UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2018
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 | 46-4845564 |
(State or other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
1007 Market Street, Wilmington, Delaware 19899
(Address of Principal Executive Offices)
(302) 773-1000
(Registrant’s Telephone Number)
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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company”,company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☒ | Accelerated Filer ☐ |
Non-Accelerated Filer ☐ | Smaller reporting company ☐ |
| Emerging growth company ☐ |
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. ☐
Indicate by check mark whether the Registrantregistrant is a shell company (as defined byin Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The Registrantregistrant had 185,163,064177,911,882 shares of common stock, $0.01 par value, outstanding at October 31, 2017.April 30, 2018.
Table of ContentsTABLE OF CONTENTS
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| Page |
Part I |
| |
Item 1. |
| |
| 2 | |
| Interim Consolidated Statements of Comprehensive Income (Unaudited) | 3 |
| 4 | |
| Interim Consolidated Statements of Stockholders’ Equity (Unaudited) | 5 |
| 6 | |
| Notes to the Interim Consolidated Financial Statements (Unaudited) | 7 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Part II |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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Item 1. | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
The Chemours Company
Interim Consolidated Statements of Operations (Unaudited)
(Dollars in millions, except per share amounts)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
| ||||||
Net sales |
| $ | 1,584 |
|
| $ | 1,398 |
|
| $ | 4,608 |
|
| $ | 4,078 |
|
| $ | 1,730 |
|
| $ | 1,437 |
|
Cost of goods sold |
|
| 1,117 |
|
|
| 1,056 |
|
|
| 3,341 |
|
|
| 3,267 |
|
|
| 1,193 |
|
|
| 1,081 |
|
Gross profit |
|
| 467 |
|
|
| 342 |
|
|
| 1,267 |
|
|
| 811 |
|
|
| 537 |
|
|
| 356 |
|
Selling, general and administrative expense |
|
| 148 |
|
|
| 148 |
|
|
| 444 |
|
|
| 454 |
| ||||||||
Selling, general, and administrative expense |
|
| 143 |
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|
| 150 |
| ||||||||||||||||
Research and development expense |
|
| 20 |
|
|
| 19 |
|
|
| 61 |
|
|
| 60 |
|
|
| 20 |
|
|
| 19 |
|
Restructuring and asset-related charges, net |
|
| 8 |
|
|
| 60 |
|
|
| 31 |
|
|
| 145 |
| ||||||||
Restructuring, asset-related, and other charges, net |
|
| 10 |
|
|
| 12 |
| ||||||||||||||||
Total expenses |
|
| 176 |
|
|
| 227 |
|
|
| 536 |
|
|
| 659 |
|
|
| 173 |
|
|
| 181 |
|
Equity in earnings of affiliates |
|
| 9 |
|
|
| 9 |
|
|
| 26 |
|
|
| 17 |
|
|
| 12 |
|
|
| 7 |
|
Interest expense, net |
|
| (55 | ) |
|
| (51 | ) |
|
| (161 | ) |
|
| (157 | ) |
|
| (52 | ) |
|
| (51 | ) |
Other income, net |
|
| 5 |
|
|
| 161 |
|
|
| 53 |
|
|
| 250 |
|
|
| 57 |
|
|
| 42 |
|
Income before income taxes |
|
| 250 |
|
|
| 234 |
|
|
| 649 |
|
|
| 262 |
|
|
| 381 |
|
|
| 173 |
|
Provision for income taxes |
|
| 43 |
|
|
| 30 |
|
|
| 130 |
|
|
| 25 |
|
|
| 84 |
|
|
| 22 |
|
Net income |
|
| 207 |
|
|
| 204 |
|
|
| 519 |
|
|
| 237 |
|
|
| 297 |
|
|
| 151 |
|
Less: Net income attributable to non-controlling interests |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Net income attributable to Chemours |
| $ | 207 |
|
| $ | 204 |
|
| $ | 518 |
|
| $ | 237 |
|
| $ | 297 |
|
| $ | 150 |
|
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| ||||||||||||||||
Per share data |
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Basic earnings per share of common stock |
| $ | 1.12 |
|
| $ | 1.12 |
|
| $ | 2.81 |
|
| $ | 1.31 |
|
| $ | 1.63 |
|
| $ | 0.82 |
|
Diluted earnings per share of common stock |
| $ | 1.08 |
|
| $ | 1.11 |
|
| $ | 2.72 |
|
| $ | 1.30 |
|
|
| 1.58 |
|
|
| 0.79 |
|
Dividends per share of common stock |
| $ | 0.03 |
|
| $ | 0.03 |
|
| $ | 0.09 |
|
| $ | 0.09 |
|
|
| — |
|
|
| 0.03 |
|
See accompanying notes to the interim consolidated financial statements.
