufficient to establish a range of probable liability, and no point within the range is more likely than any other, the lower end of the range has been used.
Estimated liabilities are determined based on existing remediation laws and technologies and our planned remedial responses, which are derived from in-depth environmental studies, sampling, testing, and analyses. Inherent uncertainties exist in such evaluations, primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. These accruals are adjusted periodically as remediation efforts progress and as additional technological, regulatory, and legal information becomes available.
Environmental liabilities and expenditures include claims for matters that are liabilities of DuPont and its subsidiaries, which Chemours may be required to indemnify pursuant to the Separation-related agreements executed prior to the Separation. Accrued liabilities are undiscounted and do not include claims against third parties, and are included in other accrued liabilities and other liabilities on the consolidated balance sheets.
Costs related to environmental remediation are charged to expense in the period that the associated liability is accrued and are reflected as a component of the cost of goods sold in the consolidated statements of operations. Other environmental costs are also charged to expense in the period incurred, unless they extend the useful life of the property, increase the property’s capacity, and/or reduce or prevent contamination from future operations, in which case they are capitalized and amortized.
Treasury Stock
Chemours accounts for repurchases of the Company’s common stock as treasury stock using the cost method, whereby the entire cost of the acquired common stock is recorded as treasury stock.
F-15
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Stock-based Compensation
Chemours’ stock-based compensation consists of stock options, restricted stock units (“RSUs”), and performance share units (“PSUs”) awarded to employees and non-employee directors. Stock options and PSUs are measured at their fair value on the grant date or date of modification, as applicable. RSUs are measured at the stock price on the grant date or date of modification, as applicable. The Company recognizes compensation expense on a straight-line basis over the requisite service and/or performance period, as applicable. Forfeitures of awards are accounted as a reduction in stock-based compensation expense in the period such awards are forfeited.
Derivatives
In the ordinary course of business, Chemours enters into contractual arrangements (i.e., derivatives) to reduce its exposure to foreign currency risks. The Company has established a derivative program to be utilized for financial risk management, which currently includes the following risk management strategies: (i) foreign currency forward contracts, which are used to minimize the volatility in the Company’s earnings related to foreign exchange gains and losses resulting from the remeasurement of its monetary assets and liabilities that are denominated in non-functional currencies; (ii) foreign currency forward contracts, which are used to mitigate the risks associated with fluctuations in the euro against the U.S. dollar for forecasted U.S. dollar-denominated inventory purchases in certain of the Company’s international subsidiaries that use the euro as their functional currency; and, (iii) euro-denominated debt, which is used to reduce the volatility in stockholders’ equity resulting from changes in foreign currency exchange rates of the euro with respect to the U.S. dollar for certain of the Company’s international subsidiaries that use the euro as their functional currency. The Company’s derivative program reflects varying levels of exposure coverage and time horizons based on an assessment of risk. The derivative program operates within Chemours’ financial risk management policies and guidelines, and the Company does not enter into derivative financial instruments for trading or speculative purposes.
The Company’s foreign currency forward contracts that are used as a net monetary assets and liabilities hedge are not part of a cash flow hedge program or a fair value hedge program, and have not been designated as a hedge. For these instruments, any gains and losses resulting from the revaluation of derivative assets and liabilities are recognized in other income (expense), net in the consolidated statements of operations during the period in which they occurred, and any such gains or losses are intended to be offset by any gains or losses on the underlying asset or liability. For the Company’s foreign currency forward contracts that have been designated under a cash flow hedge program, any gains and losses resulting from the revaluation of derivative assets and liabilities are recognized as a component of accumulated other comprehensive loss on the consolidated balance sheets during the period in which they occurred, and are reclassified to the cost of goods sold in the consolidated statements of operations during the period in which the underlying transactions affect earnings, or when it becomes probable that the forecasted transactions will not occur. Changes due to remeasurement of the Company’s euro-denominated debt instruments, which are designated as a net investment hedge, are included in accumulated other comprehensive loss on the consolidated balance sheets. Chemours’ uses the spot method to evaluate the effectiveness of its net investment hedge.
Derivative assets and liabilities are reported on a gross basis on the consolidated balance sheets.
Foreign Currency Translation
Chemours identifies its separate and distinct foreign entities and groups them into two categories: (i) extensions of the parent (U.S. dollar functional currency); and, (ii) self-contained (local functional currency). If a foreign entity does not align with either category, factors are evaluated, and a judgment is made to determine the functional currency. Chemours changes the functional currency of its separate and distinct foreign entities only when significant changes in economic facts and circumstances clearly indicate that the functional currency has changed.
During the periods covered by the consolidated financial statements, part of Chemours’ business operated within foreign entities. For foreign entities where the U.S. dollar is the functional currency, all foreign currency-denominated asset and liability amounts are remeasured into U.S. dollars at end-of-period exchange rates, with the exception of inventories, prepaid expenses, property, plant, and equipment, goodwill, and other intangible assets. These aforementioned assets are remeasured at historical exchange rates. Foreign currency-denominated revenue and expense amounts are measured at exchange rates in effect during the period, with the exception of expenses related to any balance sheet amounts remeasured at historical exchange rates. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in other income (expense), net in the consolidated statements of operations in the period in which they occurred.
F-16
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
For foreign entities where the local currency is the functional currency, assets and liabilities denominated in local currencies are translated into U.S. dollars at end-of-period exchange rates, and the resulting translation adjustments are reported as a component of accumulated other comprehensive loss on the consolidated balance sheets. Assets and liabilities denominated in currencies other than the functional currency are remeasured into the functional currency prior to translation into U.S. dollars, and the resulting exchange gains or losses are included in other income (expense), net in the consolidated statements of operations in the period in which they occurred. Revenues and expenses are translated into U.S. dollars at average exchange rates in effect during the period.
Defined Benefit Plans
Due to local regulations outside of the U.S., Chemours has defined benefit plans covering certain of its employees. The benefits of these plans, which primarily relate to pension, are accrued over the employees’ service periods. The Company uses actuarial methods and assumptions in the valuation of its defined benefit obligations and the determination of any net periodic pension income or expense. Any differences between actual and expected results, or changes in the value of defined benefit obligations and plan assets, if any, are not recognized in earnings as they occur. Rather, they are systematically recognized over subsequent periods.
Derivatives
Chemours enters into forward currency exchange contracts to minimize its volatility in earnings related to foreign exchange gains and losses, which result from remeasuring any net monetary assets denominated in non-functional currencies held by Chemours. Chemours does not hold or issue financial instruments for speculative or trading purposes. Derivative assets and liabilities are reported on a gross basis on the consolidated balance sheets. All gains and losses resulting from the revaluation of the Company’s derivative assets and liabilities are recognized in other income, net in the consolidated statements of operations during the period in which they occur.
Asset Retirement Obligations
Chemours records its asset retirement obligations at their fair value at the time the liability is incurred. Fair value is measured using the expected future cash outflows discounted at Chemours’ credit-adjusted, risk-free interest rate, which is considered to be a Level 3 input within the fair value hierarchy. Accretion expense is recognized as an operating expense classified within cost of goods sold in the consolidated statements of operations using the credit-adjusted, risk-free interest rate in effect when the liability was recognized. The associated asset retirement obligations are capitalized as part of the carrying amount of the long-lived asset and depreciated over the estimated remaining useful life of the asset, generally for periods ranging from two to 30 years.
Insurance
Chemours insures for certain risks where permitted by law or regulation, including workers’ compensation, vehicle liability, and employee-related benefits. Liabilities associated with these risks are estimated in part by considering any historical claims experience, demographic factors, and other actuarial assumptions. For certain other risks, the Company uses a combination of third-party insurance and self-insurance, reflecting its comprehensive reviews of relevant risks. A receivable for an insurance recovery is generally recognized when the loss has occurred and collection is considered probable.
Prior to the Separation, Chemours was a participant in DuPont’s self-insurance program where permitted by law or regulation, including workers’ compensation, vehicle liability, and employee-related benefits. Liabilities associated with these risks were estimated in part by considering any historical claims experience, demographic factors, and other actuarial assumptions. For other risks, a combination of third-party insurance and self-insurance was used, reflecting DuPont’s comprehensive reviews of relevant risks. The annual cost was allocated to all of the participating businesses using methodologies deemed reasonable by management. All obligations pursuant to these plans had historically been obligations of DuPont. As such, these obligations were not included in the consolidated balance sheets, with the exception of self-insurance liabilities related to workers’ compensation, vehicle liability, and employee-related benefits.
Litigation
Chemours accrues for legal matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Litigation-related liabilities and expenditures included in the consolidated financial statements represent legal matters that are liabilities of DuPont and its subsidiaries, which Chemours may be required to indemnify pursuant to the Separation-related agreements executed prior to the Separation. Legal costs, such as outside counsel fees and expenses, are charged to expense in the period that services are rendered.
Environmental Liabilities and Expenditures
Chemours accrues for remediation activities when it is probable that a liability has been incurred and a reasonable estimate of the liability can be made. Where the available information is sufficient to estimate the amount of liability, that estimate has been used. Where the available information is only sufficient to establish a range of probable liability, and no point within the range is more likely than any other, the lower end of the range has been used.
F-14
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
Estimated liabilities are determined based on existing remediation laws and technologies. Inherent uncertainties exist in such evaluations, primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. These accruals are adjusted periodically as remediation efforts progress and as additional technological, regulatory, and legal information become available.
Environmental liabilities and expenditures include claims for matters that are liabilities of DuPont and its subsidiaries, which Chemours may be required to indemnify pursuant to the Separation-related agreements executed prior to the Separation. Accrued liabilities are undiscounted and do not include claims against third-parties, and are included in other accrued liabilities and other liabilities on the consolidated balance sheets.
Costs related to environmental remediation are charged to expense in the period incurred, within cost of goods sold in the consolidated statements of operations. Other environmental costs are also charged to expense in the period incurred, unless they increase the value of the property or reduce or prevent contamination from future operations, in which case they are capitalized and amortized.
Treasury Stock
Chemours accounts for repurchases of the Company’s common stock as treasury stock using the cost method, whereby the entire cost of the acquired common stock is recorded as treasury stock.
Stock-based Compensation
Chemours’ stock-based compensation consists of stock options, restricted stock units (RSUs), and performance share units (PSUs) awarded to employees and non-employee directors. Stock options and PSUs are measured at their fair value on the grant date or date of modification, as applicable. RSUs are measured at the stock price on the grant date or date of modification, as applicable. The Company recognizes compensation expense on a straight-line basis over the requisite service and/or performance period, as applicable. Forfeitures of awards are accounted as a reduction in stock-based compensation expense in the period such awards are forfeited.
Foreign Currency Translation
Chemours identifies its separate and distinct foreign entities and groups them into two categories: (i) extensions of the parent (U.S. dollar functional currency); and, (ii) self-contained (local functional currency). If a foreign entity does not align with either category, factors are evaluated, and a judgment is made to determine the functional currency. Chemours changes the functional currency of its separate and distinct foreign entities only when significant changes in economic facts and circumstances clearly indicate that the functional currency has changed.
During the periods covered by the consolidated financial statements, part of Chemours’ business operated within foreign entities. For foreign entities where the U.S. dollar is the functional currency, all foreign currency-denominated asset and liability amounts are remeasured into U.S. dollars at end-of-period exchange rates, with the exception of inventories, prepaid expenses, property, plant, and equipment, goodwill, and other intangible assets. These aforementioned assets are remeasured at historical rates. Foreign currency-denominated revenue and expense amounts are remeasured at average exchange rates in effect during the period, with the exception of expenses related to any balance sheet amounts remeasured at historical exchange rates. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in other income, net in the period in which they occur.
For foreign entities where the local currency is the functional currency, assets and liabilities denominated in local currencies are translated into U.S. dollars at end-of-period exchange rates, and the resulting translation adjustments are reported as a component of accumulated other comprehensive loss within equity. Assets and liabilities denominated in currencies other than the functional currency are remeasured into the functional currency prior to translation into U.S. dollars, and the resulting exchange gains or losses are included in income in the period in which they occur. Revenues and expenses are translated into U.S. dollars at average exchange rates in effect during the period.
During 2015, when Chemours’ operations were legally and operationally separated within DuPont in anticipation of the Separation, certain of Chemours’ foreign entities set their respective local currencies as the functional currency.
F-15
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
Fair value is defined as the exit price, the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Under the accounting for fair value measurements and disclosures, a fair value hierarchy was established to prioritize the valuation inputs used to measure fair value. The hierarchy gives highest priority to unadjusted, quoted prices in active markets for identical assets and liabilities (Level(i.e., Level 1 measurements) and lowest priority to unobservable inputs (Level(i.e., Level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Chemours applies the following valuation hierarchy in measuring the fair values of its assets and liabilities:
Level 1 – Quoted prices in active markets for identical assets and liabilities;
Level 2 – Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable, such as interest rate and yield curves, and market-corroborated inputs); and,
Level 3 – Unobservable inputs for the asset or liability, which are valued based on management’s estimates of assumptions that market participants would use in pricing the asset or liability.
Recent Accounting Pronouncements
Accounting Guidance Issued and Not Yet Adopted
Measurement of Credit Losses on Financial Instruments
In May 2014,June 2016, the Financial Accounting Standards Board (FASB)(“FASB”) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU No. 2014-09). The objective2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of this standard is to remove inconsistent practices regarding revenue recognition between GAAP and InternationalCredit Losses on Financial Reporting Standards. The standard intends to improve the comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. Subsequent to the issuance of Instruments (“ASU No. 2014-09,2016-13”). The amendments in this update affect loans, debt securities, trade receivables, and any other financial assets that have the FASB issued multiple clarifying updates in connection withcontractual right to receive cash, which, for the standard. The provisionsCompany, primarily consists of accounts and notes receivable, net. ASU No. 2014-092016-13 requires an entity to recognize expected credit losses rather than incurred losses for financial assets. For public entities, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and its related updates will be adopted by the Company in the first quarter of 2018 under the modified retrospective transition method.
early adoption is permitted. The Company believes that the adoption of the standard willdoes not have a material impact on its consolidated financial statements. Substantially all of the Company’s revenue consists of sales of products that represent a single performance obligation where control transfers at the point in time title and risk of loss pass to the customer. The Company continues to evaluateexpect the impact of the standard update onadopting this guidance to be material to its consolidated financial statementsposition, results of operations, and related disclosures, and additional differences may be identified as new or amended contracts with customers that will impact future periods are executed. cash flows.
F-17
The Chemours Company expects that its disclosure in the notes
Notes to the consolidated financial statements related to revenue recognition will be expandedConsolidated Financial Statements
(Dollars in the first quarter of 2018 in line with the requirements of the standard to further describe the nature, timing,millions, except per share amounts and uncertainty of revenue and cash flows arising from contracts with customers.par values)
Recently Adopted Accounting Guidance
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU (“ASU No. 2016-02)2016-02”), which supersedes the leases requirements in Topic 840. The core principle of ASU No. 2016-02 is that a lessee should recognize on the balance sheet the lease assets and lease liabilities that arise from all lease arrangements with terms greater than 12 months. Recognition of these lease assets and lease liabilities represents a change from previous GAAP, which did not require lease assets and lease liabilities to be recognized for operating leases. Qualitative disclosures along with specific quantitative disclosures will be required to provide enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities.
The Company will be requiredadopted ASU No. 2016-02 on January 1, 2019 using the modified retrospective transition method, which did not require the Company to recognizeadjust comparative periods. Operating leases are included in operating lease right-of-use assets, other accrued liabilities, and measureoperating lease liabilities on the consolidated balance sheets. Finance leases are included in property, plant, and equipment, net, short-term and current maturities of long-term debt, and long-term debt, net, on the consolidated balance sheets. The Company’s lease assets and lease liabilities are recognized on the lease commencement date in an amount that represents the present value of future lease payments. The Company’s incremental borrowing rate, which is based on information available at the beginningadoption date for existing leases and the commencement date for leases commencing after the adoption date, is used to determine the present value of lease payments.
The most significant impact of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that the Company may elect to apply. The provisionsCompany’s adoption of ASU No. 2016-02 are effective forwas the recognition of $333 of operating lease right-of-use assets and $349 of operating lease liabilities on its consolidated balance sheets at January 1, 2019. Operating lease right-of-use assets were reduced by $16 due to a tenant improvement allowance on a lease of office space. The Company’s adoption of ASU No. 2016-02 did not have any impact to the Company’s fiscal year beginning January 1, 2019, including interim periods withinconsolidated statements of operations, or its consolidated statements of cash flows. Further, there was no impact on the Company’s covenant compliance under its current debt agreements as a result of the adoption of ASU No. 2016-02.
The Company elected the package of practical expedients included in this guidance, which allowed it to not reassess: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and, (iii) the initial direct costs for existing leases. The Company combines lease components with non-lease components for all classes of assets, except for certain manufacturing facilities. The Company also elected the practical expedient to not assess whether existing or expired land easements contain a lease.
The Company does not recognize short-term leases on its consolidated balance sheets, and will recognize those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. Certain leases contain variable payments which are based on usage or operating costs, such as utilities and maintenance. These payments are not included in the measurement of the right-of-use asset or lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. Leases with the options to extend their term or terminate early are reflected in the lease term when it is reasonably certain that fiscal year. At adoption, the Company will recognizeexercise such options.
Customer’s Accounting for Implementation Costs Incurred in a right-of-use asset andCloud Computing Arrangement That Is a lease liability initially measured at the present value of its operating lease payments. The Company is currently evaluating the impacts of adopting this guidance on its financial position, results of operations, and cash flows.Service Contract
In August 2016, the FASB issued various updates to ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU No. 2016-15), which clarifies and amends the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The provisions of ASU No. 2016-15 are effective for the Company’s fiscal year beginning January 1, 2018, including interim periods within that fiscal year, and will be applied using a retrospective transition method. The Company is currently evaluating the impacts of adopting this guidance on its cash flows.
F-16
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715) (ASU2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU No. 2017-07)2018-15”), which requiresaligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that employers offering their employees defined benefit pension plans disaggregateis a service contract with the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on howrequirements for capitalizing implementation costs incurred to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. The provisions of ASU No. 2017-07 are effective for the Company’s fiscal year beginning January 1, 2018, including interim periods within that fiscal year, and should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic post-retirement benefit cost in the income statement, and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic post-retirement benefit in assets. Upon adoption in 2018, Chemours will reclassify $34 and $20 of non-operating pension income from the operating expense captions of the consolidated statements of operations to other income, net for the years ended December 31, 2017 and 2016, respectively.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815) (ASU No. 2017-12), which simplifies financial statement reporting for qualifying hedging relationships by eliminating the requirement to separately measure and report hedge ineffectiveness. For net investment hedges, the entire change in fair value of the hedging instruments is recorded in the currency translation adjustment section of other comprehensive incomedevelop or loss.obtain internal-use software. Pursuant to the amendments, these amounts arethe Company, when acting as a customer to a cloud computing arrangement that is a service contract, is required to be subsequently reclassifiedfollow the guidance in Subtopic 350-40 to earnings indetermine the same income statement line item in whichimplementation costs to capitalize as an asset related to the earnings effect ofservice contract and the hedged item is presented whencosts to expense. Upon adoption, the hedged item affects earnings. The provisions ofCompany had the option to elect whether it applies the amendments under ASU No. 2017-12 are effective for2018-15 retrospectively, or prospectively to all implementation costs incurred after the Company’s fiscal year beginningdate of adoption. The Company adopted ASU No. 2018-15 on January 1, 2019 including interim periods within that fiscal year. Earlyusing the prospective adoption is permitted in any interim period. The amendments in this update will be appliedmethod, the effect of which, was not material to hedging relationships existing on the date of adoption, which includes a cumulative-effect adjustment to eliminate any ineffectiveness recorded to accumulated other comprehensive income or loss with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year in which adoption occurred. Presentation and disclosure amendments are required to be applied prospectively. Chemours is currently evaluating the timing of adoption and does not expect the adoption of this guidance to have a significant impact on its financial position, results of operations, and cash flows.
Recently Adopted Accounting Guidance
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718) (ASU No. 2016-09). ASU No. 2016-09 sets forth areas for simplification within several aspects of the accounting for shared-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in ASU No. 2016-09 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Chemours adopted this guidance effective January 1, 2017, and the adoption did not have a significant impact on the Company’s financial position, results of operations, or cash flows except for the impact of windfall income tax benefits on share-based payments and the classification of employee withholding tax payments on vested RSUs as a financing activity on the statements of cash flows. Specific to the impact of windfall tax benefits, the Company expects the guidance will cause volatility in its income tax rates going forward. As of the adoption date, there were no windfall tax benefits from prior periods recognized; therefore, prior period adjustments were not required under a modified retrospective basis. For the year ended December 31, 2017, Chemours recognized $22 of federal and state windfall income tax benefits, primarily from options exercised and RSUs vested, which were included in the provision for income taxes in the consolidated statements of operations.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU No. 2017-04), which eliminates the requirement to determine the fair value of the individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Any impairment charges recognized would not exceed the total amount of goodwill allocated to the reporting unit. The provisions of ASU No. 2017-04 are effective for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017. The Company adopted this guidance and implemented its provisions for the annual goodwill impairment testing performed on October 1, 2017. Pursuant to the amendment, the Company will implement the provisions of ASU No. 2017-04 for interim and annual goodwill impairment tests performed prospectively. The adoption of this guidance did not have a significant impact on the Company’s financial position, results of operations, or cash flows.
F-17
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (ASU No. 2017-09), which provides clarity and reduces both diversity in practice and the cost and complexity of applying the guidance in Topic 718 to a change in the terms or conditions of a share-based payment award. Pursuant to this update, modification accounting is required to be applied to changes in the terms and conditions of a share-based payment award unless all of the following criteria remain unchanged before and after the award is modified: (i) the fair value of the award; (ii) the vesting conditions of the award; and, (iii) the classification of the award as an equity instrument or a liability instrument. The provisions of ASU No. 2017-09 are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, and are to be applied prospectively to an award modified on or after the adoption date. Early adoption, including adoption in any interim period, is permitted for public business entities in reporting periods for which financial statements have not yet been issued. The Company has adopted this guidance and will implement its provisions prospectively for changes in the terms and conditions of share-based payment awards. The Company does not expect that the adoption of this guidance will have a significant impact on its financial position, results of operations, or cash flows.
Note 4. Relationship with DuPont and Related Entities
Prior to the Separation, Chemours sold finished goods to DuPont and its non-Chemours businesses. Related party sales to DuPont recorded by Titanium Technologies, Fluoroproducts, and Chemical Solutions for the year ended December 31, 2015 were $2, $34, and $21, respectively. Following2019.
Changes to Disclosure Requirements for Defined Benefit Plans
In August 2018, the Separation, beginning on July 1, 2015, transactions with DuPont’s businesses were not considered related party transactions.
Also, priorFASB issued ASU No. 2018-14, Compensation –Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Separation, DuPont incurred significant corporate costsDisclosure Requirements for services provided to Chemours, as well as other DuPont businesses. These costs included expensesDefined Benefit Plans (“ASU No. 2018-14”). This update removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of certain disclosures, and adds new disclosure requirements that are considered relevant for information systems, accounting, other financial services such as treasury and audit, purchasing, human resources, legal, facilities, engineering, corporate R&D, corporate stewardship, marketing, and business analysis support. A portion of these costs benefited multiple or all DuPont businesses, including Chemours, and were allocated to Chemours and its reportable segments using methods based on proportionate formulas involving total costsemployers that sponsor defined benefit pension or other various allocation methods that management considered consistent and reasonable. Chemours’ corporate costs are not allocated to the reportable segments and are reported in Corporate and Other.
postretirement plans. The total allocated leveraged functional service and general corporate expenses included in the consolidated statements of operations amounted to $238 for the year endedCompany adopted ASU No. 2018-14 on December 31, 2015. These expenses were recorded within cost2019 using retrospective application, the effect of goods sold, selling, general, and administrative expense, and R&D expense for $23, $205, and $10, respectively. Subsequentwhich, was not material to the Separation on July 1, 2015, transactions with DuPont’s businesses were not considered related party transactions. Accordingly, no costs from DuPont were allocated to Chemours after the Separation Date.its financial statement disclosures.
Cash Management and Financing
The separation agreement set forth a process to true-up cash and working capital amounts transferred to Chemours from DuPont at the Separation. In January 2016, Chemours and DuPont entered into an agreement, contingent upon entry into the credit agreement amendment (described further in Note 18), which provided for the extinguishment of payment obligations of cash and working capital true-ups previously contemplated in the separation agreement. As a result, Chemours is no longer required to make any payments to DuPont, nor will DuPont make any payments to Chemours.
The agreement also set forth a $190 prepayment to be made by DuPont in advance of certain specified goods and services that, under existing agreements, Chemours was to provide to DuPont through mid-2017. The prepayment was received by Chemours in February 2016 and was recorded as deferred revenue. As of December 31, 2017, the entire $190 prepayment from DuPont has been earned by Chemours.
Tax Matters Agreement
The tax matters agreement between Chemours and DuPont governs the parties’ respective rights, responsibilities, and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and other matters regarding taxes. In general, under the agreement, DuPont is responsible for any U.S. federal, state, and local taxes (and any related interest, penalties, or audit adjustments) reportable on a consolidated, combined, or unitary return that includes DuPont or any of its subsidiaries and Chemours and/or any of its subsidiaries for any periods or portions thereof ending on or prior to the Separation Date. Chemours is responsible for any U.S. federal, state, local, and foreign taxes (and any related interest, penalties, or audit adjustments) that are imposed on Chemours and/or any of its subsidiaries for all tax periods, whether before or after the Separation Date.
F-18
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Note 4. Acquisitions and Divestitures
Divestiture of Methylamines and Methylamides
In December 2019, the Company entered into an asset purchase agreement with Belle Chemical Company (“Belle”), a subsidiary of Cornerstone Chemical Company, whereby Belle agreed to acquire the Methylamines and Methylamides business of Chemours’ Chemical Solutions segment for a negligible purchase price, subject to customary working capital and other adjustments, but not to exceed a loss on sale of $2. The Company completed the sale and, in December 2019, subsequent to working capital adjustments, received cash proceeds of $2. Prior to the completion of the sale, in the second half of 2019, the Company recorded accelerated depreciation of $34, which was recorded as a component of restructuring, asset-related, and other charges in the consolidated statements of operations. Upon completion of the sale, the Company also recorded an additional pre-tax loss on sale of $2, net of a benefit from working capital adjustments, in other expense, net in the consolidated statements of operations.
Acquisition of Southern Ionics Minerals, LLC.
In August 2019, the Company, through its wholly-owned subsidiary, The Chemours Company FC, LLC, entered into a Membership Interest Purchase Agreement to acquire all of the outstanding stock of Southern Ionics Minerals, LLC (“SIM”), for an estimated total consideration of approximately $25, which included customary working capital and other adjustments made within a specified time period. SIM is a privately-held minerals exploration, mining, and manufacturing company headquartered in Jacksonville, Florida. SIM mines and processes titanium and zirconium mineral sands, and this acquisition expands Chemours’ flexibility and scalability to internally source ore in the Company’s Titanium Technologies segment. The aggregate purchase price of $25 included an upfront payment of $10, an additional installment payment of $10, and contingent considerations with an estimated fair value of $5. The Company accounted for the acquisition of SIM as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values.
The purchase consideration has been primarily assigned to the property, plant, and equipment of the acquired business, and there is 0 goodwill associated with the transaction. These amounts were subject to further adjustment during the applicable measurement period as additional information was obtained, including the finalization of a third-party appraisal. The Company completed its assessment during the fourth quarter of 2019, and no subsequent adjustments were made to these amounts.
The Company’s consolidated financial statements include SIM’s results of operations from August 1, 2019, the date of acquisition, through December 31, 2019. Net sales and net income (loss) attributable to Chemours contributed by SIM during this period were not material to the Company’s or its Titanium Technologies segment’s results of operations. Acquisition-related expenses amounted to less than $1 for the year ended December 31, 2019 and are included as a component of selling, general, and administrative expense in the consolidated statements of operations.
Acquisition of ICOR International, Inc.
In April 2018, the Company, through its wholly-owned subsidiary, The Chemours Company FC, LLC, entered into a Stock Purchase Agreement (“SPA”) to acquire all of the outstanding stock of ICOR International, Inc. (“ICOR”), a closely-held private company that produces, sells, and distributes replacement refrigerant gases for use in commercial, industrial, and automotive refrigerant applications. Pursuant to the terms of the SPA, the Company paid $37 in total consideration at closing in the all-cash acquisition, which included customary working capital and other adjustments made within a specified time period. The acquisition of ICOR complements the Company’s existing portfolio of product offerings within the Fluoroproducts segment, as well as provides the Company with access to ICOR’s established customer base and assembled workforce.
The Company accounted for the acquisition of ICOR as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values. The excess of the consideration transferred over the fair value of the identifiable net assets acquired was recorded as goodwill within the Fluoroproducts segment, which represents the expected future benefits arising from the assembled workforce and other synergies to be realized from the acquisition of ICOR. The Company elected to treat the acquisition of ICOR as an asset acquisition under the Internal Revenue Code, and as such, expects that all of the related goodwill will be deductible for federal income tax purposes.
F-19
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
The following table sets forth the Company’s fair value estimates of the assets acquired and liabilities assumed in the acquisition of ICOR, which were finalized during the fourth quarter of 2018.
|
| Fair Value At Acquisition Date |
|
| Measurement Period Adjustments |
|
| Adjusted Fair Value |
|
| Weighted-average Useful Life (in Years) |
| ||||
Assets acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable - trade |
| $ | 4 |
|
| $ | — |
|
| $ | 4 |
|
|
|
|
|
Inventories |
|
| 8 |
|
|
| — |
|
|
| 8 |
|
|
|
|
|
Property, plant, and equipment |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
|
|
|
Identifiable intangible asset: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships (1) |
|
| 20 |
|
|
| 2 |
|
|
| 22 |
|
|
| 5 |
|
Total assets acquired |
|
| 33 |
|
|
| 2 |
|
|
| 35 |
|
|
|
|
|
Liabilities assumed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
|
|
|
Other accrued liabilities |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
|
|
|
Total liabilities assumed |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
|
|
|
Total identifiable net assets acquired |
|
| 31 |
|
|
| 2 |
|
|
| 33 |
|
|
|
|
|
Goodwill (1) |
|
| 6 |
|
|
| (2 | ) |
|
| 4 |
|
|
|
|
|
Net assets acquired |
| $ | 37 |
|
| $ | — |
|
| $ | 37 |
|
|
|
|
|
(1) | During the third quarter of 2018, the Company recorded a measurement period adjustment to its customer relationships based on an ongoing analysis associated with the preparation of a third-party appraisal. |
The fair value of ICOR’s customer relationships was determined using the excess earnings method, which is a discounted cash flows approach. This method takes into account significant unobservable inputs and is a Level 3 fair value measurement within the fair value hierarchy. The use of this valuation methodology requires management to make various assumptions, including, but not limited to, assumptions about future profitability, cash flows, and discount rates applicable to the acquired business and, where applicable, market participants. These assumptions are based on management’s best estimates and include considerations related to management’s knowledge and experience, historical trends, general economic conditions, and other situational factors.
The Company’s consolidated financial statements include ICOR’s results of operations from April 2, 2018, the date of acquisition, through December 31, 2018, as well as the year ended December 31, 2019. Net sales and net income (loss) attributable to Chemours contributed by ICOR during these periods were not material to the Company’s or its Fluoroproducts segment’s results of operations. Acquisition-related expenses amounted to less than $1 at December 31, 2018, and are included as a component of selling, general, and administrative expense in the consolidated statements of operations.
Sale of Land in Linden, New Jersey
In March 2016, the Company entered into an agreement to sell a 210-acre plot of land that formerly housed a DuPont manufacturing site located in Linden, New Jersey. The land was assigned to Chemours in connection with its separation from DuPont, and the Company completed the sale in March 2018 for a gain of $42 and net cash proceeds of $39. As part of the sales agreement, the buyer agreed to assume certain costs associated with ongoing environmental remediation activities at the site amounting to $3, which have been reflected as a component of prepaid expenses and other on the consolidated balance sheets. Chemours remains responsible for certain other ongoing environmental remediation activities at the site, which were previously accrued as a component of other liabilities on the consolidated balance sheets.
F-20
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Note 5. Net Sales
Disaggregation of Net Sales
The following table sets forth a disaggregation of the Company’s net sales by geographic region and segment and product group for the years ended December 31, 2019 and 2018.
|
| Year Ended December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Net sales by geographic region (1) |
|
|
|
|
|
|
|
|
North America: |
|
|
|
|
|
|
|
|
Fluoroproducts |
| $ | 1,104 |
|
| $ | 1,143 |
|
Chemical Solutions |
|
| 313 |
|
|
| 341 |
|
Titanium Technologies |
|
| 727 |
|
|
| 894 |
|
Total North America |
|
| 2,144 |
|
|
| 2,378 |
|
Asia Pacific: |
|
|
|
|
|
|
|
|
Fluoroproducts |
|
| 673 |
|
|
| 675 |
|
Chemical Solutions |
|
| 61 |
|
|
| 81 |
|
Titanium Technologies |
|
| 809 |
|
|
| 964 |
|
Total Asia Pacific |
|
| 1,543 |
|
|
| 1,720 |
|
Europe, the Middle East, and Africa: |
|
|
|
|
|
|
|
|
Fluoroproducts |
|
| 666 |
|
|
| 825 |
|
Chemical Solutions |
|
| 23 |
|
|
| 18 |
|
Titanium Technologies |
|
| 474 |
|
|
| 842 |
|
Total Europe, the Middle East, and Africa |
|
| 1,163 |
|
|
| 1,685 |
|
Latin America (2): |
|
|
|
|
|
|
|
|
Fluoroproducts |
|
| 205 |
|
|
| 219 |
|
Chemical Solutions |
|
| 136 |
|
|
| 162 |
|
Titanium Technologies |
|
| 335 |
|
|
| 474 |
|
Total Latin America |
|
| 676 |
|
|
| 855 |
|
Total net sales |
| $ | 5,526 |
|
| $ | 6,638 |
|
|
|
|
|
|
|
|
|
|
Net sales by segment and product group |
|
|
|
|
|
|
|
|
Fluoroproducts: |
|
|
|
|
|
|
|
|
Fluorochemicals |
| $ | 1,318 |
|
| $ | 1,497 |
|
Fluoropolymers |
|
| 1,330 |
|
|
| 1,365 |
|
Chemical Solutions: |
|
|
|
|
|
|
|
|
Mining solutions |
|
| 268 |
|
|
| 289 |
|
Performance chemicals and intermediates |
|
| 265 |
|
|
| 313 |
|
Titanium Technologies: |
|
|
|
|
|
|
|
|
Titanium dioxide and other minerals |
|
| 2,345 |
|
|
| 3,174 |
|
Total net sales |
| $ | 5,526 |
|
| $ | 6,638 |
|
(1) | Net sales are attributable to countries based on customer location. |
(2) | Latin America includes Mexico. |
Substantially all of the Company’s net sales are derived from goods and services transferred at a point in time.
F-21
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Contract Balances
The Company’s assets and liabilities from contracts with customers constitute accounts receivable - trade, deferred revenue, and customer rebates. An amount for accounts receivable - trade is recorded when the right to consideration under a contract becomes unconditional. An amount for deferred revenue is recorded when consideration is received prior to the conclusion that a contract exists, or when a customer transfers consideration prior to the Company satisfying its performance obligations under a contract. Customer rebates represent an expected refund liability to a customer based on a contract. In contracts with customers where a rebate is offered, it is generally applied retroactively based on the achievement of a certain sales threshold. As revenue is recognized, the Company estimates whether or not the sales threshold will be achieved to determine the amount of variable consideration to include in the transaction price.
The following table sets forth the Company’s contract balances from contracts with customers at December 31, 2019 and 2018.
|
| Year Ended December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Accounts receivable - trade, net (1) |
| $ | 602 |
|
| $ | 790 |
|
Customer rebates |
|
| 72 |
|
|
| 79 |
|
(1) | Accounts receivable - trade, net includes trade notes receivable of less than $1 and $2 at December 31, 2019 and 2018, respectively, and is net of allowances for doubtful accounts of $5 at December 31, 2019 and 2018. Such allowances are equal to the estimated uncollectible amounts. |
The Company’s deferred revenue balances at December 31, 2019 and 2018 were not significant. Additionally, changes in the Company’s deferred revenue balances resulting from additions for advance payments and deductions for amounts recognized in net sales during the years ended December 31, 2019 and 2018, were not significant. For the years ended December 31, 2019 and 2018, the amount of revenue recognized from performance obligations satisfied in prior periods (e.g., due to changes in transaction price) was not significant.
There were 0other contract asset balances or capitalized costs associated with obtaining or fulfilling customer contracts at December 31, 2019 and 2018.
Remaining Performance Obligations
Certain of the Company’s MSA or other arrangements contain take-or-pay clauses, whereby customers are required to purchase a fixed minimum quantity of product during a specified period, or pay the Company for such orders, even if not requested by the customer. The Company considers these take-or-pay clauses to be an enforceable contract, and as such, the legally-enforceable minimum amounts under such an arrangement are considered to be outstanding performance obligations on contracts with an original expected duration greater than one year. At December 31, 2019 and 2018, Chemours had $83 and $119 of remaining performance obligations, respectively. The Company expects to recognize approximately 69% of its remaining performance obligations as revenue in 2020, an approximate additional 16% in 2021, and the balance thereafter. The Company applies the practical expedient and does not include remaining performance obligations that have original expected durations of one year or less, or amounts for variable consideration allocated to wholly-unsatisfied performance obligations or wholly-unsatisfied distinct goods that form part of a single performance obligation, if any. Amounts for contract renewals that are not yet exercised by December 31, 2019 and 2018 are also excluded.
Note 5.6. Research and Development Expense
R&D expense incurred by Chemours was $80, $80, and $97 for the years ended December 31, 2017, 2016, and 2015, respectively. R&D expense for the year ended December 31, 2015 includes $10 of assigned costs, which are attributable to DuPont’s Corporate Central Research and Development (Central R&D) function’s long-term research activities. This assignment was based on the cost of research projects for which Chemours was determined to be the sponsor or co-sponsor. All research services previously provided to Chemours by DuPont’s Central R&D function were specifically requested by Chemours, covered by service-level agreements, and billed based on usage. DuPont’s R&D services were no longer used after the Separation Date.
Note 6. Restructuring and Asset-related Charges, Net
The following table sets forth the components of the Company’s restructuring and asset-related charges, netR&D expense by segment for the years ended December 31, 2017, 2016,2019, 2018, and 2015.2017.
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Restructuring-related charges: |
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation charges |
| $ | 23 |
|
| $ | 4 |
|
| $ | 137 |
|
Decommissioning and other charges, net |
|
| 33 |
|
|
| 47 |
|
|
| 18 |
|
Asset-related charges - restructuring |
|
| — |
|
|
| — |
|
|
| 133 |
|
Total restructuring-related charges, net |
|
| 56 |
|
|
| 51 |
|
|
| 288 |
|
Asset-related charges - impairment (1) |
|
| 1 |
|
|
| 119 |
|
|
| 45 |
|
Total restructuring and asset-related charges, net |
| $ | 57 |
|
| $ | 170 |
|
| $ | 333 |
|
|
|
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Fluoroproducts |
| $ | 48 |
|
| $ | 50 |
|
| $ | 48 |
|
Chemical Solutions |
|
| 2 |
|
|
| 2 |
|
|
| 3 |
|
Titanium Technologies |
|
| 29 |
|
|
| 28 |
|
|
| 29 |
|
Corporate and Other |
|
| 1 |
|
|
| 2 |
|
|
| 1 |
|
Total research and development expense |
| $ | 80 |
|
| $ | 82 |
|
| $ | 81 |
|
The impacts of the Company’s restructuring programs to segment earnings for the years ended December 31, 2017, 2016, and 2015 are set forth in the following table.
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Plant and product line closures (1) : |
|
|
|
|
|
|
|
|
|
|
|
|
Titanium Technologies |
| $ | 4 |
|
| $ | 30 |
|
| $ | 140 |
|
Fluoroproducts |
|
| 3 |
|
|
| 7 |
|
|
| 24 |
|
Chemical Solutions |
|
| 17 |
|
|
| 8 |
|
|
| 12 |
|
Total plant and product line closures |
|
| 24 |
|
|
| 45 |
|
|
| 176 |
|
2015 Global Restructuring Program (2) : |
|
|
|
|
|
|
|
|
|
|
|
|
Titanium Technologies |
|
| — |
|
|
| 2 |
|
|
| 33 |
|
Fluoroproducts |
|
| — |
|
|
| 4 |
|
|
| 54 |
|
Chemical Solutions |
|
| — |
|
|
| — |
|
|
| 25 |
|
Total 2015 Global Restructuring Program |
|
| — |
|
|
| 6 |
|
|
| 112 |
|
2017 Restructuring Program |
|
| 32 |
|
|
| — |
|
|
| — |
|
Total restructuring-related charges, net |
| $ | 56 |
|
| $ | 51 |
|
| $ | 288 |
|
|
|
|
|
F-19F-22
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Note 7. Restructuring, Asset-related, and Other Charges
The following table sets forth the components of the Company’s restructuring, asset-related, and other charges by category for the years ended December 31, 2019, 2018, and 2017.