Interim Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in millions)
|
| Three Months Ended September 30, |
|
| Three Months Ended March 31, |
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| 2017 |
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| 2016 |
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| 2018 |
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| 2017 |
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| Pre-Tax |
|
| Tax |
|
| After-Tax |
|
| Pre-Tax |
|
| Tax |
|
| After-Tax |
|
| Pre-tax |
|
| Tax |
|
| After-tax |
|
| Pre-tax |
|
| Tax |
|
| After-tax |
| ||||||||||||
Net income |
| $ | 250 |
|
| $ | (43 | ) |
| $ | 207 |
|
| $ | 234 |
|
| $ | (30 | ) |
| $ | 204 |
|
| $ | 381 |
|
| $ | (84 | ) |
| $ | 297 |
|
| $ | 173 |
|
| $ | (22 | ) |
| $ | 151 |
|
Other comprehensive income (loss): |
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Other comprehensive (loss) income: |
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Unrealized loss on net investment hedge |
|
| (26 | ) |
|
| 10 |
|
|
| (16 | ) |
|
| (6 | ) |
|
| — |
|
|
| (6 | ) |
|
| (34 | ) |
|
| 8 |
|
|
| (26 | ) |
|
| (10 | ) |
|
| — |
|
|
| (10 | ) |
Cumulative translation adjustments |
|
| 35 |
|
|
| — |
|
|
| 35 |
|
|
| 10 |
|
|
| — |
|
|
| 10 |
| ||||||||||||||||||||||||
Cumulative translation adjustment |
|
| 108 |
|
|
| — |
|
|
| 108 |
|
|
| 103 |
|
|
| — |
|
|
| 103 |
| ||||||||||||||||||||||||
Defined benefit plans: |
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Net gain |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| — |
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|
| — |
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|
| — |
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Additions to accumulated other comprehensive loss: |
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Effect of foreign exchange rates |
|
| (9 | ) |
|
| 2 |
|
|
| (7 | ) |
|
| (3 | ) |
|
| 1 |
|
|
| (2 | ) |
|
| (9 | ) |
|
| — |
|
|
| (9 | ) |
|
| (10 | ) |
|
| 2 |
|
|
| (8 | ) |
Reclassifications to net income: |
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Amortization of prior service gain |
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Reclassifications to net income: |
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Amortization of actuarial loss |
|
| 5 |
|
|
| (1 | ) |
|
| 4 |
|
|
| 6 |
|
|
| (2 | ) |
|
| 4 |
|
|
| 4 |
|
|
| (1 | ) |
|
| 3 |
|
|
| 5 |
|
|
| (1 | ) |
|
| 4 |
|
Settlement loss |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Defined benefit plans, net |
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
|
| 3 |
|
|
| (1 | ) |
|
| 2 |
|
|
| (5 | ) |
|
| (1 | ) |
|
| (6 | ) |
|
| (5 | ) |
|
| 1 |
|
|
| (4 | ) |
Other comprehensive income |
|
| 10 |
|
|
| 11 |
|
|
| 21 |
|
|
| 7 |
|
|
| (1 | ) |
|
| 6 |
|
|
| 69 |
|
|
| 7 |
|
|
| 76 |
|
|
| 88 |
|
|
| 1 |
|
|
| 89 |
|
Comprehensive income |
|
| 260 |
|
|
| (32 | ) |
|
| 228 |
|
|
| 241 |
|
|
| (31 | ) |
|
| 210 |
|
|
| 450 |
|
|
| (77 | ) |
|
| 373 |
|
|
| 261 |
|
|
| (21 | ) |
|
| 240 |
|
Less: Comprehensive income attributable to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
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|
| — |
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|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Comprehensive income attributable to Chemours |
| $ | 260 |
|
| $ | (32 | ) |
| $ | 228 |
|
| $ | 241 |
|
| $ | (31 | ) |
| $ | 210 |
|
| $ | 450 |
|
| $ | (77 | ) |
| $ | 373 |
|
| $ | 260 |
|
| $ | (21 | ) |
| $ | 239 |
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| Nine Months Ended September 30, |
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| 2017 |
|
| 2016 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Pre-Tax |
|
| Tax |
|
| After-Tax |
|
| Pre-Tax |
|
| Tax |
|
| After-Tax |
| ||||||||||||||||||||||||||||||
Net income |
| $ | 649 |
|
| $ | (130 | ) |
| $ | 519 |
|
| $ | 262 |
|
| $ | (25 | ) |
| $ | 237 |
| ||||||||||||||||||||||||
Other comprehensive income (loss): |
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|
|
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|
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|
|
|
|
|
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| ||||||||||||||||||||||||
Unrealized loss on net investment hedge |
|
| (76 | ) |
|
| 20 |
|
|
| (56 | ) |
|
| (9 | ) |
|
| — |
|
|
| (9 | ) | ||||||||||||||||||||||||
Cumulative translation adjustments |
|
| 224 |
|
|
| — |
|
|
| 224 |
|
|
| 20 |
|
|
| — |
|
|
| 20 |
| ||||||||||||||||||||||||
Defined benefit plans: |
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Net gain (loss) |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| (7 | ) |
| 1 |
|
|
| (6 | ) | |||||||||||||||||||||||||
Effect of foreign exchange rates |
|
| (36 | ) |
|
| 8 |
|
|
| (28 | ) |
|
| (5 | ) |
|
| 2 |
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|
| (3 | ) | ||||||||||||||||||||||||
Reclassifications to net income: |
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Amortization of prior service gain |
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| (1 | ) |
|
| — |
|
|
| (1 | ) | ||||||||||||||||||||||||
Amortization of actuarial loss |
|
| 15 |
|
|
| (3 | ) |
|
| 12 |
|
|
| 18 |
|
|
| (5 | ) |
|
| 13 |
| ||||||||||||||||||||||||
Settlement loss |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| (2 | ) |
|
| 1 |
|
|
| (1 | ) | ||||||||||||||||||||||||
Defined benefit plans, net |
|
| (16 | ) |
|
| 5 |
|
|
| (11 | ) |
|
| 3 |
|
|
| (1 | ) |
|
| 2 |
| ||||||||||||||||||||||||
Other comprehensive income |
|
| 132 |
|
|
| 25 |
|
|
| 157 |
|
|
| 14 |
|
|
| (1 | ) |
|
| 13 |
| ||||||||||||||||||||||||
Comprehensive income |
|
| 781 |
|
|
| (105 | ) |
|
| 676 |
|
|
| 276 |
|
|
| (26 | ) |
|
| 250 |
| ||||||||||||||||||||||||
Less: Comprehensive income attributable to non-controlling interests |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Comprehensive income attributable to Chemours |
| $ | 780 |
|
| $ | (105 | ) |
| $ | 675 |
|
| $ | 276 |
|
| $ | (26 | ) |
| $ | 250 |
|
See accompanying notes to the interim consolidated financial statements.