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Restructuring and other charges: |
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation charges |
| $ | 21 |
|
| $ | 14 |
|
| $ | 23 |
|
Decommissioning and other charges |
|
| 23 |
|
|
| 31 |
|
|
| 33 |
|
Total restructuring and other charges |
|
| 44 |
|
|
| 45 |
|
|
| 56 |
|
Asset-related charges (1) |
|
| 43 |
|
|
| 4 |
|
|
| 1 |
|
Total restructuring, asset-related, and other charges |
| $ | 87 |
|
| $ | 49 |
|
| $ | 57 |
|
(1) | Asset-related charges for the year ended December 31, 2019 included $34 for accelerated depreciation in connection with the Company’s exit of the Methylamines and Methylamides business at its Belle, West Virginia manufacturing plant, and $9 for accelerated depreciation in connection with its closure of the titanium tetrachloride production line at its New Johnsonville, Tennessee manufacturing plant. Asset-related charges for the year ended December 31, 2018 included $4 for a pre-tax goodwill impairment charge in the Company’s Chemical Solutions segment. |
The following table sets forth the impacts of the Company’s restructuring programs to segment earnings for the years ended December 31, 2019, 2018, and 2017.
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Restructuring and other charges: |
|
|
|
|
|
|
|
|
|
|
|
|
Plant and product line closures: |
|
|
|
|
|
|
|
|
|
|
|
|
Fluoroproducts |
| $ | — |
|
| $ | — |
|
| $ | 3 |
|
Chemical Solutions |
|
| 2 |
|
|
| 4 |
|
|
| 17 |
|
Titanium Technologies |
|
| — |
|
|
| — |
|
|
| 4 |
|
Corporate and Other |
|
| 18 |
|
|
| 9 |
|
|
| — |
|
Total plant and product line closures |
|
| 20 |
|
|
| 13 |
|
|
| 24 |
|
2017 Restructuring Program: |
|
|
|
|
|
|
|
|
|
|
|
|
Fluoroproducts |
|
| 2 |
|
|
| 9 |
|
|
| — |
|
Chemical Solutions |
|
| — |
|
|
| 2 |
|
|
| — |
|
Titanium Technologies |
|
| 1 |
|
|
| 1 |
|
|
| — |
|
Corporate and Other |
|
| — |
|
|
| 15 |
|
|
| 32 |
|
Total 2017 Restructuring Program |
|
| 3 |
|
|
| 27 |
|
|
| 32 |
|
2018 Restructuring Program: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other |
|
| (1 | ) |
|
| 5 |
|
|
| — |
|
Total 2018 Restructuring Program |
|
| (1 | ) |
|
| 5 |
|
|
| — |
|
2019 Restructuring Program: |
|
|
|
|
|
|
|
|
|
|
|
|
Fluoroproducts |
|
| 7 |
|
|
| — |
|
|
| — |
|
Chemical Solutions |
|
| 1 |
|
|
| — |
|
|
| — |
|
Titanium Technologies |
|
| 5 |
|
|
| — |
|
|
| — |
|
Corporate and Other |
|
| 9 |
|
|
| — |
|
|
| — |
|
Total 2019 Restructuring Program |
|
| 22 |
|
|
| — |
|
|
| — |
|
Total restructuring and other charges |
|
| 44 |
|
|
| 45 |
|
|
| 56 |
|
Asset-related charges: |
|
|
|
|
|
|
|
|
|
|
|
|
Chemical Solutions |
|
| 34 |
|
|
| 4 |
|
|
| — |
|
Titanium Technologies |
|
| 9 |
|
|
| — |
|
|
| — |
|
Corporate and Other |
|
| — |
|
|
| — |
|
|
| 1 |
|
Total asset-related charges |
|
| 43 |
|
|
| 4 |
|
|
| 1 |
|
Total restructuring, asset-related, and other charges |
| $ | 87 |
|
| $ | 49 |
|
| $ | 57 |
|
F-23
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Plant and Product Line Closures
Fluoroproducts
In August 2015, in an effort to improve the profitability of the Company’s Fluoroproducts segment, management approved the closure of certain production lines in the segment’s U.S. manufacturing plants. For the year ended December 31, 2017, the Company recorded additional decommissioning and dismantling-related charges of $3 for certain of these production lines. At December 31, 2017, the Company had substantially completed all actions related to the restructuring activities for certain of its production lines, which amounted to $17 in the aggregate, excluding asset-related charges.
Chemical Solutions
In the fourth quarter of 2015, the Company announced its completion of the strategic review of its Reactive Metals Solutions (“RMS”) business and the decision to stop production at its Niagara Falls, New York manufacturing plant. The Company recorded additional decommissioning and dismantling-related charges of $2, $4, and $17 for the years ended December 31, 2019, 2018, and 2017, respectively. The Company expects to incur approximately $5 in additional restructuring charges for similar activities through 2021. As of December 31, 2019, the Company incurred, in the aggregate, $37 in restructuring charges related to these activities, excluding asset-related charges.
In the third quarter of 2019, in an effort to improve the profitability of the Company’s Chemical Solutions segment, the Company announced plans to exit its Methylamines and Methylamides business at its Belle, West Virginia manufacturing plant, which culminated in the completed exit and sale of the business in the fourth quarter of 2019. As a result, for the year ended December 31, 2019, the Company recorded accelerated depreciation of $34. We do not expect to incur additional charges related to the exit of the Methylamines and Methylamides business. Refer to “Note 4 – Acquisitions and Divestitures” for further details.
Titanium Technologies
In August 2015, the Company announced the closure of its Edge Moor, Delaware manufacturing plant. The Edge Moor plant produced TiO2 pigment for use in the paper industry and certain other applications where demand had steadily declined, resulting in under-used capacity at the plant. In addition, the Company permanently shut down oneclosed 1 under-used TiO2 pigment production line at its New Johnsonville, Tennessee plant. The Company stopped production at its Edge Moor plant in September 2015, and immediately began decommissioning the plant. These actions resulted in the write-off of substantially all of the Edge Moor plant’s assets’ carrying values in 2015.
As a result, the Company recorded restructuring charges of $140 forFor the year ended December 31, 2015, which consist of employee separation costs of $11, property, plant, and equipment and other asset-related, pre-tax impairment charges of $115, and decommissioning costs and other charges of $14. For the years ended December 31, 2017, and 2016, the Company recorded additional restructuringdecommissioning and dismantling-related charges of $4 and $30, respectively, which relate to decommissioning, dismantling, and removal activities.$4. The Company substantially completed these activities in 2017, andwhich amounted to $60 in the aggregate, excluding asset-related charges. The Company sold the land where the plant was located for $10 in the first quarter of 2017.
Fluoroproducts
In August 2015,December 2019, in an effort to improve the profitability of the Company’s FluoroproductsTitanium Technologies segment, management approved the shutdowndiscontinuation of certainthe titanium tetrachloride production lines inline at the segment’s U.S. manufacturing plants. As a result, the Company recorded restructuring charges of $21 forCompany’s New Johnsonville, Tennessee site. For the year ended December 31, 2015, which consist of2019, the Company recorded accelerated depreciation on property, plant, and equipment of $18, employee separation costs of $2, and$9. The Company does not expect to incur material decommissioning and other costsdismantling-related charges related to the discontinuation of $1.this production line.
Corporate and Other
In the first quarter of 2018, the Company began a project to demolish and remove several dormant, unused buildings at its Chambers Works site in Deepwater, New Jersey, which were assigned to Chemours in connection with its separation from DuPont and never used in Chemours’ operations. For the years ended December 31, 20172019 and 2016,2018, the Company recorded additional restructuring charges of $3incurred $18 and $7,$9, respectively, which relate to decommissioning, dismantling, and removal activities. At December 31, 2017, the Company has substantially completed all actions related to the restructuring activities for certain of its production lines.
Chemical Solutions
In the fourth quarter of 2015, the Company announced the completion of the strategic review of its RMS business and the decision to stop production at its Niagara Falls, New York manufacturing plant. The RMS plant had approximately 200 employees and contractors impacted by this action, and production stopped at the plant in September 2016, when the Company immediately began actions to decommission the plant.
As a result, the Company recorded restructuring charges of $12 for the year ended December 31, 2015, which represent employee separation costs. For the year ended December 31, 2016, the Company recorded additional restructuring charges of $8, which consist of contract termination charges of $2 and decommissioning and other relateddismantling-related charges of $6. Additional restructuring charges of $17 for decommissioning and site redevelopment activities were recorded for the year ended December 31, 2017, and theassociated with these efforts. The Company expects to incur approximately $4$6 in additional restructuring charges for similar activities in 2018, which will be expensed as incurred.
2015 Global Restructuring Program
In November 2015, Chemours announced a global workforce reduction impacting approximately 430 positions. This action was partrelated to its Chambers Works site through the end of the Company’s ongoing efforts to streamline and simplify the structure of the organization worldwide, and to reduce costs.2021. As a result, the Company recorded $48 of pre-tax employee separation costs during the fourth quarter of 2015. The associated headcount reductions were completed as of December 31, 2016, and all related payments are expected to be completed by early 2018.
In June 2015, in light of2019, the then-weaknessCompany incurred, in the global TiO2 market cycleaggregate, $27 in restructuring charges related to these activities.
F-24
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and continued foreign currency impacts due to a strengthening of the U.S. dollar, Chemours implemented a restructuring plan to reduce and simplify its cost structure. This plan resulted in a global workforce reduction of more than 430 positions. As a result, the Company recorded a pre-tax charge of $64 for employee separation costs in the year ended December 31, 2015. All actions associated with this charge were completed by December 31, 2016.par values)
2017 Restructuring Program
In 2017, the Company initiatedannounced certain restructuring activities designed to further the cost savings and productivity improvements outlined under management’s transformation plan. These activities include, among other efforts: (i) outsourcing and further centralizing certain business process activities; (ii) consolidating existing, outsourced third-party information technology (IT)(“IT”) providers; and, (iii) implementing various upgrades to the Company’s current IT infrastructure. In connection with these corporate function efforts, the Company recorded $3, $18, and $14 in restructuring-related charges for yearyears ended December 31, 2017.
F-20
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)2019, 2018, and 2017, respectively.
In October 2017, the Company also announced a voluntary separation program (VSP)(“VSP”) for certain eligible U.S. employees in an effort to better manage the anticipated future changes to its workforce. Employees who volunteered for and were accepted under the VSP willwere entitled to receive certain financial incentives above the Company’s customary involuntary termination benefits to end their employment with Chemours after providing a mutually agreed-upon service period. Approximately 300 employees will separateseparated from the Company bythrough the end of 2018. An accrual representing the majority of these termination benefits, amounting to $18, was recognized in the fourth quarter of 2017. The remaining $9 of incremental, one-time financial incentives under the VSP will bewere recognized over the period each participating employee continuescontinued to provide service to Chemours.
As a result
The Company recorded charges of $3, $27, and $32 for the years ended December 31, 2019, 2018, and 2017, respectively, for its 2017 program. The cumulative amount incurred, in the aggregate, for the Company’s 2017 program amounted to $62 at December 31, 2019. The Company has substantially completed all actions related to this program.
2018 Restructuring Program
In the fourth quarter of 2018, management initiated a restructuring program of the Company’s corporate functions and recorded the related estimated severance costs of $5. The Company has substantially completed all actions related to this program.
2019 Restructuring Program
In the third quarter of 2019, management initiated a severance program of the Company’s corporate functions and businesses. For the year ended December 31, 2019, the Company expectsrecorded the related estimated severance costs of $22, which it believes to incur chargesbe substantially complete for restructuring-related activitiesthis program. The majority of employees separated from the Company during the fourth quarter of 2019, and termination benefits ranging from $20 to $25 through December 31, 2018, whichthe majority of the associated payments will be expensed as incurred.made by the end of 2020.
The following table sets forth the change in the Company’s employee separation-related liabilities associated with its restructuring programs for the years ended December 31, 2017, 2016,2019 and 2015.2018.
|
| Titanium Technologies Site Closures |
|
| Fluoroproducts Lines Shutdown |
|
| Chemical Solutions Site Closures |
|
| 2015 Global Restructuring Program |
|
| 2017 Restructuring Program |
|
| Total |
| ||||||
Balance at December 31, 2015 |
| $ | 11 |
|
| $ | 2 |
|
| $ | 12 |
|
| $ | 73 |
|
| $ | — |
|
| $ | 98 |
|
Charges (credits) to income (1) |
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| 6 |
|
|
| — |
|
|
| 4 |
|
Payments |
|
| (7 | ) |
|
| (1 | ) |
|
| (1 | ) |
|
| (59 | ) |
|
| — |
|
|
| (68 | ) |
Currency translation and other adjustments (2) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| 1 |
|
|
| — |
|
|
| — |
|
Balance at December 31, 2016 |
|
| 4 |
|
|
| 1 |
|
|
| 8 |
|
|
| 21 |
|
|
| — |
|
|
| 34 |
|
Charges to income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 23 |
|
|
| 24 |
|
Payments |
|
| (3 | ) |
|
| (1 | ) |
|
| (6 | ) |
|
| (21 | ) |
|
| — |
|
|
| (31 | ) |
Currency translation and other adjustments (2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance at December 31, 2017 |
| $ | 1 |
|
| $ | — |
|
| $ | 2 |
|
| $ | 1 |
|
| $ | 23 |
|
| $ | 27 |
|
|
|
|
|
|
| Chemical Solutions Site Closures |
|
| Titanium Technologies Site Closures |
|
| 2015 Global Restructuring Program |
|
| 2017 Restructuring Program |
|
| 2018 Restructuring Program |
|
| 2019 Restructuring Program |
|
| Total |
| |||||||
Balance at January 1, 2018 |
| $ | 2 |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | 23 |
|
| $ | — |
|
| $ | — |
|
| $ | 27 |
|
Charges to income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| 5 |
|
|
| — |
|
|
| 14 |
|
Payments |
|
| (2 | ) |
|
| (1 | ) |
|
| — |
|
|
| (22 | ) |
|
| — |
|
|
| — |
|
|
| (25 | ) |
Balance at December 31, 2018 |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 10 |
|
|
| 5 |
|
|
| — |
|
|
| 16 |
|
(Credits) charges to income |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| 22 |
|
|
| 20 |
|
Payments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9 | ) |
|
| (4 | ) |
|
| (8 | ) |
|
| (21 | ) |
Balance at December 31, 2019 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 14 |
|
| $ | 15 |
|
There areAt December 31, 2019 and 2018, there were no significant outstanding liabilities related to the Company’s decommissioning and other restructuring-related charges for the periods presented.charges.
Note 7. Sales of Assets and Businesses
Sale of Corporate Headquarters
In December 2016, in connection with a sale agreement entered in January 2017 to sell Chemours’ corporate headquarters building located in Wilmington, Delaware, the Company recorded a $13 pre-tax impairment charge and classified the net book value of the building as an asset held for sale within other assets on the consolidated balance sheets at December 31, 2016. The Company completed the sale in April 2017 for net proceeds of $29, of which, $13 was used to repay a portion of Chemours’ senior secured term loans. Contemporaneous with the sale, Chemours entered into lease agreements to leaseback a portion of the building. A gain of $2 was deferred in connection with the sale and leaseback transaction.
Chemical Solutions Portfolio Optimization
In June 2016, the Company entered into an asset purchase agreement with Veolia North America, Inc. (Veolia), whereby Veolia agreed to acquire the Sulfur business of Chemours’ Chemical Solutions segment for a purchase price of $325 in cash, subject to customary working capital and other adjustments. $10 of the proceeds were received in May 2016. The Company completed the sale and, in July 2016, received the remaining proceeds of $311, net of working capital adjustments. Prior to the completion of the sale, in the second quarter of 2016, the Company recorded a pre-tax impairment loss of $58 as a component of restructuring and asset-related charges, net in the consolidated statements of operations. Upon completion of the sale, the Company also recorded an additional pre-tax loss on sale of $4, net of a benefit from contractual adjustments in other income, net in the consolidated statements of operations. The net book value of the assets and liabilities disposed of in this sale amounted to $342 and $11, respectively.
F-21F-25
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
In April 2016, the Company entered into a stock and asset purchase agreement with LANXESS Corporation (Lanxess), whereby Lanxess agreed to acquire the Clean & Disinfect (C&D) business of Chemours’ Chemical Solutions segment by acquiring certain of Chemours’ subsidiaries and assets for a purchase price of $230 in cash, subject to customary working capital and other adjustments. The Company completed the sale and, in August 2016, received proceeds of $223, net of working capital adjustments and $2 of cash transferred. For the year ended December 31, 2016, in connection with this sale, the Company recorded a pre-tax gain of $169 in other income, net in the consolidated statements of operations. The net book values of the assets and liabilities disposed of in this sale amounted to $48 (including goodwill of $13) and $6, respectively, and the Company incurred $9 of transaction and other charges in connection therewith.
In November 2015, the Company signed a definitive agreement to sell its aniline facility in Beaumont, Texas to The Dow Chemical Company (Dow). The net book value of the related asset group (including goodwill) was classified as an asset held for sale at December 31, 2015, which was included in prepaid expenses and other on the consolidated balance sheets. The transaction closed in March 2016, and Chemours received $140 in cash from Dow. The net book value of the assets disposed of in this sale amounted to $41 (including goodwill of $4), and the Company incurred $11 of transaction and other charges in connection therewith. As a result of the transaction, Chemours recognized a pre-tax gain of $89 for the year ended December 31, 2016, which was recorded in other income, net in the consolidated statements of operations.
The aggregate amounts and major components of the assets and liabilities disposed of in connection with the portfolio optimization activities for Chemours’ Chemical Solutions segment during the year ended December 31, 2016 are set forth in the following table.
|
| Chemical Solutions Portfolio Optimization |
| |
Current assets: |
|
|
|
|
Accounts receivable - trade |
| $ | 22 |
|
Inventories |
|
| 17 |
|
Total current assets |
|
| 39 |
|
Non-current assets: |
|
|
|
|
Property, plant, and equipment, net |
|
| 298 |
|
Goodwill |
|
| 17 |
|
Other assets |
|
| 136 |
|
Less: Impairment loss |
|
| (58 | ) |
Total non-current assets, net |
|
| 393 |
|
Total assets |
|
| 432 |
|
Accounts payable and accrued liabilities |
|
| 17 |
|
Total liabilities |
|
| 17 |
|
Total net assets disposed |
| $ | 415 |
|
F-22
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
Note 8. Other Income (Expense), Net
The following table sets forth the components of the Company’s other income (expense), net for the years ended December 31, 2017, 2016,2019, 2018, and 2015.2017.
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Leasing, contract services, and miscellaneous income |
| $ | 30 |
|
| $ | 35 |
|
| $ | 25 |
|
Royalty income (1) |
|
| 24 |
|
|
| 15 |
|
|
| 19 |
|
Gain (loss) on sale of assets and businesses (2) |
|
| 22 |
|
|
| 254 |
|
|
| (9 | ) |
Exchange gains (losses), net (3) |
|
| 3 |
|
|
| (57 | ) |
|
| 19 |
|
Total other income, net |
| $ | 79 |
|
| $ | 247 |
|
| $ | 54 |
|
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Leasing, contract services, and miscellaneous income (1) |
| $ | 51 |
|
| $ | 79 |
|
| $ | 30 |
|
Royalty income (2) |
|
| 16 |
|
|
| 10 |
|
|
| 24 |
|
Gain on sales of assets and businesses (3) |
|
| 10 |
|
|
| 45 |
|
|
| 22 |
|
Exchange (losses) gains, net (4) |
|
| (2 | ) |
|
| 1 |
|
|
| 3 |
|
Non-operating pension and other post-retirement employee benefit (loss) income (5) |
|
| (368 | ) |
|
| 27 |
|
|
| 34 |
|
Total other (expense) income, net |
| $ | (293 | ) |
| $ | 162 |
|
| $ | 113 |
|
| (1) | Leasing, contract services, and miscellaneous income includes European Union fluorinated greenhouse gas quota authorization sales of $41, $67, and $15 for the years ended December 31, 2019, 2018, and 2017, respectively. |
(2) | Royalty income for the years ended December 31, 2019 and 2018 is primarily from technology licensing. Royalty income for the year ended December 31, 2017 is primarily from technology and trademark licensing. |
|
| For the year ended December 31, 2019, gain on sale includes a $9 non-cash gain associated with the sale of the Company’s Repauno, New Jersey site.For the year ended December 31, 2018, gain on sale includes a $3 gain and a $42 gain associated with the sales of the Company’s East Chicago, Indiana and Linden, New Jersey sites, respectively. For the year ended December 31, 2017, gain on sale includes a gain of $13 associated with the sale of the Company’s land in Repauno, New Jersey that was previously deferred and realized upon meeting certain milestones, and a $12 gain associated with the sale of the Company’s Edge Moor, Delaware plant site, net of certain losses on other disposals. |
|
| Exchange gains (losses), net includes gains |
(5) | The year ended December 31, 2019 includes a $380 settlement loss related to a significant portion of the Company’s Netherlands pension plan, specific to the vested pension benefits of the inactive participants. See “Note 27 – Long-term Employee Benefits” for further details. |
Note 9. Income Taxes
U.S. Income Tax Reform
On December 22, 2017, the U.S. government enacted comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act (Tax Act). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (i) reducing the U.S. federal corporate tax rate from 35% to 21%; (ii) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (iii) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (iv) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (v) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (vi) creating the base erosion anti-abuse tax, a new minimum tax; (vii) creating a new limitation on deductible interest expense; (viii) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and, (ix) creating the global intangibles low-tax income (GILTI) inclusions.
The Company’s accounting for the following elements of the Tax Act is incomplete; however, management was able to make reasonable estimates of certain effects and, therefore, recorded the provisional adjustments set forth below.
Reduction of U.S. Federal Corporate Tax Rate
The Tax Act reduces the corporate tax rate to 21%, effective January 1, 2018. For certain of the Company’s U.S. deferred tax assets and liabilities, it has recorded a provisional tax benefit of $68, with a corresponding net adjustment to deferred tax benefit. While the Company is able to make a reasonable estimate of the impact of the reduction in its corporate rate, it may be affected by other analyses related to the Tax Act, including, but not limited to, the Company’s calculation of deemed repatriation of deferred foreign earnings and profits (E&P) and the state tax effect of adjustments made to federal temporary differences.
Deemed Repatriation Transition Tax
The Deemed Repatriation Transition Tax (Transition Tax) is a tax on previously untaxed accumulated and current E&P of certain of the Company’s foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company is able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation of $322, which was partially offset by $202 of foreign tax credits, on $2,400 of historic unremitted foreign E&P. The Company continues to gather additional information to more-precisely compute the amount of the Transition Tax. The Company continues to believe that its foreign earnings are permanently reinvested; however, as the Company continues to evaluate the impacts of the Tax Act, the Company may change this assertion in a future period.
F-23
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
During the fourth quarter of 2017, the Company released $33 of valuation allowance related to its foreign tax credits that were utilized against the provisional amount of Transition Tax recorded in income tax expense. The Company continues to assess whether its valuation allowance analyses are affected by various aspects of the Tax Act, for example, as it relates to the deemed repatriation of deferred foreign income, GILTI inclusions, new categories of foreign tax credits, the immediate full-expensing of certain capital expenditures, and interest expense limitations. Since, as discussed herein, the Company has recorded provisional amounts related to certain portions of the Tax Act, any corresponding determination of the need for or change in a valuation allowance is also provisional.
Global Intangibles Low-tax Income
The Tax Act creates a new requirement that certain income (i.e., GILTI) earned by controlled foreign corporations (CFCs) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s net CFC-tested income over the net deemed tangible income return, which is currently defined as the excess of (i) 10% of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over, (ii) the amount of certain interest expense taken into account in the determination of net CFC-tested income. Because of the complexity of the new GILTI tax rules, the Company continues to evaluate this provision of the Tax Act and the application of Topic 740.
Under GAAP, the Company is allowed to make an accounting policy choice of either (i) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred (i.e., the period cost method), or (ii) factoring such amounts into the Company’s measurement of its deferred taxes (i.e., the deferred method). The Company’s selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing its global income to determine whether it expects to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Because whether the Company expects to have future U.S. inclusions in taxable income related to GILTI depends on not only its current structure and estimated future results of global operations, but also its intent and ability to modify its structure and/or its business, management is not yet able to reasonably estimate the effect of this provision of the Tax Act. Therefore, the Company has not made any adjustments related to potential GILTI tax in its consolidated financial statements, and has not made a policy decision regarding whether to record deferred taxes on GILTI.
Income Taxes
The following table sets forth the components of the Company’s provision for (benefit from) income taxes for the years ended December 31, 2017, 2016,2019, 2018, and 2015.2017.
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Current tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal (1) |
| $ | (8 | ) |
| $ | — |
|
| $ | 37 |
|
U.S. state and local (1) |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
International |
|
| 89 |
|
|
| 93 |
|
|
| 62 |
|
Total current tax expense |
|
| 82 |
|
|
| 93 |
|
|
| 100 |
|
Deferred tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
| 60 |
|
|
| (101 | ) |
|
| (187 | ) |
U.S. state and local |
|
| 6 |
|
|
| (17 | ) |
|
| (14 | ) |
International |
|
| 17 |
|
|
| 7 |
|
|
| 3 |
|
Total deferred tax expense (benefit) |
|
| 83 |
|
|
| (111 | ) |
|
| (198 | ) |
Total provision for (benefit from) income taxes |
| $ | 165 |
|
| $ | (18 | ) |
| $ | (98 | ) |
|
|
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Current tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
| $ | 13 |
|
| $ | 23 |
|
| $ | (8 | ) |
U.S. state and local |
|
| (1 | ) |
|
| 4 |
|
|
| 1 |
|
International |
|
| 79 |
|
|
| 110 |
|
|
| 89 |
|
Total current tax expense |
|
| 91 |
|
|
| 137 |
|
|
| 82 |
|
Deferred tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
| (77 | ) |
|
| 20 |
|
|
| 60 |
|
U.S. state and local |
|
| (5 | ) |
|
| 3 |
|
|
| 6 |
|
International |
|
| (81 | ) |
|
| (1 | ) |
|
| 17 |
|
Total deferred tax (benefit) expense |
|
| (163 | ) |
|
| 22 |
|
|
| 83 |
|
Total (benefit from) provision for income taxes |
| $ | (72 | ) |
| $ | 159 |
|
| $ | 165 |
|
F-24
F-26
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
The following table sets forth the components of the Company’s deferred tax assets and liabilities at December 31, 20172019 and 2016.2018.
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental and other reserves |
| $ | 89 |
|
| $ | 150 |
| ||||||||
Litigation reserves |
|
| 14 |
|
|
| 149 |
| ||||||||
Environmental and other liabilities |
| $ | 99 |
|
| $ | 80 |
| ||||||||
Accrued litigation |
|
| 37 |
|
|
| 28 |
| ||||||||
Stock-based compensation and accrued employee benefits |
|
| 26 |
|
|
| 35 |
|
|
| 29 |
|
|
| 28 |
|
Other assets and other accrued liabilities |
|
| 8 |
|
|
| 27 |
|
|
| 6 |
|
|
| 8 |
|
Tax loss carryforwards |
|
| 27 |
|
|
| 45 |
| ||||||||
Tax attribute carryforwards |
|
| 96 |
|
|
| 29 |
| ||||||||
Operating lease liability |
|
| 75 |
|
|
| — |
| ||||||||
Foreign tax credit carryforwards |
|
| 17 |
|
|
| 50 |
|
|
| 18 |
|
|
| 18 |
|
Total deferred tax assets |
|
| 181 |
|
|
| 456 |
|
|
| 360 |
|
|
| 191 |
|
Less: Valuation allowance |
|
| (17 | ) |
|
| (50 | ) |
|
| (10 | ) |
|
| (2 | ) |
Total deferred tax assets, net |
|
| 164 |
|
|
| 406 |
|
|
| 350 |
|
|
| 189 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other liabilities |
|
| (55 | ) |
|
| (16 | ) |
|
| (7 | ) |
|
| (35 | ) |
Property, plant, and equipment |
|
| (274 | ) |
|
| (441 | ) |
|
| (320 | ) |
|
| (313 | ) |
Operating lease asset |
|
| (71 | ) |
|
| — |
| ||||||||
Inventories and other assets |
|
| (4 | ) |
|
| (40 | ) |
|
| (30 | ) |
|
| (12 | ) |
Total deferred tax liabilities |
|
| (333 | ) |
|
| (497 | ) |
|
| (428 | ) |
|
| (360 | ) |
Deferred tax liability, net |
| $ | (169 | ) |
| $ | (91 | ) |
| $ | (78 | ) |
| $ | (171 | ) |
The following table sets forth an analysis of the Company’s effective tax raterates for the years ended December 31, 2017, 2016,2019, 2018, and 2015.2017.
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||||||||||||||||||||||||||
|
| $ |
|
| % |
|
| $ |
|
| % |
|
| $ |
|
| % |
|
| $ |
|
| % |
|
| $ |
|
| % |
|
| $ |
|
| % |
| ||||||||||||
Statutory U.S. federal income tax rate |
| $ | 319 |
|
|
| 35.0 | % |
| $ | (4 | ) |
|
| 35.0 | % |
| $ | (66 | ) |
|
| 35.0 | % |
| $ | (26 | ) |
|
| 21.0 | % |
| $ | 243 |
|
|
| 21.0 | % |
| $ | 319 |
|
|
| 35.0 | % |
State income taxes, net of federal benefit |
|
| 7 |
|
|
| 0.7 | % |
|
| (16 | ) |
|
| 150.4 | % |
|
| (10 | ) |
|
| 5.1 | % |
|
| (7 | ) |
|
| 5.6 | % |
|
| 7 |
|
|
| 0.6 | % |
|
| 7 |
|
|
| 0.7 | % |
Lower effective tax rate on international operations, net |
|
| (149 | ) |
|
| (16.3 | )% |
|
| (61 | ) |
|
| 552.5 | % |
|
| (23 | ) |
|
| 12.0 | % |
|
| (28 | ) |
|
| 22.7 | % |
|
| (44 | ) |
|
| (3.8 | )% |
|
| (149 | ) |
|
| (16.3 | )% |
Depletion |
|
| (8 | ) |
|
| (0.9 | )% |
|
| (6 | ) |
|
| 51.2 | % |
|
| (6 | ) |
|
| 3.4 | % |
|
| (5 | ) |
|
| 4.0 | % |
|
| (6 | ) |
|
| (0.5 | )% |
|
| (8 | ) |
|
| (0.9 | )% |
Goodwill |
|
| — |
|
|
| — | % |
|
| 5 |
|
|
| (47.9 | )% |
|
| 6 |
|
|
| (3.2 | )% | ||||||||||||||||||||||||
Exchange losses (gains) |
|
| 5 |
|
|
| 0.6 | % |
|
| 4 |
|
|
| (39.1 | )% |
|
| (1 | ) |
|
| 0.5 | % | ||||||||||||||||||||||||
Exchange (gains) losses |
|
| (7 | ) |
|
| 5.6 | % |
|
| (4 | ) |
|
| (0.3 | )% |
|
| 5 |
|
|
| 0.6 | % | ||||||||||||||||||||||||
Provision to return and other adjustments |
|
| 6 |
|
|
| 0.6 | % |
|
| 6 |
|
|
| (57.9 | )% |
|
| — |
|
|
| — | % |
|
| (4 | ) |
|
| 3.2 | % |
|
| (9 | ) |
|
| (0.8 | )% |
|
| 6 |
|
|
| 0.6 | % |
Permanent items |
|
| 9 |
|
|
| 1.0 | % |
|
| 3 |
|
|
| (27.3 | )% |
|
| 1 |
|
|
| (0.5 | )% | ||||||||||||||||||||||||
Valuation allowance (2) |
|
| (33 | ) |
|
| (3.6 | )% |
|
| 50 |
|
|
| (451.6 | )% |
|
| — |
|
|
| — | % | ||||||||||||||||||||||||
Valuation allowance |
|
| 8 |
|
|
| (6.5 | )% |
|
| (15 | ) |
|
| (1.3 | )% |
|
| (33 | ) |
|
| (3.6 | )% | ||||||||||||||||||||||||
Net impact of U.S. tax reform |
|
| 39 |
|
|
| 4.3 | % |
|
| — |
|
|
| (— | )% |
|
| — |
|
|
| — | % |
|
| — |
|
|
| — | % |
|
| (10 | ) |
|
| (0.9 | )% |
|
| 39 |
|
|
| 4.3 | % |
Stock-based compensation (1) |
|
| (20 | ) |
|
| (2.2 | )% |
|
| — |
|
|
| (— | )% |
|
| — |
|
|
| — | % | ||||||||||||||||||||||||
Stock-based compensation |
|
| (14 | ) |
|
| 11.4 | % |
|
| (14 | ) |
|
| (1.2 | )% |
|
| (20 | ) |
|
| (2.2 | )% | ||||||||||||||||||||||||
Executive compensation limitation |
|
| 9 |
|
|
| (7.3 | )% |
|
| 4 |
|
|
| 0.3 | % |
|
| 6 |
|
|
| 0.7 | % | ||||||||||||||||||||||||
R&D credit |
|
| (6 | ) |
|
| 4.8 | % |
|
| (5 | ) |
|
| (0.4 | )% |
|
| (1 | ) |
|
| (0.1 | )% | ||||||||||||||||||||||||
Uncertain tax positions |
|
| 7 |
|
|
| (5.6 | )% |
|
| 2 |
|
|
| 0.2 | % |
|
| (6 | ) |
|
| (0.7 | )% | ||||||||||||||||||||||||
Other, net |
|
| (10 | ) |
|
| (1.2 | )% |
|
| 1 |
|
|
| (1.7 | )% |
|
| 1 |
|
|
| (0.2 | )% |
|
| 1 |
|
|
| (0.8 | )% |
|
| 10 |
|
|
| 0.9 | % |
|
| — |
|
|
| — | % |
Total effective tax rate |
| $ | 165 |
|
|
| 18.1 | % |
| $ | (18 | ) |
|
| 163.6 | % |
| $ | (98 | ) |
|
| 52.1 | % |
| $ | (72 | ) |
|
| 58.1 | % |
| $ | 159 |
|
|
| 13.8 | % |
| $ | 165 |
|
|
| 18.1 | % |
|
|
|
|
F-25
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
The following table sets forth the Company’s income (loss) before income taxes for its U.S. and international operations for the years ended December 31, 2017, 2016,2019, 2018, and 2015.2017.
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||
U.S. operations (including exports) |
| $ | (306 | ) |
| $ | (481 | ) |
| $ | (492 | ) |
| $ | (375 | ) |
| $ | 114 |
|
| $ | (306 | ) |
International operations |
|
| 1,218 |
|
|
| 470 |
|
|
| 304 |
|
|
| 251 |
|
|
| 1,041 |
|
|
| 1,218 |
|
Total income (loss) before income taxes |
| $ | 912 |
|
| $ | (11 | ) |
| $ | (188 | ) | ||||||||||||
Total (loss) income before income taxes |
| $ | (124 | ) |
| $ | 1,155 |
|
| $ | 912 |
|
F-27
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
U.S. Tax Reform
With respect to U.S. tax reform, while management has completed its analysis within the applicable measurement period, pursuant to Staff Accounting Bulletin No. 118 as issued by the SEC, the Company accounts for the tax impacts of new provisions based on interpretation of existing statutory law, including proposed regulations issued by the U.S. Treasury and the Internal Revenue Service (“IRS”). While there can be no assurances as to the effect of any final regulations on the Company’s provision for (benefit from) income taxes, management will continue to evaluate the impacts as any issued regulations become final and adjust our estimates, as appropriate.
At December 31, 2019, management believed that sufficient liquidity was available in the U.S. As a result, the Company is indefinitely reinvested with respect to the historical unremitted pre-2018 Earnings and Profits (“E&P”) of its foreign subsidiaries, which was approximately $440 at December 31, 2019. Management asserts that it is indefinitely reinvested with respect to current year earnings from certain foreign subsidiaries, and therefore, has not recorded deferred tax liabilities with respect to those earnings. At December 31, 2019, deferred tax liabilities for foreign subsidiaries that are not indefinitely reinvested were not material to the Company’s consolidated financial statements. The potential tax implications of the repatriation of unremitted earnings are driven by the facts at the time of distribution; however, due to U.S. tax reform and the U.S. Transition Tax, the incremental cost to repatriate earnings is not expected to be material if a distribution is made in the future as there are minimal foreign withholding taxes in the applicable foreign jurisdictions.
Other Matters
For the year ended December 31, 2017,2019, the Company released $33recorded $5 of valuation allowance on itscertain foreign subsidiary earnings and $3 of valuation allowance on certain foreign tax credits. The valuation allowance release represents the amount of foreign tax credit carryforward that was used to offset the provisional Transition Tax recorded in the period.
Under the tax laws of various jurisdictions in which the Company operates, deductions or credits that cannot be fully utilized for tax purposes during the current year may be carried forward or back, subject to statutory limitations, to reduce taxable income or taxes payable in the future or prior years. At December 31, 2017,2019, the Company’s U.S federal and state tax losses are $24,amounted to $13, which substantially expire between 20352036 and 2037.2038. The Company also hashad U.S. foreign tax credit carryforwards of $17,$18, which expire in 2026, and are fully offset by a valuation allowance.$24 in R&D tax credits, which expire between 2035 and 2039. Lastly, the Company hashad foreign net operating losses of $1,$3, which substantially expire between 20252026 and 2026.2029.
The Company has maintained a valuation allowance of $17 on its remaining foreign tax credit carryforward. The amount of the foreign tax credits that are considered realizable could be adjusted in the future as the Company continues to evaluate the impact of U.S. tax reform on its ability to utilize these credits.
Each year, Chemours and/or its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and non-U.S. jurisdictions.
The following table sets forth the Company’s significant jurisdictions’ tax returns that are subject to examination by their respective taxing authorities for the open years listed.
Jurisdiction |
| Open Years | ||
China |
| 2015 through 2019 | ||
|
| 2015 through 2019 | ||
Mexico |
|
| 2019 | |
Netherlands |
| 2015 through 2019 | ||
|
| 2015 through 2019 | ||
Switzerland | 2015 through 2019 | |||
Taiwan |
|
| 2019 | |
U.S. |
| 2015 through | 2019 |
F-28
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Positions challenged by the taxing authorities may be settled or appealed by Chemours and/or DuPont in accordance with the tax matters agreement. As a result, income tax uncertainties are recognized in the Company’s consolidated financial statements in accordance with accounting for income taxes, when applicable. During 2017, the Company received approval from the Internal Revenue Service for an accounting method change; therefore, $6 of unrecognized tax benefits were released. Chemours is not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected in the consolidated balance sheets at December 31, 2017.
Prior to the Separation, Chemours was included in DuPont’s consolidated income tax returns, and Chemours’ income taxes for those periods are computed and reported herein under the separate return method. Use of the separate return method may result in differences when the sum of the amounts allocated to stand-alone tax provisions are compared with amounts presented in the consolidated financial statements. In that event, the related deferred tax assets and liabilities could be significantly different from those presented herein for these periods. Certain tax attributes that were reflected in DuPont’s consolidated financial statements, such as net operating loss carryforwards, may or may not exist at the stand-alone Chemours level. As it is assumed that all amounts due to DuPont prior to the Separation were settled on December 31 of each year, Chemours’ consolidated financial statements do not reflect any amounts due to DuPont for income tax-related matters.
F-26
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
The following table sets forth the change in the Company’s unrecognized tax benefitbenefits for the years ended December 31, 2017, 2016,2019, 2018, and 2015.2017.
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||
Balance at January 1, |
| $ | 6 |
|
| $ | 7 |
|
| $ | 39 |
|
| $ | 2 |
|
| $ | — |
|
| $ | 6 |
|
Gross amounts of decreases in unrecognized tax benefits as a result of adjustments to tax provisions taken during the prior period |
|
| (6 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken during the current period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| 2 |
|
|
| — |
|
Reduction to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations |
|
| — |
|
|
| — |
|
|
| (32 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Balance at December 31, |
| $ | — |
|
| $ | 6 |
|
| $ | 7 |
|
| $ | 9 |
|
| $ | 2 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized tax benefits, if recognized, that would impact the effective tax rate |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 9 |
|
| $ | 2 |
|
| $ | — |
|
Total amount of interest and penalties recognized in the consolidated statements of operations |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total amount of interest and penalties recognized in the consolidated balance sheets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
The following table sets forth a rollforward of the Company’s deferred tax asset valuation allowance for the years ended December 31, 2017, 2016,2019, 2018, and 2015.2017.