Interim Consolidated Balance Sheets
(Dollars in millions, except per share amounts)
|
| (Unaudited) |
|
|
|
|
| |||||||||
|
| September 30, |
|
| December 31, |
|
| (Unaudited) |
|
|
|
|
| |||
|
| 2017 |
|
| 2016 |
|
| March 31, 2018 |
|
| December 31, 2017 |
| ||||
Assets |
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 1,535 |
|
| $ | 902 |
|
| $ | 1,434 |
|
| $ | 1,556 |
|
Accounts and notes receivable - trade, net |
|
| 942 |
|
|
| 807 |
| ||||||||
Accounts and notes receivable, net |
|
| 1,083 |
|
|
| 919 |
| ||||||||
Inventories |
|
| 877 |
|
|
| 767 |
|
|
| 992 |
|
|
| 935 |
|
Prepaid expenses and other |
|
| 79 |
|
|
| 77 |
|
|
| 75 |
|
|
| 83 |
|
Total current assets |
|
| 3,433 |
|
|
| 2,553 |
|
|
| 3,584 |
|
|
| 3,493 |
|
Property, plant and equipment |
|
| 8,412 |
|
|
| 7,997 |
| ||||||||
Property, plant, and equipment |
|
| 8,719 |
|
|
| 8,511 |
| ||||||||
Less: Accumulated depreciation |
|
| (5,462 | ) |
|
| (5,213 | ) |
|
| (5,614 | ) |
|
| (5,503 | ) |
Property, plant and equipment, net |
|
| 2,950 |
|
|
| 2,784 |
| ||||||||
Property, plant, and equipment, net |
|
| 3,105 |
|
|
| 3,008 |
| ||||||||
Goodwill and other intangible assets, net |
|
| 167 |
|
|
| 170 |
|
|
| 165 |
|
|
| 166 |
|
Investments in affiliates |
|
| 166 |
|
|
| 136 |
|
|
| 166 |
|
|
| 173 |
|
Other assets |
|
| 404 |
|
|
| 417 |
|
|
| 464 |
|
|
| 453 |
|
Total assets |
| $ | 7,120 |
|
| $ | 6,060 |
|
| $ | 7,484 |
|
| $ | 7,293 |
|
Liabilities and equity |
|
|
|
|
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| ||||||||
Liabilities |
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| ||||||||
Current liabilities: |
|
|
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|
|
Accounts payable |
| $ | 1,010 |
|
| $ | 884 |
|
| $ | 1,121 |
|
| $ | 1,075 |
|
Current maturities of long-term debt |
|
| 14 |
|
|
| 15 |
|
|
| 14 |
|
|
| 15 |
|
Other accrued liabilities |
|
| 546 |
|
|
| 872 |
|
|
| 487 |
|
|
| 558 |
|
Total current liabilities |
|
| 1,570 |
|
|
| 1,771 |
|
|
| 1,622 |
|
|
| 1,648 |
|
Long-term debt, net |
|
| 4,081 |
|
|
| 3,529 |
|
|
| 4,141 |
|
|
| 4,097 |
|
Deferred income taxes |
|
| 175 |
|
|
| 132 |
|
|
| 244 |
|
|
| 208 |
|
Other liabilities |
|
| 489 |
|
|
| 524 |
|
|
| 475 |
|
|
| 475 |
|
Total liabilities |
|
| 6,315 |
|
|
| 5,956 |
|
|
| 6,482 |
|
|
| 6,428 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock (par value $0.01 per share; 810,000,000 shares authorized; 185,092,058 and 182,600,533 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively) |
|
| 2 |
|
|
| 2 |
| ||||||||
Common stock (par value $0.01 per share; 810,000,000 shares authorized; 185,903,112 shares issued and 178,537,554 shares outstanding at March 31, 2018; 185,343,034 shares issued and 182,956,628 shares outstanding at December 31, 2017) |
|
| 2 |
|
|
| 2 |
| ||||||||
Treasury stock at cost (7,365,558 shares at March 31, 2018; 2,386,406 shares at December 31, 2017) |
|
| (361 | ) |
|
| (116 | ) | ||||||||
Additional paid-in capital |
|
| 830 |
|
|
| 789 |
|
|
| 846 |
|
|
| 837 |
|
Retained earnings (accumulated deficit) |
|
| 388 |
|
|
| (114 | ) | ||||||||
Retained earnings |
|
| 876 |
|
|
| 579 |
| ||||||||
Accumulated other comprehensive loss |
|
| (420 | ) |
|
| (577 | ) |
|
| (366 | ) |
|
| (442 | ) |
Total Chemours stockholders’ equity |
|
| 800 |
|
|
| 100 |
|
|
| 997 |
|
|
| 860 |
|
Non-controlling interests |
|
| 5 |
|
|
| 4 |
|
|
| 5 |
|
|
| 5 |
|
Total equity |
|
| 805 |
|
|
| 104 |
|
|
| 1,002 |
|
|
| 865 |
|
Total liabilities and equity |
| $ | 7,120 |
|
| $ | 6,060 |
|
| $ | 7,484 |
|
| $ | 7,293 |
|
See accompanying notes to the interim consolidated financial statements.
Interim Consolidated Statements of Stockholders’ Equity (Unaudited)
(Dollars in millions)
|
| Common Stock |
|
| Additional Paid-In |
|
| (Accumulated Deficit) Retained |
|
| Accumulated Other Comprehensive |
|
| Non-controlling |
|
|
|
|
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-In |
|
| (Accumulated Deficit) Retained |
|
| Accumulated Other Comprehensive |
|
| Non-controlling |
|
|
|
|
| |||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| (Loss) Income |
|
| Interests |
|
| Total |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| (Loss) Income |
|
| Interests |
|
| Total Equity |
| ||||||||||||||||
Balance at January 1, 2016 |
|
| 181,069,751 |
|
| $ | 2 |
|
| $ | 775 |
|
| $ | (115 | ) |
| $ | (536 | ) |
| $ | 4 |
|
| $ | 130 |
| ||||||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 237 |
|
|
| — |
|
|
| — |
|
|
| 237 |
| ||||||||||||||||||||||||||||||||||||
Balance at January 1, 2017 |
|
| 182,600,533 |
|
| $ | 2 |
|
|
| — |
|
| $ | — |
|
| $ | 789 |
|
| $ | (114 | ) |
| $ | (577 | ) |
| $ | 4 |
|
| $ | 104 |
| ||||||||||||||||||||||||||||
Common stock issued - compensation plans |
|
| 650,971 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 415,518 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Dividends |
|
| — |
|
|
| — |
|
|
| (11 | ) |
|
| (5 | ) |
|
| — |
|
|
| — |
|
|
| (16 | ) | ||||||||||||||||||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13 |
|
|
| — |
|
|
| 13 |
| ||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 17 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17 |
| ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2016 |
|
| 181,720,722 |
|
| $ | 2 |
|
| $ | 781 |
|
| $ | 117 |
|
| $ | (523 | ) |
| $ | 4 |
|
| $ | 381 |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Balance at January 1, 2017 |
|
| 182,600,533 |
|
| $ | 2 |
|
| $ | 789 |
|
| $ | (114 | ) |
| $ | (577 | ) |
| $ | 4 |
|
| $ | 104 |
| ||||||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 518 |
|
|
| — |
|
|
| 1 |
|
|
| 519 |
| ||||||||||||||||||||||||||||||||||||
Common stock issued - compensation plans |
|
| 504,098 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||
Dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16 | ) |
|
| — |
|
|
| — |
|
|
| (16 | ) | ||||||||||||||||||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 157 |
|
|
| — |
|
|
| 157 |
| ||||||||||||||||||||||||||||||||||||
Exercise of stock options, net |
|
| 1,382,363 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20 |
| ||||||||||||||||||||||||||||
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 21 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 21 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
Cancellation of unissued stock awards withheld to cover taxes |
|
| — |
|
|
| — |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 150 |
|
|
| — |
|
|
| 1 |
|
|
| 151 |
| ||||||||||||||||||||||||||||
Dividends paid |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| — |
|
|
| (5 | ) | ||||||||||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 89 |
|
|
| — |
|
|
| 89 |
| ||||||||||||||||||||||||||||
Balance at March 31, 2017 |
|
| 184,398,414 |
|
| $ | 2 |
|
|
| — |
|
| $ | — |
|
| $ | 808 |
|
| $ | 31 |
|
| $ | (488 | ) |
| $ | 5 |
|
| $ | 358 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Balance at January 1, 2018 |
|
| 182,956,628 |
|
| $ | 2 |
|
|
| 2,386,406 |
|
| $ | (116 | ) |
| $ | 837 |
|
| $ | 579 |
|
| $ | (442 | ) |
| $ | 5 |
|
| $ | 865 |
| ||||||||||||||||||||||||||||
Common stock issued - compensation plans |
|
| 286,618 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||
Exercise of stock options, net |
|
| 1,987,427 |
|
|
| — |
|
|
| 30 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30 |
|
|
| 273,460 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Balance at September 30, 2017 |
|
| 185,092,058 |
|
| $ | 2 |
|
| $ | 830 |
|
| $ | 388 |
|
| $ | (420 | ) |
| $ | 5 |
|
| $ | 805 |
| ||||||||||||||||||||||||||||||||||||
Purchases of treasury stock at cost |
|
| (4,979,152 | ) |
|
| — |
|
|
| 4,979,152 |
|
|
| (245 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (245 | ) | ||||||||||||||||||||||||||||
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
| ||||||||||||||||||||||||||||
Cancellation of unissued stock awards withheld to cover taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) | ||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 297 |
|
|
| — |
|
|
| — |
|
|
| 297 |
| ||||||||||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 76 |
|
|
| — |
|
|
| 76 |
| ||||||||||||||||||||||||||||
Balance at March 31, 2018 |
|
| 178,537,554 |
|
| $ | 2 |
|
|
| 7,365,558 |
|
| $ | (361 | ) |
| $ | 846 |
|
| $ | 876 |
|
| $ | (366 | ) |
| $ | 5 |
|
| $ | 1,002 |
|
See accompanying notes to the interim consolidated financial statements.