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||
Balance at January 1, |
| $ | 50 |
|
| $ | — |
|
| $ | 36 |
|
| $ | 2 |
|
| $ | 17 |
|
| $ | 50 |
|
Net charges to income tax expense |
|
| — |
|
|
| 50 |
|
|
| — |
|
|
| 8 |
|
|
| — |
|
|
| — |
|
Release of valuation allowance |
|
| (33 | ) |
|
| — |
|
|
| (36 | ) |
|
| — |
|
|
| (15 | ) |
|
| (33 | ) |
Balance at December 31, |
| $ | 17 |
|
| $ | 50 |
|
| $ | — |
|
| $ | 10 |
|
| $ | 2 |
|
| $ | 17 |
|
F-29 The Chemours Company Notes to the Consolidated Financial Statements (Dollars in millions, except per share amounts and par values) |
|
|
Note 10. Earnings Per Share of Common Stock
Reconciliations
The following table sets forth the reconciliations of the numerators and denominators for the Company’s basic and diluted earnings per share calculations for the years ended December 31, 2017, 2016,2019, 2018, and 2015 are set forth in the following table.2017.
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Chemours |
| $ | 746 |
|
| $ | 7 |
|
| $ | (90 | ) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding - basic |
|
| 184,844,106 |
|
|
| 181,621,422 |
|
|
| 180,993,623 |
|
Dilutive effect of the Company’s employee compensation plans |
|
| 6,139,885 |
|
|
| 1,795,078 |
|
|
| — |
|
Weighted-average number of common shares outstanding - diluted |
|
| 190,983,991 |
|
|
| 183,416,500 |
|
|
| 180,993,623 |
|
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Chemours |
| $ | (52 | ) |
| $ | 995 |
|
| $ | 746 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding - basic |
|
| 164,816,839 |
|
|
| 176,968,554 |
|
|
| 184,844,106 |
|
Dilutive effect of the Company’s employee compensation plans (1) |
|
| — |
|
|
| 5,603,467 |
|
|
| 6,139,885 |
|
Weighted-average number of common shares outstanding - diluted (1) |
|
| 164,816,839 |
|
|
| 182,572,021 |
|
|
| 190,983,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share of common stock |
| $ | (0.32 | ) |
| $ | 5.62 |
|
| $ | 4.04 |
|
Diluted (loss) earnings per share of common stock (1) |
|
| (0.32 | ) |
|
| 5.45 |
|
|
| 3.91 |
|
(1) | In periods where the Company incurs a net loss, the impact of potentially dilutive securities is excluded from the calculation of earnings per share as its inclusion would have an anti-dilutive effect. |
F-27
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
The following table sets forth the average number of stock options that were anti-dilutive and, therefore, were not included in the Company’s diluted earnings per share calculations for the years ended December 31, 2017, 2016,2019, 2018, and 2015.2017.
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Average number of stock options |
|
| 43,072 |
|
|
| 5,820,499 |
|
|
| 8,358,894 |
|
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Average number of stock options |
|
| 2,206,609 |
|
|
| 393,016 |
|
|
| 43,072 |
|
Note 11. Accounts and Notes Receivable, Net
The following table sets forth the components of the Company’s accounts and notes receivable, net at December 31, 20172019 and 2016.2018.
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Accounts receivable - trade, net (1) |
| $ | 847 |
|
| $ | 742 |
|
| $ | 602 |
|
| $ | 790 |
|
VAT, GST, and other taxes (2) |
|
| 54 |
|
|
| 46 |
|
|
| 59 |
|
|
| 56 |
|
Other receivables (3) |
|
| 18 |
|
|
| 19 |
|
|
| 13 |
|
|
| 15 |
|
Total accounts and notes receivable, net |
| $ | 919 |
|
| $ | 807 |
|
| $ | 674 |
|
| $ | 861 |
|
| (1) | Accounts receivable - trade, net includes trade notes receivable of less than $1 and $2 at December 31, 2019 and 2018, respectively, and is net of allowances for doubtful accounts of $5 at December 31, |
| (2) | Value added tax |
| (3) | Other receivables consist of |
Accounts and notes receivable are carried at amounts that approximate fair value. Bad debt expense amounted to $1, $7, andless than $1 for the years ended December 31, 2017, 2016,2019 and 2015, respectively.2018, and $1 for the year ended December 31, 2017.
F-30
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Note 12. Inventories
The following table sets forth the components of the Company’s inventories at December 31, 20172019 and 2016.2018.
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Finished products |
| $ | 648 |
|
| $ | 532 |
|
| $ | 589 |
|
| $ | 701 |
|
Semi-finished products |
|
| 164 |
|
|
| 150 |
|
|
| 189 |
|
|
| 195 |
|
Raw materials, stores, and supplies |
|
| 313 |
|
|
| 285 |
|
|
| 559 |
|
|
| 476 |
|
Inventories before LIFO adjustment |
|
| 1,125 |
|
|
| 967 |
|
|
| 1,337 |
|
|
| 1,372 |
|
Adjustment of inventories to LIFO basis |
|
| (190 | ) |
|
| (200 | ) | ||||||||
Less: Adjustment of inventories to LIFO basis |
|
| (258 | ) |
|
| (225 | ) | ||||||||
Total inventories |
| $ | 935 |
|
| $ | 767 |
|
| $ | 1,079 |
|
| $ | 1,147 |
|
Inventory values, before LIFO adjustment, are generally determined by the average cost method, which approximates current cost. Inventories are valued under the LIFO method at substantially all of the Company’s U.S. locations, which comprised $509$674 and $465, or$622 (or50% and 45% and 48%,) of inventories before the LIFO adjustments at December 31, 20172019 and 2016,2018, respectively. The remainder of the Company’s inventory held in international locations and certain U.S. locations is valued under the average cost method.
F-28
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
Note 13. Property, Plant, and Equipment, Net
The following table sets forth the components of the Company’s property, plant, and equipment, net at December 31, 20172019 and 2016.2018.
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Equipment |
| $ | 6,961 |
|
| $ | 6,748 |
|
| $ | 7,595 |
|
| $ | 7,344 |
|
Buildings |
|
| 875 |
|
|
| 814 |
|
|
| 1,174 |
|
|
| 914 |
|
Construction-in-progress |
|
| 520 |
|
|
| 293 |
|
|
| 493 |
|
|
| 579 |
|
Land |
|
| 119 |
|
|
| 106 |
|
|
| 115 |
|
|
| 119 |
|
Mineral rights |
|
| 36 |
|
|
| 36 |
|
|
| 36 |
|
|
| 36 |
|
Property, plant, and equipment |
|
| 8,511 |
|
|
| 7,997 |
|
|
| 9,413 |
|
|
| 8,992 |
|
Less: Accumulated depreciation |
|
| (5,503 | ) |
|
| (5,213 | ) |
|
| (5,854 | ) |
|
| (5,701 | ) |
Total property, plant, and equipment, net |
| $ | 3,008 |
|
| $ | 2,784 |
|
| $ | 3,559 |
|
| $ | 3,291 |
|
(1) | At December 31, 2019, buildings includes $95 in connection with the financed portion of the Chemours Discovery Hub, which was considered a build-to-suit lease asset of $55 at December 31, 2018. Refer to note “Note 14 – Leases” for further details. |
Depreciation expense amounted to $269, $281, and $264 for the years ended December 31, 2017, 2016, and 2015, respectively. Property, plant, and equipment, net includesincluded gross assets under capitalfinance leases of $7$68 and $5$7 at December 31, 20172019 and 2016, respectively,2018, respectively. In the second quarter of 2019, a subsidiary of the Company renegotiated the terms of an existing Fluoroproducts supply contract with Changshu 3F Zhonghao New Chemical Materials Co., Ltd., a related party and equity method investee, to improve the long-term supply security and competitiveness relative to not-in-kind competition of its low global warming potential foam offering. The renegotiated supply contract resulted in the recognition of a finance lease asset and a build-to-suitcorresponding finance lease assetliability, both of $8 at December 31, 2017. which amounted to $62.
Interest expense capitalized as part of property, plant, and equipment, net amounted to $9, $18,$10, $17, and $21$9 for the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, respectively.
See Depreciation expense amounted to $304, $276, and $269 for the years ended December 31, 2019, 2018, and 2017, respectively.
F-31
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Note 18 for further discussion regarding14. Leases
The Company leases certain office space, equipment, railcars, tanks, barges, tow boats, and warehouses. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets, and lease expense is recognized over the term of these leases on a straight-line basis. The Company’s leases have remaining terms of up to 17 years. Some leases of equipment contain immaterial amounts of residual value guarantees.
The following table sets forth the Company’s lease assets and lease liabilities and their balance sheet location at December 31, 2019.
|
| Balance Sheet Location |
| December 31, 2019 |
| |
Lease assets: |
|
|
|
|
|
|
Operating lease right-of-use assets |
| Operating lease right-of-use assets |
| $ | 294 |
|
Finance lease assets |
| Property, plant, and equipment, net (Note 13) |
|
| 58 |
|
Total lease assets |
|
|
| $ | 352 |
|
|
|
|
|
|
|
|
Lease liabilities: |
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
Operating lease liabilities |
| Other accrued liabilities (Note 19) |
| $ | 66 |
|
Finance lease liabilities |
| Short-term and current maturities of long-term debt (Note 20) |
|
| 5 |
|
Total current lease liabilities |
|
|
|
| 71 |
|
Non-current: |
|
|
|
|
|
|
Operating lease liabilities |
| Operating lease liabilities |
|
| 245 |
|
Finance lease liabilities |
| Long-term debt, net (Note 20) |
|
| 54 |
|
Total non-current lease liabilities |
|
|
|
| 299 |
|
Total lease liabilities |
|
|
| $ | 370 |
|
The following table sets forth the components of the Company’s lease cost for the year ended December 31, 2019.
|
| Year Ended |
| |
|
| December 31, 2019 |
| |
Operating lease cost |
| $ | 99 |
|
Short-term lease cost |
|
| 5 |
|
Variable lease cost |
|
| 16 |
|
|
|
|
|
|
Finance lease cost: |
|
|
|
|
Amortization of lease assets |
|
| 5 |
|
Interest on lease liabilities |
|
| 2 |
|
Total lease cost |
| $ | 127 |
|
The following table sets forth the cash flows related to the Company’s leases for the year ended December 31, 2019.
|
| Year Ended |
| |
|
| December 31, 2019 |
| |
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Operating cash flows from operating leases |
| $ | 101 |
|
Operating cash flows from finance leases |
|
| 2 |
|
Financing cash flows from finance leases |
|
| 3 |
|
|
|
|
|
|
Non-cash lease liabilities activity: |
|
|
|
|
Leased assets obtained in exchange for new operating lease liabilities |
| $ | 48 |
|
Leased assets obtained in exchange for new finance lease liabilities |
|
| 62 |
|
F-32
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
The following table sets forth the weighted-average term and weighted-average discount rate for the Company’s leases at December 31, 2019.
December 31, 2019 | ||||
Weighted-average remaining lease term (years): | ||||
Operating leases | 8.5 | |||
Finance leases | 9.2 | |||
Weighted-average discount rate: | ||||
Operating leases | 5.10 | % | ||
Finance leases | 5.90 | % |
The following table sets forth the Company’s lease liabilities’ maturities for the next five years and thereafter.
|
| As of December 31, 2019 |
| |||||||||
|
| Operating Leases |
|
| Finance Leases |
|
| Total |
| |||
2020 |
| $ | 82 |
|
| $ | 9 |
|
| $ | 91 |
|
2021 |
|
| 66 |
|
|
| 8 |
|
|
| 74 |
|
2022 |
|
| 49 |
|
|
| 8 |
|
|
| 57 |
|
2023 |
|
| 35 |
|
|
| 8 |
|
|
| 43 |
|
2024 |
|
| 29 |
|
|
| 8 |
|
|
| 37 |
|
Thereafter |
|
| 118 |
|
|
| 35 |
|
|
| 153 |
|
Total lease payments |
|
| 379 |
|
|
| 76 |
|
|
| 455 |
|
Less: Imputed interest |
|
| 68 |
|
|
| 17 |
|
|
| 85 |
|
Present value of lease liabilities |
| $ | 311 |
|
| $ | 59 |
|
| $ | 370 |
|
Prior to the adoption of ASU No. 2016-02, the following table set forth the Company’s lease liabilities’ maturities for the subsequent five years and thereafter.
|
| As of December 31, 2018 |
| |||||||||
|
| Operating Leases |
|
| Finance Leases |
|
| Total |
| |||
2019 |
| $ | 92 |
|
| $ | — |
|
| $ | 92 |
|
2020 |
|
| 70 |
|
|
| 2 |
|
|
| 72 |
|
2021 |
|
| 59 |
|
|
| — |
|
|
| 59 |
|
2022 |
|
| 42 |
|
|
| — |
|
|
| 42 |
|
2023 |
|
| 27 |
|
|
| — |
|
|
| 27 |
|
Thereafter |
|
| 134 |
|
|
| — |
|
|
| 134 |
|
Total lease payments |
| $ | 424 |
|
| $ | 2 |
|
| $ | 426 |
|
F-33
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
The Chemours Discovery Hub
In October 2017, Chemours executed a build-to-suit lease arrangement.agreement to construct a new 312,000-square-foot research and development facility on the Science, Technology, and Advanced Research campus of the University of Delaware (“UD”) in Newark, Delaware (“Chemours Discovery Hub”). Chemours was deemed to be the owner for accounting purposes during construction of the facility. Construction was completed in the fourth quarter of 2019, and, upon its completion, Chemours evaluated whether a sale occurred for purposes of sale-leaseback accounting treatment. The Company determined that this transaction did not qualify for sale-leaseback accounting, and, as a result, the leasing arrangement is considered to be a financing transaction. At completion of the construction, the build-to-suit lease liability was reclassified as a financing obligation within long-term debt, net, and the build-to-suit lease asset was capitalized in property, plant and equipment, net. At December 31, 2019, a financing obligation of $95 and property, plant, and equipment of $95 are recorded on the Company’s consolidated balance sheet.
The following table sets forth the Company’s minimum future payments due for the next five years and thereafter related to the Chemours Discovery Hub financing obligation.
|
| December 31, 2019 |
| |
2020 |
| $ | 6 |
|
2021 |
|
| 7 |
|
2022 |
|
| 7 |
|
2023 |
|
| 7 |
|
2024 |
|
| 7 |
|
Thereafter |
| 160 |
| |
Total payments |
| $ | 194 |
|
Note 14.15. Goodwill and Other Intangible Assets, Net
Goodwill
The following table sets forth the changes in the carrying amount of the Company’s goodwill by reportable segment for the years ended December 31, 20172019 and 2016.2018.
|
| December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Fluoroproducts: |
|
|
|
|
|
|
|
|
Balance at January 1, |
| $ | 89 |
|
| $ | 85 |
|
Acquisition of business |
|
| — |
|
|
| 4 |
|
Balance at December 31, |
|
| 89 |
|
|
| 89 |
|
Chemical Solutions: |
|
|
|
|
|
|
|
|
Balance at January 1, |
|
| 51 |
|
|
| 55 |
|
Goodwill impairment |
|
| — |
|
|
| (4 | ) |
Balance at December 31, |
|
| 51 |
|
|
| 51 |
|
Titanium Technologies: |
|
|
|
|
|
|
|
|
Balance at January 1, |
|
| 13 |
|
|
| 13 |
|
Balance at December 31, |
|
| 13 |
|
|
| 13 |
|
Total goodwill |
| $ | 153 |
|
| $ | 153 |
|
F-34
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
|
| Titanium Technologies |
|
| Fluoroproducts |
|
| Chemical Solutions |
|
| Total |
| ||||
Balance at January 1, 2016 |
| $ | 13 |
|
| $ | 85 |
|
| $ | 68 |
|
| $ | 166 |
|
Sale of business (1) |
|
| — |
|
|
| — |
|
|
| (13 | ) |
|
| (13 | ) |
Balance at December 31, 2016 |
|
| 13 |
|
|
| 85 |
|
|
| 55 |
|
|
| 153 |
|
Balance at December 31, 2017 |
| $ | 13 |
|
| $ | 85 |
|
| $ | 55 |
|
| $ | 153 |
|
|
|
Chemours consists of three3 operating segments: Fluoroproducts, Chemical Solutions, and Titanium Technologies, Fluoroproducts, and Chemical Solutions.Technologies. The Company defines its reporting units as one level below these operating segments, with the exception of the Titanium Technologies segment, which is both an operating segment and a reporting unit. The Company tested the goodwill balances attributable to each of its reporting units for potential impairment on October 1, 20172019 and 2016,2018, the datedates of Chemours’ annual goodwill assessment, and concluded that $4 of goodwill associated with the fair value of eachPerformance Chemicals and Intermediates reporting unit that carriesin the Chemical Solutions segment was impaired at October 1, 2018. NaN further goodwill substantially exceeded the respective reporting unit’s carrying amount. As a result, no impairment charges related to goodwillimpairments were recognized by the Companyrecorded for the years ended December 31, 20172019 and 2016.
In 2015,2018, as the Company performed a strategic evaluationfair values of its Chemical Solutions portfolio. As a result of subsequent changes to the segment’sCompany’s other reporting units in the third quarter of 2015, the Company recorded a $25 pre-tax impairment charge related to its Sulfurthat carry goodwill exceeded each respective reporting unit. unit’s carrying amount on October 1, 2019 and 2018.
The Sulfur reporting unit was disposed of through the sale of its assets and business during 2016.
Accordingly, there are nototal accumulated impairment losses included in the Company’s goodwill balance at December 31, 20172019 and 2016.
F-29
The Chemours Company
Notes2018 amounted to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)$4.
The following table sets forth the gross carrying amounts and accumulated amortization of the Company’s other intangible assets by major class at December 31, 20172019 and 2016.2018.
|
| December 31, 2017 |
|
| December 31, 2016 |
|
| December 31, 2019 |
|
| December 31, 2018 |
| ||||||||||||||||||||||||||||||||||||
|
| Cost |
|
| Accumulated Amortization |
|
| Net |
|
| Cost |
|
| Accumulated Amortization |
|
| Net |
|
| Cost |
|
| Accumulated Amortization |
|
| Net |
|
| Cost |
|
| Accumulated Amortization |
|
| Net |
| ||||||||||||
Customer lists |
| $ | 9 |
|
| $ | (8 | ) |
| $ | 1 |
|
| $ | 9 |
|
| $ | (7 | ) |
| $ | 2 |
|
| $ | 9 |
|
| $ | (8 | ) |
| $ | 1 |
|
| $ | 9 |
|
| $ | (8 | ) |
| $ | 1 |
|
Customer relationships |
|
| 22 |
|
|
| (8 | ) |
|
| 14 |
|
|
| 22 |
|
|
| (3 | ) |
|
| 19 |
| ||||||||||||||||||||||||
Patents |
|
| 19 |
|
|
| (18 | ) |
|
| 1 |
|
|
| 19 |
|
|
| (18 | ) |
|
| 1 |
|
|
| 19 |
|
|
| (19 | ) |
|
| — |
|
|
| 19 |
|
|
| (19 | ) |
|
| — |
|
Purchased trademarks |
|
| 5 |
|
|
| (2 | ) |
|
| 3 |
|
|
| 5 |
|
|
| (2 | ) |
|
| 3 |
|
|
| 5 |
|
|
| (3 | ) |
|
| 2 |
|
|
| 5 |
|
|
| (3 | ) |
|
| 2 |
|
Purchased and licensed technology |
|
| 3 |
|
|
| (2 | ) |
|
| 1 |
|
|
| 3 |
|
|
| (2 | ) |
|
| 1 |
|
|
| 3 |
|
|
| (3 | ) |
|
| — |
|
|
| 3 |
|
|
| (3 | ) |
|
| — |
|
Other (1) |
|
| 10 |
|
|
| (3 | ) |
|
| 7 |
|
|
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| 10 |
|
|
| (6 | ) |
|
| 4 |
|
|
| 10 |
|
|
| (4 | ) |
|
| 6 |
|
Total other intangible assets, net |
| $ | 46 |
|
| $ | (33 | ) |
| $ | 13 |
|
| $ | 46 |
|
| $ | (29 | ) |
| $ | 17 |
|
| $ | 68 |
|
| $ | (47 | ) |
| $ | 21 |
|
| $ | 68 |
|
| $ | (40 | ) |
| $ | 28 |
|
| (1) | Represents non-cash favorable supply contracts acquired in connection with the sale of the Sulfur business and recognized during the third quarter of 2016 based on the present value of the difference between their contractual cash flows and estimated cash flows had the contracts been executed at a determinable market price. These contract intangibles will be amortized to cost of goods sold over the remaining life of the supply contracts through 2021. |
The aggregate pre-tax amortization expense for definite-lived intangible assets was $4, $3,$7, $6, and $3$4 for the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, respectively. The estimated aggregate pre-tax amortization expense for 2018, 2019, 2020, 2021, 2022, 2023, and 20222024 is $3, $3, $3, $2,$7, $7, $5, $1, and less than $1, respectively. Definite-lived intangible assets are amortized over their estimated useful lives, generally for periods ranging from five to 20 years. The reasonableness of the useful lives of these assets is continuallyperiodically evaluated. The Company does not have any indefinite-lived intangible assets.
Note 15. Other Assets
The following table sets forth the components of the Company’s other assets at December 31, 2017 and 2016.
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Capitalized repair and maintenance costs |
| $ | 117 |
|
| $ | 145 |
|
Pension assets (1) |
|
| 260 |
|
|
| 159 |
|
Deferred income taxes |
|
| 40 |
|
|
| 41 |
|
Asset held for sale (2) |
|
| — |
|
|
| 29 |
|
Miscellaneous (3) |
|
| 36 |
|
|
| 43 |
|
Total other assets |
| $ | 453 |
|
| $ | 417 |
|
|
|
|
|
|
|
F-30F-35
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Note 16. Investments in Affiliates
The Company holds investments in companies where it, directly or indirectly, owns 20% to 50% of the voting stock, or has the ability to exercise significant influence over the operating and financial policies of the investee.
The following table sets forth the carrying value, jurisdiction, and ownership percentages of the Company’s investments in affiliates at December 31, 2019 and 2018.
|
|
|
| December 31, 2019 |
|
| December 31, 2018 |
| ||||||||||
Investee |
| Jurisdiction |
| Carrying Value |
|
| Ownership |
|
| Carrying Value |
|
| Ownership |
| ||||
Chemours-Mitsui Fluorochemicals Company, Ltd. |
| Japan |
| $ | 96 |
|
| 50.0% |
|
| $ | 94 |
|
| 50.0% |
| ||
The Chemours Chenguang Fluoromaterials Company Limited |
| China |
|
| 33 |
|
| 50.0% |
|
|
| 36 |
|
| 50.0% |
| ||
Changshu 3F Zhonghao New Chemical Materials Co., Ltd. |
| China |
|
| 33 |
|
| 10.0% |
|
|
| 30 |
|
| 10.0% |
| ||
|
|
|
| $ | 162 |
|
|
|
|
|
| $ | 160 |
|
|
|
|
|
The following table sets forth the changes in the Company’s investments in affiliates for the years ended December 31, 2019, 2018, and 2017.
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Balance at January 1, |
| $ | 160 |
|
| $ | 173 |
|
| $ | 136 |
|
Equity in earnings of affiliates |
|
| 29 |
|
|
| 43 |
|
|
| 33 |
|
Dividends |
|
| (28 | ) |
|
| (58 | ) |
|
| — |
|
Currency translation and other |
|
| 1 |
|
|
| 2 |
|
|
| 4 |
|
Balance at December 31, |
| $ | 162 |
|
| $ | 160 |
|
| $ | 173 |
|
The Company engages in transactions with its equity method investees in the ordinary course of business. For the years ended December 31, 2019, 2018, and 2017, net sales to the Company’s equity method investees amounted to $135, $143, and $99, respectively, and purchases from the Company’s equity method investees amounted to $249, $125, and $87, respectively.
Note 17. Other Assets
The following table sets forth the components of the Company’s other assets at December 31, 2019 and 2018.
|
| December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Capitalized repair and maintenance costs |
| $ | 148 |
|
| $ | 178 |
|
Pension assets (1) |
|
| 59 |
|
|
| 174 |
|
Deferred income taxes |
|
| 40 |
|
|
| 46 |
|
Miscellaneous |
|
| 45 |
|
|
| 39 |
|
Total other assets |
| $ | 292 |
|
| $ | 437 |
|
(1) | Pension assets represent the funded status of certain of the Company’s long-term employee benefit plans. During the year ended December 31, 2019, pension assets decreased primarily due to the Company’s settlement of a significant portion of the Netherlands pension plan, specific to the vested pension benefits of the inactive participants. See “Note 27 – Long-term Employees Benefits” for further details. |
F-36
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
The following table sets forth the components of the Company’s accounts payable at December 31, 20172019 and 2016.2018.
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Trade payables |
| $ | 1,008 |
|
| $ | 858 |
|
| $ | 901 |
|
| $ | 1,111 |
|
Dividends payable (1) |
|
| 31 |
|
|
| — |
| ||||||||
VAT and other payables |
|
| 36 |
|
|
| 26 |
|
|
| 22 |
|
|
| 26 |
|
Total accounts payable |
| $ | 1,075 |
|
| $ | 884 |
|
| $ | 923 |
|
| $ | 1,137 |
|
|
|
Note 17.19. Other Accrued Liabilities
The following table sets forth the components of the Company’s other accrued liabilities at December 31, 20172019 and 2016.2018.
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Compensation and other employee-related costs |
| $ | 174 |
|
| $ | 154 |
|
| $ | 52 |
|
| $ | 108 |
|
Employee separation costs (1) |
|
| 27 |
|
|
| 31 |
|
|
| 15 |
|
|
| 16 |
|
Accrued litigation (2) |
|
| 13 |
|
|
| 344 |
|
|
| 10 |
|
|
| 11 |
|
Environmental remediation |
|
| 66 |
|
|
| 71 |
|
|
| 74 |
|
|
| 139 |
|
Income taxes |
|
| 58 |
|
|
| 39 |
|
|
| 65 |
|
|
| 87 |
|
Customer rebates |
|
| 83 |
|
|
| 53 |
|
|
| 72 |
|
|
| 79 |
|
Deferred revenue |
|
| 8 |
|
|
| 76 |
|
|
| 7 |
|
|
| 6 |
|
Accrued interest |
|
| 24 |
|
|
| 21 |
|
|
| 21 |
|
|
| 21 |
|
Miscellaneous (5) |
|
| 105 |
|
|
| 83 |
| ||||||||
Operating lease liabilities (3) |
|
| 66 |
|
|
| — |
| ||||||||
Miscellaneous (4) |
|
| 102 |
|
|
| 92 |
| ||||||||
Total other accrued liabilities |
| $ | 558 |
|
| $ | 872 |
|
| $ | 484 |
|
| $ | 559 |
|
| (1) | Represents the current portion of accrued employee separation costs related to the Company’s restructuring activities. |
| (2) |
|
| (3) | Represents the current portion of |
| (4) |
|
| Miscellaneous primarily includes accrued utility expenses, property taxes, an accrued indemnification liability, the current portion of the Company’s asset retirement obligations, and other miscellaneous expenses. |
F-31
F-37
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
The following table sets forth the components of the Company’s total debt at December 31, 20172019 and 2016.2018.
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Senior secured term loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tranche B term loan due May 2022 |
| $ | — |
|
| $ | 1,372 |
| ||||||||
Tranche B-1 Dollar Term Loan due May 2022 |
|
| 923 |
|
|
| — |
| ||||||||
Tranche B-1 Euro Term Loan due May 2022 (€394 at December 31, 2017) |
|
| 469 |
|
|
| — |
| ||||||||
Tranche B-2 U.S. dollar term loan due May 2025 |
| $ | 884 |
|
| $ | 893 |
| ||||||||
Tranche B-2 euro term loan due May 2025 (€344 at December 31, 2019 and €347 at December 31, 2018) |
|
| 383 |
|
|
| 396 |
| ||||||||
Senior unsecured notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.625% due May 2023 |
|
| 1,158 |
|
|
| 1,158 |
|
|
| 908 |
|
|
| 908 |
|
7.000% due May 2025 |
|
| 750 |
|
|
| 750 |
|
|
| 750 |
|
|
| 750 |
|
6.125% due May 2023 (€295 at December 31, 2017 and 2016) |
|
| 350 |
|
|
| 308 |
| ||||||||
4.000% due May 2026 (€450 at December 31, 2019 and 2018) |
|
| 501 |
|
|
| 513 |
| ||||||||
5.375% due May 2027 |
|
| 500 |
|
|
| — |
|
|
| 500 |
|
|
| 500 |
|
Capital lease obligations |
|
| 3 |
|
|
| 3 |
| ||||||||
Build-to-suit lease obligation |
|
| 8 |
|
|
| — |
| ||||||||
Securitization Facility |
|
| 110 |
|
|
| — |
| ||||||||
Finance lease liabilities |
|
| 59 |
|
|
| 2 |
| ||||||||
Financing obligation (1) |
|
| 95 |
|
|
| 55 |
| ||||||||
Other |
|
| 6 |
|
|
| — |
| ||||||||
Total debt |
|
| 4,161 |
|
|
| 3,591 |
|
|
| 4,196 |
|
|
| 4,017 |
|
Less: Unamortized issue discounts |
|
| (8 | ) |
|
| (5 | ) |
|
| (8 | ) |
|
| (10 | ) |
Less: Unamortized debt issuance costs |
|
| (41 | ) |
|
| (42 | ) |
|
| (28 | ) |
|
| (35 | ) |
Less: Current maturities of long-term debt |
|
| (15 | ) |
|
| (15 | ) | ||||||||
Less: Short-term and current maturities of long-term debt |
|
| (134 | ) |
|
| (13 | ) | ||||||||
Total long-term debt, net |
| $ | 4,097 |
|
| $ | 3,529 |
|
| $ | 4,026 |
|
| $ | 3,959 |
|
(1) | At December 31, 2019, financing obligation includes $95 in connection with the financed portion of the Chemours Discovery Hub, which was considered a build-to-suit lease liability of $55 at December 31, 2018. Refer to “Note 14 – Leases” for further details. |
Senior Secured Credit Facilities
On May 12, 2015, Chemours entered into aApril 3, 2018, the Company amended and restated its credit agreement (“Credit Agreement”) that provides for a seven-year, senior secured term loan facility and a five-year, $800 senior secured revolving credit facility (“Revolving Credit Facility”) (collectively, the “Senior Secured Credit Facilities”). The Senior Secured Credit Facilities are subject to a springing maturity in the event that the senior unsecured notes due in May 2023 are not redeemed, repaid, modified, and/or refinanced within the 91-day period prior to their maturity date.
The senior secured term loan facility under the Senior Secured Credit Facilities provides for a class of term loans, denominated in U.S. dollars, in an aggregate principal amount of $1,500, which is repayable$900 (“Dollar Term Loan”) and a class of term loans, denominated in euros, in an aggregate principal amount of €350 (“Euro Term Loan”) (collectively, the “Term Loans”). The Dollar Term Loan bears a variable interest rate equal quarterly installmentsto, at a rate of 1%the election of the original principal amount per annum, with the balance payable at maturity (Prior Term Loan). The Prior Term Loan was issued with a $7 original issue discount and bore interest at a rate ofCompany, adjusted LIBOR plus 3.0%1.75% or adjusted base rate plus 0.75%, subject to aan adjusted LIBOR or an adjusted base rate floor of 0.75%0.00% or 1.00%, respectively. The Euro Term Loan bears a variable interest rate equal to adjusted EURIBOR plus 2.00%, subject to an adjusted EURIBOR floor of 0.50%. The proceeds fromTerm Loans will mature on April 3, 2025, and are subject to acceleration in certain circumstances.
F-38
The Chemours Company
Notes to the Prior Term Loan were used to fund a portion of the distribution to DuPont, along with certain related feesConsolidated Financial Statements
(Dollars in millions, except per share amounts and expenses.par values)
The credit agreement, as amended, also provides for a five-year, $750 senior secured revolving credit facility (Revolving Credit Facility).
The proceeds of any loans made under the Revolving Credit Facility can be used for capital expenditures, acquisitions, working capital needs and other general corporate purposes. No borrowings were outstanding underpurposes, including permitted acquisitions, as defined in the Revolving Credit Facility at December 31, 2017 and 2016; however, Chemours had $101 and $132 in letters of credit issued and outstanding under this facility at December 31, 2017 and 2016, respectively.Agreement. The Revolving Credit Facility bears a variable interest of arate range based on Chemours’the Company’s total net leverage ratio, as defined in the Credit Agreement, between (i) a 0.50%0.25% and 1.25%a 1.00% spread for adjusted base rate loans, and (ii) a 1.50%1.25% and 2.25%a 2.00% spread for LIBOR loans. The applicable margins were 0.50% for base rate loans and 1.50% for LIBOR loans at December 31, 2017.EURIBOR loans. In addition, the Company is required to pay a commitment fee on the average daily unused amount of the Revolving Credit Facility at awithin an interest rate range based on its total net leverage ratio, between 0.20%0.10% and 0.35%0.25%. The Revolving Credit Facility will mature on April 3, 2023, and is subject to acceleration in certain circumstances.
During the year ended December 31, 2019, the Company borrowed and subsequently repaid $150 under the Revolving Credit Facility.There were 0 borrowings outstanding under the Revolving Credit Facility at December 31, 2019 and 2018. Issued and outstanding letters of credit under the Revolving Credit Facility amounted to $103 and $104 at December 31, 2019 and 2018, respectively. At December 31, 2017, commitment fees were assessed at a rate of 0.20% per annum.
On April 3, 2017,2019, the Company completed an amendment (April Amendment) to its credit agreement which provides for a new class of term loans, denominated in euros, in an aggregate principal amount of €400 (Euro Term Loan), and a new class of term loans, denominated in U.S. dollars, in an aggregate principal amount of $940 (Dollar Term Loan, and, collectively with the Euro Term Loan, the New Term Loans). The New Term Loans replaced in full the Prior Term Loan outstanding as of March 31, 2017. The New Term Loans mature on May 12, 2022, which is the same maturity date of the Prior Term Loan. The Euro Term Loan bears a variable interest rate equal to EURIBOR plus 2.25%, subject to a EURIBOR floor of 0.75%, and the Dollar Term Loan bears a variable interest rate equal to LIBOR plus 2.50%, subject to a LIBOR floor of 0.00%. The April Amendment also modified certain provisions of the credit agreement, including increased certain incurrence limits to allow further flexibility for the Company. All other provisions, including financial covenants, remained unchanged. No incremental debt was issued as a result of the April Amendment, although the Euro Term Loan is subject to remeasurement gains or losses. The Company recorded a $3 loss on debt extinguishment and related amendment fees in the second quarter of 2017. The effective interest rates on the Dollar Term Loan and the Euro Term Loan were approximately 3.85%3.6% and 3.00%2.5%, respectively, and commitment fees on the Revolving Credit Facility were assessed at a rate of 0.20% per annum. In connection with the issuance of the Senior Secured Credit Facilities, the Company incurred a loss on debt extinguishment of $3 for the year ended December 31, 2017.
F-32
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)2018.
The credit agreement contains financial covenants which,Under the Credit Agreement, solely with respect to the Revolving Credit Facility, as amended, require Chemours notthe Company is required to exceedmaintain a maximum senior secured net leverage ratio of: (i) 3.50not to exceed 2.00 to 1.00 in each quarter, through December 31, 2016; (ii) 3.00 to 1.00 through June 30, 2017; and (iii) further decreasing by 0.25 to 1.00 every subsequent six months to 2.00 to 1.00 by January 1, 2019 and thereafter. Chemours is also required to maintain a minimum interest coverage ratiothe date of 1.75 to 1.00 each quarter through June 30, 2017 and further increasing by 0.25 to 1.00 every subsequent six months to 3.00 to 1.00 by January 1, 2019 and thereafter.maturity. In addition, the credit agreementCredit Agreement contains customary affirmative and negative covenants that, among other things, limit or restrict Chemours’the Company’s and its subsidiaries’ ability, subject to certain exceptions, to incur liens, merge, consolidateadditional indebtedness or sell, transfer or lease assets, make investments,liens, pay dividends, transact with subsidiaries, and incur indebtedness.engage in certain transactions, including mergers, acquisitions, asset sales, or investments, outside of specified carve-outs. The credit agreementCredit Agreement also contains customary representations and warranties and events of default. ChemoursThe Company was in compliance with its debt covenants at December 31, 2017.2019 and 2018.
Chemours’
The Company’s obligations under the Revolving Credit Facility and the New Term Loans (collectively, the Senior Secured Credit Facilities)Facilities are guaranteed on a senior secured basis by all of its material domestic subsidiaries, which are also guarantors of the Company’s outstanding notes, subject to certain agreed upon exceptions. The obligations under the Senior Secured Credit Facilities are also, subject to certain agreed upon exceptions, secured by a first priority lien on substantially all of Chemours’the Company’s assets and substantially all of the assets of its wholly-owned, material wholly-owned domestic subsidiaries’ assets,subsidiaries, including 100% of the stock of certain of its domestic subsidiaries and 65% of the stock of certain of its foreign subsidiaries.
Senior Unsecured Notes
Senior Unsecured Notes due May 2023 and May 2025
On May 12, 2015, Chemours issued an aggregate principal amount of $2,503 in senior unsecured notes in a private placement (collectively, the Notes). The 2023 Notes, withconsisting of an aggregate principal amount of $1,350 bear interest at a rate6.625% senior unsecured notes due May 2023, denominated in U.S. dollars (the “2023 Dollar Notes”), an aggregate principal amount of 6.625% per annum€360 6.125% senior unsecured notes due May 2023, denominated in euros (the “2023 Euro Notes”), and will mature on May 15, 2023, with all outstanding principal payable at maturity (2023 Notes). The 2025 Notes, with an aggregate principal amount of $750 bear interest at a rate7.000% senior unsecured notes due May 2025, denominated in U.S dollars (the “2025 Notes”) (collectively, the “Original Notes”). The Original Notes required or require, as applicable, payment of 7.000% per annum and will mature on May 15, 2025, with all outstanding principal payable at maturity (2025 Notes). The 2023 Notes, denominated in euros, with an aggregate principal amountand payments of €360, bear interest at a rate of 6.125% per annum and will mature on May 15, 2023, with all outstanding principal payable at maturity (Euro Notes). Interest on the Notes is payable semi-annually in cash and in arrears on May 15 and November 15 of each year. The proceeds from the Original Notes were usedissued to fund thea cash and in-kind distributions to DuPont and to pay any related fees and expenses. The in-kind distribution to DuPont in anconnection with the Separation. As discussed in more detail below, the Company purchased or redeemed, as applicable, all of the outstanding 2023 Euro Notes and a $250 aggregate principal amount of $507 of Chemours’ 2025the 2023 Dollar Notes during the year ended December 31, 2018.
The Original Notes were exchanged by DuPont with third-parties for certain of DuPont’s notes.
The Notesor are, as applicable, fully and unconditionally guaranteed, jointly and severally, on a senior unsecured unsubordinated basis, by each of Chemours’ existing and future direct or indirect domestic restricted subsidiaries that guarantee(i) incurs or guarantees indebtedness under the Senior Secured Credit Facilities, or that guarantee the Company’s(ii) guarantees certain other indebtedness of the Company or any of its guarantors’ indebtednessguarantor in an aggregate principal amount in excess of $75 million.$75. The Original Notes were or are, as applicable, unsecured and unsubordinated by Chemours and its guarantor subsidiaries. The Original Notes ranked or rank, as applicable, equally in right of payment to all of Chemours’ existing and future unsecured unsubordinated debt and senior in right of payment to all of its existing and future debt that is by its terms expressly subordinated in right of payment to the Original Notes. The Original Notes were or are, as applicable, subordinated to indebtedness under the Senior Secured Credit Facilities as well as any future secured debt to the extent of the value of the assets securing such debt.
F-39
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Pursuant to the terms of the indenture governing the Original Notes, the Company was or is, as applicable, obligated to offer to purchase the Original Notes at a price of (i) 101% of their principal amount, together with accrued and unpaid interest, if any, up to, but not including, the date of purchase, upon the occurrence of certain change of control events, and (ii) 100% of their principal amount, together with accrued and unpaid interest, if any, up to, but not including, the date of purchase, with the proceeds from certain asset dispositions. These restrictions and prohibitions were or are, as applicable, subject to certain qualifications and exceptions set forth in the indenture governing the Original Notes, including without limitation, reinvestment rights with respect to the proceeds of asset dispositions.
Chemours is permitted to currently redeem some or all of the 2023 Dollar Notes and Euro Notes by paying a “make-whole” premium prior to May 15, 2018, and on or after May 15, 2018 and thereafter at specified redemption prices. Chemoursprices, and may redeem some or all of the 2025 Notes on or after May 15, 2020 at specified redemption prices. Chemours may also redeem some or all of the 2023 Dollar Notes or the 2025 Notes by means other than a redemption, including tender offer or open market purchases. Pursuant to the terms of the tax matters agreement entered into at the time of the Separation, the Company’s ability to pre-pay, pay down, redeem, retire, or otherwise acquire the 2025 Notes is limited in the absence of obtaining certain tax opinions.