Interim Consolidated Statements of Cash Flows (Unaudited)
(Dollars in millions)
|
| Nine Months Ended September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Operating activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 519 |
|
| $ | 237 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 204 |
|
|
| 212 |
|
Amortization of deferred financing costs and issuance discount |
|
| 10 |
|
|
| 15 |
|
Gain on sale of assets and businesses |
|
| (14 | ) |
|
| (258 | ) |
Equity in earnings of affiliates |
|
| (26 | ) |
|
| (17 | ) |
Deferred tax provision (benefit) |
|
| 53 |
|
|
| (29 | ) |
Asset-related charges |
|
| 3 |
|
|
| 109 |
|
Other operating charges and credits, net |
|
| 26 |
|
|
| 33 |
|
(Increase) decrease in operating assets: |
|
|
|
|
|
|
|
|
Accounts and notes receivable - trade, net |
|
| (110 | ) |
|
| (63 | ) |
Inventories and other operating assets |
|
| (91 | ) |
|
| 113 |
|
(Decrease) increase in operating liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and other operating liabilities |
|
| (238 | ) |
|
| (28 | ) |
Cash provided by operating activities |
|
| 336 |
|
|
| 324 |
|
Investing activities |
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (246 | ) |
|
| (235 | ) |
Proceeds from sales of assets and businesses, net |
|
| 39 |
|
|
| 707 |
|
Foreign exchange contract settlements, net |
|
| 5 |
|
|
| (1 | ) |
Investment in affiliates |
|
| — |
|
|
| (2 | ) |
Cash (used for) provided by investing activities |
|
| (202 | ) |
|
| 469 |
|
Financing activities |
|
|
|
|
|
|
|
|
Proceeds from issuance of debt, net |
|
| 494 |
|
|
| — |
|
Debt repayments |
|
| (24 | ) |
|
| (212 | ) |
Dividends paid |
|
| (16 | ) |
|
| (16 | ) |
Deferred financing fees |
|
| (6 | ) |
|
| (2 | ) |
Tax payments related to withholdings on vested restricted stock units |
|
| (10 | ) |
|
| — |
|
Proceeds from exercised stock options, net |
|
| 30 |
|
|
| — |
|
Cash provided by (used for) financing activities |
|
| 468 |
|
|
| (230 | ) |
Effect of exchange rate changes on cash and cash equivalents |
|
| 31 |
|
|
| 28 |
|
Increase in cash and cash equivalents |
|
| 633 |
|
|
| 591 |
|
Cash and cash equivalents at beginning of the period |
|
| 902 |
|
|
| 366 |
|
Cash and cash equivalents at end of the period |
| $ | 1,535 |
|
| $ | 957 |
|
Non-cash investing activities |
|
|
|
|
|
|
|
|
Change in property, plant and equipment included in accounts payable |
| $ | (16 | ) |
| $ | 9 |
|
|
| Three Months Ended March 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 297 |
|
| $ | 151 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 70 |
|
|
| 71 |
|
Gain on sale of assets and businesses |
|
| (42 | ) |
|
| (16 | ) |
Equity in earnings of affiliates, net |
|
| 17 |
|
|
| (7 | ) |
Amortization of deferred financing costs and issuance discount |
|
| 3 |
|
|
| 3 |
|
Deferred tax provision |
|
| 35 |
|
|
| 5 |
|
Other operating charges and credits, net |
|
| 8 |
|
|
| 10 |
|
Decrease (increase) in operating assets: |
|
|
|
|
|
|
|
|
Accounts and notes receivable, net |
|
| (150 | ) |
|
| (103 | ) |
Inventories and other operating assets |
|
| (29 | ) |
|
| (31 | ) |
(Decrease) increase in operating liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and other operating liabilities |
|
| (13 | ) |
|
| (42 | ) |
Cash provided by operating activities |
|
| 196 |
|
|
| 41 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment |
|
| (102 | ) |
|
| (69 | ) |
Proceeds from sales of assets and businesses, net |
|
| 39 |
|
|
| 9 |
|
Foreign exchange contract settlements, net |
|
| 5 |
|
|
| (3 | ) |
Cash used for investing activities |
|
| (58 | ) |
|
| (63 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Debt repayments |
|
| (4 | ) |
|
| (4 | ) |
Purchases of treasury stock at cost |
|
| (240 | ) |
|
| — |
|
Proceeds from exercised stock options, net |
|
| 5 |
|
|
| 20 |
|
Tax payments related to withholdings on vested restricted stock units |
|
| (1 | ) |
|
| — |
|
Payment of dividends |
|
| (31 | ) |
|
| (5 | ) |
Cash (used for) provided by financing activities |
|
| (271 | ) |
|
| 11 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 11 |
|
|
| 7 |
|
Decrease in cash and cash equivalents |
|
| (122 | ) |
|
| (4 | ) |