In connection with the issuance of the
Senior Unsecured Notes Chemours entered into a registration rights agreement, in which Chemours agreed to file a registration statement with the U.S. Securities and Exchange Commission (SEC) for the exchange of the Notes for newly-registered notes with identical terms. On March 18, 2016, the Company filed a registration statement on Form S-4 with respect to the exchange offer, and the registration statement was declared effective on April 12, 2016. The exchange offer was completed onDue May 19, 2016. In addition, the Euro Notes were listed for trading on the Global Exchange Market of the Irish Stock Exchange on May 5, 2016.
F-33
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)2027
On May 23, 2017, Chemours issued a $500 aggregate principal amount of 5.375% senior unsecured notes due May 2027 (2027 Notes)(the “2027 Notes”). The 2027 Notes require payment of principal at maturity and interest semi-annually in cash and in arrears on May 15 and November 15 of each year. The Company received proceeds of $489, net of an original issue discount of $5 and underwriting fees and other related expenses of $6, which are deferred and amortized to interest expense using the effective interest method over the term of the 2027 Notes. A portion of the net proceeds from the 2027 Notes was used to pay the $335 accrued for the global settlement of the multi-district PFOA“PFOA MDL Settlement,” as discussed in Note 20.“Note 22 – Commitments and Contingent Liabilities.” The remaining proceeds from the 2027 Notes were available for general corporate purposes. The offering of the 2027 Notes was registered under the Securities Act of 1933, as amended, under a registration statement on Form S-3 filed with the SEC on May, 4, 2017.
The 2027 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured unsubordinated basis by each of Chemours’ existing and future direct and indirect domestic restricted subsidiaries that (i) incurs or guarantees indebtedness under the Senior Secured Credit Facilities, or (ii) guarantees certain other indebtedness of Chemours or any guarantor in an aggregate principal amount in excess of $100.$100. The guarantees of the 2027 Notes will rank equally with all other senior indebtedness of the guarantors. The 2027 Notes rank equally in right of payment to all of Chemours’ existing and future unsecured unsubordinated debt and are senior in right of payment to all of its existing and future debt that is by its terms expressly subordinated in right of payment to the 2027 Notes. The 2027 Notes are subordinated to indebtedness under the Senior Secured Credit Facilities as well as any future secured debt to the extent of the value of the assets securing such debt, and structurally subordinated to the liabilities of any non-guarantor subsidiaries.
Pursuant to the terms of the indenture governing the 2027 Notes, Chemours may redeem the 2027 Notes, in whole or in part, at an amount equal to 100% of the aggregate principal amount plus a specified “make-whole” premium and accrued and unpaid interest, if any, to the date of purchase prior to February 15, 2027. Chemours may also redeem some or all of the 2027 Notes by means other than a redemption, including tender offer and open market repurchases. Chemours is obligated to offer to purchase the 2027 Notes at a price of 101% of the principal amount, together with accrued and unpaid interest, if any, up to, but not including, the date of purchase, upon the occurrence of certain change of control events.
Build-to-suit Lease Obligation
In October 2017, Chemours executedSenior Unsecured Notes due May 2026
On June 6, 2018, the Company issued an aggregate principal amount of €450 4.000% senior unsecured notes due May 2026, denominated in euros (the “2026 Euro Notes”). The 2026 Euro Notes are fully and unconditionally guaranteed, jointly and severally, on a build-to-suit lease agreement to construct a new 312,000-square-foot R&D facility on the Science, Technology, and Advanced Research campussenior unsecured unsubordinated basis, by each of the University of Delaware (UD) in Newark, Delaware (The Chemours Discovery Hub). The land on which The Chemours Discovery Hub will be located is leased to a third-party owner-lessor by UD,Company’s existing and Chemours will act asfuture direct and indirect domestic restricted subsidiaries that (i) incurs or guarantees indebtedness under the construction agent and ultimate lesseeSenior Secured Credit Facilities, or (ii) guarantees certain other indebtedness of the facility based on the Company’s agreement with the owner-lessor. Project costs paid by the owner-lessor are reflectedCompany or any guarantor in the Company’s consolidated balance sheets as construction-in-progress within property, plant, and equipment, and a corresponding build-to-suit lease liability within long-term debt. Through December 31, 2017, project costs paid by the owner-lessor amounted to $8. Constructionan aggregate principal amount in excess of$100. The Chemours Discovery Hub is expected to be completed by early 2020.
Term Loans and Notes Repayments
During the year ended December 31, 2016, the Company repurchased or repaid portions of its Prior Term Loan, 2023 Notes, and2026 Euro Notes with the aggregaterequire payment of principal at maturity and payments of interest semi-annually in cash payment amounts set forthand in the following table.arrears on May 15 and November 15 of each year.
|
| Year Ended December 31, 2016 |
| |||||
|
| Aggregate Principal |
|
| Cash Payments |
| ||
Prior Term Loan (1) |
| $ | 105 |
|
| $ | 104 |
|
2023 Notes |
|
| 192 |
|
|
| 182 |
|
Euro Notes |
|
| 73 |
|
|
| 68 |
|
|
| $ | 370 |
|
| $ | 354 |
|
|
|
For the years ended December 31, 2017, 2016, and 2015, Chemours recognized interest expense, net of $215, $213, and $132, respectively. Interest expense, net for the year ended December 31, 2016 includes a gain on extinguishment of debt of $10, net of $5 in charges related to the write-off of deferred financing costs associated with the extinguished debt.
Maturities
Chemours has required quarterly principal payments related to the New Term Loans equivalent to 1.00% per annum through March 2022, with the balance due at maturity. Principal maturities on the New Term Loans, as amended, over the next five years are approximately $14 in each year from 2018 to 2021, with the remaining principal of $1,336 due in 2022. Debt maturities related to the Notes in 2023 and beyond will be $2,758.
F-34F-40
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
FollowingPursuant to the terms of the indenture governing the 2026 Euro Notes, the Company is obligated to offer to purchase the 2026 Euro Notes at a price of 101% of the principal amount, together with accrued and unpaid interest, if any, up to, but not including, the date of purchase, upon the occurrence of certain change of control events. Prior to May 15, 2021, the Company may redeem the 2026 Euro Notes (i) in whole or in part, at an amount equal to 100% of the aggregate principal amount plus a specified “make-whole” premium, and (ii) on one or more occasions, up to 35% of the aggregate principal amount of the notes, with the net cash proceeds of one or more equity offerings at a price equal to 104% of the principal amounts of such notes, plus accrued and unpaid interest, if any, up to, but excluding, the redemption date. The guarantees of the 2026 Euro Notes will rank equally with all other senior indebtedness of the guarantors. The 2026 Euro Notes rank equally in right of payment to all of the Company’s existing and future unsecured unsubordinated debt and are senior in right of payment to all of its existing and future debt that is, by its terms, expressly subordinated in right of payment to the 2026 Euro Notes. The 2026 Euro Notes are subordinated to indebtedness under the Senior Secured Credit Facilities, as well as any future secured debt to the extent of the value of the assets securing such debt, and are structurally subordinated to the liabilities of any non-guarantor subsidiaries.
The Company received net proceeds of €445 from the offering of the 2026 Euro Notes, which, together with cash on hand, were used to purchase or redeem, as the case may be, all of the outstanding 2023 Euro Notes and a $250 aggregate principal amount of the 2023 Dollar Notes pursuant to the Tender Offers (defined below) and the redemption of the 2023 Euro Notes, as well as pay for any fees and expenses in connection therewith. In connection with the concurrent redemption of the 2023 Euro Notes and issuance of the 2026 Euro Notes, the Company incurred a loss on extinguishment of $35 for the year ended December 31, 2018.
2023 Notes Tender Offers and Redemption of the 2023 Euro Notes
On May 21, 2018, the Company commenced 2 all-cash tender offers to purchase: (i) up to $250 of the outstanding 2023 Dollar Notes, for a purchase price of $1,052.50 per $1,000.00 of principal amount through an early tender deadline of June 4, 2018, and $1,022.50 per $1,000.00 of principal amount thereafter, through June 18, 2018, the tender expiration date, plus any accrued and unpaid interest thereon (the “Dollar Tender Offer”); and, (ii) any and all of the outstanding 2023 Euro Notes (collectively, the “2023 Notes”), for a purchase price of €1,048.75 per €1,000.00 of principal amount through an early tender deadline of June 4, 2018, and €1,018.75 per €1,000.00 of principal amount thereafter, through June 18, 2018, the tender expiration date, plus any accrued and unpaid interest thereon (the “Euro Tender Offer”) (collectively, the “Tender Offers”).
The Company completed the Dollar Tender Offer on June 6, 2018 for an aggregate purchase price of $264, inclusive of an early participation premium of $13 and accrued interest of $1. The Company completed the Euro Tender Offer on June 8, 2018 for an aggregate purchase price of €310, inclusive of an early participation premium of €14 and accrued interest of €1. In connection with the Euro Tender Offer, the Company received consents from the holders of a majority of the aggregate principal amount of the 2023 Euro Notes to amend certain provisions of the indenture governing the 2023 Euro Notes, thereby allowing the Company to call and redeem the remaining 2023 Euro Notes outstanding upon two business days’ notice to the noteholders. On June 8, 2018, the Company completed the redemption of the remaining outstanding 2023 Euro Notes that were not purchased pursuant to the Euro Tender Offer. The Tender Offers and the redemption of the 2023 Euro Notes were funded with the proceeds from the offering of the 2026 Euro Notes and cash on hand.
Accounts Receivable Securitization Facility
On July 12, 2019, the Company, through a wholly-owned special purpose entity (“SPE”), executed an agreement with a bank for an accounts receivable securitization facility (“Securitization Facility”) for the purpose of enhancing the Company’s liquidity. Under the Securitization Facility, certain of the Company’s subsidiaries will sell their accounts receivable to the SPE, which is a non-guarantor subsidiary. In turn, the SPE may transfer undivided ownership interests in such receivables to the bank in exchange for cash. The Securitization Facility permits the SPE to borrow up to a total of $125, with an option to increase to $200. The bank has a first priority security interest in all receivables held by the SPE, and the SPE has not granted a security interest to anyone else. At December 31, 2019, receivables held by the SPE totaled $176.
Because the SPE maintains effective control over the accounts receivable, transfers of the ownership interests to the bank do not meet the criteria to account for the transfers as true sales. As a result, the Company accounted for the transfers under the Securitization Facility as collateralized borrowings. Cash received from the bank is a short-term obligation of the Company, which is fully-collateralized by all receivables held by the SPE. The Securitization Facility is subject to interest charges against both the amount of outstanding borrowings and the amount of available but undrawn commitments. The Securitization Facility bears a variable interest rate on outstanding borrowings and a fixed commitment fee on the average daily undrawn amount. During the year ended December 31, 2019, the weighted average interest rate on the outstanding borrowings under the Securitization Facility was 2.0%. Borrowings under the Securitization Facility are classified in its consolidated balance sheets as a component of its current liabilities due to the short-term nature of the obligation. Borrowings and repayments under the Securitization Facility amounted to $128 and $18, respectively. Net borrowings of $110 remained outstanding as of December 31, 2019.
F-41
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Other
During the third quarter of 2019, the Company entered into a financing arrangement, by which an external financing company funded certain of the Company’s annual insurance premiums for $11. During the year ended December 31, 2019, the Company made payments of $5 to the financing company, and the remaining $6 is to be repaid within the next twelve months.
Maturities
The Company has required quarterly principal payments related to the Senior Secured Credit Facilities equivalent to 1.00% per annum through December 2024, with the balance due at maturity. Also, following the end of each fiscal year commencing on the year ended December 31, 2016,2019, on an annual basis, the Company is also required to make additional principal repayments,payments depending on leverage levels, as defined in the amended and restated credit agreement, equivalent to up to 50% of excess cash flows based on certain leverage targets with step-downs to 25% and 0% as actual leverage decreases to below a 3.003.50 to 1.00 leverage target. No
The following table sets forth the Company’s debt principal repayments were required to be made in 2017 based uponmaturities for the December 31, 2016 excess cash flows determined under the credit agreement.next five years and thereafter.
|
| Year Ended |
| |
|
| December 31, |
| |
2020 |
| $ | 122 |
|
2021 |
|
| 13 |
|
2022 |
|
| 13 |
|
2023 |
|
| 921 |
|
2024 |
|
| 13 |
|
Thereafter (1) |
|
| 2,954 |
|
Total principal maturities on debt |
| $ | 4,036 |
|
(1) | The Senior Secured Credit Facilities are subject to a springing maturity in the event that the senior unsecured notes due in May 2023 are not redeemed, repaid, modified, and/or refinanced within the 91-day period prior to their maturity date |
Debt Fair Value
The fair values offollowing table sets forth the Dollar Term Loan, the Euro Term Loan, the 2023 Notes, the 2025 Notes, the Euro Notes, and the 2027 Notes at December 31, 2017 were approximately $928, $471, $1,228, $816, $373, and $521, respectively. The estimated fair values of the New Term Loans and the NotesCompany’s senior debt issues, which are based on quotes received from third-party brokers, and are classified as Level 2 financial instruments in the fair value hierarchy. The carrying value of the Securitization Facility approximates its fair value based on its short-term nature and maturity.
|
| December 31, 2019 |
|
| December 31, 2018 |
| ||||||||||
|
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
| ||||
Senior secured term loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tranche B-2 U.S. dollar term loan due May 2025 |
| $ | 884 |
|
| $ | 865 |
|
| $ | 893 |
|
| $ | 862 |
|
Tranche B-2 euro term loan due May 2025 (€344 at December 31, 2019 and €347 at December 31, 2018) |
|
| 383 |
|
|
| 378 |
|
|
| 396 |
|
|
| 394 |
|
Senior unsecured notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.625% due May 2023 |
|
| 908 |
|
|
| 917 |
|
|
| 908 |
|
|
| 918 |
|
7.000% due May 2025 |
|
| 750 |
|
|
| 755 |
|
|
| 750 |
|
|
| 761 |
|
4.000% due May 2026 (€450 at December 31, 2019 and 2018) |
|
| 501 |
|
|
| 455 |
|
|
| 513 |
|
|
| 487 |
|
5.375% due May 2027 |
|
| 500 |
|
|
| 450 |
|
|
| 500 |
|
|
| 454 |
|
Securitization Facility |
|
| 110 |
|
|
| 110 |
|
|
| — |
|
|
| — |
|
Total senior debt |
|
| 4,036 |
|
| $ | 3,930 |
|
|
| 3,960 |
|
| $ | 3,876 |
|
Less: Unamortized issue discounts |
|
| (8 | ) |
|
|
|
|
|
| (10 | ) |
|
|
|
|
Less: Unamortized debt issuance costs |
|
| (28 | ) |
|
|
|
|
|
| (35 | ) |
|
|
|
|
Total senior debt, net |
| $ | 4,000 |
|
|
|
|
|
| $ | 3,915 |
|
|
|
|
|
F-42
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Note 19.21. Other Liabilities
The following table sets forth the components of the Company’s other liabilities at December 31, 20172019 and 2016.2018.
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Environmental remediation (1) |
| $ | 187 |
|
| $ | 208 |
|
| $ | 332 |
|
| $ | 152 |
|
Employee-related costs (2) |
|
| 123 |
|
|
| 113 |
|
|
| 113 |
|
|
| 130 |
|
Employee separation costs |
|
| — |
|
|
| 3 |
| ||||||||
Accrued litigation (1) |
|
| 48 |
|
|
| 53 |
|
|
| 50 |
|
|
| 53 |
|
Asset retirement obligations (1) |
|
| 43 |
|
|
| 41 |
| ||||||||
Asset retirement obligations |
|
| 54 |
|
|
| 51 |
| ||||||||
Deferred revenue |
|
| 6 |
|
|
| 5 |
|
|
| 8 |
|
|
| 7 |
|
Miscellaneous (3) |
|
| 68 |
|
|
| 101 |
|
|
| 76 |
|
|
| 64 |
|
Total other liabilities |
| $ | 475 |
|
| $ | 524 |
|
| $ | 633 |
|
| $ | 457 |
|
| (1) |
|
| (2) | Employee-related costs primarily represent liabilities associated with the Company’s long-term employee |
| (3) | Miscellaneous primarily includes an accrued indemnification liability of |
Note 20.22. Commitments and Contingent Liabilities
Guarantees
Obligations of Equity Affiliates and Others
Chemours has directly guaranteed certain obligations of its equity affiliates and customers. At December 31, 2017 and 2016, Chemours had directly guaranteed $2 and less than $1 of such obligations, respectively. These guarantees represent the maximum potential amount of future undiscounted payments that Chemours could be required to make under the guarantees in the event of default by the guaranteed parties. No amounts were accrued at December 31, 2017 and 2016.
Chemours assesses payment and performance risk by assigning default rates based on the duration of the guarantees. These default rates are assigned either (i) based on the external credit rating of the counterparty, or (ii) through internal credit analysis and historical default history for counterparties that do not have published credit ratings. For counterparties without an external rating or available credit history, a cumulative average default rate is used.
Operating Leases
Chemours uses various leased facilities and equipment in its operations. The terms for these leased assets vary depending on the lease agreement. Future minimum lease payments (including residual value guarantee amounts) under non-cancelable operating leases are $59, $52, $38, $33, and $37 for the years ended December 31, 2018, 2019, 2020, 2021, and 2022, respectively, and $268 for the years thereafter. Net rental expense under the Company’s operating leases was $76, $68, and $83 for the years ended December 31, 2017, 2016, and 2015, respectively.
F-35
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
Chemours has recorded asset retirement obligations, which are inclusive of costs related to closure, reclamation, and removal for mining operations in the production of TiO2 in the Titanium Technologies segment; cap, cover, and post-closure maintenance of landfills in all segments; and, shipment and disposal of stored waste in all segments.
The following table sets forth the activity in the Company’s asset retirement obligations for the years ended December 31, 20172019 and 2016.2018.
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Balance at January 1, |
| $ | 43 |
|
| $ | 42 |
|
| $ | 57 |
|
| $ | 48 |
|
Accretion expense |
|
| 6 |
|
|
| 2 |
|
|
| 7 |
|
|
| 10 |
|
Settlements and payments |
|
| (1 | ) |
|
| (1 | ) |
|
| (3 | ) |
|
| (1 | ) |
Balance at December 31, |
| $ | 48 |
|
| $ | 43 |
|
| $ | 61 |
|
| $ | 57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion |
| $ | 5 |
|
| $ | 2 |
|
| $ | 7 |
|
| $ | 6 |
|
Non-current portion |
|
| 43 |
|
|
| 41 |
|
|
| 54 |
|
|
| 51 |
|
F-43
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Litigation Overview
In addition to the matters discussed below, the Company and certain of its subsidiaries, from time to time, are subject to various lawsuits, claims, assessments, and proceedings with respect to product liability, intellectual property, personal injury, commercial, contractual, employment, governmental, environmental, anti-trust, and other such matters that arise in the ordinary course of business. In addition, Chemours, by virtue of its status as a subsidiary of DuPont prior to the Separation,separation, is subject to or required, under the Separation-relatedseparation-related agreements executed prior to the Separationseparation, to indemnify DuPont against various pending legal proceedings arising out of the normal course of Chemours’ business including product liability, intellectual property, commercial, environmental, and antitrust lawsuits.proceedings. It is not possible to predict the outcomes of these various lawsuits, claims, assessments, or proceedings. Except for the litigation specific to PFOA (collectively, perfluorooctanoic acids and its salts, including the ammonium salt) and GenX and other perfluorinated and polyfluorinated compounds for which separate assessments are providedas noted below, while management believes it is reasonably possible that Chemours could incur losses in excess of the amounts accrued, if any, for the aforementioned proceedings, it does not believe any such loss would have a material impact on Chemours’the Company’s consolidated financial position, results of operations, or liquidity. Disputescash flows. Additional disputes between Chemours and DuPont may also arise with respect to indemnification matters, including disputes based on matters of law or contract interpretation. If and to the extent these disputes arise, they could materially adversely affect Chemours.
The Company accrues for litigation matters when it is probable that a liability has been incurred, and the amount of the liability can be reasonably estimated. Legal costs such as outside counsel fees and expenses are recognized in the period in which the expense was incurred. Management believes the Company’s litigation accruals are appropriate based on the facts and circumstances for each matter, which are discussed in further detail below.
The following table sets forth the components of the Company’s accrued litigation at December 31, 2019 and 2018.
|
| December 31, 2019 |
|
| December 31, 2018 |
| ||
Asbestos |
| $ | 34 |
|
| $ | 37 |
|
PFOA |
|
| 20 |
|
| 22 |
| |
All other matters |
|
| 6 |
|
| 5 |
| |
Total accrued litigation |
| $ | 60 |
|
| $ | 64 |
|
The following table sets forth the current and long-term components of the Company’s accrued litigation and their balance sheet locations at December 31, 2019 and 2018.
|
| Balance Sheet Location |
| December 31, 2019 |
|
| December 31, 2018 |
| ||
Accrued Litigation: |
|
|
|
|
|
|
|
|
|
|
Current accrued litigation |
| Other accrued liabilities (Note 19) |
| $ | 10 |
|
| $ | 11 |
|
Long-term accrued litigation |
| Other liabilities (Note 21) |
|
| 50 |
|
|
| 53 |
|
Total accrued litigation |
|
|
| $ | 60 |
|
| $ | 64 |
|
Fayetteville Works, Fayetteville, North Carolina
For information regarding the Company’s ongoing litigation and environmental remediation matters at its Fayetteville Works site in Fayetteville, North Carolina (“Fayetteville”), refer to “Fayetteville Works, Fayetteville, North Carolina” under the “Environmental Overview” within this “Note 22 – Commitments and Contingent Liabilities”.
F-44
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Asbestos
In the Separation, DuPont assigned its asbestos docket to Chemours. At December 31, 20172019 and 2016,2018, there were approximately 1,6001,100 and 1,9001,300 lawsuits pending respectively, against DuPont alleging personal injury from exposure to asbestos. These cases are pending in state and federal court in numerous jurisdictions in the U.S. and are individually set for trial. A small number of cases are pending outside of the U.S. Most of the actions were brought by contractors who worked at sites between 1950the 1950s and the 1990s. A small number of cases involve similar allegations by DuPont employees or household members of contractors or DuPont employees. Finally, certain lawsuits allege personal injury as a result of exposure to DuPont products.
At December 31, 20172019 and 2016,2018, Chemours had an accrual of $38$34 and $41$37 related to this matter,these matters, respectively. Chemours reviews this estimate and related assumptions quarterly.
Benzene
In the Separation, DuPont assigned its benzene docket to Chemours. As ofAt December 31, 20172019 and 2016,2018 there were 1716 and 2719 cases pending against DuPont alleging benzene-related illnesses, respectively. These cases consist of premises matters involving contractors and deceased former employees who claim exposure to benzene while working at DuPont sites primarily in the 1960s through the 1980s, and product liability claims based on alleged exposure to benzene found in trace amounts in aromatic hydrocarbon solvents used to manufacture DuPont products such as paints, thinners, and reducers.
F-36
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
A benzene case (Hood v. DuPont) was tried to a verdict in Texas state court on October 20, 2015. Plaintiffs alleged that Mr. Hood’s Acute Myelogenous Leukemia was the result of 24 years of occupational exposure to trace benzene found in DuPont automotive paint products and that DuPont negligently failed to warn him that its paints, reducers, and thinners contained benzene that could cause cancer or leukemia. The jury found in the plaintiffs’ favor, awarding $6.9 in compensatory damages and $1.5 in punitive damages. In March 2016, acting on the Company’s motion, the court struck the punitive award. Through DuPont, Chemours has filed an appeal on the remaining award based upon substantial errors made at the trial court level. Plaintiffs filed a cross appeal.
Management believes that a loss is reasonably possible relatedas to these matters;the docket as a whole; however, given the evaluation of each benzene matter is highly fact-driven and impacted by disease, exposure, and other factors, a range of such losses cannot be reasonably estimated at this time.
PFOA
Chemours does not, and has never, used “PFOA” (collectively, perfluorooctanoic acids and its salts, including the ammonium salt) as a polymer processing aid and/or sold it as a commercial product. Prior to the fourth quarter of 2014,Separation, the performance chemicals segment of DuPont made PFOA at its Fayetteville North Carolina plant and used PFOA as a processing aid in the manufacture of fluoropolymers and fluoroelastomers at certain sites, including: Washington Works, Parkersburg, West Virginia; Chambers Works, Deepwater, New Jersey; Dordrecht Works, Netherlands; Changshu Works, China; and, Shimizu, Japan. These sites are now owned and/or operated by Chemours.
At December 31, 2019 and 2018, Chemours recordedmaintained accruals of $14$20 and $349$22, respectively, related to the PFOA matters under the Leach Settlement as discussed below at December 31, 2017 and 2016, respectively. Specific to the PFOA MDL Settlement (also discussed below), the Company recorded an accrual of $335 at December 31, 2016, which was paid in installments of $15 and $320 during the second and third quarters of 2017, respectively.
below. These accruals also include charges relatedrelate to DuPont’s obligations under agreements with the U.S. Environmental Protection Agency (EPA)(“EPA”) and voluntary commitments to the New Jersey Department of Environmental Protection.Protection (“NJ DEP”). These obligations and voluntary commitments include surveying, sampling, and testing drinking water in and around certain Company sites, and offering treatment or an alternative supply of drinking water if tests indicate the presence of PFOA in drinking water at or greater than the state or the national health advisory. A provisional health advisory level was set by the EPA in 2009 at 0.4 parts per billion (ppb) that includes PFOA in drinking water. In May 2016, the EPA announced a health advisory level of 0.07 ppb that includes PFOA in drinking water. As a result, Chemours recorded an additional $4 in the second quarter of 2016 based on management’s best estimate of the impact of the new health advisory level on the Company’s obligations to the EPA, which have expanded the testing and water supply commitments previously established. Based on prior testing, the Company has initiated additional testing and treatment in certain additional locations in and around the Chambers Works and Washington Works plants. The Company will continue to work with the EPA and other authorities regarding the extent of work that may be required with respect to these matters.
In February 2018, the State of Ohio initiated litigation against DuPont regarding historical PFOA emissions from the Washington Works site. Chemours is an additional named defendant. Ohio alleges damage to natural resources and seeks damages including remediation and other costs and punitive damages. This action is in its early stages and it is not possible at this point to predict the timing, course, or outcome.
Drinking Water ActionsLeach Settlement
In August 2001,2004, DuPont settled a class action captioned Leach v. DuPont was, filed in West Virginia state court, alleging that approximately 80,000 residents living near the Washington Works facility had suffered, or may suffer, deleterious health effects from exposure to PFOA in drinking water.
DuPont and attorneys for Among the class reached a settlement in 2004 that binds about 80,000 residents. In 2005, DuPont paid the plaintiffs’ attorneys’ fees and expenses of $23 and made a payment of $70, which class counsel designated to fund a community health project.terms, DuPont funded a series of health studies which were completed in October 2012 by an independent science panel of experts (C8(“C8 Science Panel). The studies were conducted in communities exposed to PFOAPanel”) to evaluate available scientific evidence on whether any probable link exists, as defined in the settlement agreement, between exposure to PFOA and human disease.
The C8 Science Panel found probable links, as defined in the settlement agreement, between exposure to PFOA and pregnancy-induced hypertension, including preeclampsia, kidney cancer, testicular cancer, thyroid disease, ulcerative colitis, and diagnosed high cholesterol.
F-37
The Chemours Company
Notes to Under the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
In May 2013, a panelterms of three independent medical doctors released its initial recommendations for screening and diagnostic testing of eligible class members. In September 2014, the medical panel recommended follow-up screening and diagnostic testing three years after initial testing, based on individual results. The medical panel has not communicated its anticipated schedule for completion of its protocol.settlement, DuPont is obligated to fund up to $235 for a medical monitoring program for eligible class members and in addition,pay the administrative costcosts associated with the program, including class counsel fees. In January 2012, DuPont put $1 in an escrow account to fund medical monitoring as required by the settlement agreement. The court-appointed Director of Medical Monitoring establishedimplemented the program to implement the medical panel’s recommendations and the registration process, as well as eligibility screening, is ongoing. Diagnostic screening and testing is ongoing andwith associated payments to service providers are being disbursed from an escrow account which the escrow account.Company replenishes pursuant to the settlement agreement. As of December 31, 2017, less than $12019, approximately $1.7 has been disbursed from the escrow account related to medical monitoring. While it is probablereasonably possible that the Company will incur additional costs related to the medical monitoring program, discussed above, such costs cannot be reasonably estimated due to uncertainties surrounding the level of participation by eligible class members and the scope of testing.
In addition, under the Leach settlement agreement, DuPont must continue to provide water treatment designed to reduce the level of PFOA in water to six6 area water districts and private well users. At Separation,separation, this obligation was assigned to Chemours, which is included in the accrual amounts recorded as ofand $20 and $22 was accrued for these matters at December 31, 2017.2019 and 2018, respectively.
UnderF-45
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
PFOA Leach Class Personal Injury
Further, under the Leach settlement, class members may pursue personal injury claims against DuPont only for those human diseases for which the C8 Science Panel determined a probable link exists. Approximately 3,500 lawsuits were subsequently filed in various federal and state courts in Ohio and West Virginia and consolidated in multi-district litigation (MDL)(“MDL”) in Ohio federal court.
Settlement of MDL between DuPont and MDL Plaintiffs
In These were resolved in March 2017 when DuPont entered into an agreement with thesettling all MDL plaintiffs’ counsel providing for a global settlement of all cases and claims, in the MDL, including all filed and unfiled personal injury cases and claims that arewere part of the plaintiffs’ counsel’s claimclaims inventory, as well as cases that have been tried to a jury verdict (MDL Settlement). The total settlement amount is(“MDL Settlement”) for $670.7 in cash, with half paid by Chemours, and half paid by DuPont. DuPont’s payment was not subject to indemnification or reimbursement by Chemours, and Chemours accrued $335 associated
Concurrently with this matter at December 31, 2016. In exchange for payment of the total settlement amount, DuPont and Chemours received a complete release of all claims by the settling plaintiffs. The MDL Settlement, was entered into solely by way of compromise and settlement and is not in any way an admission of liability or fault by DuPont or Chemours. As of September 30, 2017, Chemours had paid the full $335 accrued under the MDL Settlement.
Settlement between DuPont and Chemours Related to MDL
DuPont and Chemours agreed to a limited sharing of potential future PFOA costs (indemnifiable losses, as defined in the separation agreement between DuPont and Chemours) for a period of five years. During that five-year period, Chemours will annually pay future PFOA costs up to $25 and, if such amount is exceeded, DuPont will pay any excess amount up to the next $25 (which payment will not be subject to indemnification by Chemours), with Chemours annually bearing any further excess costs under the terms of the separation agreement. After the five-year period, this limited sharing agreement will expire, and Chemours’ indemnification obligations under the separation agreement will continue unchanged. Chemours has also agreed that it will not contest its indemnification obligations to DuPont under the separation agreement for PFOA costs on the basis of ostensible defenses generally applicable to the indemnification provisions under the separation agreement, including defenses relating to punitive damages, fines or penalties, or attorneys’ fees, and waives any such defenses with respect to PFOA costs. Chemours has, however, retained other defenses, including as to whether any particular PFOA claim is within the scope of the indemnification provisions of the separation agreement.
Post-MDL Settlement Injury Matters
There are a few plaintiffs who declined to participate inWhile all MDL lawsuits were dismissed or resolved through the MDL Settlement. The Company expects that these matters will be dismissed.
TheSettlement, the MDL Settlement doesdid not resolve PFOA personal-injurypersonal injury claims of plaintiffs who did not have cases or claims in the MDL or personal-injurypersonal injury claims based on diseases first diagnosed after February 11, 2017. Since the resolution of the MDL, personal-injuryapproximately 61 personal injury cases have been filed and are pending in West Virginia or Ohio courts alleging status as a Leach class member. These cases are consolidated before the MDL court. A 2-plaintiff trial commenced in January 2020, and a 6-plaintiff trial is scheduled for June 2020.
State of Ohio
In February 2018, the State of Ohio initiated litigation against DuPont regarding historical PFOA emissions from the Washington Works site. Chemours is an additional named defendant. Ohio alleges damage to natural resources and fraudulent transfer in the spin-off that created Chemours and seeks damages including remediation and other costs and punitive damages.
PFAS
DuPont and Chemours have received governmental and regulatory inquiries and have been named in other litigations, including class actions, brought by individuals, municipalities, businesses and water districts alleging exposure to and/or contamination from perfluorinated and polyfluorinated compounds (“PFAS”), including PFOA. Many actions include an allegation of fraudulent transfer in the spin-off that created Chemours. Chemours has declined DuPont’s requests for indemnity for fraudulent transfer claims.
In January 2020, Chemours received a letter informing it that the U.S. Department of Justice, Consumer Protection Branch, and the United States Attorney’s Office for the Eastern District of Pennsylvania are considering whether to open a criminal investigation under the Federal Food, Drug, and Cosmetic Act and asking that it retain its documents regarding PFAS and food contact applications. Based upon the letter, we are presently unable to predict the duration, scope, or result of any potential governmental, criminal, or civil proceeding that may result, the imposition of fines and penalties, and/or other remedies. We are also unable to develop a reasonable estimate of a possible loss or range of losses, if any.
F-46
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Aqueous Film Forming Foam Matters
Chemours does not, and has never, manufactured aqueous film forming foam (“AFFF”). DuPont and Chemours have been named in 154 matters, involving AFFF, which is used to extinguish hydrocarbon-based (i.e., Class B) fires and subject to U.S. military specifications. Most matters have been transferred to or filed directly into a multidistrict litigation (“AFFF MDL”) in South Carolina federal court or identified by a party for transfer. The matters pending in the AFFF MDL allege damages as a result of contamination, in most cases due to migration from military installations or airports, or personal injury from exposure to AFFF. Plaintiffs seek to recover damages for investigating, monitoring, remediating, treating, and otherwise responding to the contamination. Others have claims for personal injury, property diminution and punitive damages.
There are 8 AFFF lawsuits currently pending outside the AFFF MDL that have not been designated by a party for inclusion in the MDL. These matters are:
Valero Refining (“Valero”) has six pending state court lawsuits filed commencing in June 2019 regarding its Tennessee, Texas, Oklahoma, California, and Louisiana facilities. These lawsuits allege that several defendants that designed, manufactured, marketed, and/or sold AFFF or PFAS incorporated into AFFF have caused Valero to incur damages and costs including remediation, AFFF disposal, and replacement. Valero also alleges fraudulent transfer.
In August 2019, a putative class action was filed in Alaska state court seeking class status for property owners whose groundwater has been contaminated by AFFF use at Fairbanks International Airport, a nearby fire training facility, and other state operations.Damages sought include cost of remediation, monitoring, medical monitoring, diminution of property value, cost of replacement water, and punitive damages. Plaintiffs also allege fraudulent transfer.
In September 2019, a lawsuit alleging personal injury resulting from exposure to AFFF in Long Island drinking water was filed by 4 individuals in New York courts. Thestate court.Plaintiffs also allege violation of New York matters,Uniform Fraudulent Conveyance Act and seek compensatory and punitive damages, and medical monitoring.
State Natural Resource Damages Matters
In addition to the State of New Jersey actions (as detailed below) and the State of Ohio action (as detailed above), the states of Vermont, New Hampshire, New York, and Michigan have filed lawsuits against defendants, including DuPont and Chemours, relating to the alleged contamination of state natural resources with PFAS compounds either from AFFF and/or other unidentified sources. These lawsuits seek damages including costs to investigate, clean up, restore, treat, monitor, or otherwise respond to contamination to natural resources. The lawsuits include counts for fraudulent transfer.
Other PFAS Matters
DuPont has also been named in approximately 51 lawsuits pending in New York courts, which are not part of the Leach class, are brought by three individual plaintiffs alleging negligence and other claims in the release of perfluorinated compounds,PFAS, including PFOA, into drinking water, and seeking medical monitoring, compensatory, and punitive damages against current and former owners and suppliers of a manufacturing facility in Hoosick Falls, New York.
Management believes that the probability of loss is reasonably possible but not estimable at this time due NaN other lawsuits in New York have been filed by a business seeking to various reasons including, among others, that the proceedings arerecover its losses and by nearby property owners and residents in early stagesa putative class action seeking medical monitoring, compensatory and there are significant factual issues to be resolved.
F-38
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)punitive damages, and injunctive relief.
In May 2017, the Water Works and Sewer Board of the Town of Centre, Alabama filed suit against numerous carpet manufacturers located in Dalton, Georgia and suppliers and former suppliers, including DuPont, in Alabama state court. The complaint alleges negligence, nuisance, and trespass in the release of perfluorinated compounds,PFAS, including PFOA, into a river leading to the town’s water source, and seeks compensatory and punitive damages.
In February 2018, the New Jersey-American Water Company, Inc. (“NJAW”) filed suit against DuPont and Chemours in New Jersey federal court alleging that discharges in violation of the New Jersey Spill Compensation and Control Act (“Spill Act”), were made into groundwater utilized in the NJAW Penns Grove water system. NJAW alleges that damages include costs associated with remediating, operating, and maintaining its system, and attorney fees.
In October 2018, a putative class action was filed in Ohio federal court against 3M, DuPont, Chemours, and other defendants seeking class action status for U.S. residents having a detectable level of PFAS in their blood serum. The complaint seeks declaratory and injunctive relief, including the establishment of a “PFAS Science Panel.”
F-47
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
In December 2018, the owners of a dairy farm filed a lawsuit in Maine state court against numerous defendants including DuPont and Chemours alleging that their dairy farm was contaminated by PFAS, including perfluorooctanesulfonic acid (“PFOS”) and PFOA present in treated municipal sewer sludge used in agricultural spreading applications on their farm. The complaint asserts negligence, trespass, and other tort and state statutory claims and seeks damages.
In May 2019, a putative class action was filed in Delaware state court against two electroplating companies alleging that they are responsible for PFAS contamination, including PFOA and PFOS, in drinking water and the environment in the nearby community. The suit also names 3M, DuPont, and Chemours, asserting they sold PFAS containing materials to the electroplating companies. The putative class of residents alleges negligence, nuisance, trespass, and other claims and seeks medical monitoring, personal injury and property damages, and punitive damages.
Commencingin August 2019, 8 Long Island water suppliers filed lawsuits in New York federal court against defendants including DuPont and Chemours regarding alleged PFAS, PFOA, and PFOS contamination through releases from industrial and manufacturing facilities and business locations where PFAS-contaminated water was used for irrigation andsites where consumer products were disposed. The complaints allege products liability, negligence, nuisance, trespass, and fraudulent transfer. Plaintiffs seek declaratory and injunctive relief as well as compensatory andpunitive damages.
In November 2019, 30 residents filed a lawsuit in New Jersey state court against DuPont, Chemours, and other defendants alleging that they are responsible for PFAS contamination including PFOA and PFOS in groundwater and drinking water. Plaintiffs have claims for medical monitoring, property value diminution, trespass, and punitive damages.
In November 2019, the City of Rome, Georgia filed suit against numerous carpet manufacturers located in Dalton, Georgia, suppliers, DuPont, and Chemours in Georgia state court alleging negligence, nuisance, and trespass in the release of perfluorinated compounds, including PFOA, into a river leading to the town’s water source. City of Rome alleges damages to property and lost profits, and expenses for abatement and remediation and punitive damages.
In December 2019, a putative class action was filed in Georgia state court on behalf of customers of the Rome, Georgia water division and the Floyd County, Georgia water department against numerous carpet manufacturers located in Dalton, Georgia, suppliers, DuPont, and Chemours in Georgia state court alleging negligence and nuisance and related to the release of perfluorinated compounds, including PFOA, into a river leading to their water sources. Damages sought include compensatory damages for increased water surcharges as well as punitive damages and injunctive relief for abatement and remediation.
New Jersey Department of Environmental Protection Directives and Litigation
In March 2019, the NJ DEP issued two Directives and filed 4 lawsuits against Chemours and other defendants. The Directives are: (i) a state-wide PFAS Directive issued to DuPont, DowDuPont, DuPont Specialty Products USA (“DuPont SP USA”), Solvay S.A., 3M, and Chemours seeking a meeting to discuss future costs for PFAS related costs incurred by the NJ DEP and establishing a funding source for such costs by the Directive recipients, and information relating to historic and current use of certain PFAS compounds; and, (ii) a Pompton Lakes Natural Resources Damages (“NRD”) Directive to DuPont and Chemours demanding $0.1 to cover the cost of preparation of a natural resource damage assessment plan and access to related documents.
The lawsuits filed in New Jersey state courts by the NJ DEP are: (i) in Salem County, against DuPont, 3M, and Chemours primarily alleging clean-up and removal costs and damages and natural resource damages under the Spill Act, the Water Pollution Control Act (“WPCA”), the Industrial Site Recovery Act (“ISRA”), and common law regarding past and present operations at Chambers Works, a site assigned to Chemours at separation; (ii) in Middlesex County, against DuPont, DuPont SP USA, 3M, and Chemours primarily alleging clean-up and removal costs and damages and natural resource damages under the Spill Act, ISRA, WPCA, and common law regarding past and present operations at Parlin, a DuPont owned site; (iii) in Gloucester County, against DuPont and Chemours primarily alleging clean-up and removal costs and damages and natural resource damages under the Spill Act, WPCA, and common law regarding past operations at Repauno, a non-operating remediation site assigned to Chemours at separation which has been sold; and (iv) in Passaic County, against DuPont and Chemours primarily alleging clean-up and removal costs and damages and natural resource damages under the Spill Act, WPCA, and common law regarding past operations at Pompton Lakes, a non-operating remediation site assigned to Chemours at separation. The alleged pollutants listed in the Salem County and Middlesex County matters above include PFAS. Each lawsuit also alleges fraudulent transfer.
DuPont requested that Chemours defend and indemnify it in these matters. Chemours has accepted the defense while reserving rights and declining DuPont’s demand as to matters under ISRA, fraudulent transfer, or involving other DuPont entities.
F-48
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
PFOA and PFAS Summary
Management believes that the probability of loss is remote.
PFOA Summary
Chemours accrued $335 associated with the MDL Settlement at December 31, 2016, of which all $335 had been paid as of December 31, 2017. There could be additional lawsuits filed related to DuPont’s use of PFOA, its manufacture of PFOA, or its customers’ use of DuPont products that may not be within the scope of the MDL Settlement. Any such litigation could result in Chemours incurring additional costs and liabilities. Management believes it is reasonably possible that the Company could incur losses related to other PFOA and/or PFAS matters in excess of amounts accrued, but any such losses are not estimable at this time due to various reasons, including, among others, that such matters are in their early stages and have significant factual issues to be resolved.
U.S. Smelter and Lead Refinery, Inc.
Six
There are six lawsuits, including one putative class action arein which class certification was denied, pending against DuPont by area residents concerning the U.S. Smelter and Lead Refinery multi-party Superfund site in East Chicago, Indiana. FiveSeveral of the lawsuits allege that Chemours is now responsible for DuPont environmental liabilities. The lawsuits include allegations for personal injury damages, property diminution, and damages under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA, often referred to as Superfund).other damages. At Separation,separation, DuPont assigned Chemours its former plant site, which is located south of the residential portion of the Superfund area, and its responsibility for the environmental remediation at the Superfund site. DuPont has requested that Chemours defend and indemnify it, and Chemours has agreed to do so under a reservation of rights. Management believes a loss is reasonably possible, but not estimable at this time due to various reasons including, among others, that such matters are in their early stages and have significant factual issues to be resolved.
GenX
Securities Litigation
Commencing in October 2019, two putative class action complaints were filed in Delaware federal court alleging that Chemours and Other Perfluorinatedcertain of its officers violated the Securities Exchange Act of 1934 by making materially false and Polyfluorinated Compounds
As reported in the pressmisleading statements and notedomissions in public statements by the Company, governmental agenciesdisclosures regarding environmental liabilities assigned to Chemours in connection with its spin-off from DuPont. The complaints seek a class of purchasers of Chemours stock between February 16, 2017 and local community members have made inquiriesAugust 1, 2019 and engaged in discussions with the Company with respect to the discharge of the polymerization processing aid HFPO Dimer Acid (sometimes referred to as GenX or C3 Dimer)allege compensatory damages and perfluorinated and polyfluorinated compounds from the Company’s facility in Fayetteville, North Carolina into the Cape Fear River, groundwater, and air.fees. The Company believes that such discharges have not impacted the safety of drinking water in North Carolina. The Company has commenced capturingallegations are without merit and separately disposing process wastewater fromintends to vigorously defend against them. In January 2020, the Fayetteville facility and is cooperating withcourt appointed a variety of ongoing inquiries and investigations from federal, state, and local authorities, regulators, and other governmental entities, including responding to three federal grand jury subpoenas.
In September 2017, the North Carolina Department of Environmental Quality (NC DEQ) issued a 60-day notice of intent to suspend the permitlead plaintiff for the Fayetteville facilityconsolidated litigation and the State of North Carolina filed an action in North Carolina state court regarding the discharges seekingset a temporary restraining order and preliminary injunction, as well as other relief including abatement and site correction. A partial consent order was entered partially resolving the State’s action in returnschedule providing for the Company’s agreementfiling of a consolidated amended complaint in March 2020.
Management believes that it is not possible at this time to continue and supplementreasonably assess the voluntary wastewater-disposal measures it had previously commenced andoutcome of this litigation or to provide certain information. In November 2017, NC DEQ informedestimate the loss or range of loss as the matter is in the early stages with significant issues to be resolved. If the Company that it was suspendingwere not to prevail in the process wastewater discharge permit forlitigation, the Fayetteville facility. The Company thereafter commenced the capture and separate disposal of all process wastewater from the Fayetteville facility relatedimpact could be material to the Company’s own operations.results of operations, financial position, and cash flows.
Mining Solutions Facility Construction Stoppage
In March 2018, a civil association in Mexico filed a complaint against the government authorities involved in the permitting process of the Company’s new Mining Solutions facility under construction in Gomez Palacio, Durango, Mexico. The claimant sought and obtained a suspension from the district judge to stop the Company’s construction work. The suspension was subsequently lifted on appeal, and the matter is before the Supreme Court of Mexico. A second similar complaint was filed in September 2019 and, again, a suspension of construction was granted. Chemours has filed an appeal. In the event that the suspension of construction is ultimately upheld, the Company is continuing to cooperatewould incur $26 of contract termination fees with a third-party services provider.
At December 31, 2019 the Company had $144 long-lived assets under construction at the facility, $7 of other related prepaid costs, and discuss these matters with$51 of the State and NC DEQ, including as to issues raised by the State and NC DEQ relating to groundwater deposition and air emissions. It is possible that issues relating to groundwater deposition and/or air emissions could result in further litigation or regulatory demands with regardCompany’s goodwill assigned to the Fayetteville facility.Mining Solutions reporting unit. Management believes these amounts are recoverable as of December 31, 2019.
Civil actions have been filed against the Company and DuPont in North Carolina federal court relating to discharges from the Fayetteville site, including a consolidated action brought by water systems seeking damages and injunctive relief, and a consolidated purported class action seeking medical monitoring and property damage and/or other monetary and injunctive relief on behalf of the putative classes of property owners and residents in areas near or that draw drinking water from the Cape Fear River. It is possible that additional litigation may be filed against the Company and/or DuPont concerning the discharges. The Company believes it has valid defenses to such litigation including that the discharges did not impact the safety of drinking water or cause any damages or injury.
F-39
F-49
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
As these issues are in their early stages, however, it is not possible at this pointEnvironmental Overview
Chemours, due to predict the timing, course, or outcometerms of the governmental and regulatory inquiries, the notice issued by NC DEQ, the action brought by North Carolina, and the other litigation, and it is possible that these matters could materially affect the Company’s results and operations. In addition, local communities, organizations, and federal and state regulatory agencies have raised questions concerning HFPO Dimer Acid at certain other manufacturing sites operated by the Company, and it is possible that similar developments to those described above and centering on the Fayetteville site could arise in other locations.
Environmental
Chemours, by virtue of its status as a subsidiary ofSeparation-related agreements with DuPont, prior to the Separation, is subject to contingencies pursuant to environmental laws and regulations that in the future may require further action to correct the effects on the environment of prior disposal practices or releases of chemical substances, by Chemours or other parties.which are attributable to DuPont’s activities before it spun-off Chemours. Much of this liability results from CERCLA, the Resource Conservation and Recovery Act, and similar state and global laws. These laws require Chemours to undertake certain investigative, remediation, and restoration activities at sites where Chemours conducts or once conducted operations or at sites where Chemours-generated waste was disposed. The accrual also includes estimated costs related to a number of sites identified for which it is probable that environmental remediation will be required, but which are not currently the subject of enforcement activities.
At December 31, 2017 and 2016, the consolidated balance sheets included
Chemours accrues for remediation activities when it is probable that a liability relatinghas been incurred and a reasonable estimate of the liability can be made. Where the available information is sufficient to these mattersestimate the amount of $253liability, that estimate has been used. Where the available information is only sufficient to establish a range of probable liability, and $278, respectively, which, in management’s opinion,no point within the range is appropriatemore likely than any other, the lower end of the range has been used. Estimated liabilities are determined based on existing factsremediation laws and circumstances. technologies and the Company’s planned remedial responses, which are derived from in-depth environmental studies, sampling, testing, and analyses. Inherent uncertainties exist in such evaluations, primarily due to unknown environmental conditions, changing governmental regulations regarding liability, and emerging remediation technologies. These accruals are adjusted periodically as remediation efforts progress and as additional technological, regulatory, and legal information becomes available. Environmental liabilities and expenditures include claims for matters that are liabilities of DuPont and its subsidiaries, which Chemours may be required to indemnify pursuant to the separation-related agreements. These accrued liabilities are undiscounted and do not include claims against third parties. Costs related to environmental remediation are charged to expense in the period that the associated liability is accrued.
The following table sets forth the components of the Company’s environmental remediation liabilities at December 31, 2019 and 2018, and for the five sites that are deemed the most significant by management, including Fayetteville as further discussed below.
|
| December 31, 2019 |
|
| December 31, 2018 |
| ||
Chambers Works, Deepwater, New Jersey |
| $ | 20 |
|
| $ | 18 |
|
East Chicago, Indiana |
|
| 17 |
|
|
| 21 |
|
Fayetteville Works, Fayetteville, North Carolina |
|
| 201 |
|
|
| 75 |
|
Pompton Lakes, New Jersey |
|
| 43 |
|
|
| 45 |
|
USS Lead, East Chicago, Indiana |
|
| 13 |
|
|
| 15 |
|
All other sites |
|
| 112 |
|
|
| 117 |
|
Total accrued environmental remediation |
| $ | 406 |
|
| $ | 291 |
|
The following table sets forth the current and long-term components of the Company’s environmental remediation liabilities and their balance sheet locations at December 31, 2019 and 2018.
|
| Balance Sheet Location |
| December 31, 2019 |
|
| December 31, 2018 |
| ||
Environmental Remediation: |
|
|
|
|
|
|
|
|
|
|
Current environmental remediation |
| Other accrued liabilities (Note 19) |
| $ | 74 |
|
| $ | 139 |
|
Long-term environmental remediation |
| Other liabilities (Note 21) |
|
| 332 |
|
|
| 152 |
|
Total environmental remediation |
|
|
| $ | 406 |
|
| $ | 291 |
|
F-50
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
The time-frame for a site to go through all phases of remediation (investigation and active clean-up) may take about 15 to 20 years, followed by several years of operation, maintenance, and monitoring (OM&M)OM&M activities. Remediation activities, including OM&M activities, vary substantially in duration and cost from site to site. These activities, and their associated costs, depend on the mix of unique site characteristics, evolving remediation technologies, and diverse regulatory requirements, as well as the presence or absence of other potentially responsible parties. In addition, for claims that Chemours may be required to indemnify DuPont pursuant to the Separation-related agreements, Chemours, through DuPont, has limited available information for certain sites or is in the early stages of discussions with regulators. For these sites in particular, there may be considerable variability between the clean-up activities that are currently being undertaken or planned and the ultimate actions that could be required. Therefore, considerable uncertainty exists with respect to environmental remediation costs and, under adverse changes in circumstances, although deemed remote, the potential liability may range up to approximately $510$530 above the amount accrued at December 31, 2017.2019.
For the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, Chemours incurred environmental remediation expenses of $48, $44,$200, $101, and $38,$48, respectively.
Based
Fayetteville Works, Fayetteville, North Carolina
Fayetteville has been in operation since the 1970s and is located next to the Cape Fear River southeast of the City of Fayetteville, North Carolina. Hexafluoropropylene oxide dimer acid (“HFPO Dimer Acid,” sometimes referred to as “GenX” or “C3 Dimer Acid”) is manufactured at Fayetteville. The Company has operated the site since its separation from DuPont in 2015.
The Company believes that discharges from Fayetteville to the Cape Fear River, site surface water, groundwater, and air emissions have not impacted the safety of drinking water in North Carolina. The Company is cooperating with a variety of ongoing inquiries and investigations from federal, state, and local authorities, regulators, and other governmental entities.
Consent Order with North Carolina Department of Environmental Quality (“NC DEQ”)
In September 2017, the NC DEQ issued a 60-day notice of intent to suspend the National Pollutant Discharge Elimination System (“NPDES”) permit for Fayetteville, and the State of North Carolina filed an action in North Carolina state court regarding site discharges, seeking a temporary restraining order and preliminary injunction, as well as other relief, including abatement and site correction. The state court entered a partial consent order resolving NC DEQ’s motion for a temporary restraining order.
In November 2017, NC DEQ informed the Company that it was suspending the NPDES permit for Fayetteville. The Company thereafter commenced the capture and separate disposal of all process wastewater from Fayetteville related to the Company’s own operations.
In June 2018, the North Carolina Legislature enacted legislation (i) granting the governor the authority, in certain circumstances, to require a facility with unauthorized PFAS discharges to cease operations, and (ii) granting the governor the authority, in certain circumstances, to direct the NC DEQ secretary to order a PFAS discharger to establish permanent replacement water supplies for parties whose water was contaminated by the discharge.
In July 2018, Cape Fear River Watch (“CFRW”), a non-profit organization, sued NC DEQ in North Carolina state court, seeking to require NC DEQ to take additional actions at Fayetteville. On August 29, 2018, CFRW sued the Company in North Carolina federal court for alleged violations of the Clean Water Act (“CWA”) and the Toxic Substances Control Act (“TSCA”), seeking declaratory and injunctive relief and penalties.
In February 2019, the North Carolina Superior Court for Bladen County approved a Consent Order (“CO”) between NC DEQ, CFRW and the Company, resolving the State’s and CFRW’s lawsuits and other matters (including Notices of Violation (“NOVs”) issued by the State). Under the terms of the CO, Chemours paid $13 in March 2019 to cover a civil penalty and investigative costs and agreed to certain compliance measures (with stipulated penalties for failures to do so), including the following:
• | Install a thermal oxidizer to control all PFAS in process streams from certain processes at Fayetteville at an efficiency of 99.99%; |
• | Develop, submit, and implement, subject to approval from NC DEQ and CFRW, a plan for interim actions that are economically and technologically feasible to achieve the maximum PFAS reduction from Fayetteville to the Cape Fear River within a two-year period; |
• | Develop and implement, subject to approval, a Corrective Action Plan that complies with North Carolina’s groundwater standards and guidance provided by NC DEQ. At a minimum, the Corrective Action Plan must require Chemours to reduce the total loading of PFAS originating from Fayetteville to surface water by at least 75% from baseline, as defined by the CO; and, |
• | Provide and properly maintain permanent drinking water supplies, including via whole-building filtration units and reverse osmosis (“RO”) units to qualifying surrounding properties with private drinking water wells. |
F-51
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
The following table sets forth the components of the Company’s accrued environmental remediation liabilities related to PFAS at Fayetteville at December 31, 2019 and 2018.
|
| December 31, 2019 |
|
| December 31, 2018 |
| ||
On-site remediation |
| $ | 155 |
|
| $ | 10 |
|
Off-site groundwater remediation |
|
| 46 |
|
|
| 65 |
|
Total accrued liabilities |
| $ | 201 |
|
| $ | 75 |
|
The following table sets forth the current and long-term components of the Company’s accrued environmental remediation liabilities related to PFAS at Fayetteville and their balance sheet locations at December 31, 2019 and 2018.
|
| Balance Sheet Location |
| December 31, 2019 |
|
| December 31, 2018 |
| ||
Current accrued liabilities |
| Other accrued liabilities (Note 19) |
| $ | 20 |
|
| $ | 75 |
|
Long-term accrued liabilities |
| Other liabilities (Note 21) |
|
| 181 |
|
|
| — |
|
Total accrued liabilities |
|
|
| $ | 201 |
|
| $ | 75 |
|
Emissions to air
Fayetteville operates multiple permitted air discharge stacks, blowers, and vents as part of its manufacturing activities. A thermal oxidizer (“TO”) became fully operational at the site on existingDecember 27, 2019, and Chemours switched to the permitted operating scenario for the TO on December 31, 2019 as set forth in the CO. The TO is designed to reduce aerial PFAS emissions from Fayetteville, and, within 90 days of installation, Chemours and North Carolina Division of Air Quality will conduct testing to confirm whether the TO is destroying 99.99% of all PFAS air emissions routed to it, utilizing a 2017 baseline. Environmental costs are capitalized and subsequently depreciated if the costs extend the useful life of the property, increase the property’s capacity, and/or reduce or prevent contamination from future operations.
Off-site replacement drinking water supplies
The CO requires the Company to provide permanent replacement drinking water supplies, including via connection to public water supply, whole building filtration units and/or RO units, to qualifying surrounding residents, businesses, schools, and public buildings with private drinking water wells. The qualifying area residents whose drinking water wells have tested above the state provisional health goal of 140 parts per trillion (ppt) for GenX may be eligible for public water or a whole building filtration system. Area residents whose drinking water wells have tested above 10 ppt for GenX or other perfluorinated compounds (“Table 3 Compounds”) are eligible for three under-sink RO units. The Company provides bottled drinking water to a residence when it becomes eligible for a replacement drinking water supply, and continues to provide delivery of bottled drinking water to these homeowners until the eligible supply is established or installed.
The Company’s estimated liability for off-site replacement drinking water supplies is based on management’s assessment of the current facts and circumstances for this matter, which are subject to various assumptions that include, but are not limited to, the number of affected surrounding properties, response rates to the Company’s offer, the type of water treatment systems selected (i.e., whole building filtration or RO units), the cost of the selected water treatment systems, and any related operation, maintenance, and monitoring (“OM&M”) requirements, assessed fines and penalties, and other charges contemplated by the CO. For off-site drinking water supplies, OM&M is accrued for 20 years on an undiscounted basis based on the Company’s current plans under the CO. It is estimated that $46 of disbursements related to off-site replacement drinking water supplies will be made over approximately 20 years.
F-52
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
On-site surface water and groundwater remediation
Abatement and remediation measures already taken by Chemours, including the capture and separate disposal of its operations’ process wastewater and other interim actions, have addressed and abated nearly all PFAS discharges from the Company’s continuing operations at Fayetteville. However, the Company continues to have active dialogue with NC DEQ and other stakeholders regarding the potential remedies that are both economically and technologically feasible to achieve the CO objectives related to site surface water and groundwater.
In the fourth quarter of 2019, the Company completed and submitted its Cape Fear River PFAS Loading Reduction Plan - Supplemental Information Report and Corrective Action Plan (“CAP”) to NC DEQ. The Supplemental Information Report provides information to support the evaluation of potential remedial options to reduce PFAS loadings to surface waters, including interim alternatives. The CAP describes potential remediation activities to address PFAS in on-site groundwater and surface waters at the site, in accordance with the requirements of the CO and the North Carolina groundwater standards, and builds on the previous submissions to NC DEQ. The NC DEQ has made the CAP available for public review and comment until March 6, 2020.
The Company’s estimated liability for the remediation activities that are probable and estimable is based on the CAP and management’s assessment of the current facts and circumstances, which are subject to various assumptions including the transport pathways (being pathways by which PFAS reaches the Cape Fear River) which will require remedial actions, the types of site surface water and on-site remedies and treatment systems selected and implemented, the estimated cost of such potential remedies and treatment systems, and any related OM&M requirements, and other charges contemplated by the CO.
The CAP also addresses remediation of on-site groundwater and proposes an interim action of extraction of groundwater from existing monitoring wells and treatment prior to discharge. Chemours also proposes to simultaneously proceed with detailed design and engineering of a permanent on-site groundwater treatment system alternative, including collection of extensive pre-design data, while holding a final decision on which alternative should be selected, with approval by NC DEQ, until that design and engineering work is complete (approximately two years). The actual cost of a permanent on-site groundwater treatment system primarily depends on the determination of certain significant design details, notably the actual barrier wall installation method (i.e., slurry wall vs. steel sheets), configuration of extraction wells, and extraction rates.
Accordingly, in the fourth quarter of 2019, based on the CO, the CAP, and management’s plans, which are based on current regulations and technology, the Company accrued an additional $132 related to the estimated cost of on-site remediation. The incremental estimated remediation liability, based on current potential remedial options, is primarily comprised of $42 of construction costs, which are projected to be paid through 2025, and $88 of related OM&M requirements, which is projected to be paid over a period of approximately 20 years. The final costs of any selected remediation will depend primarily on the final approved design and actual labor and material costs.
It is possible that issues relating to site discharges in various transport pathways, the selection of remediation alternatives to achieve PFAS loading reductions, or the operating effectiveness of the TO could result in further litigation and/or regulatory demands with regards to Fayetteville, including potential permit modifications. It is also possible that, as additional data is collected on the transport pathways and dialogue continues with NC DEQ and other stakeholders, the type or extent of remediation actions required to achieve the objectives committed to in the CO may change (increase or decrease). If such issues arise, or if the CO is amended, an additional loss is reasonably possible, but not estimable at this time.
F-53
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Other matters related to Fayetteville
The Company has responded to grand jury subpoenas, produced witnesses before a grand jury and for interviews with government investigators and attorneys, and met with the U.S. Attorney’s Office for the Eastern District of North Carolina and the Environment and Natural Resources Division of the U.S. Department of Justice regarding their ongoing investigation into a potential violation of the CWA. We are presently unable to predict the duration, scope or result of any potential criminal or civil proceeding, including whether fines, penalties, and/or other remedies will be imposed. As such, management believes that it is not possible at this time to reasonably assess the outcome of this matter or to estimate the loss or range of losses, if any, that could result from this matter.
A Notice of Violation (NOV) was received from the EPA in February 2019 alleging certain TSCA violations at Fayetteville. Matters raised in the NOV could have the potential to affect operations at Fayetteville. The Company responded to the EPA in March 2019 asserting that the Company has not violated environmental laws. At this time, management does not believe that anya loss in excess of amounts accrued,is probable related to remediation activitiesthe matters in this NOV.
In 2019, civil actions have been filed against DuPont and Chemours in North Carolina federal court relating to discharges from Fayetteville. These actions include a consolidated action brought by public water suppliers seeking damages and injunctive relief, a consolidated purported class action seeking medical monitoring, and property damage and/or other monetary and injunctive relief on behalf of the putative classes of property owners and residents in areas near or that draw drinking water from the Cape Fear River, and an action by private well owners seeking compensatory and punitive damages. Ruling on the Company’s motions in April 2019, the court dismissed the medical monitoring, injunctive demand, and many other alleged causes of actions in these lawsuits. It is possible that additional litigation may be filed against the Company and/or DuPont concerning the discharges.
It is not possible at any individual site will have a material impact onthis point to predict the timing, course, or outcome of all governmental and regulatory inquiries and notices and litigation, and it is reasonably possible that these matters could materially affect the Company’s financial position, results of operations, orand cash flowsflows. In addition, local communities, organizations, and federal and state regulatory agencies have raised questions concerning HFPO Dimer Acid and other perfluorinated and polyfluorinated compounds at certain other manufacturing sites operated by the Company. It is possible that additional developments similar to those described above and centering on Fayetteville could arise in any given year, as such obligation can be satisfied or settled over many years.other locations.
Sale of East Chicago, Indiana
On June 29, 2018, the Company sold its East Chicago, Indiana site to a third party for $1. In connection with the sale, the buyer has agreed to assume all costs associated with environmental remediation activities at the site in excess of $21, which will remain the responsibility of Chemours. At the time of the sale, the Company had accrued the full $21, and will reimburse the buyer through a series of progress payments to be made at defined intervals as certain tasks are completed. The Company recognized a gain of $3 on the sale, which includes the purchase price of $1, plus $2 in environmental remediation liabilities that were assumed by the buyer on the occurrence of the sale.
Sale of Potomac River, West Virginia
On September 27, 2018, the Company sold its Potomac River, West Virginia site to a third party for $4. In connection with the sale, the buyer has agreed to assume certain future environmental remediation costs, and Chemours has retained $4 in existing environmental remediation liabilities, which is a component of all other sites in the significant sites table above. The Company recognized a $3 gain on the sale, which was deferred and will be recognized as the Company completes certain environmental remediation activities at the site.
Sale of Oakley, California
On September 9, 2019, the Company sold its Oakley, California site to a third party for $7, of which $4 was received at closing with receipt of the remaining $3 of proceeds contingent upon the completion of certain future environmental remediation activities at the site. In connection with the sale, Chemours has retained $10 in existing environmental remediation liabilities, which is a component of all other sites in the significant sites table above. The Company recognized a $2 gain on the sale, which was deferred and will be recognized as the Company completes certain environmental remediation activities at the site.
F-54
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Note 21.23. Equity
Share Repurchase Program
On November 30, 2017, the Company’s board of directors approved a share repurchase program authorizing the purchase of shares of Chemours’ issued and outstanding common stock in an aggregate amount not to exceed $500, plus any associated fees or costs in connection with the Company’s share repurchase activity.activity (the “2017 Share Repurchase Program”). Under the share repurchase program,2017 Share Repurchase Program, shares of Chemours’ common stock maywere purchased on the open market from time to time, subject to management’s discretion, as well as general business and market conditions. The Company’s 2017 Share Repurchase Program became effective on November 30, 2017. On May 31, 2018, the Company completed the aggregate $500 in authorized purchases of Chemours’ issued and outstanding common stock under the 2017 Share Repurchase Program, which amounted to a cumulative 10,085,647 shares purchased at an average share price of $49.58 per share. All common shares purchased under the 2017 Share Repurchase Program are held as treasury stock and are accounted for using the cost method.
On August 1, 2018, the Company’s board of directors approved a share repurchase program authorizing the purchase of shares of Chemours’ issued and outstanding common stock in an aggregate amount not to exceed $750, plus any associated fees or costs in connection with the Company’s share repurchases activity (“2018 Share Repurchase Program”). On February 13, 2019, the Company’s board of directors increased the authorization amount of the 2018 Share Repurchase Program from $750 to $1,000. Under the 2018 Share Repurchase Program, shares of Chemours’ common stock can be purchased on the open market from time to time, subject to management’s discretion, as well as general business and market conditions. The Company’s share repurchase program2018 Share Repurchase Program became effective on November 30, 2017August 1, 2018 and continueswill continue through the earlier of its expiration on December 31, 2020.2020, or the completion of repurchases up to the approved amount. The program may be suspended or discontinued at any time. All common shares purchased under the share repurchase program2018 Share Repurchase Program are expected to be held as treasury stock and are accounted for using the cost method.
As of December 31, 2017,During 2019, the Company purchased 2,386,406an aggregate 8,895,142 shares of Chemours’ issued and outstanding common stock under the share repurchase program,2018 Share Repurchase Program, which amounted to $116$322 at an average share price of $48.81$36.24 per share. OfDuring 2018, the 2,386,406Company purchased an aggregate 6,350,857 shares purchased by Chemours, 206,106 shares amountingof Chemours’ issued and outstanding common stock under the 2018 Share Repurchase Program, which amounted to $10 settled subsequent to December 31, 2017. All common shares purchased were part$250 at an average share price of the Company’s share repurchase program, which was announced to the public on December 1, 2017.$39.31 per share. The aggregate amount of Chemours’ common stock that remainsremained available for purchase under the share repurchasethis program at December 31, 2019 was $428.
Note 24. Stock-based Compensation
The Company’s stock-based compensation expense amounted to $19, $24, and $29 for the years ended December 31, 2019, 2018, and 2017, is $384.respectively.
F-40
On April 26, 2017, Chemours’ stockholders approved The Chemours Company 2017 Equity and Incentive Plan (the “2017 Plan”), which provides for grants to certain employees, independent contractors, or non-employee directors of the Company of different forms of awards, including stock options, RSUs, and PSUs. The 2017 Plan replaced The Chemours Company Equity and Incentive Plan (the “Prior Plan”), which was adopted by the Company at Separation. As a result, 0 further grants will be made under the Prior Plan.
A total of 19,000,000 shares of the Company’s common stock may be subject to awards granted under the 2017 Plan, less 1 share for every one share that was subject to an option or stock appreciation right granted after December 31, 2016 under the Prior Plan, and one-and-a-half shares for every one share that was subject to an award other than an option or stock appreciation right granted after December 31, 2016 under the Prior Plan. Any shares that are subject to options or stock appreciation rights will be counted against this limit as 1 share for every one share granted, and any shares that are subject to awards other than options or stock appreciation rights will be counted against this limit as one-and-a-half shares for every one share granted. Awards that were outstanding under the Prior Plan remain outstanding under the Prior Plan in accordance with their terms. Shares underlying awards granted under the Prior Plan after December 31, 2016 that are forfeited, cancelled, or that otherwise do not result in the issuance of shares, will be available for issuance under the 2017 Plan. At December 31, 2019, approximately 13,900,000 shares of equity and incentive plan reserve are available for grants under the 2017 Plan.
The Chemours Compensation Committee determines the long-term incentive mix, including stock options, RSUs, and PSUs, and may authorize new grants annually.
F-55
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Dividends PayableStock Options
On November 30,During 2019, 2018, and 2017, Chemours granted non-qualified stock options to certain of its employees, which will serially vest over a three-year period and expire 10 years from the date of grant. The fair values of the Company’s board of directors declared a cash dividend of $0.17 per share, payablestock options are based on the Black-Scholes valuation model.
The following table sets forth the weighted-average assumptions used at the respective grant dates to determine the record holders of Chemours’ issued and outstanding common stock asfair values of the close of business on February 15, 2018. This dividend will be paid on March 15, 2018, and accordingly, the Company has accrued a dividend payable amounting to $31 at December 31, 2017.
Note 22. Financial Instruments
Derivative Instruments
Objectives and Strategies for Holding Derivative Instruments
In the ordinary course of business, Chemours enters into contractual arrangements (derivatives) to reduce its exposure to foreign currency risks. The Company has established a derivative program to be utilized for financial risk management. This program reflects varying levels of exposure coverage and time horizons based on an assessment of risk. The derivative program has procedures consistent with Chemours’ financial risk management policies and guidelines.
Foreign Currency Forward Contracts
Chemours uses foreign currency forward contracts to reduce its net exposure, by currency, related to the non-functional currency-denominated monetary assets and liabilities of its operations so that exchange gains and losses resulting from exchange rate changes are minimized. These derivative instruments are not part of a cash flows hedge program or a fair value hedge program, and have not been designated as a hedge. Although all of the forward contracts are subject to an enforceable master netting agreement, Chemours has elected to present the derivative assets and liabilities on a gross basis on its consolidated balance sheets. No collateral has been required for these contracts. All gains and losses resulting from the revaluation of the derivative assets and liabilities are recognized in other income, net in the consolidated statements of operationsCompany’s stock option awards granted during the period in which they occurred.
At December 31, 2017, there were no forward exchange currency contracts outstanding, and at December 31, 2016, there were 45 forward exchange currency contracts outstanding with an aggregate gross notional value of $518. Chemours recognized a net gain of $4 for the yearyears ended December 31, 2017, a net loss2019, 2018, and 2017.
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Risk-free interest rate |
|
| 2.53 | % |
|
| 2.65 | % |
|
| 2.14 | % |
Expected term (years) |
|
| 6 |
|
|
| 6 |
|
|
| 6 |
|
Volatility |
|
| 48.05 | % |
|
| 47.56 | % |
|
| 44.49 | % |
Dividend yield |
|
| 2.81 | % |
|
| 1.42 | % |
|
| 0.35 | % |
Fair value per stock option |
| $ | 13.66 |
|
| $ | 20.47 |
|
| $ | 15.21 |
|
The Company determined the dividend yield by dividing the expected annual dividend on the Company's stock by the option exercise price. A historical daily measurement of $15volatility is determined based on the average volatility of peer companies adjusted for the year ended December 31, 2016, andCompany’s debt leverage. The risk-free interest rate is determined by reference to the yield on an outstanding U.S. Treasury note with a net gain of $42 forterm equal to the year ended December 31, 2015, which are recorded in other income, net in the consolidated statements of operations.
Net Investment Hedge - Foreign Currency Borrowings
Chemours designated its Euro Notes and, beginning in April 2017, also designated its new Euro Term Loan as a hedge of its net investments in certain of its international subsidiaries that use the euro as their functional currency in order to reduce the volatility in stockholders’ equity caused by the changes in foreign currency exchange ratesexpected life of the euro with respect tooption granted. The expected life is determined using a simplified approach, calculated as the U.S. dollar. Chemours usesmid-point between the spot method to measuregraded vesting period and the effectiveness of its net investment hedge. For each reporting period, the change in the carrying valuecontractual life of the Euro Notes and the Euro Term Loan due to remeasurement of the effective portion are reported in accumulated other comprehensive loss on the consolidated balance sheets, and the remaining change in the carrying value of the ineffective portion, if any, is recognized in other income, net in the consolidated statements of operations. Chemours evaluates the effectiveness of its net investment hedge quarterly. Chemours did not record any ineffectivenessaward.
The following table sets forth Chemours’ stock option activity for the years ended December 31, 2017, 2016, or 2015. 2019, 2018, and 2017.
|
| Number of Shares (in Thousands) |
|
| Weighted-average Exercise Price (per Share) |
|
| Weighted-average Remaining Contractual Term (in Years) |
|
| Aggregate Intrinsic Value (in Thousands) |
| ||||
Outstanding, December 31, 2016 |
|
| 7,969 |
|
| $ | 13.72 |
|
|
| 5.08 |
|
| $ | 66,668 |
|
Granted |
|
| 878 |
|
|
| 34.84 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (2,173 | ) |
|
| 14.36 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (47 | ) |
|
| 20.55 |
|
|
|
|
|
|
|
|
|
Expired |
|
| (30 | ) |
|
| 12.29 |
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2017 |
|
| 6,597 |
|
| $ | 15.72 |
|
|
| 5.11 |
|
| $ | 226,524 |
|
Granted |
|
| 495 |
|
|
| 48.41 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (1,073 | ) |
|
| 14.69 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (46 | ) |
|
| 37.77 |
|
|
|
|
|
|
|
|
|
Expired |
|
| (3 | ) |
|
| 18.80 |
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2018 |
|
| 5,970 |
|
| $ | 18.45 |
|
|
| 4.80 |
|
| $ | 72,108 |
|
Granted |
|
| 836 |
|
|
| 36.48 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (590 | ) |
|
| 14.56 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (110 | ) |
|
| 39.06 |
|
|
|
|
|
|
|
|
|
Expired |
|
| (50 | ) |
|
| 22.12 |
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2019 |
|
| 6,056 |
|
| $ | 20.92 |
|
|
| 4.71 |
|
| $ | 19,087 |
|
Exercisable, December 31, 2019 |
|
| 4,620 |
|
| $ | 16.23 |
|
|
| 3.79 |
|
| $ | 18,630 |
|
The Company recognizedaggregate intrinsic values in the table above represent the total pre-tax lossesintrinsic value (the difference between the Company's closing stock price on the last trading day at the end of $86the year and pre-tax gainsthe exercise price, multiplied by the number of $14 and $8in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at year-end. The amount changes based on its net investment hedges within accumulated other comprehensive lossthe fair market value of the Company’s stock. The total intrinsic value of all options exercised for the years ended December 31, 2019, 2018, and 2017 2016,amounted to $2, $37, and 2015,$49, respectively.
F-41
F-56
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Fair ValueFor the years ended December 31, 2019, 2018, and 2017, the Company recorded $9, $8, and $7 in stock-based compensation expense specific to its non-qualified stock options, respectively. At December 31, 2019, there was $8 of Derivative Instrumentsunrecognized stock-based compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 1.83 years.
Restricted Stock Units
Chemours grants RSUs to key management employees that generally vest over a three-year period and, upon vesting, convert 1-for-one to Chemours’ common stock. The fair value of all stock-settled RSUs is based on the market price of the underlying common stock as of the grant date. RSUs vest contingent upon a time-based vesting condition and do not have explicit performance conditions.
The following table sets forth non-vested RSUs at December 31, 2019, 2018, and 2017.
|
| Number of Shares (in Thousands) |
|
| Weighted-average Grant Date Fair Value (per Share) |
| ||
Non-vested, December 31, 2016 |
|
| 2,316 |
|
| $ | 11.23 |
|
Granted |
|
| 214 |
|
|
| 36.68 |
|
Vested |
|
| (1,316 | ) |
|
| 11.46 |
|
Forfeited |
|
| (49 | ) |
|
| 14.27 |
|
Non-vested, December 31, 2017 |
|
| 1,165 |
|
| $ | 15.34 |
|
Granted |
|
| 135 |
|
|
| 48.35 |
|
Vested |
|
| (1,034 | ) |
|
| 14.86 |
|
Forfeited |
|
| (19 | ) |
|
| 30.94 |
|
Non-vested, December 31, 2018 |
|
| 247 |
|
| $ | 34.22 |
|
Granted |
|
| 439 |
|
|
| 26.89 |
|
Vested |
|
| (110 | ) |
|
| 24.98 |
|
Forfeited |
|
| (30 | ) |
|
| 33.90 |
|
Non-vested, December 31, 2019 |
|
| 546 |
|
| $ | 29.95 |
|
The Company recorded stock-based compensation expense specific to its RSUs of $7 for the years ended December 31, 2019 and 2018, and $14 for the year ended December 31, 2017. At December 31, 2019, there was $10 of unrecognized stock-based compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of 0.88 years.
F-57
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Performance Share Units
Chemours grants PSUs to key senior management employees which, upon vesting, convert 1-for-one to Chemours’ common stock if specified performance goals, including certain market-based conditions, are met over the three-year performance period specified in the grant, subject to exceptions through the respective vesting period of three years. Each grantee is granted a target award of PSUs, and may earn between 0% and 250% of the target amount depending on the Company’s performance against stated performance goals.
The following table sets forth non-vested PSUs at 100% of target amounts at December 31, 2019, 2018, and 2017.
|
| Number of Shares (in Thousands) |
|
| Weighted-average Grant Date Fair Value (per Share) |
| ||
Non-vested, December 31, 2016 |
|
| 803 |
|
| $ | 6.10 |
|
Granted |
|
| 211 |
|
|
| 40.30 |
|
Vested |
|
| — |
|
|
| — |
|
Forfeited |
|
| (27 | ) |
|
| 16.62 |
|
Non-vested, December 31, 2017 |
|
| 987 |
|
| $ | 12.94 |
|
Granted |
|
| 139 |
|
|
| 52.34 |
|
Vested |
|
| (19 | ) |
|
| 24.16 |
|
Non-vested, December 31, 2018 |
|
| 1,107 |
|
| $ | 17.71 |
|
Granted |
|
| 240 |
|
|
| 44.38 |
|
Vested (1) |
|
| (761 | ) |
|
| 5.07 |
|
Forfeited |
|
| (57 | ) |
|
| 43.35 |
|
Non-vested, December 31, 2019 |
|
| 529 |
|
| $ | 39.53 |
|
(1) | During the year ended December 31, 2019, approximately 1,520,000 PSUs granted in 2016 to the Company’s key senior management employees vested, based on the attainment of certain performance- and market-based conditions. Of the 1,520,000 PSUs that vested during the year ended December 31, 2019, approximately 680,000 non-issued shares were cancelled to cover the employee portion of income taxes related to such awards. |
A portion of the fair value of Chemours’ derivative assets and liabilities, and their level withinPSUs was estimated at the fair value hierarchy, at December 31, 2017 and 2016.
|
|
|
| Fair Value Using Level 2 Inputs |
| |||||
|
|
|
| December 31, |
| |||||
|
| Balance Sheet Location |
| 2017 |
|
| 2016 |
| ||
Asset derivatives: |
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
| Accounts and notes receivable - trade, net |
| $ | — |
|
| $ | 2 |
|
Total asset derivatives |
|
|
| $ | — |
|
| $ | 2 |
|
|
|
|
|
|
|
|
|
|
|
|
Liability derivatives: |
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
| Other accrued liabilities |
| $ | — |
|
| $ | 4 |
|
Total liability derivatives |
|
|
| $ | — |
|
| $ | 4 |
|
The Company’s foreign currency forward contracts are classified as Level 2 financial instruments within the fair value hierarchy as the valuation inputs aregrant date based on quoted prices andthe probability of satisfying the market-based conditions associated with the PSUs using the Monte Carlo valuation method, which assesses the probabilities of various outcomes of market observable dataconditions. The other portion of similar instruments. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instrumentsPSUs is based on significant observablethe fair market inputs, suchvalue of the Company’s stock at the grant date, regardless of whether the market-based condition is satisfied. The per unit weighted-average fair value at the date of grant for PSUs granted during the year ended December 31, 2019 was $44.38. The fair value of each PSU grant is amortized monthly into compensation expense based on its respective vesting conditions over a three-year period. Compensation cost is incurred based on the Company’s estimate of the final expected value of the award, which is adjusted as foreign exchange ratesrequired for the portion based on the performance-based condition. The Company assumes that forfeitures will be minimal and implied volatilities obtainedrecognizes forfeitures as they occur, which results in a reduction in compensation expense. As the payout of PSUs includes dividend equivalents, no separate dividend yield assumption is required in calculating the fair value of the PSUs.
For the years ended December 31, 2019, 2018, and 2017, the Company recorded $3, $9, and $8 in stock-based compensation expense specific to its PSUs, respectively. At December 31, 2019, based on the Company’s assessment of its performance goals, approximately 600,000 additional shares may be awarded under the 2017 Plan.
F-58
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Employee Stock Purchase Plan
On January 26, 2017, the Company’s board of directors approved The Chemours Company Employee Stock Purchase Plan (the “ESPP”), which was approved by Chemours’ stockholders on April 26, 2017. Under the ESPP, a total of 7,000,000 shares of Chemours’ common stock are reserved and authorized for issuance to participating employees, as defined by the ESPP, which excludes executive officers of the Company. The ESPP provides for consecutive 12-month offering periods, each with 2 purchase periods in March and September within those offering periods. The initial offering period under the ESPP began on October 2, 2017. Participating employees are eligible to purchase the Company’s common stock at a discounted rate equal to 95% of its fair value on the last trading day of each purchase period.
To date, the Company has executed open market transactions to purchase the Company’s common stock on behalf of its ESPP participants, which amounted to 120,714 shares. During the year ended December 31, 2018, an additional 12,411 shares were issued from various market sources. Market inputs are obtained from well-established and recognized vendorsthe Company’s treasury stock to ESPP participants. The total amount of market data, and are subjectedChemours’ common stock received by employees in connection with the ESPP amounted to tolerance and/or quality checks.$4 at December 31, 2019.
Note 25. Accumulated Other Comprehensive Loss
The following table sets forth the components of accumulated other comprehensive loss, net of income taxes, for the years ended December 31, 2019, 2018, and 2017.
|
| Net Investment Hedge |
|
| Cash Flow Hedge |
|
| Cumulative Translation Adjustment |
|
| Employee Benefits |
|
| Total |
| |||||
Balance at January 1, 2017 |
| $ | 22 |
|
| $ | — |
|
| $ | (358 | ) |
| $ | (241 | ) |
| $ | (577 | ) |
Other comprehensive (loss) income |
|
| (62 | ) |
|
| — |
|
|
| 200 |
|
|
| (3 | ) |
|
| 135 |
|
Balance at December 31, 2017 |
|
| (40 | ) |
|
| — |
|
|
| (158 | ) |
|
| (244 | ) |
|
| (442 | ) |
Other comprehensive income (loss) |
|
| 15 |
|
|
| 6 |
|
|
| (75 | ) |
|
| (68 | ) |
|
| (122 | ) |
Balance at December 31, 2018 |
|
| (25 | ) |
|
| 6 |
|
|
| (233 | ) |
|
| (312 | ) |
|
| (564 | ) |
Other comprehensive income (loss) |
|
| 15 |
|
|
| (4 | ) |
|
| 2 |
|
|
| 202 |
|
|
| 215 |
|
Balance at December 31, 2019 |
| $ | (10 | ) |
| $ | 2 |
|
| $ | (231 | ) |
| $ | (110 | ) |
| $ | (349 | ) |
Note 23. Long-term Employee Benefits26. Financial Instruments
Plans Covering Employees
Derivative Instruments
Net Monetary Assets and Liabilities Hedge – Foreign Currency Forward Contracts
At December 31, 2019, the Company had 16 foreign currency forward contracts outstanding with an aggregate gross notional U.S. dollar equivalent of $530, and an average maturity of one month. At December 31, 2018, the Company had 20 foreign currency forward contracts outstanding with an aggregate gross notional U.S. dollar equivalent of $503, and an average maturity of one month. Chemours recognized a net loss of $2, and net gains of $3 and $4 for the years ended December 31, 2019, 2018, and 2017, respectively, which were recorded in other income (expense), net in the U.S.consolidated statements of operations.
Chemours sponsors a variety of employee benefit plans, which cover substantially all U.S. employees. Prior to July 1, 2015, U.S. employees generally participated in DuPont’s primary pension plan, the Retirement Savings Plan (RSP), and certain other long-term employee benefit plans. In conjunction with the Separation on July 1, 2015, Chemours’ employees stopped participating in DuPont’s plans and became participants in newly-established Chemours plans. DuPont retained all liabilities related to its U.S. plans following the Separation.
On July 1, 2015, Chemours established a defined contribution plan, similar in design to DuPont’s RSP, which covered all eligible U.S. employees. The purpose of the plan is to encourage employees to save for their future retirement needs. The plan is a tax-qualified contributory profit-sharing plan, with cash or deferred arrangement, and any eligible employee of Chemours may participate. Chemours matches 100% of the first 6% of the employee’s contribution election, and the plan’s matching contributions vest immediately upon contribution. Chemours may also provide an additional discretionary retirement savings contribution to eligible employees’ compensation. The amount of this contribution, if any, is at the sole discretion ofCash Flow Hedge – Foreign Currency Forward Contracts
At December 31, 2019, the Company had 150 foreign currency forward contracts outstanding under Chemours’ cash flow hedge program with an aggregate notional U.S. dollar equivalent of $124, and an average maturity of five months. At December 31, 2018, the discretionary contribution vestsCompany had 75 foreign currency forward contracts outstanding under Chemours’ cash flow hedge program with an aggregate notional U.S. dollar equivalent of $143, and an average maturity of four months. The Company recognized pre-tax gains of $6 and $10 for employees with at least threethe years ended December 31, 2019 and 2018, respectively, on its cash flow hedge within accumulated other comprehensive loss. For the years ended December 31, 2019 and 2018, $10 and $4 of service. From time to time, Chemours provides additional discretionary retirement savings contributions to eligible employees’ compensation.
In lieu of a defined benefit plan, Chemours provides an enhanced 401(k) contribution for employees who previously participated in DuPont’s pension plan. The enhanced benefits consist of an additional contribution of 1% to 7% of the employee’s eligible compensation, depending upon the employee’s length of service with DuPont at the time of separation. The plan will continue until 2019, subject to early termination.
Plans Covering Employees Outside the U.S.
Pension coverage for employees of Chemours’ non-U.S. subsidiaries is provided,gain was reclassified to the extent deemed appropriate, through separate plans established after the Separation and comparablecost of goods sold from accumulated other comprehensive loss, respectively.
The Company expects to reclassify an approximate $3 of net gain from accumulated other comprehensive loss to the DuPont plans in those countries. Obligations under such plans are either funded by depositing funds with trustees, covered by insurance contracts, or unfunded.cost of goods sold over the next 12 months, based on current foreign currency exchange rates.
F-42F-59
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Participation in the PlansNet Investment Hedge – Foreign Currency Borrowings
Prior to July 1, 2015, Chemours participated in DuPont’s U.S. and non-U.S. plans (excluding plans in the Netherlands and Taiwan) as though they were participants in a multi-employer plan with the other businesses of DuPont.
The following table sets forth the multi-employer pension expense allocated by DuPont to Chemours for the plans in which Chemours participated prior to the Separation. The allocationCompany recognized pre-tax gains of cost was based on active employee headcount$20 and is included in the consolidated statements of operations. These amounts do not represent cash payments to DuPont or DuPont’s plans.
|
| EIN / Pension |
| Year Ended December 31, |
| |||||||||
Plan Name |
| Number |
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
DuPont Pension and Retirement Plan (U.S.) |
| 51-0014090/001 |
| $ | — |
|
| $ | — |
|
| $ | 48 |
|
All other U.S. and non-U.S. Plans |
|
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Single and Multi-employer Plans
Beginning in the first quarter of 2015, Chemours has accounted for the plans covering its employees in the Netherlands and Taiwan as a multi-employer plan$32, and a single-employer plan, respectively. In the third quarterpre-tax loss of 2015, in connection with the Separation, additional plans in Germany, Belgium, Japan, Korea, Mexico, and Switzerland were established. As of December 31, 2015, these plans were all accounted for as single-employer plans. Starting in 2017, DuPont exited the Netherlands plan, and the Company began accounting for the Netherlands plan as a single-employer plan.
The following table sets forth the Company’s net periodic pension income and amounts recognized in other comprehensive income (loss)$86 for the years ended December 31, 2019, 2018, and 2017, 2016, and 2015.
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Net periodic pension cost (income): |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 16 |
|
| $ | 14 |
|
| $ | 16 |
|
Interest cost |
|
| 16 |
|
|
| 19 |
|
|
| 19 |
|
Expected return on plan assets |
|
| (75 | ) |
|
| (63 | ) |
|
| (83 | ) |
Amortization of actuarial loss |
|
| 22 |
|
|
| 23 |
|
|
| 16 |
|
Amortization of prior service (credit) cost |
|
| (2 | ) |
|
| (1 | ) |
|
| 4 |
|
Curtailment gain |
|
| — |
|
|
| (2 | ) |
|
| — |
|
Settlement loss |
|
| 1 |
|
|
| 5 |
|
|
| — |
|
Net periodic pension income |
|
| (22 | ) |
|
| (5 | ) |
|
| (28 | ) |
Changes in plan assets and benefit obligations recognized in other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss |
|
| (24 | ) |
|
| 17 |
|
|
| 11 |
|
Amortization of actuarial loss |
|
| (24 | ) |
|
| (28 | ) |
|
| (16 | ) |
Prior service credit |
|
| — |
|
|
| — |
|
|
| (24 | ) |
Amortization of prior service credit (cost) |
|
| 2 |
|
|
| 3 |
|
|
| (4 | ) |
Effect of foreign exchange rates |
|
| 38 |
|
|
| (15 | ) |
|
| (33 | ) |
Benefit recognized in other comprehensive income (loss) |
|
| (8 | ) |
|
| (23 | ) |
|
| (66 | ) |
Total net periodic pension income and benefit recognized in other comprehensive income (loss) |
| $ | (30 | ) |
| $ | (28 | ) |
| $ | (94 | ) |
F-43
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
The following table sets forth the pre-taxrespectively, on its net investment hedges within accumulated other comprehensive loss. NaN amounts recognized inwere reclassified from accumulated other comprehensive loss for the Company’s net investment hedges during the years ended December 31, 2017, 2016,2019, 2018, and 2015.2017.
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Net loss |
| $ | 329 |
|
| $ | 336 |
|
| $ | 363 |
|
Prior service credit |
|
| (11 | ) |
|
| (11 | ) |
|
| (16 | ) |
Total amount recognized in accumulated other comprehensive loss |
| $ | 318 |
|
| $ | 325 |
|
| $ | 347 |
|
Fair Value of Derivative Instruments
The estimated pre-tax net loss and prior service credit for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic pension cost (income) during 2018 are $14 and $2, respectively.
The following table sets forth summarized information on the Company’s pension plans at December 31, 2017 and 2016.
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
| $ | 1,105 |
|
| $ | 1,103 |
|
Service cost |
|
| 16 |
|
|
| 14 |
|
Interest cost |
|
| 16 |
|
|
| 19 |
|
Plan participants’ contributions |
|
| 2 |
|
|
| 2 |
|
Actuarial (gain) loss |
|
| (39 | ) |
|
| 69 |
|
Benefits paid |
|
| (53 | ) |
|
| (36 | ) |
Plan Amendments |
|
| (1 | ) |
|
| — |
|
Curtailments |
|
| — |
|
|
| (3 | ) |
Settlements and transfers |
|
| (3 | ) |
|
| (12 | ) |
Other events |
|
| (4 | ) |
|
| (2 | ) |
Currency translation |
|
| 138 |
|
|
| (49 | ) |
Benefit obligation at end of year |
|
| 1,177 |
|
|
| 1,105 |
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
| 1,169 |
|
|
| 1,137 |
|
Actual return on plan assets |
|
| 60 |
|
|
| 113 |
|
Employer contributions |
|
| 38 |
|
|
| 16 |
|
Plan participants’ contributions |
|
| 2 |
|
|
| 2 |
|
Benefits paid |
|
| (53 | ) |
|
| (36 | ) |
Settlements and transfers |
|
| (3 | ) |
|
| (12 | ) |
Other events |
|
| (3 | ) |
|
| — |
|
Currency translation |
|
| 153 |
|
|
| (51 | ) |
Fair value of plan assets at end of year |
|
| 1,363 |
|
|
| 1,169 |
|
Total funded status at end of year |
| $ | 186 |
|
| $ | 64 |
|
The following table sets forth the net amounts recognized in the Company’s consolidated balance sheets at December 31, 2017 and 2016.
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Non-current assets |
| $ | 258 |
|
| $ | 159 |
|
Current liabilities |
|
| (1 | ) |
|
| (1 | ) |
Non-current liabilities |
|
| (71 | ) |
|
| (94 | ) |
Total net amount recognized |
| $ | 186 |
|
| $ | 64 |
|
The accumulated benefit obligation for all pension plans was $1,112 and $1,042 as of December 31, 2017 and 2016, respectively.
F-44
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
The following tables set forth information related to the Company’s pension plans with projected and accumulated benefit obligations in excess of the fair value of plan assets at December 31, 2017 and 2016.
|
| December 31, |
| |||||
Pension plans with projected benefit obligation in excess of plan assets |
| 2017 |
|
| 2016 |
| ||
Projected benefit obligation |
| $ | 178 |
|
| $ | 183 |
|
Accumulated benefit obligation |
|
| 149 |
|
|
| 152 |
|
Fair value of plan assets |
|
| 106 |
|
|
| 87 |
|
|
| December 31, |
| |||||
Pension plans with accumulated benefit obligation in excess of plan assets |
| 2017 |
|
| 2016 |
| ||
Projected benefit obligation |
| $ | 178 |
|
| $ | 179 |
|
Accumulated benefit obligation |
|
| 149 |
|
|
| 151 |
|
Fair value of plan assets |
|
| 106 |
|
|
| 84 |
|
Assumptions
The Company generally utilizes discount rates that are developed by matching the expected cash flows of each benefit plan to various yield curves constructed from a portfolio of high quality, fixed income instruments provided by the plan’s actuary as of the measurement date. The expected rate of return on plan assets reflects economic assumptions applicable to each country.
The following tables set forth the assumptions that have been used to determine the Company’s benefit obligationsderivative assets and net benefit cost at December 31, 2017liabilities, and 2016.
|
| December 31, |
| |||||
Weighted average assumptions used to determine benefit obligations |
| 2017 |
|
| 2016 |
| ||
Discount rate |
|
| 1.9 | % |
|
| 1.8 | % |
Rate of compensation increase (1) |
|
| 2.5 | % |
|
| 2.5 | % |
|
|
|
| December 31, |
| |||||
Weighted average assumptions used to determine net benefit cost |
| 2017 |
|
| 2016 |
| ||
Discount rate |
|
| 1.8 | % |
|
| 2.4 | % |
Rate of compensation increase (1) |
|
| 2.5 | % |
|
| 2.5 | % |
Expected return on plan assets |
|
| 5.7 | % |
|
| 5.7 | % |
|
|
Plan Assets
Each pension plan’s assets are invested through a master trust fund. The strategic asset allocation for the trust fund is selected by management, reflecting the results of comprehensive asset and liability modeling. Chemours establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. Strategic asset allocations in countries are selected in accordance with the laws and practices of those countries.
F-45
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
The following table sets forth the weighted-average allocation for the Company’s pension plan assets at December 31, 2017 and 2016.
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Cash and cash equivalents |
|
| 4.8 | % |
|
| 2.5 | % |
U.S. and non-U.S. equity securities |
|
| 42.6 | % |
|
| 41.6 | % |
Fixed income securities |
|
| 52.6 | % |
|
| 55.9 | % |
Total weighted-average target allocation |
|
| 100.0 | % |
|
| 100.0 | % |
Fixed income securities include corporate-issued, government-issued, and asset-backed securities. Corporate debt investments encompass a range of credit risk and industry diversification.
Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although Chemours believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following tables set forth the fair values of the Company’s pension assets bytheir level within the fair value hierarchy, at December 31, 20172019 and 2016.2018.
|
| Fair Value Measurements at December 31, 2017 |
| |||||||||
|
| Total |
|
| Level 1 |
|
| Level 2 |
| |||
Asset category: |
|
|
|
|
|
|
|
|
|
|
|
|
Debt - government issued |
| $ | 505 |
|
| $ | 1 |
|
| $ | 504 |
|
Debt - corporate issued |
|
| 144 |
|
|
| 24 |
|
|
| 120 |
|
Debt - asset backed |
|
| 40 |
|
|
| — |
|
|
| 40 |
|
U.S. and non-U.S. equities |
|
| 581 |
|
|
| 295 |
|
|
| 286 |
|
Derivatives - asset position |
|
| 8 |
|
|
| 2 |
|
|
| 6 |
|
Derivatives - liability position |
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
Cash and cash equivalents |
|
| 65 |
|
|
| 65 |
|
|
| — |
|
Other |
|
| 14 |
|
|
| 11 |
|
|
| 3 |
|
Total pension assets before pension receivables |
|
| 1,356 |
|
| $ | 398 |
|
| $ | 958 |
|
Pension trust receivables, net (1) |
|
| 7 |
|
|
|
|
|
|
|
|
|
Total pension assets |
| $ | 1,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
| |||||
|
| Balance Sheet Location |
| 2019 |
|
| 2018 |
| ||
Asset derivatives: |
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts not designated as a hedging instrument |
| Accounts and notes receivable, net |
| $ | 1 |
|
| $ | 1 |
|
Foreign currency forward contracts designated as a cash flow hedge |
| Accounts and notes receivable, net |
|
| 1 |
|
|
| 3 |
|
Total asset derivatives |
|
|
| $ | 2 |
|
| $ | 4 |
|
|
|
|
|
|
|
|
|
|
|
|
Liability derivatives: |
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts not designated as a hedging instrument |
| Other accrued liabilities |
| $ | 1 |
|
| $ | 1 |
|
Total liability derivatives |
|
|
| $ | 1 |
|
| $ | 1 |
|
|
| Fair Value Measurements at December 31, 2016 |
| |||||||||
|
| Total |
|
| Level 1 |
|
| Level 2 |
| |||
Asset category: |
|
|
|
|
|
|
|
|
|
|
|
|
Debt - government issued |
| $ | 433 |
|
| $ | 8 |
|
| $ | 425 |
|
Debt - corporate issued |
|
| 142 |
|
|
| 76 |
|
|
| 66 |
|
Debt - asset backed |
|
| 42 |
|
|
| 25 |
|
|
| 17 |
|
U.S. and non-U.S. equities |
|
| 502 |
|
|
| 28 |
|
|
| 474 |
|
Derivatives - asset position |
|
| 3 |
|
|
| — |
|
|
| 3 |
|
Derivatives - liability position |
|
| (32 | ) |
|
| — |
|
|
| (32 | ) |
Cash and cash equivalents |
|
| 77 |
|
|
| 77 |
|
|
| — |
|
Other |
|
| 7 |
|
|
| — |
|
|
| 7 |
|
Total pension assets before pension payables |
|
| 1,174 |
|
| $ | 214 |
|
| $ | 960 |
|
Pension trust payables, net (1) |
|
| (5 | ) |
|
|
|
|
|
|
|
|
Total pension assets |
| $ | 1,169 |
|
|
|
|
|
|
|
|
|
|
|
F-46
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
For pension plan assetsCompany’s foreign currency forward contracts are classified as Level 12 financial instruments within the fair value hierarchy total fair value is eitheras the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.
For pension plan assets classified as Level 2 instruments within the fair value hierarchy, where the security is frequently traded in less active markets, fair value isvaluation inputs are based on the closing price at the endquoted prices and market observable data of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established, recognized vendors of market data and subjected to tolerance and/or quality checks.instruments. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates commodity prices, swap rates, interest rates, and implied volatilities obtained from various market sources. Market inputs are obtained from well-established and recognized vendors of market data, and are subjected to tolerance and/or quality checks.
Cash Flows
Defined Benefit Plan
For the years ended December 31, 2017 and 2016, Chemours contributed $38 and $16, respectively, to its defined benefit plans. DuPont contributed, on behalf of Chemours, $38 to its pension and other long-term benefit plans during the first half of 2015. Chemours contributed $8 to its pension plans during 2015.
Of the contributions made in 2017, $10 relates to the settlement of the U.S. Pension Restoration Plan (U.S. PRP), which was a supplemental pension plan for certain U.S. employees. The liability associated with the U.S. PRP was transferred to Chemours from DuPont at the Separation Date, at which point the plan ceased accepting new participants. In October 2017, the Company made a cash payment of $10 to settle the remaining liability attributable to the remaining participants in the U.S. PRP.
Chemours expects to contribute $15 to its pension plans in 2018.
The following table sets forth the benefit payments that are expected to be paid by the Company over the next five years and the five years thereafter as of December 31, 2017.
2018 |
| $ | 45 |
|
2019 |
|
| 47 |
|
2020 |
|
| 48 |
|
2021 |
|
| 47 |
|
2022 |
|
| 48 |
|
2023 to 2027 |
|
| 262 |
|
Defined Contribution Plan
DuPont contributed, on behalf of Chemours, $26 to its defined contribution plans during the first half of 2015. From July 1 to December 31, 2015, Chemours contributed $28 to its defined contribution plan. For the years ended December 31, 2016 and 2017, Chemours contributed $44 and $45, respectively, to its defined contribution plan.
Note 24. Stock-based Compensation
Total stock-based compensation cost included in the consolidated statements of operations was $29, $20, and $17 for the years ended December 31, 2017, 2016, and 2015, respectively. The income tax provision for the year ended December 31, 2017 is inclusive of $22 in federal and state income tax benefits from windfalls on share-based payments due to the Company’s adoption of ASU No. 2016-09 during 2017.
Stock-based compensation expense prior to the Separation on July 1, 2015 was allocated to Chemours based on the portion of DuPont’s incentive stock program in which Chemours’ employees participated.
Adopted at the Separation, The Chemours Company Equity and Incentive Plan (Prior Plan) provided for grants to certain employees, independent contractors, or non-employee directors of the Company of different forms of awards, including stock options, RSUs, and PSUs. The Prior Plan had a maximum shares reserve of 13,500,000 for the grant of equity awards plus the number of shares of converted awards, as discussed below. As of December 31, 2016, 7,806,040 shares of the Prior Plan were still available for grants.
F-47F-60
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
In accordance with the employee matters agreement between DuPont and Chemours, certain executives and employees were entitled to receive equity compensation awardsSummary of Chemours in replacement of previously outstanding awards granted under various DuPont stock incentive plans prior to the Separation. In connection with the Separation, these awards were converted into new Chemours equity awards using a formula designed to preserve the intrinsic value of the awards immediately prior to the Separation Date. At the date of conversion, the total intrinsic value of the converted options was $18. As a result of the conversion of these awards, the Company recorded a $3 incremental charge in the third quarter of 2015. The terms and conditions of the DuPont awards were replicated and, as necessary, adjusted to ensure that the vesting schedule and economic value of the awards were unchanged by the conversion.Derivative Instruments
On April 26, 2017, Chemours’ stockholders approved The Chemours Company 2017 Equity and Incentive Plan (2017 Plan), which replaces the Prior Plan in providing for grants to certain employees, independent contractors, or non-employee directors of the Company of different forms of awards, including stock options, RSUs, and PSUs. As a result, no further grants will be made under the Prior Plan.
A total of 19,000,000 shares of the Company’s common stock may be subject to awards granted under the 2017 Plan, less one share for every one share that was subject to an option or stock appreciation right granted after December 31, 2016 under the Prior Plan, and one-and-a-half shares for every one share that was subject to an award other than an option or stock appreciation right granted after December 31, 2016 under the Prior Plan. Any shares that are subject to options or stock appreciation rights will be counted against this limit as one share for every one share granted, and any shares that are subject to awards other than options or stock appreciation rights will be counted against this limit as one-and-a-half shares for every one share granted. Awards that were outstanding under the Prior Plan remain outstanding under the Prior Plan in accordance with their terms. Shares underlying awards granted under the Prior Plan after December 31, 2016 that are forfeited, cancelled, or that otherwise do not result in the issuance of shares, will be available for issuance under the 2017 Plan. At December 31, 2017, 17,677,641 shares of equity and incentive plan reserve are available for grants under the 2017 Plan.
The Chemours Compensation Committee determines the long-term incentive mix, including stock options, RSUs, and PSUs, and may authorize new grants annually.
Stock Options
In connection with the Separation from DuPont, Chemours granted non-qualified stock options to certain employees in July 2015, which represented replacement of previously granted performance stock unit awards at DuPont. The July 2015 grant will cliff vest March 1, 2018 and expire 10 years from the date of grant. Other than those options, Chemours’ expense for the year ended December 31, 2015 was entirely related to options granted to replace outstanding option awards from DuPont that were converted to Chemours’ options on July 1, 2015.
During 2016 and 2017, Chemours granted non-qualified stock options to certain of its employees, which will serially vest over a three-year period and expire 10 years from the date of grant.
The following table sets forth the weighted-average assumptions used to determine expense related to stock option awards granted during the years ended December 31, 2017, 2016, and 2015.
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Risk-free interest rate |
|
| 2.14 | % |
|
| 1.46 | % |
|
| 1.50 | % |
Expected term (years) |
|
| 6.00 |
|
|
| 6.00 |
|
|
| 5.40 |
|
Volatility |
|
| 44.49 | % |
|
| 60.00 | % |
|
| 42.00 | % |
Dividend yield |
|
| 0.35 | % |
|
| 2.14 | % |
|
| 6.90 | % |
Fair value per stock option |
| $ | 15.21 |
|
| $ | 3.41 |
|
| $ | 3.17 |
|
The Company determined the dividend yield by dividing the expected annual dividend on the Company's stock by the option exercise price. A historical daily measurement of volatility is determined based on the average volatility of peer companies adjusted for the Company’s debt leverage. The risk-free interest rate is determined by reference to the yield on an outstanding U.S. Treasury note with a term equal to the expected life of the option granted. The expected life is determined using a simplified approach, calculated as the mid-point between the graded vesting period and the contractual life of the award.
F-48
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollarspre-tax changes in millions, except per share amounts)
The following table sets forth Chemours’ stock option activity for the year ended December 31, 2017.
|
| Number of Shares (in thousands) |
|
| Weighted-average Exercise Price (per share) |
|
| Weighted-average Remaining Contractual Term (in years) |
|
| Aggregate Intrinsic Value (in thousands) |
| ||||
Outstanding, December 31, 2016 |
|
| 7,969 |
|
| $ | 13.72 |
|
|
| 5.08 |
|
| $ | 66,668 |
|
Granted |
|
| 878 |
|
|
| 34.84 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (2,173 | ) |
|
| 14.36 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (47 | ) |
|
| 20.55 |
|
|
|
|
|
|
|
|
|
Expired |
|
| (30 | ) |
|
| 12.29 |
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2017 |
|
| 6,597 |
|
| $ | 15.72 |
|
|
| 5.11 |
|
| $ | 226,524 |
|
Exercisable, December 31, 2017 |
|
| 3,599 |
|
| $ | 14.00 |
|
|
| 3.46 |
|
| $ | 129,800 |
|
The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day at the end of the quarter and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at quarter-end. The amount changes based on the fair market value of the Company’s stock. The total intrinsic value of all options exercisedderivative assets and liabilities for the years ended December 31, 20172019, 2018, and 2016 amounted to $49 and $9, respectively. The total intrinsic value of all options exercised for the year ended December 31, 2015 was insignificant.
At December 31, 2017, $6 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.00 years.
Restricted Stock Units
In the years following the Separation, as well as at the time of Separation in accordance with the employee matters agreement, Chemours granted RSUs to key management employees that generally vest over a three-year period and, upon vesting, convert one-for-one to Chemours’ common stock. The fair value of all stock-settled RSUs is based upon the market price of the underlying common stock as of the grant date.
Non-vested awards of RSUs primarily include awards without a performance condition, as well as a small subset of awards for which specific levels of cost savings and revenue enhancements must be achieved for vesting to occur. The following table sets forth non-vested RSUs, both with and without a performance condition, at December 31, 2017.
|
| Number of Shares (in thousands) |
|
| Weighted-average Grant Date Fair Value (per share) |
| ||
Non-vested, December 31, 2016 |
|
| 2,316 |
|
| $ | 11.23 |
|
Granted |
|
| 214 |
|
|
| 36.68 |
|
Vested |
|
| (1,316 | ) |
|
| 11.46 |
|
Forfeited |
|
| (49 | ) |
|
| 14.27 |
|
Non-vested, December 31, 2017 |
|
| 1,165 |
|
| $ | 15.34 |
|
|
| Gain (Loss) Recognized In |
| |||||||||
|
|
|
|
|
|
|
|
|
| Accumulated Other |
| |
Year Ended December 31, |
| Cost of Goods Sold |
|
| Other Income (Expense), Net |
|
| Comprehensive Loss |
| |||
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts not designated as a hedging instrument |
| $ | — |
|
| $ | (2 | ) |
| $ | — |
|
Foreign currency forward contracts designated as a cash flow hedge |
|
| 10 |
|
|
| — |
|
|
| 6 |
|
Euro-denominated debt designated as a net investment hedge |
|
| — |
|
|
| — |
|
|
| 20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts not designated as a hedging instrument |
| $ | — |
|
| $ | 3 |
|
| $ | — |
|
Foreign currency forward contracts designated as a cash flow hedge |
|
| 4 |
|
|
| — |
|
|
| 10 |
|
Euro-denominated debt designated as a net investment hedge |
|
| — |
|
|
| — |
|
|
| 32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts not designated as a hedging instrument |
| $ | — |
|
| $ | 4 |
|
| $ | — |
|
Euro-denominated debt designated as a net investment hedge |
|
| — |
|
|
| — |
|
|
| (86 | ) |
At December 31, 2017, there was $5 of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted average period of 0.57 years.
F-49
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
Beginning in 2016, Chemours issued PSUs to key senior management employees which, upon vesting, convert one-for-one to Chemours’ common stock if specified performance goals, including certain market-based conditions, are met over the three-year performance period specified in the grant, subject to exceptions through the respective vesting period of three years. Each grantee is granted a target award of PSUs, and may earn between 0% and 200% of the target amount depending on the Company’s performance against stated performance goals.
The following table sets forth non-vested PSUs at 100% of target amounts at December 31, 2017.
|
| Number of Shares (in thousands) |
|
| Weighted-average Grant Date Fair Value (per share) |
| ||
Non-vested, December 31, 2016 |
|
| 803 |
|
| $ | 6.10 |
|
Granted |
|
| 211 |
|
|
| 40.30 |
|
Vested |
|
| — |
|
|
| — |
|
Forfeited |
|
| (27 | ) |
|
| 16.62 |
|
Non-vested, December 31, 2017 |
|
| 987 |
|
| $ | 12.94 |
|
A portion of the fair value of PSUs was estimated at the grant date based on the probability of satisfying the market-based conditions associated with the PSUs using the Monte Carlo valuation method, which assesses probabilities of various outcomes of market conditions. The other portion of the fair value of the PSUs is based on the fair market value of the Company’s stock at the grant date, regardless of whether the market-based condition is satisfied. The per unit weighted-average fair value at the date of grant for PSUs granted during the year ended December 31, 2017 was $40.30. The fair value of each PSU grant is amortized monthly into compensation expense based on its respective vesting conditions over four equally weighted measurement periods, three of which are annual and one of which is cumulative. Compensation cost is incurred based on the Company’s estimate of the final expected value of the award, which is adjusted as required for the portion based on the performance-based condition. The Company assumes that forfeitures will be minimal and recognizes forfeitures as they occur, which results in a reduction in compensation expense. As the payout of PSUs includes dividend equivalents, no separate dividend yield assumption is required in calculating the fair value of the PSUs.
At December 31, 2017, based on the Company’s assessment of its performance goals for 2016 and 2017, approximately 700,000 additional shares may be awarded under the 2016 and 2017 grant awards.
Employee Stock Purchase Plan
On January 26, 2017, the Company’s board of directors approved The Chemours Company Employee Stock Purchase Plan (ESPP), which was approved by Chemours’ stockholders on April 26, 2017. Under the ESPP, a total of 7,000,000 shares of Chemours’ common stock are reserved and authorized for issuance to participating employees, as defined by the ESPP, which excludes executive officers of the Company. The ESPP provides for consecutive 12-month offering periods, each with four purchase periods beginning and ending on the calendar quarters within those offering periods. The initial offering period under the ESPP began on October 2, 2017. Participating employees are eligible to purchase the Company’s common stock at a discounted rate equal to 95% of its fair value on the last trading day of each purchase period. In January 2018, the Company executed an open market transaction to purchase Company stock on behalf of ESPP participants. Total purchases amounted to less than $1, which was used to purchase 11,894 shares.
F-50
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
Note 25. Geographic27. Long-term Employee Benefits
Plans Covering Employees in the U.S.
On July 1, 2015, Chemours established a defined contribution plan, which covered all eligible U.S. employees. The purpose of the plan is to encourage employees to save for their future retirement needs. The plan is a tax-qualified contributory profit-sharing plan, with cash or deferred arrangement, and Segment Informationany eligible employee of Chemours may participate. Chemours matches 100% of the first 6% of the employee’s contribution election, and the plan’s matching contributions vest immediately upon contribution. Chemours may also provide an additional discretionary retirement savings contribution to eligible employees’ compensation. The amount of this contribution, if any, is at the sole discretion of the Company, and the discretionary contribution vests for employees with at least three years of service. From time to time, Chemours provides additional discretionary retirement savings contributions to eligible employees’ compensation.
Geographic Information
In lieu of a defined benefit plan, Chemours provides an enhanced 401(k) contribution for employees who previously participated in DuPont’s pension plan. The enhanced benefits consist of an additional contribution of 1% to 7% of the employee’s eligible compensation, depending upon the employee’s length of service with DuPont at the time of the Separation. The enhancement ended in 2019.
F-61
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Plans Covering Employees Outside the U.S.
Pension coverage for employees of Chemours’ non-U.S. subsidiaries is provided, to the extent deemed appropriate, through separate plans established after the Separation and comparable to the DuPont plans in those countries. Obligations under such plans are either funded by depositing funds with trustees, covered by insurance contracts, or unfunded.
In the fourth quarter of 2019, the Company, through its wholly-owned subsidiary Chemours Netherlands B.V., completed a settlement transaction related to a significant portion of its Netherlands pension plan. The Company transferred the future risk and administration associated with the $932 of its inactive participants’ vested pension benefits to a third-party asset management company in the Netherlands. The irrevocability of the transaction was contingent upon non-objection by the Dutch National Bank, which was received in October 2019. Following the receipt of non-objection, the responsibility for the associated pension obligation was transferred to the third-party asset management company in December 2019, thereby eliminating the Company’s exposure to the pension liabilities and formally effecting the settlement. At the time of settlement, a remeasurement of plan assets and projected benefit obligations was performed, resulting in a $158 decrease to net pension assets and increase to accumulated other comprehensive loss on the consolidated balance sheet. The cumulative loss associated with the inactive participants’ vested pension benefits was then immediately reclassified from accumulated other comprehensive loss and recognized in earnings, resulting in a charge of $380 recognized in other expense, net in the consolidated statements of operations. At December 31, 2019, the projected benefit obligations associated with the plan’s active employees remained on the Company’s consolidated balance sheet.
The following table sets forth the Company’s net periodic pension income and amounts recognized in other comprehensive income (loss) for the years ended December 31, 2019, 2018, and 2017.
|
| Year Ended December 31, |
| |||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||||||||||||||
|
| Net Sales (1) |
|
| Property, Plant, and Equipment, Net |
|
| Net Sales (1) |
|
| Property, Plant, and Equipment, Net |
|
| Net Sales (1) |
|
| Property, Plant, and Equipment, Net |
| ||||||
North America |
| $ | 2,255 |
|
| $ | 2,018 |
|
| $ | 2,288 |
|
| $ | 1,861 |
|
| $ | 2,570 |
|
| $ | 2,184 |
|
Asia Pacific |
|
| 1,593 |
|
|
| 131 |
|
|
| 1,315 |
|
|
| 129 |
|
|
| 1,393 |
|
|
| 136 |
|
Europe, the Middle East, and Africa |
|
| 1,506 |
|
|
| 302 |
|
|
| 1,081 |
|
|
| 278 |
|
|
| 977 |
|
|
| 308 |
|
Latin America (2) |
|
| 829 |
|
|
| 557 |
|
|
| 716 |
|
|
| 516 |
|
|
| 777 |
|
|
| 549 |
|
Total net sales and property, plant, and equipment, net |
| $ | 6,183 |
|
| $ | 3,008 |
|
| $ | 5,400 |
|
| $ | 2,784 |
|
| $ | 5,717 |
|
| $ | 3,177 |
|
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Net periodic pension cost (income): |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 13 |
|
| $ | 14 |
|
| $ | 16 |
|
Interest cost |
|
| 17 |
|
|
| 16 |
|
|
| 16 |
|
Expected return on plan assets |
|
| (48 | ) |
|
| (58 | ) |
|
| (75 | ) |
Amortization of prior service gain |
|
| (2 | ) |
|
| (2 | ) |
|
| (2 | ) |
Amortization of actuarial loss |
|
| 18 |
|
|
| 12 |
|
|
| 22 |
|
Settlement loss |
|
| 383 |
|
|
| — |
|
|
| 1 |
|
Net periodic pension cost (income) |
|
| 381 |
|
|
| (18 | ) |
|
| (22 | ) |
Changes in plan assets and benefit obligations recognized in other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (gain) |
|
| 144 |
|
|
| 115 |
|
|
| (24 | ) |
Amortization of actuarial loss |
|
| (18 | ) |
|
| (16 | ) |
|
| (24 | ) |
Prior service gain |
|
| (5 | ) |
|
| — |
|
|
| — |
|
Amortization of prior service gain |
|
| 2 |
|
|
| 2 |
|
|
| 2 |
|
Settlement loss |
|
| (383 | ) |
|
| — |
|
|
| — |
|
Effect of foreign exchange rates |
|
| (7 | ) |
|
| (8 | ) |
|
| 38 |
|
(Benefit) cost recognized in other comprehensive income |
|
| (267 | ) |
|
| 93 |
|
|
| (8 | ) |
Total net periodic pension income and cost (benefit) recognized in other comprehensive income |
| $ | 114 |
|
| $ | 75 |
|
| $ | (30 | ) |
The following table sets forth the pre-tax amounts recognized in accumulated other comprehensive loss for the years ended December 31, 2019, 2018, and 2017.
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Net loss |
| $ | 151 |
|
| $ | 419 |
|
| $ | 329 |
|
Prior service credit |
|
| (14 | ) |
|
| (10 | ) |
|
| (11 | ) |
Total amount recognized in accumulated other comprehensive loss |
| $ | 137 |
|
| $ | 409 |
|
| $ | 318 |
|
F-62
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
The following table sets forth summarized information on the Company’s pension plans at December 31, 2019 and 2018.
|
| December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
| $ | 1,168 |
|
| $ | 1,177 |
|
Service cost |
|
| 13 |
|
|
| 14 |
|
Interest cost |
|
| 17 |
|
|
| 16 |
|
Plan participants’ contributions |
|
| 2 |
|
|
| 2 |
|
Actuarial loss |
|
| 313 |
|
|
| 45 |
|
Benefits paid |
|
| (37 | ) |
|
| (46 | ) |
Plan amendments |
|
| (5 | ) |
|
| — |
|
Settlements and transfers |
|
| (945 | ) |
|
| 2 |
|
Currency translation |
|
| (19 | ) |
|
| (42 | ) |
Benefit obligation at end of year |
|
| 507 |
|
|
| 1,168 |
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
| 1,268 |
|
|
| 1,363 |
|
Actual return (loss) on plan assets |
|
| 217 |
|
|
| (17 | ) |
Employer contributions |
|
| 19 |
|
|
| 15 |
|
Plan participants’ contributions |
|
| 2 |
|
|
| 2 |
|
Benefits paid |
|
| (37 | ) |
|
| (46 | ) |
Settlements and transfers |
|
| (945 | ) |
|
| 2 |
|
Currency translation |
|
| (24 | ) |
|
| (51 | ) |
Fair value of plan assets at end of year |
|
| 500 |
|
|
| 1,268 |
|
Total funded status at end of year |
| $ | (7 | ) |
| $ | 100 |
|
The following table sets forth the net amounts recognized in the Company’s consolidated balance sheets at December 31, 2019 and 2018.
|
| December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Non-current assets |
| $ | 59 |
|
| $ | 174 |
|
Current liabilities |
|
| (2 | ) |
|
| (1 | ) |
Non-current liabilities |
|
| (64 | ) |
|
| (73 | ) |
Total net amount recognized |
| $ | (7 | ) |
| $ | 100 |
|
The accumulated benefit obligation for all pension plans was $445 and $1,106 as of December 31, 2019 and 2018, respectively.
F-63
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
The following tables set forth information related to the Company’s pension plans with projected and accumulated benefit obligations in excess of the fair value of plan assets at December 31, 2019 and 2018.
|
| December 31, |
| |||||
Pension plans with projected benefit obligation in excess of plan assets |
| 2019 |
|
| 2018 |
| ||
Projected benefit obligation |
| $ | 178 |
|
| $ | 177 |
|
Accumulated benefit obligation |
|
| 150 |
|
|
| 149 |
|
Fair value of plan assets |
|
| 111 |
|
|
| 103 |
|
|
| December 31, |
| |||||
Pension plans with accumulated benefit obligation in excess of plan assets |
| 2019 |
|
| 2018 |
| ||
Projected benefit obligation |
| $ | 178 |
|
| $ | 177 |
|
Accumulated benefit obligation |
|
| 150 |
|
|
| 149 |
|
Fair value of plan assets |
|
| 111 |
|
|
| 103 |
|
Assumptions
The Company generally utilizes discount rates that are developed by matching the expected cash flows of each benefit plan to various yield curves constructed from a portfolio of high-quality, fixed income instruments provided by the plans’ actuaries as of the measurement date. The expected rate of return on plan assets reflects economic assumptions applicable to each country.
The following tables set forth the assumptions that have been used to determine the Company’s benefit obligations and net benefit cost at December 31, 2019 and 2018.
|
| December 31, |
| |||||
Weighted-average assumptions used to determine benefit obligations |
| 2019 |
|
| 2018 |
| ||
Discount rate |
|
| 1.4 | % |
|
| 2.0 | % |
Rate of compensation increase (1) |
|
| 2.6 | % |
|
| 2.5 | % |
| (1) | The rate of compensation increase represents the single annual effective salary increase that an average plan participant would receive during the participant’s entire career at Chemours. |
|
| December 31, |
| |||||
Weighted-average assumptions used to determine net benefit cost |
| 2019 |
|
| 2018 |
| ||
Discount rate |
|
| 2.0 | % |
|
| 1.9 | % |
Rate of compensation increase (1) |
|
| 2.5 | % |
|
| 2.5 | % |
Expected return on plan assets |
|
| 4.1 | % |
|
| 4.1 | % |
(1) | The rate of compensation increase represents the single annual effective salary increase that an average plan participant would receive during the participant’s entire career at Chemours. |
F-64
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Plan Assets
Each pension plan’s assets are invested through either an insurance vehicle, a master trust fund, or a stand-alone pension fund. The strategic asset allocation for each plan is selected by management, together with the pension board, where appropriate, reflecting the results of comprehensive asset and liability modeling. For assets under its control, Chemours establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. Strategic asset allocations in countries are selected in accordance with the laws and practices of those countries.
The following table sets forth the weighted-average allocation for the Company’s pension plan assets at December 31, 2019 and 2018.
|
| December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Cash and cash equivalents |
|
| 8 | % |
|
| 5 | % |
U.S. and non-U.S. equity securities |
|
| 52 | % |
|
| 45 | % |
Fixed income securities |
|
| 40 | % |
|
| 50 | % |
Total weighted-average allocation |
|
| 100 | % |
|
| 100 | % |
Fixed income securities include corporate-issued, government-issued, and asset-backed securities. Corporate debt investments encompass a range of credit risk and industry diversification.
Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although Chemours believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
F-65
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
The following tables set forth the fair values of the Company’s pension assets by level within the fair value hierarchy at December 31, 2019 and 2018.
|
| Fair Value Measurements at December 31, 2019 |
| |||||||||
|
| Total |
|
| Level 1 |
|
| Level 2 |
| |||
Asset category: |
|
|
|
|
|
|
|
|
|
|
|
|
Debt - government issued |
| $ | 150 |
|
| $ | 9 |
|
| $ | 141 |
|
Debt - corporate issued |
|
| 51 |
|
|
| 47 |
|
|
| 4 |
|
U.S. and non-U.S. equities |
|
| 102 |
|
|
| 101 |
|
|
| 1 |
|
Mututal funds |
|
| 135 |
|
|
| — |
|
|
| 135 |
|
Derivatives - asset position |
|
| 28 |
|
|
| — |
|
|
| 28 |
|
Derivatives - liability position |
|
| — |
|
|
| — |
|
|
| — |
|
Cash and cash equivalents |
|
| 41 |
|
|
| 41 |
|
|
| — |
|
Other |
|
| 2 |
|
|
| 2 |
|
|
| — |
|
Total pension assets before pension receivables |
|
| 509 |
|
| $ | 200 |
|
| $ | 309 |
|
Pension trust payables, net (1) |
|
| (9 | ) |
|
|
|
|
|
|
|
|
Total pension assets |
| $ | 500 |
|
|
|
|
|
|
|
|
|
(1) | Payables are primarily for investments purchased and received but not yet paid. |
|
| Fair Value Measurements at December 31, 2018 |
| |||||||||
|
| Total |
|
| Level 1 |
|
| Level 2 |
| |||
Asset category: |
|
|
|
|
|
|
|
|
|
|
|
|
Debt - government issued |
| $ | 487 |
|
| $ | 3 |
|
| $ | 484 |
|
Debt - corporate issued |
|
| 130 |
|
|
| 33 |
|
|
| 97 |
|
U.S. and non-U.S. equities |
|
| 264 |
|
|
| 263 |
|
|
| 1 |
|
Mututal funds |
|
| 296 |
|
|
| — |
|
|
| 296 |
|
Derivatives - asset position |
|
| 9 |
|
|
| — |
|
|
| 9 |
|
Derivatives - liability position |
|
| (5 | ) |
|
| — |
|
|
| (5 | ) |
Cash and cash equivalents |
|
| 67 |
|
|
| 67 |
|
|
| — |
|
Other |
|
| 12 |
|
|
| 8 |
|
|
| 4 |
|
Total pension assets before pension receivables |
|
| 1,260 |
|
| $ | 374 |
|
| $ | 886 |
|
Pension trust receivables, net (1) |
|
| 8 |
|
|
|
|
|
|
|
|
|
Total pension assets |
| $ | 1,268 |
|
|
|
|
|
|
|
|
|
(1) | Receivables are primarily for investment income earned but not yet received. |
For pension plan assets classified as Level 1 instruments within the fair value hierarchy, total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.
For pension plan assets classified as Level 2 instruments within the fair value hierarchy, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established, recognized vendors of market data and subjected to tolerance and/or quality checks. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates, interest rates, and implied volatilities obtained from various market sources.
F-66
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Cash Flows – Defined Benefit Plans
Employer Contributions
For the years ended December 31, 2019, 2018, and 2017, Chemours contributed $19, $15, and $38, respectively, to its defined benefit plans.
Of the contributions made in 2017, $10 relates to the settlement of the U.S. Pension Restoration Plan (“U.S. PRP”), which was a supplemental pension plan for certain U.S. employees. The liability associated with the U.S. PRP was transferred to Chemours from DuPont at the Separation Date, at which point the plan ceased accepting new participants. In October 2017, the Company made a cash payment of $10 to settle the remaining liability attributable to the remaining participants in the U.S. PRP.
Chemours expects to contribute $18 to its pension plans in 2020.
Future Benefit Payments
The following table sets forth the benefit payments that are expected to be paid by the plans over the next five years and the five years thereafter as of December 31, 2019.
|
| Year Ended |
| |
|
| December 31, |
| |
2020 |
| $ | 13 |
|
2021 |
|
| 9 |
|
2022 |
|
| 10 |
|
2023 |
|
| 13 |
|
2024 |
|
| 15 |
|
2025 to 2029 |
|
| 87 |
|
Cash Flows – Defined Contribution Plan
Employer Contributions
For the years ended December 31, 2019, 2018, and 2017, Chemours contributed $34, $51, and$45, respectively, to its defined contribution plan.
F-67
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts and par values)
Note 28. Geographic and Segment Information
Geographic Information
The following table sets forth the geographic locations of the Company’s net sales and property, plant, and equipment, net as of, and for the years ended December 31, 2019, 2018, and 2017.
|
| Year Ended December 31, |
| |||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||
|
| Net Sales (1) |
|
| Property, Plant, and Equipment, Net |
|
| Net Sales (1) |
|
| Property, Plant, and Equipment, Net |
|
| Net Sales (1) |
|
| Property, Plant, and Equipment, Net |
| ||||||
North America |
| $ | 2,144 |
|
| $ | 2,533 |
|
| $ | 2,378 |
|
| $ | 2,279 |
|
| $ | 2,255 |
|
| $ | 2,018 |
|
Asia Pacific |
|
| 1,543 |
|
|
| 121 |
|
|
| 1,720 |
|
|
| 124 |
|
|
| 1,593 |
|
|
| 131 |
|
Europe, the Middle East, and Africa |
|
| 1,163 |
|
|
| 294 |
|
|
| 1,685 |
|
|
| 293 |
|
|
| 1,506 |
|
|
| 302 |
|
Latin America (2) |
|
| 676 |
|
|
| 611 |
|
|
| 855 |
|
|
| 595 |
|
|
| 829 |
|
|
| 557 |
|
Total |
| $ | 5,526 |
|
| $ | 3,559 |
|
| $ | 6,638 |
|
| $ | 3,291 |
|
| $ | 6,183 |
|
| $ | 3,008 |
|
(1) | Net sales are attributed to countries based on customer location. |
| (2) | Latin America includes Mexico. |
Segment Information
Chemours’ operations consist of three3 reportable segments based on similar economic characteristics, the nature of products and production processes, end-use markets, channels of distribution, and regulatory environments. Chemours’ reportable segments are: Titanium Technologies,environments: Fluoroproducts, and Chemical Solutions. The Titanium Technologies segment is a leading, global producer of TiO2 pigment, a premium white pigment used to deliver whiteness, brightness, opacity, and protections in a variety of applications. The Fluoroproducts segment is a leading, global provider of fluoroproducts, including refrigerants and industrial fluoropolymer resins. The Chemical Solutions, segment is a leading, North American provider of industrial chemicals used in gold production, industrials, and consumer applications.Titanium Technologies. Corporate costs and certain legal and environmental expenses, that are not allocated to the reportable segmentsstock-based compensation expenses, and foreign exchange gains and losses arising from the remeasurement of balances in currencies other than the functional currency of the Company’s legal entities are reflected in Corporate and Other.
Segment net sales include transfers to another reportable segment. Certain products are transferred between segments on a basis intended to reflect, as nearly as practicable, the market value of the products. These product transfers were limited and were not significant for each of the periods presented. Depreciation and amortization includes depreciation on R&D facilities and amortization of other intangible assets, excluding write-downany write-downs of assets. Segment net assets include net working capital, net property, plant, and equipment, and other non-current operating assets and liabilities of the segment. This is the measure of segment assets reviewed by the Company’s Chief Operating Decision Maker (CODM)(“CODM”).
Adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA)(“Adjusted EBITDA”) is the primary measure of segment profitability used by the CODM and is defined as income (loss) before income taxes, excluding the following:
interest expense, depreciation, and amortization;
• | interest expense, depreciation, and amortization; |
non-operating pension and other post-retirement employee benefit costs, which represent the components of net periodic pension (income) costs excluding the service cost component;
• | non-operating pension and other post-retirement employee benefit costs, which represent the components of net periodic pension (income) costs excluding the service cost component; |
exchange (gains) losses included in other income (expense), net;
• | exchange (gains) losses included in other income (expense), net; |
restructuring, asset-related charges, and other charges, net;
• | restructuring, asset-related, and other charges; |
asset impairments;
• | asset impairments; |
(gains) losses on sale of business or assets; and,
• | (gains) losses on sales of assets and businesses; and, |
other items not considered indicative of the Company’s ongoing operational performance and expected to occur infrequently.
• | other items not considered indicative of the Company’s ongoing operational performance and expected to occur infrequently. |
F-51
F-68
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
The following table sets forth certain summary financial information for the Company’s reportable segments as of, and for the years ended December 31, 2017, 2016,2019, 2018, and 2015.2017.
Year Ended December 31, |
| Titanium Technologies |
|
| Fluoroproducts |
|
| Chemical Solutions |
|
| Corporate and Other |
|
| Total |
|
| Fluoroproducts |
|
| Chemical Solutions |
|
| Titanium Technologies |
|
| Segment Total |
|
| |||||||||
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net sales to external customers |
| $ | 2,648 |
|
| $ | 533 |
|
| $ | 2,345 |
|
| $ | 5,526 |
|
| ||||||||||||||||||||
Adjusted EBITDA |
|
| 578 |
|
|
| 80 |
|
|
| 505 |
|
|
| 1,163 |
|
| ||||||||||||||||||||
Depreciation and amortization |
|
| 136 |
|
|
| 22 |
|
|
| 121 |
|
|
| 279 |
|
| ||||||||||||||||||||
Equity in earnings of affiliates |
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
| ||||||||||||||||||||
Total assets |
|
| 2,582 |
|
|
| 574 |
|
|
| 2,291 |
|
|
| 5,447 |
|
| ||||||||||||||||||||
Net assets |
|
| 2,283 |
|
|
| 495 |
|
|
| 1,296 |
| �� |
| 4,074 |
|
| ||||||||||||||||||||
Investments in affiliates |
|
| 162 |
|
|
| — |
|
|
| — |
|
|
| 162 |
|
| ||||||||||||||||||||
Purchases of property, plant, and equipment |
|
| 201 |
|
|
| 40 |
|
|
| 121 |
|
|
| 362 |
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net sales to external customers |
| $ | 2,862 |
|
| $ | 602 |
|
| $ | 3,174 |
|
| $ | 6,638 |
|
| ||||||||||||||||||||
Adjusted EBITDA |
|
| 783 |
|
|
| 64 |
|
|
| 1,055 |
|
|
| 1,902 |
|
| ||||||||||||||||||||
Depreciation and amortization |
|
| 117 |
|
|
| 20 |
|
|
| 119 |
|
|
| 256 |
|
| ||||||||||||||||||||
Equity in earnings of affiliates |
|
| 43 |
|
|
| — |
|
|
| — |
|
|
| 43 |
|
| ||||||||||||||||||||
Total assets |
|
| 2,744 |
|
|
| 623 |
|
|
| 2,354 |
|
|
| 5,721 |
|
| ||||||||||||||||||||
Net assets |
|
| 2,309 |
|
|
| 506 |
|
|
| 1,487 |
|
|
| 4,302 |
|
| ||||||||||||||||||||
Investments in affiliates |
|
| 160 |
|
|
| — |
|
|
| — |
|
|
| 160 |
|
| ||||||||||||||||||||
Purchases of property, plant, and equipment |
|
| 274 |
|
|
| 75 |
|
|
| 91 |
|
|
| 440 |
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
| $ | 2,958 |
|
| $ | 2,654 |
|
| $ | 571 |
|
| $ | — |
|
| $ | 6,183 |
|
| $ | 2,654 |
|
| $ | 571 |
|
| $ | 2,958 |
|
| $ | 6,183 |
|
|
Adjusted EBITDA |
|
| 862 |
|
|
| 669 |
|
|
| 57 |
|
|
| (166 | ) |
|
| 1,422 |
|
|
| 669 |
|
|
| 57 |
|
|
| 862 |
|
|
| 1,588 |
|
|
Depreciation and amortization |
|
| 118 |
|
|
| 109 |
|
|
| 18 |
|
|
| 28 |
|
|
| 273 |
|
|
| 109 |
|
|
| 18 |
|
|
| 118 |
|
|
| 245 |
|
|
Equity in earnings of affiliates |
|
| — |
|
|
| 33 |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| 33 |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
|
Total assets |
|
| 2,311 |
|
|
| 581 |
|
|
| 2,502 |
|
|
| 5,394 |
|
| ||||||||||||||||||||
Net assets |
|
| 1,785 |
|
|
| 1,842 |
|
|
| 460 |
|
|
| (3,222 | ) |
|
| 865 |
|
|
| 1,842 |
|
|
| 460 |
|
|
| 1,785 |
|
|
| 4,087 |
|
|
Investments in affiliates |
|
| — |
|
|
| 173 |
|
|
| — |
|
|
| — |
|
|
| 173 |
|
|
| 173 |
|
|
| — |
|
|
| — |
|
|
| 173 |
|
|
Purchases of property, plant, and equipment |
|
| 65 |
|
|
| 249 |
|
|
| 65 |
|
|
| 32 |
|
|
| 411 |
|
|
| 249 |
|
|
| 65 |
|
|
| 65 |
|
|
| 379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net sales to external customers |
| $ | 2,364 |
|
| $ | 2,264 |
|
| $ | 772 |
|
| $ | — |
|
| $ | 5,400 |
| |||||||||||||||||
Adjusted EBITDA |
|
| 466 |
|
|
| 445 |
|
|
| 39 |
|
|
| (128 | ) |
|
| 822 |
| |||||||||||||||||
Depreciation and amortization |
|
| 119 |
|
|
| 101 |
|
|
| 30 |
|
|
| 34 |
|
|
| 284 |
| |||||||||||||||||
Equity in earnings of affiliates |
|
| — |
|
|
| 26 |
|
|
| — |
|
|
| 3 |
|
|
| 29 |
| |||||||||||||||||
Net assets |
|
| 1,513 |
|
|
| 1,400 |
|
|
| 292 |
|
|
| (3,101 | ) |
|
| 104 |
| |||||||||||||||||
Investments in affiliates |
|
| — |
|
|
| 116 |
|
|
| — |
|
|
| 20 |
|
|
| 136 |
| |||||||||||||||||
Purchases of property, plant, and equipment |
|
| 105 |
|
|
| 120 |
|
|
| 104 |
|
|
| 9 |
|
|
| 338 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net sales to external customers |
| $ | 2,392 |
|
| $ | 2,230 |
|
| $ | 1,095 |
|
| $ | — |
|
| $ | 5,717 |
| |||||||||||||||||
Adjusted EBITDA |
|
| 326 |
|
|
| 300 |
|
|
| 29 |
|
|
| (82 | ) |
|
| 573 |
| |||||||||||||||||
Depreciation and amortization |
|
| 125 |
|
|
| 88 |
|
|
| 52 |
|
|
| 2 |
|
|
| 267 |
| |||||||||||||||||
Equity in earnings of affiliates |
|
| — |
|
|
| 21 |
|
|
| — |
|
|
| 1 |
|
|
| 22 |
| |||||||||||||||||
Net assets |
|
| 1,659 |
|
|
| 1,567 |
|
|
| 839 |
|
|
| (3,935 | ) |
|
| 130 |
| |||||||||||||||||
Investments in affiliates |
|
| — |
|
|
| 127 |
|
|
| — |
|
|
| 9 |
|
|
| 136 |
| |||||||||||||||||
Purchases of property, plant, and equipment |
|
| 255 |
|
|
| 142 |
|
|
| 117 |
|
|
| 5 |
|
|
| 519 |
|
The following table sets forth a reconciliation for instances in which the above summary financial information for the Company’s reportable segments does not sum to consolidated amounts. A reconciliation of Segment Adjusted EBITDA to consolidated results can be found in the table immediately thereafter.
Year Ended December 31, |
| Segment Total |
|
| Corporate and Other |
|
| Total Consolidated |
| |||
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 279 |
|
|
| 32 |
|
|
| 311 |
|
Total assets |
|
| 5,447 |
|
|
| 1,811 |
|
|
| 7,258 |
|
Net assets |
|
| 4,074 |
|
|
| (3,379 | ) |
|
| 695 |
|
Purchases of property, plant, and equipment |
|
| 362 |
|
|
| 119 |
|
|
| 481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 256 |
|
|
| 28 |
|
|
| 284 |
|
Total assets |
|
| 5,721 |
|
|
| 1,641 |
|
|
| 7,362 |
|
Net assets |
|
| 4,302 |
|
|
| (3,282 | ) |
|
| 1,020 |
|
Purchases of property, plant, and equipment |
|
| 440 |
|
|
| 58 |
|
|
| 498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 245 |
|
|
| 28 |
|
|
| 273 |
|
Total assets |
|
| 5,394 |
|
|
| 1,899 |
|
|
| 7,293 |
|
Net assets |
|
| 4,087 |
|
|
| (3,222 | ) |
|
| 865 |
|
Purchases of property, plant, and equipment |
|
| 379 |
|
|
| 32 |
|
|
| 411 |
|
F-52F-69
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
The following table sets forth a reconciliation of Segment Adjusted EBITDA to the Company’s consolidated net income (loss) before income taxes for the years ended December 31, 2017, 2016,2019, 2018, and 2015.2017.
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Income (loss) before income taxes |
| $ | 912 |
|
| $ | (11 | ) |
| $ | (188 | ) |
Interest expense, net |
|
| 215 |
|
|
| 213 |
|
|
| 132 |
|
Depreciation and amortization |
|
| 273 |
|
|
| 284 |
|
|
| 267 |
|
Non-operating pension and other post-retirement employee benefit income |
|
| (34 | ) |
|
| (20 | ) |
|
| (3 | ) |
Exchange (gains) losses |
|
| (3 | ) |
|
| 57 |
|
|
| (19 | ) |
Restructuring charges |
|
| 57 |
|
|
| 51 |
|
|
| 285 |
|
Asset-related charges (1) |
|
| 3 |
|
|
| 124 |
|
|
| 73 |
|
(Gain) loss on sale of assets and businesses (2) |
|
| (22 | ) |
|
| (254 | ) |
|
| 9 |
|
Transaction costs (3) |
|
| 3 |
|
|
| 19 |
|
|
| 9 |
|
Legal and other charges (4) |
|
| 18 |
|
|
| 359 |
|
|
| 8 |
|
Adjusted EBITDA |
| $ | 1,422 |
|
| $ | 822 |
|
| $ | 573 |
|
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Segment Adjusted EBITDA |
| $ | 1,163 |
|
| $ | 1,902 |
|
| $ | 1,588 |
|
Corporate and Other Adjusted EBITDA |
|
| (143 | ) |
|
| (162 | ) |
| $ | (166 | ) |
Interest expense, net |
|
| (208 | ) |
|
| (195 | ) |
|
| (214 | ) |
Depreciation and amortization |
|
| (311 | ) |
|
| (284 | ) |
|
| (273 | ) |
Non-operating pension and other post-retirement employee benefit (cost) income (1) |
|
| (368 | ) |
|
| 27 |
|
|
| 34 |
|
Exchange (losses) gains, net |
|
| (2 | ) |
|
| 1 |
|
|
| 3 |
|
Restructuring, asset-related, and other charges (2) |
|
| (87 | ) |
|
| (49 | ) |
|
| (57 | ) |
Loss on extinguishment of debt |
|
| — |
|
|
| (38 | ) |
|
| (1 | ) |
Gain on sales of assets and businesses (3) |
|
| 10 |
|
|
| 45 |
|
|
| 22 |
|
Transaction costs (4) |
|
| (3 | ) |
|
| (9 | ) |
|
| (3 | ) |
Legal and environmental charges (5) |
|
| (175 | ) |
|
| (82 | ) |
|
| (9 | ) |
Other charges |
|
| — |
|
|
| (1 | ) |
|
| (12 | ) |
(Loss) income before income taxes |
| $ | (124 | ) |
| $ | 1,155 |
|
| $ | 912 |
|
| (1) | The year ended December 31, |
|
| (2) | Includes restructuring, asset-related, and other charges, which are discussed in further detail in “Note 7 – Restructuring, Asset-related, and Other Charges.” |
(3) | The year ended December 31, 2019, included a non-cash gain of $9 associated with the sale of the Company’s Repauno, New Jersey site. The year ended December 31, 2018, included gains of $3 and $42 associated with the sales of the Company’s East Chicago, Indiana and Linden, New Jersey sites, respectively. The year ended December 31, 2017 |
|
|
| Includes costs associated with the Company’s debt transactions, as well as accounting, legal, and bankers’ |
|
|
|
|
|
The following table sets forth the Company’s net sales to external customers by product group for the years ended December 31, 2017, 2016,2019, 2018, and 2015 are set forth in the following table.2017.
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||
Titanium dioxide |
| $ | 2,958 |
|
| $ | 2,364 |
|
| $ | 2,392 |
| ||||||||||||
Fluorochemicals |
|
| 1,378 |
|
|
| 1,093 |
|
|
| 984 |
|
| $ | 1,318 |
|
| $ | 1,497 |
|
| $ | 1,378 |
|
Fluoropolymers |
|
| 1,276 |
|
|
| 1,171 |
|
|
| 1,246 |
|
|
| 1,330 |
|
|
| 1,365 |
|
|
| 1,276 |
|
Mining solutions |
|
| 261 |
|
|
| 262 |
|
|
| 301 |
|
|
| 268 |
|
|
| 289 |
|
|
| 261 |
|
Performance chemicals and intermediates |
|
| 306 |
|
|
| 298 |
|
|
| 363 |
|
|
| 265 |
|
|
| 313 |
|
|
| 306 |
|
Divested business (1) |
|
| 4 |
|
|
| 212 |
|
|
| 431 |
| ||||||||||||
Total net sales to external customers |
| $ | 6,183 |
|
| $ | 5,400 |
|
| $ | 5,717 |
| ||||||||||||
Titanium dioxide and other minerals |
|
| 2,345 |
|
|
| 3,174 |
|
|
| 2,958 |
| ||||||||||||
Divested businesses (1) |
|
| — |
|
|
| — |
|
|
| 4 |
| ||||||||||||
Total net sales |
| $ | 5,526 |
|
| $ | 6,638 |
|
| $ | 6,183 |
|
| (1) | Inclusive of the Company’s C&D and Sulfur businesses, as well as its |
F-53F-70
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Note 26. Accumulated Other Comprehensive Loss
The following table sets forth the components of accumulated other comprehensive loss, net of income taxes, for the years ended December 31, 2017, 2016, and 2015.
|
| Currency Translation Adjustment |
|
| Net Investment Hedge |
|
| Employee Benefits |
|
| Total |
| ||||
Balance at January 1, 2015 |
| $ | 19 |
|
| $ | — |
|
| $ | — |
|
| $ | 19 |
|
Assumption and establishment of pension plans, net |
|
| — |
|
|
| — |
|
|
| (311 | ) |
|
| (311 | ) |
Other comprehensive (loss) income |
|
| (304 | ) |
|
| 8 |
|
|
| 52 |
|
|
| (244 | ) |
Balance at December 31, 2015 |
|
| (285 | ) |
|
| 8 |
|
|
| (259 | ) |
|
| (536 | ) |
Other comprehensive (loss) income |
|
| (73 | ) |
|
| 14 |
|
|
| 18 |
|
|
| (41 | ) |
Balance at December 31, 2016 |
|
| (358 | ) |
|
| 22 |
|
|
| (241 | ) |
|
| (577 | ) |
Other comprehensive income (loss) |
|
| 200 |
|
|
| (62 | ) |
|
| (3 | ) |
|
| 135 |
|
Balance at December 31, 2017 |
| $ | (158 | ) |
| $ | (40 | ) |
| $ | (244 | ) |
| $ | (442 | ) |
Note 27. Subsequent Event
In connection with Chemours’ share repurchase program, the Company purchased an additional $34 of its issued and outstanding common stock in January 2018.
Note 28.29. Quarterly Financial Data (Unaudited)
The following table sets forth a summary of the Company’s quarterly results of operations for the years ended December 31, 20172019 and 2016.2018.
|
| For the Three Months Ended |
|
|
|
|
| |||||||||||||
2017 |
| March 31, |
|
| June 30, |
|
| September 30, |
|
| December 31, |
|
| Full Year (1), |
| |||||
Net sales |
| $ | 1,437 |
|
| $ | 1,588 |
|
| $ | 1,584 |
|
| $ | 1,575 |
|
| $ | 6,183 |
|
Cost of goods sold |
|
| 1,079 |
|
|
| 1,147 |
|
|
| 1,117 |
|
|
| 1,087 |
|
|
| 4,429 |
|
Income before income taxes |
|
| 173 |
|
|
| 225 |
|
|
| 250 |
|
|
| 264 |
|
|
| 912 |
|
Net income |
|
| 151 |
|
|
| 161 |
|
|
| 207 |
|
|
| 228 |
|
|
| 747 |
|
Net income attributable to Chemours |
|
| 150 |
|
|
| 161 |
|
|
| 207 |
|
|
| 228 |
|
|
| 746 |
|
Basic earnings per share of common stock |
|
| 0.82 |
|
|
| 0.87 |
|
|
| 1.12 |
|
|
| 1.23 |
|
|
| 4.04 |
|
Diluted earnings per share of common stock |
|
| 0.79 |
|
|
| 0.84 |
|
|
| 1.08 |
|
|
| 1.19 |
|
|
| 3.91 |
|
|
| For the Three Months Ended |
|
|
|
|
| |||||||||||||
2019 |
| March 31, |
|
| June 30, |
|
| September 30, |
|
| December 31, |
|
| Full Year (1), |
| |||||
Net sales |
| $ | 1,376 |
|
| $ | 1,408 |
|
| $ | 1,390 |
|
| $ | 1,353 |
|
| $ | 5,526 |
|
Cost of goods sold |
|
| 1,080 |
|
|
| 1,085 |
|
|
| 1,096 |
|
|
| 1,203 |
|
|
| 4,463 |
|
Income (loss) before income taxes |
|
| 107 |
|
|
| 133 |
|
|
| 91 |
|
|
| (454 | ) |
|
| (124 | ) |
Net income (loss) |
|
| 94 |
|
|
| 96 |
|
|
| 76 |
|
|
| (317 | ) |
|
| (52 | ) |
Net income (loss) attributable to Chemours |
|
| 94 |
|
|
| 96 |
|
|
| 76 |
|
|
| (317 | ) |
|
| (52 | ) |
Basic earnings (loss) per share of common stock |
|
| 0.56 |
|
|
| 0.58 |
|
|
| 0.46 |
|
|
| (1.94 | ) |
|
| (0.32 | ) |
Diluted earnings (loss) per share of common stock |
|
| 0.55 |
|
|
| 0.57 |
|
|
| 0.46 |
|
|
| (1.94 | ) |
|
| (0.32 | ) |
|
| For the Three Months Ended |
|
|
|
|
| |||||||||||||
2016 |
| March 31, |
|
| June 30, |
|
| September 30, |
|
| December 31, |
|
| Full Year (1), |
| |||||
Net sales |
| $ | 1,297 |
|
| $ | 1,383 |
|
| $ | 1,398 |
|
| $ | 1,322 |
|
| $ | 5,400 |
|
Cost of goods sold |
|
| 1,095 |
|
|
| 1,116 |
|
|
| 1,056 |
|
|
| 1,024 |
|
|
| 4,290 |
|
Income (loss) before income taxes |
|
| 70 |
|
|
| (41 | ) |
|
| 234 |
|
|
| (273 | ) |
|
| (11 | ) |
Net income (loss) |
|
| 51 |
|
|
| (18 | ) |
|
| 204 |
|
|
| (230 | ) |
|
| 7 |
|
Net income (loss) attributable to Chemours |
|
| 51 |
|
|
| (18 | ) |
|
| 204 |
|
|
| (230 | ) |
|
| 7 |
|
Basic earnings (loss) per share of common stock |
|
| 0.28 |
|
|
| (0.10 | ) |
|
| 1.12 |
|
|
| (1.26 | ) |
|
| 0.04 |
|
Diluted earnings (loss) per share of common stock |
|
| 0.28 |
|
|
| (0.10 | ) |
|
| 1.11 |
|
|
| (1.26 | ) |
|
| 0.04 |
|
|
| For the Three Months Ended |
|
|
|
|
| |||||||||||||
2018 |
| March 31, |
|
| June 30, |
|
| September 30, |
|
| December 31, |
|
| Full Year (1), |
| |||||
Net sales |
| $ | 1,730 |
|
| $ | 1,816 |
|
| $ | 1,628 |
|
| $ | 1,464 |
|
| $ | 6,638 |
|
Cost of goods sold |
|
| 1,193 |
|
|
| 1,259 |
|
|
| 1,151 |
|
|
| 1,064 |
|
|
| 4,667 |
|
Income before income taxes |
|
| 381 |
|
|
| 323 |
|
|
| 269 |
|
|
| 182 |
|
|
| 1,155 |
|
Net income |
|
| 297 |
|
|
| 282 |
|
|
| 275 |
|
|
| 142 |
|
|
| 996 |
|
Net income attributable to Chemours |
|
| 297 |
|
|
| 281 |
|
|
| 275 |
|
|
| 142 |
|
|
| 995 |
|
Basic earnings per share of common stock |
|
| 1.63 |
|
|
| 1.58 |
|
|
| 1.56 |
|
|
| 0.83 |
|
|
| 5.62 |
|
Diluted earnings per share of common stock |
|
| 1.58 |
|
|
| 1.53 |
|
|
| 1.51 |
|
|
| 0.81 |
|
|
| 5.45 |
|
| (1) | Individual quarters may not sum to full year amounts due to rounding. |
F-54
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)
Note 29.30. Guarantor Condensed Consolidating Financial Information
The following guarantor condensed consolidating financial information is included in accordance with Rule 3-10 of Regulation S-X (Rule 3-10)(“Rule 3-10”) in connection with the issuancesubsidiary guarantees of the “Notes” (collectively, the 2023 Dollar Notes, the 2025 Notes, the 2026 Euro Notes, and the 2027 Notes), in each case, issued by The Chemours Company (Parent Issuer)(the “Parent Issuer”). TheAs of the dates indicated, each series of the Notes arewas fully and unconditionally guaranteed, jointly and severally, on a senior unsecured unsubordinated basis, in each case, subject to certain exceptions, by the same group of subsidiaries of the Parent Issuer and by certain subsidiaries (together, the Guarantor Subsidiaries)“Guarantor Subsidiaries”). Each of the Guarantor Subsidiaries is 100% owned by the Company. None of the other subsidiaries of the Company, either direct or indirect, guarantee the Notes (together, the Non-Guarantor Subsidiaries)“Non-Guarantor Subsidiaries”). ThePursuant to the indentures governing the Notes, the Guarantor Subsidiaries excluding the Parent Issuer, will be automatically released from those guarantees upon the occurrence of certain customary release provisions.
The following condensed consolidating financial information is presented to comply with the Company’s requirements under Rule 3-10:
the consolidating statements of comprehensive income (loss) for the years ended December 31, 2017, 2016, and 2015;
• | the consolidating statements of comprehensive income (loss) for the years ended December 31, 2019, 2018, and 2017; |
the consolidating balance sheets at December 31, 2017 and 2016; and,
• | the consolidating balance sheets at December 31, 2019 and 2018; and, |
the consolidating statements of cash flows for the years ended December 31, 2017, 2016, and 2015.
• | the consolidating statements of cash flows for the years ended December 31, 2019, 2018, and 2017. |
Consistent with the discussion in Note 2, Chemours did not operate as a separate, stand-alone entity for all periods included within these condensed consolidating financial statements. Prior to the Separation on July 1, 2015, Chemours’ operations were included in DuPont’s financial results in different legal forms, including, but not limited to, wholly-owned subsidiaries for which Chemours was the sole business, components of legal entities in which Chemours operated in conjunction with other DuPont businesses, and a majority-owned joint venture. For periods prior to July 1, 2015, the condensed consolidating financial information has been prepared from DuPont’s historical accounting records and is presented on a stand-alone basis as if Chemours’ operations had been conducted independently from DuPont.
The following guarantor condensed consolidating financial information is presented using the equity method of accounting for the Company’s investments in 100% ownedits wholly-owned subsidiaries. Under the equity method, the investments in subsidiaries are recorded at cost and adjusted for the Company’s share of its subsidiaries’ cumulative results of operations, capital contributions, distributions, and other equity changes. The elimination entries principally eliminate investments in subsidiaries and intercompany balances and transactions. The financial information included herein may not necessarily be indicative of the financial positions, results of operations, or cash flows of the Company’s subsidiaries had they operated as independent entities, and should be read in conjunction with the consolidated financial statements presented and the related notes.notes thereto.
As discussed in Note 7, the Company entered into a stock and asset purchase agreement with Lanxess, pursuant to which Lanxess acquired the Company’s C&D business which comprise certain assets and subsidiaries of the Company, including International Dioxide, Inc., which was a guarantor subsidiary.
F-55F-71
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Condensed Consolidating StatementsStatements of Comprehensive Income (Loss)
| Year Ended December 31, 2017 |
| Year Ended December 31, 2019 |
| ||||||||||||||||||||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| ||||||||||
Net sales | $ | — |
|
| $ | 3,887 |
|
| $ | 4,030 |
|
| $ | (1,734 | ) |
| $ | 6,183 |
| $ | — |
|
| $ | 3,357 |
|
| $ | 3,656 |
|
| $ | (1,487 | ) |
| $ | 5,526 |
|
Cost of goods sold |
| — |
|
|
| 3,084 |
|
|
| 3,036 |
|
|
| (1,691 | ) |
|
| 4,429 |
|
| — |
|
|
| 3,068 |
|
|
| 2,882 |
|
|
| (1,487 | ) |
|
| 4,463 |
|
Gross profit |
| — |
|
|
| 803 |
|
|
| 994 |
|
|
| (43 | ) |
|
| 1,754 |
|
| — |
|
|
| 289 |
|
|
| 774 |
|
|
| — |
|
|
| 1,063 |
|
Selling, general, and administrative expense |
| 36 |
|
|
| 449 |
|
|
| 155 |
|
|
| (38 | ) |
|
| 602 |
|
| 19 |
|
|
| 406 |
|
|
| 141 |
|
|
| (18 | ) |
|
| 548 |
|
Research and development expense |
| — |
|
|
| 74 |
|
|
| 6 |
|
|
| — |
|
|
| 80 |
|
| — |
|
|
| 73 |
|
|
| 7 |
|
|
| — |
|
|
| 80 |
|
Restructuring and asset-related charges, net |
| — |
|
|
| 56 |
|
|
| 1 |
|
|
| — |
|
|
| 57 |
| |||||||||||||||||||
Total expenses |
| 36 |
|
|
| 579 |
|
|
| 162 |
|
|
| (38 | ) |
|
| 739 |
| |||||||||||||||||||
Restructuring, asset-related, and other charges |
| — |
|
|
| 74 |
|
|
| 13 |
|
|
| — |
|
|
| 87 |
| |||||||||||||||||||
Total other operating expenses |
| 19 |
|
|
| 553 |
|
|
| 161 |
|
|
| (18 | ) |
|
| 715 |
| |||||||||||||||||||
Equity in earnings of affiliates |
| — |
|
|
| — |
|
|
| 33 |
|
|
| — |
|
|
| 33 |
|
| — |
|
|
| — |
|
|
| 29 |
|
|
| — |
|
|
| 29 |
|
Equity in earnings of subsidiaries |
| 849 |
|
|
| — |
|
|
| — |
|
|
| (849 | ) |
|
| — |
| |||||||||||||||||||
Equity in earnings (loss) of subsidiaries |
| 73 |
|
|
| (3 | ) |
|
| — |
|
|
| (70 | ) |
|
| — |
| |||||||||||||||||||
Interest (expense) income, net |
| (221 | ) |
|
| 3 |
|
|
| 3 |
|
|
| — |
|
|
| (215 | ) |
| (209 | ) |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| (208 | ) |
Intercompany interest income (expense), net |
| 64 |
|
|
| — |
|
|
| (64 | ) |
|
| — |
|
|
| — |
|
| 41 |
|
|
| 16 |
|
|
| (57 | ) |
|
| — |
|
|
| — |
|
Other income (expense), net |
| 29 |
|
|
| 139 |
|
|
| (55 | ) |
|
| (34 | ) |
|
| 79 |
|
| 21 |
|
|
| 122 |
|
|
| (417 | ) |
|
| (19 | ) |
|
| (293 | ) |
Income before income taxes |
| 685 |
|
|
| 366 |
|
|
| 749 |
|
|
| (888 | ) |
|
| 912 |
| |||||||||||||||||||
(Benefit from) provision for income taxes |
| (62 | ) |
|
| 117 |
|
|
| 114 |
|
|
| (4 | ) |
|
| 165 |
| |||||||||||||||||||
Net income |
| 747 |
|
|
| 249 |
|
|
| 635 |
|
|
| (884 | ) |
|
| 747 |
| |||||||||||||||||||
(Loss) income before income taxes |
| (93 | ) |
|
| (129 | ) |
|
| 169 |
|
|
| (71 | ) |
|
| (124 | ) | |||||||||||||||||||
Benefit from income taxes |
| (41 | ) |
|
| (28 | ) |
|
| (2 | ) |
|
| (1 | ) |
|
| (72 | ) | |||||||||||||||||||
Net (loss) income |
| (52 | ) |
|
| (101 | ) |
|
| 171 |
|
|
| (70 | ) |
|
| (52 | ) | |||||||||||||||||||
Less: Net income attributable to non-controlling interests |
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income attributable to Chemours | $ | 747 |
|
| $ | 249 |
|
| $ | 634 |
|
| $ | (884 | ) |
| $ | 746 |
| |||||||||||||||||||
Comprehensive income attributable to Chemours | $ | 881 |
|
| $ | 253 |
|
| $ | 828 |
|
| $ | (1,081 | ) |
| $ | 881 |
| |||||||||||||||||||
Net (loss) income attributable to Chemours | $ | (52 | ) |
| $ | (101 | ) |
| $ | 171 |
|
| $ | (70 | ) |
| $ | (52 | ) | |||||||||||||||||||
Comprehensive income (loss) attributable to Chemours | $ | 163 |
|
| $ | (101 | ) |
| $ | 371 |
|
| $ | (270 | ) |
| $ | 163 |
|
F-56F-72
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Condensed Consolidating Statements of Comprehensive Income (Loss)
| Year Ended December 31, 2016 |
| Year Ended December 31, 2018 |
| ||||||||||||||||||||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| ||||||||||
Net sales | $ | — |
|
| $ | 3,749 |
|
| $ | 3,222 |
|
| $ | (1,571 | ) |
| $ | 5,400 |
| $ | — |
|
| $ | 3,974 |
|
| $ | 4,484 |
|
| $ | (1,820 | ) |
| $ | 6,638 |
|
Cost of goods sold |
| — |
|
|
| 3,218 |
|
|
| 2,615 |
|
|
| (1,543 | ) |
|
| 4,290 |
|
| — |
|
|
| 3,112 |
|
|
| 3,380 |
|
|
| (1,825 | ) |
|
| 4,667 |
|
Gross profit |
| — |
|
|
| 531 |
|
|
| 607 |
|
|
| (28 | ) |
|
| 1,110 |
|
| — |
|
|
| 862 |
|
|
| 1,104 |
|
|
| 5 |
|
|
| 1,971 |
|
Selling, general, and administrative expense |
| 21 |
|
|
| 794 |
|
|
| 139 |
|
|
| (20 | ) |
|
| 934 |
|
| 33 |
|
|
| 485 |
|
|
| 163 |
|
|
| (24 | ) |
|
| 657 |
|
Research and development expense |
| — |
|
|
| 77 |
|
|
| 3 |
|
|
| — |
|
|
| 80 |
|
| — |
|
|
| 76 |
|
|
| 6 |
|
|
| — |
|
|
| 82 |
|
Restructuring and asset-related charges, net |
| — |
|
|
| 168 |
|
|
| 2 |
|
|
| — |
|
|
| 170 |
| |||||||||||||||||||
Total expenses |
| 21 |
|
|
| 1,039 |
|
|
| 144 |
|
|
| (20 | ) |
|
| 1,184 |
| |||||||||||||||||||
Restructuring, asset-related, and other charges |
| — |
|
|
| 46 |
|
|
| 3 |
|
|
| — |
|
|
| 49 |
| |||||||||||||||||||
Total other operating expenses |
| 33 |
|
|
| 607 |
|
|
| 172 |
|
|
| (24 | ) |
|
| 788 |
| |||||||||||||||||||
Equity in earnings of affiliates |
| — |
|
|
| 4 |
|
|
| 25 |
|
|
| — |
|
|
| 29 |
|
| — |
|
|
| — |
|
|
| 43 |
|
|
| — |
|
|
| 43 |
|
Equity in earnings of subsidiaries |
| 100 |
|
|
| — |
|
|
| — |
|
|
| (100 | ) |
|
| — |
|
| 1,155 |
|
|
| 2 |
|
|
| — |
|
|
| (1,157 | ) |
|
| — |
|
Interest (expense) income, net |
| (211 | ) |
|
| (3 | ) |
|
| 1 |
|
|
| — |
|
|
| (213 | ) |
| (210 | ) |
|
| 5 |
|
|
| 10 |
|
|
| — |
|
|
| (195 | ) |
Loss on extinguishment of debt |
| (38 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (38 | ) | |||||||||||||||||||
Intercompany interest income (expense), net |
| 60 |
|
|
| 4 |
|
|
| (64 | ) |
|
| — |
|
|
| — |
|
| 47 |
|
|
| 10 |
|
|
| (57 | ) |
|
| — |
|
|
| — |
|
Other income, net |
| 20 |
|
|
| 193 |
|
|
| 54 |
|
|
| (20 | ) |
|
| 247 |
| |||||||||||||||||||
(Loss) income before income taxes |
| (52 | ) |
|
| (310 | ) |
|
| 479 |
|
|
| (128 | ) |
|
| (11 | ) | |||||||||||||||||||
Other income (expense), net |
| 25 |
|
|
| 199 |
|
|
| (40 | ) |
|
| (22 | ) |
|
| 162 |
| |||||||||||||||||||
Income before income taxes |
| 946 |
|
|
| 471 |
|
|
| 888 |
|
|
| (1,150 | ) |
|
| 1,155 |
| |||||||||||||||||||
(Benefit from) provision for income taxes |
| (59 | ) |
|
| (52 | ) |
|
| 100 |
|
|
| (7 | ) |
|
| (18 | ) |
| (50 | ) |
|
| 98 |
|
|
| 111 |
|
|
| — |
|
|
| 159 |
|
Net income (loss) |
| 7 |
|
|
| (258 | ) |
|
| 379 |
|
|
| (121 | ) |
|
| 7 |
| |||||||||||||||||||
Net income |
| 996 |
|
|
| 373 |
|
|
| 777 |
|
|
| (1,150 | ) |
|
| 996 |
| |||||||||||||||||||
Less: Net income attributable to non-controlling interests |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Net income (loss) attributable to Chemours | $ | 7 |
|
| $ | (258 | ) |
| $ | 379 |
|
| $ | (121 | ) |
| $ | 7 |
| |||||||||||||||||||
Comprehensive (loss) income attributable to Chemours | $ | (34 | ) |
| $ | (255 | ) |
| $ | 321 |
|
| $ | (66 | ) |
| $ | (34 | ) | |||||||||||||||||||
Net income attributable to Chemours | $ | 996 |
|
| $ | 373 |
|
| $ | 776 |
|
| $ | (1,150 | ) |
| $ | 995 |
| |||||||||||||||||||
Comprehensive income attributable to Chemours | $ | 873 |
|
| $ | 375 |
|
| $ | 637 |
|
| $ | (1,012 | ) |
| $ | 873 |
|
F-57F-73
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Condensed Consolidating Statements of Comprehensive Income (Loss)
| Year Ended December 31, 2015 |
| Year Ended December 31, 2017 |
| ||||||||||||||||||||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| ||||||||||
Net sales | $ | — |
|
| $ | 4,044 |
|
| $ | 3,269 |
|
| $ | (1,596 | ) |
| $ | 5,717 |
| $ | — |
|
| $ | 3,887 |
|
| $ | 4,030 |
|
| $ | (1,734 | ) |
| $ | 6,183 |
|
Cost of goods sold |
| — |
|
|
| 3,708 |
|
|
| 2,650 |
|
|
| (1,596 | ) |
|
| 4,762 |
|
| — |
|
|
| 3,084 |
|
|
| 3,045 |
|
|
| (1,691 | ) |
|
| 4,438 |
|
Gross profit |
| — |
|
|
| 336 |
|
|
| 619 |
|
|
| — |
|
|
| 955 |
|
| — |
|
|
| 803 |
|
|
| 985 |
|
|
| (43 | ) |
|
| 1,745 |
|
Selling, general, and administrative expense |
| 15 |
|
|
| 426 |
|
|
| 204 |
|
|
| (13 | ) |
|
| 632 |
|
| 36 |
|
|
| 449 |
|
|
| 179 |
|
|
| (38 | ) |
|
| 626 |
|
Research and development expense |
| — |
|
|
| 95 |
|
|
| 2 |
|
|
| — |
|
|
| 97 |
|
| — |
|
|
| 74 |
|
|
| 7 |
|
|
| — |
|
|
| 81 |
|
Restructuring and asset-related charges, net |
| — |
|
|
| 295 |
|
|
| 38 |
|
|
| — |
|
|
| 333 |
| |||||||||||||||||||
Goodwill impairment |
| — |
|
|
| 25 |
|
|
| — |
|
|
| — |
|
|
| 25 |
| |||||||||||||||||||
Total expenses |
| 15 |
|
|
| 841 |
|
|
| 244 |
|
|
| (13 | ) |
|
| 1,087 |
| |||||||||||||||||||
Restructuring, asset-related, and other charges |
| — |
|
|
| 56 |
|
|
| 1 |
|
|
| — |
|
|
| 57 |
| |||||||||||||||||||
Total other operating expenses |
| 36 |
|
|
| 579 |
|
|
| 187 |
|
|
| (38 | ) |
|
| 764 |
| |||||||||||||||||||
Equity in earnings of affiliates |
| — |
|
|
| 1 |
|
|
| 21 |
|
|
| — |
|
|
| 22 |
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| — |
|
|
| 33 |
|
Equity in earnings of subsidiaries |
| (47 | ) |
|
| — |
|
|
| — |
|
|
| 47 |
|
|
| — |
|
| 849 |
|
|
| — |
|
|
| — |
|
|
| (849 | ) |
|
| — |
|
Interest expense, net |
| (131 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (132 | ) | |||||||||||||||||||
Interest (expense) income, net |
| (220 | ) |
|
| 3 |
|
|
| 3 |
|
|
| — |
|
|
| (214 | ) | |||||||||||||||||||
Loss on extinguishment of debt |
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) | |||||||||||||||||||
Intercompany interest income (expense), net |
| 44 |
|
|
| — |
|
|
| (44 | ) |
|
| — |
|
|
| — |
|
| 64 |
|
|
| — |
|
|
| (64 | ) |
|
| — |
|
|
| — |
|
Other income (expense), net |
| 13 |
|
|
| 92 |
|
|
| (31 | ) |
|
| (20 | ) |
|
| 54 |
|
| 29 |
|
|
| 139 |
|
|
| (21 | ) |
|
| (34 | ) |
|
| 113 |
|
(Loss) income before income taxes |
| (136 | ) |
|
| (413 | ) |
|
| 321 |
|
|
| 40 |
|
|
| (188 | ) | |||||||||||||||||||
Income before income taxes |
| 685 |
|
|
| 366 |
|
|
| 749 |
|
|
| (888 | ) |
|
| 912 |
| |||||||||||||||||||
(Benefit from) provision for income taxes |
| (46 | ) |
|
| (89 | ) |
|
| 40 |
|
|
| (3 | ) |
|
| (98 | ) |
| (62 | ) |
|
| 117 |
|
|
| 114 |
|
|
| (4 | ) |
|
| 165 |
|
Net (loss) income |
| (90 | ) |
|
| (324 | ) |
|
| 281 |
|
|
| 43 |
|
|
| (90 | ) | |||||||||||||||||||
Net income |
| 747 |
|
|
| 249 |
|
|
| 635 |
|
|
| (884 | ) |
|
| 747 |
| |||||||||||||||||||
Less: Net income attributable to non-controlling interests |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Net (loss) income attributable to Chemours | $ | (90 | ) |
| $ | (324 | ) |
| $ | 281 |
|
| $ | 43 |
|
| $ | (90 | ) | |||||||||||||||||||
Comprehensive (loss) income attributable to Chemours | $ | (334 | ) |
| $ | (324 | ) |
| $ | 29 |
|
| $ | 295 |
|
| $ | (334 | ) | |||||||||||||||||||
Net income attributable to Chemours | $ | 747 |
|
| $ | 249 |
|
| $ | 634 |
|
| $ | (884 | ) |
| $ | 746 |
| |||||||||||||||||||
Comprehensive income attributable to Chemours | $ | 881 |
|
| $ | 253 |
|
| $ | 828 |
|
| $ | (1,081 | ) |
| $ | 881 |
|
F-58F-74
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Condensed Consolidating Balance Sheets
| Year Ended December 31, 2017 |
| Year Ended December 31, 2019 |
| ||||||||||||||||||||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| ||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | — |
|
| $ | 761 |
|
| $ | 795 |
|
| $ | — |
|
| $ | 1,556 |
| $ | — |
|
| $ | 104 |
|
| $ | 839 |
|
| $ | — |
|
| $ | 943 |
|
Accounts and notes receivable, net |
| — |
|
|
| 308 |
|
|
| 611 |
|
|
| — |
|
|
| 919 |
|
| — |
|
|
| 53 |
|
|
| 621 |
|
|
| — |
|
|
| 674 |
|
Intercompany receivable |
| 3 |
|
|
| 904 |
|
|
| 581 |
|
|
| (1,488 | ) |
|
| — |
|
| 2 |
|
|
| 1,023 |
|
|
| 180 |
|
|
| (1,205 | ) |
|
| — |
|
Inventories |
| — |
|
|
| 394 |
|
|
| 631 |
|
|
| (90 | ) |
|
| 935 |
|
| — |
|
|
| 552 |
|
|
| 612 |
|
|
| (85 | ) |
|
| 1,079 |
|
Prepaid expenses and other |
| — |
|
|
| 57 |
|
|
| 15 |
|
|
| 11 |
|
|
| 83 |
|
| — |
|
|
| 60 |
|
|
| 15 |
|
|
| 6 |
|
|
| 81 |
|
Total current assets |
| 3 |
|
|
| 2,424 |
|
|
| 2,633 |
|
|
| (1,567 | ) |
|
| 3,493 |
|
| 2 |
|
|
| 1,792 |
|
|
| 2,267 |
|
|
| (1,284 | ) |
|
| 2,777 |
|
Property, plant, and equipment |
| — |
|
|
| 6,449 |
|
|
| 2,062 |
|
|
| — |
|
|
| 8,511 |
|
| — |
|
|
| 7,207 |
|
|
| 2,206 |
|
|
| — |
|
|
| 9,413 |
|
Less: Accumulated depreciation |
| — |
|
|
| (4,438 | ) |
|
| (1,065 | ) |
|
| — |
|
|
| (5,503 | ) |
| — |
|
|
| (4,697 | ) |
|
| (1,157 | ) |
|
| — |
|
|
| (5,854 | ) |
Property, plant, and equipment, net |
| — |
|
|
| 2,011 |
|
|
| 997 |
|
|
| — |
|
|
| 3,008 |
|
| — |
|
|
| 2,510 |
|
|
| 1,049 |
|
|
| — |
|
|
| 3,559 |
|
Operating lease right-of-use assets |
| — |
|
|
| 273 |
|
|
| 21 |
|
|
| — |
|
|
| 294 |
| |||||||||||||||||||
Goodwill and other intangible assets, net |
| — |
|
|
| 152 |
|
|
| 14 |
|
|
| — |
|
|
| 166 |
|
| — |
|
|
| 160 |
|
|
| 14 |
|
|
| — |
|
|
| 174 |
|
Investments in affiliates |
| — |
|
|
| — |
|
|
| 173 |
|
|
| — |
|
|
| 173 |
|
| — |
|
|
| — |
|
|
| 162 |
|
|
| — |
|
|
| 162 |
|
Investment in subsidiaries |
| 4,393 |
|
|
| — |
|
|
| — |
|
|
| (4,393 | ) |
|
| — |
| |||||||||||||||||||
Investments in subsidiaries |
| 4,077 |
|
|
| 148 |
|
|
| — |
|
|
| (4,225 | ) |
|
| — |
| |||||||||||||||||||
Intercompany notes receivable |
| 1,150 |
|
|
| — |
|
|
| — |
|
|
| (1,150 | ) |
|
| — |
|
| 1,250 |
|
|
| — |
|
|
| — |
|
|
| (1,250 | ) |
|
| — |
|
Other assets |
| 23 |
|
|
| 115 |
|
|
| 328 |
|
|
| (13 | ) |
|
| 453 |
|
| 7 |
|
|
| 140 |
|
|
| 145 |
|
|
| — |
|
|
| 292 |
|
Total assets | $ | 5,569 |
|
| $ | 4,702 |
|
| $ | 4,145 |
|
| $ | (7,123 | ) |
| $ | 7,293 |
| $ | 5,336 |
|
| $ | 5,023 |
|
| $ | 3,658 |
|
| $ | (6,759 | ) |
| $ | 7,258 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable | $ | 31 |
|
| $ | 606 |
|
| $ | 438 |
|
| $ | — |
|
| $ | 1,075 |
| $ | — |
|
| $ | 528 |
|
| $ | 395 |
|
| $ | — |
|
| $ | 923 |
|
Current maturities of long-term debt |
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
| |||||||||||||||||||
Short-term and current maturities of long-term debt |
| 13 |
|
|
| 11 |
|
|
| 110 |
|
|
| — |
|
|
| 134 |
| |||||||||||||||||||
Intercompany payable |
| 542 |
|
|
| 581 |
|
|
| 365 |
|
|
| (1,488 | ) |
|
| — |
|
| 720 |
|
|
| 138 |
|
|
| 345 |
|
|
| (1,203 | ) |
|
| — |
|
Other accrued liabilities |
| 34 |
|
|
| 343 |
|
|
| 181 |
|
|
| — |
|
|
| 558 |
|
| 21 |
|
|
| 294 |
|
|
| 171 |
|
|
| (2 | ) |
|
| 484 |
|
Total current liabilities |
| 622 |
|
|
| 1,530 |
|
|
| 984 |
|
|
| (1,488 | ) |
|
| 1,648 |
|
| 754 |
|
|
| 971 |
|
|
| 1,021 |
|
|
| (1,205 | ) |
|
| 1,541 |
|
Long-term debt, net |
| 4,087 |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| 4,097 |
|
| 3,876 |
|
|
| 150 |
|
|
| — |
|
|
| — |
|
|
| 4,026 |
|
Operating lease liabilities |
| — |
|
|
| 233 |
|
|
| 12 |
|
|
| — |
|
|
| 245 |
| |||||||||||||||||||
Intercompany notes payable |
| — |
|
|
| — |
|
|
| 1,150 |
|
|
| (1,150 | ) |
|
| — |
|
| — |
|
|
| — |
|
|
| 1,250 |
|
|
| (1,250 | ) |
|
| — |
|
Deferred income taxes |
| — |
|
|
| 127 |
|
|
| 105 |
|
|
| (24 | ) |
|
| 208 |
|
| 17 |
|
|
| 45 |
|
|
| 56 |
|
|
| — |
|
|
| 118 |
|
Other liabilities |
| — |
|
|
| 388 |
|
|
| 87 |
|
|
| — |
|
|
| 475 |
|
| — |
|
|
| 551 |
|
|
| 82 |
|
|
| — |
|
|
| 633 |
|
Total liabilities |
| 4,709 |
|
|
| 2,055 |
|
|
| 2,326 |
|
|
| (2,662 | ) |
|
| 6,428 |
|
| 4,647 |
|
|
| 1,950 |
|
|
| 2,421 |
|
|
| (2,455 | ) |
|
| 6,563 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Chemours stockholders’ equity |
| 860 |
|
|
| 2,647 |
|
|
| 1,814 |
|
|
| (4,461 | ) |
|
| 860 |
|
| 689 |
|
|
| 3,073 |
|
|
| 1,231 |
|
|
| (4,304 | ) |
|
| 689 |
|
Non-controlling interests |
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 5 |
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
Total equity |
| 860 |
|
|
| 2,647 |
|
|
| 1,819 |
|
|
| (4,461 | ) |
|
| 865 |
|
| 689 |
|
|
| 3,073 |
|
|
| 1,237 |
|
|
| (4,304 | ) |
|
| 695 |
|
Total liabilities and equity | $ | 5,569 |
|
| $ | 4,702 |
|
| $ | 4,145 |
|
| $ | (7,123 | ) |
| $ | 7,293 |
| $ | 5,336 |
|
| $ | 5,023 |
|
| $ | 3,658 |
|
| $ | (6,759 | ) |
| $ | 7,258 |
|
F-59F-75
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Condensed Consolidating Balance Sheets
| Year Ended December 31, 2016 |
| Year Ended December 31, 2018 |
| ||||||||||||||||||||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| ||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | — |
|
| $ | 224 |
|
| $ | 678 |
|
| $ | — |
|
| $ | 902 |
| $ | — |
|
| $ | 239 |
|
| $ | 962 |
|
| $ | — |
|
| $ | 1,201 |
|
Accounts and notes receivable, net |
| — |
|
|
| 299 |
|
|
| 508 |
|
|
| — |
|
|
| 807 |
|
| — |
|
|
| 297 |
|
|
| 564 |
|
|
| — |
|
|
| 861 |
|
Intercompany receivable |
| 3 |
|
|
| 1,050 |
|
|
| 46 |
|
|
| (1,099 | ) |
|
| — |
|
| 2 |
|
|
| 1,057 |
|
|
| 91 |
|
|
| (1,150 | ) |
|
| — |
|
Inventories |
| — |
|
|
| 341 |
|
|
| 476 |
|
|
| (50 | ) |
|
| 767 |
|
| — |
|
|
| 483 |
|
|
| 749 |
|
|
| (85 | ) |
|
| 1,147 |
|
Prepaid expenses and other |
| — |
|
|
| 38 |
|
|
| 32 |
|
|
| 7 |
|
|
| 77 |
|
| — |
|
|
| 58 |
|
|
| 26 |
|
|
| — |
|
|
| 84 |
|
Total current assets |
| 3 |
|
|
| 1,952 |
|
|
| 1,740 |
|
|
| (1,142 | ) |
|
| 2,553 |
|
| 2 |
|
|
| 2,134 |
|
|
| 2,392 |
|
|
| (1,235 | ) |
|
| 3,293 |
|
Property, plant, and equipment |
| — |
|
|
| 6,136 |
|
|
| 1,861 |
|
|
| — |
|
|
| 7,997 |
|
| — |
|
|
| 6,870 |
|
|
| 2,122 |
|
|
| — |
|
|
| 8,992 |
|
Less: Accumulated depreciation |
| — |
|
|
| (4,285 | ) |
|
| (928 | ) |
|
| — |
|
|
| (5,213 | ) |
| — |
|
|
| (4,591 | ) |
|
| (1,110 | ) |
|
| — |
|
|
| (5,701 | ) |
Property, plant, and equipment, net |
| — |
|
|
| 1,851 |
|
|
| 933 |
|
|
| — |
|
|
| 2,784 |
|
| — |
|
|
| 2,279 |
|
|
| 1,012 |
|
|
| — |
|
|
| 3,291 |
|
Goodwill and other intangible assets, net |
| — |
|
|
| 156 |
|
|
| 14 |
|
|
| — |
|
|
| 170 |
|
| — |
|
|
| 167 |
|
|
| 14 |
|
|
| — |
|
|
| 181 |
|
Investments in affiliates |
| — |
|
|
| — |
|
|
| 136 |
|
|
| — |
|
|
| 136 |
|
| — |
|
|
| — |
|
|
| 160 |
|
|
| — |
|
|
| 160 |
|
Investment in subsidiaries |
| 3,258 |
|
|
| — |
|
|
| — |
|
|
| (3,258 | ) |
|
| — |
| |||||||||||||||||||
Investments in subsidiaries |
| 4,487 |
|
|
| 11 |
|
|
| — |
|
|
| (4,498 | ) |
|
| — |
| |||||||||||||||||||
Intercompany notes receivable |
| 1,150 |
|
|
| — |
|
|
| — |
|
|
| (1,150 | ) |
|
| — |
|
| 1,150 |
|
|
| — |
|
|
| — |
|
|
| (1,150 | ) |
|
| — |
|
Other assets |
| 13 |
|
|
| 178 |
|
|
| 226 |
|
|
| — |
|
|
| 417 |
|
| 17 |
|
|
| 154 |
|
|
| 274 |
|
|
| (8 | ) |
|
| 437 |
|
Total assets | $ | 4,424 |
|
| $ | 4,137 |
|
| $ | 3,049 |
|
| $ | (5,550 | ) |
| $ | 6,060 |
| $ | 5,656 |
|
| $ | 4,745 |
|
| $ | 3,852 |
|
| $ | (6,891 | ) |
| $ | 7,362 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable | $ | — |
|
| $ | 573 |
|
| $ | 311 |
|
| $ | — |
|
| $ | 884 |
| $ | — |
|
| $ | 637 |
|
| $ | 500 |
|
| $ | — |
|
| $ | 1,137 |
|
Current maturities of long-term debt |
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13 |
|
Intercompany payable |
| 762 |
|
|
| 46 |
|
|
| 291 |
|
|
| (1,099 | ) |
|
| — |
|
| 698 |
|
|
| 92 |
|
|
| 360 |
|
|
| (1,150 | ) |
|
| — |
|
Other accrued liabilities |
| 21 |
|
|
| 718 |
|
|
| 133 |
|
|
| — |
|
|
| 872 |
|
| 21 |
|
|
| 341 |
|
|
| 198 |
|
|
| (1 | ) |
|
| 559 |
|
Total current liabilities |
| 798 |
|
|
| 1,337 |
|
|
| 735 |
|
|
| (1,099 | ) |
|
| 1,771 |
|
| 732 |
|
|
| 1,070 |
|
|
| 1,058 |
|
|
| (1,151 | ) |
|
| 1,709 |
|
Long-term debt, net |
| 3,526 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 3,529 |
|
| 3,902 |
|
|
| 57 |
|
|
| — |
|
|
| — |
|
|
| 3,959 |
|
Intercompany notes payable |
| — |
|
|
| — |
|
|
| 1,150 |
|
|
| (1,150 | ) |
|
| — |
|
| — |
|
|
| — |
|
|
| 1,150 |
|
|
| (1,150 | ) |
|
| — |
|
Deferred income taxes |
| — |
|
|
| 59 |
|
|
| 73 |
|
|
| — |
|
|
| 132 |
|
| 8 |
|
|
| 143 |
|
|
| 82 |
|
|
| (16 | ) |
|
| 217 |
|
Other liabilities |
| — |
|
|
| 428 |
|
|
| 96 |
|
|
| — |
|
|
| 524 |
|
| — |
|
|
| 372 |
|
|
| 85 |
|
|
| — |
|
|
| 457 |
|
Total liabilities |
| 4,324 |
|
|
| 1,827 |
|
|
| 2,054 |
|
|
| (2,249 | ) |
|
| 5,956 |
|
| 4,642 |
|
|
| 1,642 |
|
|
| 2,375 |
|
|
| (2,317 | ) |
|
| 6,342 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Chemours stockholders’ equity |
| 100 |
|
|
| 2,310 |
|
|
| 991 |
|
|
| (3,301 | ) |
|
| 100 |
|
| 1,014 |
|
|
| 3,103 |
|
|
| 1,471 |
|
|
| (4,574 | ) |
|
| 1,014 |
|
Non-controlling interests |
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
Total equity |
| 100 |
|
|
| 2,310 |
|
|
| 995 |
|
|
| (3,301 | ) |
|
| 104 |
|
| 1,014 |
|
|
| 3,103 |
|
|
| 1,477 |
|
|
| (4,574 | ) |
|
| 1,020 |
|
Total liabilities and equity | $ | 4,424 |
|
| $ | 4,137 |
|
| $ | 3,049 |
|
| $ | (5,550 | ) |
| $ | 6,060 |
| $ | 5,656 |
|
| $ | 4,745 |
|
| $ | 3,852 |
|
| $ | (6,891 | ) |
| $ | 7,362 |
|
F-60F-76
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Condensed Consolidating Statements of Cash Flows
| Year Ended December 31, 2019 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used for) operating activities | $ | 140 |
|
| $ | (892 | ) |
| $ | 1,684 |
|
| $ | (282 | ) |
| $ | 650 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment |
| — |
|
|
| (403 | ) |
|
| (78 | ) |
|
| — |
|
|
| (481 | ) |
Intercompany investing activities |
| — |
|
|
| 26 |
|
|
| (398 | ) |
|
| 372 |
|
|
| — |
|
Acquisition of business, net |
| — |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| (10 | ) |
Proceeds from sales of assets and businesses, net |
| — |
|
|
| 7 |
|
|
| 2 |
|
|
| — |
|
|
| 9 |
|
Proceeds from life insurance policies |
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Foreign exchange contract settlements, net |
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (2 | ) |
Cash used for investing activities |
| — |
|
|
| (381 | ) |
|
| (474 | ) |
|
| 372 |
|
|
| (483 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving loan |
| 150 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 150 |
|
Repayments on revolving loan |
| (150 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (150 | ) |
Proceeds from accounts receivable securitization facility |
| — |
|
|
| — |
|
|
| 128 |
|
|
| — |
|
|
| 128 |
|
Debt repayments |
| (13 | ) |
|
| (5 | ) |
|
| (19 | ) |
|
| — |
|
|
| (37 | ) |
Payments on finance leases |
| — |
|
|
| (1 | ) |
|
| (2 | ) |
|
| — |
|
|
| (3 | ) |
Purchases of treasury stock, at cost |
| (322 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (322 | ) |
Intercompany financing activities (1) |
| 380 |
|
|
| 1,144 |
|
|
| (1,434 | ) |
|
| (90 | ) |
|
| — |
|
Proceeds from exercised stock options, net |
| 9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
Payments related to tax withholdings on vested stock awards |
| (30 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (30 | ) |
Payments of dividends |
| (164 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (164 | ) |
Cash (used for) provided by financing activities |
| (140 | ) |
|
| 1,138 |
|
|
| (1,327 | ) |
|
| (90 | ) |
|
| (419 | ) |
Effect of exchange rate changes on cash and cash equivalents |
| — |
|
|
| — |
|
|
| (6 | ) |
|
| — |
|
|
| (6 | ) |
Decrease in cash and cash equivalents |
| — |
|
|
| (135 | ) |
|
| (123 | ) |
|
| — |
|
|
| (258 | ) |
Cash and cash equivalents at January 1, |
| — |
|
|
| 239 |
|
|
| 962 |
|
|
| — |
|
|
| 1,201 |
|
Cash and cash equivalents at December 31, | $ | — |
|
| $ | 104 |
|
| $ | 839 |
|
| $ | — |
|
| $ | 943 |
|
(1) | During the year ended December 31, 2019, the Company received $1,034 in collections on its accounts receivable sold into the SPE under the Securitization Facility, which, inclusive of net borrowings, led to a total of $1,144 received by the SPE and distributed to the Guarantor Subsidiaries during the period. |
| Year Ended December 31, 2017 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used for) provided by operating activities | $ | (133 | ) |
| $ | 603 |
|
| $ | 169 |
|
| $ | — |
|
| $ | 639 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment |
| — |
|
|
| (327 | ) |
|
| (84 | ) |
|
| — |
|
|
| (411 | ) |
Proceeds from sales of assets and businesses, net |
| — |
|
|
| 39 |
|
|
| — |
|
|
| — |
|
|
| 39 |
|
Intercompany investing activities |
| — |
|
|
| 220 |
|
|
| — |
|
|
| (220 | ) |
|
| — |
|
Foreign exchange contract settlements, net |
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Cash used for investing activities |
| — |
|
|
| (66 | ) |
|
| (84 | ) |
|
| (220 | ) |
|
| (370 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany short-term repayments, net |
| (220 | ) |
|
| — |
|
|
| — |
|
|
| 220 |
|
|
| — |
|
Proceeds from issuance of debt, net |
| 495 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 495 |
|
Debt repayments |
| (27 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (27 | ) |
Payment of deferred financing fees |
| (6 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
Purchases of treasury stock at cost |
| (106 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (106 | ) |
Proceeds from exercised stock options, net |
| 31 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31 |
|
Tax payments related to withholdings on vested restricted stock units |
| (12 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
Payment of dividends |
| (22 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22 | ) |
Cash provided by financing activities |
| 133 |
|
|
| — |
|
|
| — |
|
|
| 220 |
|
|
| 353 |
|
Effect of exchange rate changes on cash and cash equivalents |
| — |
|
|
| — |
|
|
| 32 |
|
|
| — |
|
|
| 32 |
|
Increase in cash and cash equivalents |
| — |
|
|
| 537 |
|
|
| 117 |
|
|
| — |
|
|
| 654 |
|
Cash and cash equivalents at January 1, |
| — |
|
|
| 224 |
|
|
| 678 |
|
|
| — |
|
|
| 902 |
|
Cash and cash equivalents at December 31, | $ | — |
|
| $ | 761 |
|
| $ | 795 |
|
| $ | — |
|
| $ | 1,556 |
|
F-61F-77
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Condensed Consolidating Statements of Cash Flows
| Year Ended December 31, 2016 |
| Year Ended December 31, 2018 |
| ||||||||||||||||||||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| ||||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used for) provided by operating activities | $ | (176 | ) |
| $ | 355 |
|
| $ | 415 |
|
| $ | — |
|
| $ | 594 |
| $ | (159 | ) |
| $ | 10 |
|
| $ | 1,289 |
|
| $ | — |
|
| $ | 1,140 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment |
| — |
|
|
| (233 | ) |
|
| (105 | ) |
|
| — |
|
|
| (338 | ) |
| — |
|
|
| (390 | ) |
|
| (108 | ) |
|
| — |
|
|
| (498 | ) |
Acquisition of business, net |
| — |
|
|
| (37 | ) |
|
| — |
|
|
| — |
|
|
| (37 | ) | |||||||||||||||||||
Proceeds from sales of assets and businesses, net |
| — |
|
|
| 591 |
|
|
| 117 |
|
|
| — |
|
|
| 708 |
|
| — |
|
|
| 46 |
|
|
| — |
|
|
| — |
|
|
| 46 |
|
Intercompany investing activities |
| — |
|
|
| (560 | ) |
|
| — |
|
|
| 560 |
|
|
| — |
|
| — |
|
|
| (153 | ) |
|
| (999 | ) |
|
| 1,152 |
|
|
| — |
|
Investments in affiliates |
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) | |||||||||||||||||||
Foreign exchange contract settlements, net |
| — |
|
|
| (12 | ) |
|
| — |
|
|
| — |
|
|
| (12 | ) |
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Cash (used for) provided by investing activities |
| — |
|
|
| (214 | ) |
|
| 11 |
|
|
| 560 |
|
|
| 357 |
| |||||||||||||||||||
Cash used for investing activities |
| — |
|
|
| (532 | ) |
|
| (1,107 | ) |
|
| 1,152 |
|
|
| (487 | ) | |||||||||||||||||||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany short-term borrowings, net |
| 560 |
|
|
| — |
|
|
| — |
|
|
| (560 | ) |
|
| — |
| |||||||||||||||||||
Proceeds from issuance of debt, net |
| 520 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 520 |
| |||||||||||||||||||
Debt repayments |
| (369 | ) |
|
| (12 | ) |
|
| — |
|
|
| — |
|
|
| (381 | ) |
| (679 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (679 | ) |
Payment of deferred financing fees |
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) | |||||||||||||||||||
Payments related to extinguishment of debt |
| (29 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (29 | ) | |||||||||||||||||||
Payments of debt issuance costs |
| (12 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) | |||||||||||||||||||
Purchases of treasury stock, at cost |
| (644 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (644 | ) | |||||||||||||||||||
Intercompany financing activities |
| 1,152 |
|
|
| — |
|
|
| — |
|
|
| (1,152 | ) |
|
| — |
| |||||||||||||||||||
Proceeds from exercised stock options, net |
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
| 16 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
Payment of dividends |
| (22 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22 | ) | |||||||||||||||||||
Payments related to tax withholdings on vested restricted stock units |
| (17 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17 | ) | |||||||||||||||||||
Payments of dividends |
| (148 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (148 | ) | |||||||||||||||||||
Cash provided by (used for) financing activities |
| 176 |
|
|
| (12 | ) |
|
| — |
|
|
| (560 | ) |
|
| (396 | ) |
| 159 |
|
|
| — |
|
|
| — |
|
|
| (1,152 | ) |
|
| (993 | ) |
Effect of exchange rate changes on cash and cash equivalents |
| — |
|
|
| — |
|
|
| (19 | ) |
|
| — |
|
|
| (19 | ) |
| — |
|
|
| — |
|
|
| (15 | ) |
|
| — |
|
|
| (15 | ) |
Increase in cash and cash equivalents |
| — |
|
|
| 129 |
|
|
| 407 |
|
|
| — |
|
|
| 536 |
| |||||||||||||||||||
(Decrease) increase in cash and cash equivalents |
| — |
|
|
| (522 | ) |
|
| 167 |
|
|
| — |
|
|
| (355 | ) | |||||||||||||||||||
Cash and cash equivalents at January 1, |
| — |
|
|
| 95 |
|
|
| 271 |
|
|
| — |
|
|
| 366 |
|
| — |
|
|
| 761 |
|
|
| 795 |
|
|
| — |
|
|
| 1,556 |
|
Cash and cash equivalents at December 31, | $ | — |
|
| $ | 224 |
|
| $ | 678 |
|
| $ | — |
|
| $ | 902 |
| $ | — |
|
| $ | 239 |
|
| $ | 962 |
|
| $ | — |
|
| $ | 1,201 |
|
F-62F-78
The Chemours Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share amounts)amounts and par values)
Condensed Consolidating Statements of Cash Flows
| Year Ended December 31, 2015 |
| Year Ended December 31, 2017 |
| ||||||||||||||||||||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| ||||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used for) provided by operating activities | $ | (119 | ) |
| $ | 171 |
|
| $ | 121 |
|
| $ | 9 |
|
| $ | 182 |
| $ | (132 | ) |
| $ | 603 |
|
| $ | 169 |
|
| $ | — |
|
| $ | 640 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment |
| — |
|
|
| (292 | ) |
|
| (227 | ) |
|
| — |
|
|
| (519 | ) |
| — |
|
|
| (327 | ) |
|
| (84 | ) |
|
| — |
|
|
| (411 | ) |
Proceeds from sales of assets and businesses, net |
| — |
|
|
| 6 |
|
|
| 6 |
|
|
| — |
|
|
| 12 |
|
| — |
|
|
| 39 |
|
|
| — |
|
|
| — |
|
|
| 39 |
|
Intercompany investing activities |
| — |
|
|
| (202 | ) |
|
| — |
|
|
| 202 |
|
|
| — |
|
| — |
|
|
| 220 |
|
|
| — |
|
|
| (220 | ) |
|
| — |
|
Investments in affiliates |
| — |
|
|
| — |
|
|
| (32 | ) |
|
| — |
|
|
| (32 | ) | |||||||||||||||||||
Foreign exchange contract settlements, net |
| — |
|
|
| 42 |
|
|
| — |
|
|
| — |
|
|
| 42 |
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Cash used for investing activities |
| — |
|
|
| (446 | ) |
|
| (253 | ) |
|
| 202 |
|
|
| (497 | ) |
| — |
|
|
| (66 | ) |
|
| (84 | ) |
|
| (220 | ) |
|
| (370 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany short-term borrowings, net |
| 202 |
|
|
| — |
|
|
| — |
|
|
| (202 | ) |
|
| — |
|
| (220 | ) |
|
| — |
|
|
| — |
|
|
| 220 |
|
|
| — |
|
Proceeds from issuance of debt, net |
| 3,489 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 3,491 |
|
| 495 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 495 |
|
Debt repayments |
| (8 | ) |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (10 | ) |
| (27 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (27 | ) |
Payment of deferred financing fees |
| (79 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (79 | ) | |||||||||||||||||||
Cash provided at Separation by DuPont |
| — |
|
|
| 87 |
|
|
| 160 |
|
|
| — |
|
|
| 247 |
| |||||||||||||||||||
Net transfers (to) from DuPont |
| (3,380 | ) |
|
| 283 |
|
|
| 249 |
|
|
| (9 | ) |
|
| (2,857 | ) | |||||||||||||||||||
Payment of dividends |
| (105 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (105 | ) | |||||||||||||||||||
Payments related to extinguishment of debt |
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) | |||||||||||||||||||
Payments of debt issuance costs |
| (6 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) | |||||||||||||||||||
Purchases of treasury stock, at cost |
| (106 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (106 | ) | |||||||||||||||||||
Proceeds from exercised stock options, net |
| 31 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31 |
| |||||||||||||||||||
Payments related to tax withholdings on vested restricted stock units |
| (12 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) | |||||||||||||||||||
Payments of dividends |
| (22 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22 | ) | |||||||||||||||||||
Cash provided by financing activities |
| 119 |
|
|
| 370 |
|
|
| 409 |
|
|
| (211 | ) |
|
| 687 |
|
| 132 |
|
|
| — |
|
|
| — |
|
|
| 220 |
|
|
| 352 |
|
Effect of exchange rate changes on cash and cash equivalents |
| — |
|
|
| — |
|
|
| (6 | ) |
|
| — |
|
|
| (6 | ) |
| — |
|
|
| — |
|
|
| 32 |
|
|
| — |
|
|
| 32 |
|
Increase in cash and cash equivalents |
| — |
|
|
| 95 |
|
|
| 271 |
|
|
| — |
|
|
| 366 |
|
| — |
|
|
| 537 |
|
|
| 117 |
|
|
| — |
|
|
| 654 |
|
Cash and cash equivalents at January 1, |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
|
| 224 |
|
|
| 678 |
|
|
| — |
|
|
| 902 |
|
Cash and cash equivalents at December 31, | $ | — |
|
| $ | 95 |
|
| $ | 271 |
|
| $ | — |
|
| $ | 366 |
| $ | — |
|
| $ | 761 |
|
| $ | 795 |
|
| $ | — |
|
| $ | 1,556 |
|
F-63F-79