Cash and cash equivalents at January 1, |
|
| 1,556 |
|
|
| 902 |
|
Cash and cash equivalents at March 31, |
| $ | 1,434 |
|
| $ | 898 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flows information |
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Changes in property, plant, and equipment included in accounts payable |
| $ | (1 | ) |
| $ | 14 |
|
Obligations incurred under build-to-suit lease arrangement |
|
| 11 |
|
|
| — |
|
Purchases of treasury stock not settled by quarter-end |
|
| 15 |
|
|
| — |
|
Tax payments accrued for withholdings on vested restricted stock units |
|
| 4 |
|
|
| — |
|
See accompanying notes to the interim consolidated financial statements.
6
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 1. Background, Description of the Business, and Basis of Presentation
The Chemours Company (Chemours, or the 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 chemical products for markets, including plastics and coatings, refrigeration and air conditioning, general industrial, electronics, mining, and oil refining. The Company’s principal products include refrigerants, industrial fluoropolymer resins, sodium cyanide, performance chemicals and intermediates, and titanium dioxide (TiO2) pigment. Chemours’ business consists of three reportable segments: Fluoroproducts, Chemical Solutions, and Titanium 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, and consumer applications. The 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.
The accompanying interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America (U.S.) for interim financial information. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. ResultsThe Company’s results for interim periods should not be considered indicative of its results for a full year, and the year-end consolidated balance sheet does not include all of the disclosures required by U.S. GAAP. As such, these interim consolidated financial statements should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
Certain prior period amounts have been reclassified to conform to the current period presentation, the effect of which was not material to the interim consolidated financial statements.2017.
Unless the context otherwise requires, references herein to “The Chemours Company”, “Chemours”,Company,” “Chemours,” “the Company”,Company,” “our Company”, “we”, “us”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, a Delaware corporation, and its consolidated subsidiaries (other than Chemours and its consolidated subsidiaries), unless the context otherwise requires.
Note 2. Recent Accounting Pronouncements
Accounting Guidance Issued and Not Yet Adopted
Leases
In May 2014,February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers2016-02, Leases (Topic 606).” The objective of this standard is to remove inconsistent practices with regard to revenue recognition between U.S. GAAP and International 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 ASU842) (ASU No. 2014-09, the FASB issued multiple clarifying updates in connection with Topic 606. The provisions of ASU No. 2014-09 and its related updates will be effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted for annual periods beginning after December 15, 2016. The Company will adopt the standard on January 1, 2018 under the modified retrospective transition method.
The Company’s project plan includes a three-phase approach to implementing the standard update. Phase one, the assessment phase, was completed in the first quarter of 2017. In this initial phase, the Company (a) conducted internal surveys of its businesses, (b) held revenue recognition workshops with sales and business unit finance leadership and (c) reviewed a representative sample of revenue arrangements across all businesses to initially identify a set of applicable qualitative revenue recognition changes related to the standard. The Company has also completed phase two of the project, which included (a) establishing and documenting key accounting positions, (b) assessing new disclosure requirements, business process and control impacts and (c) beginning to determine the initial quantitative impacts resulting from the standard. Phase three will include (a) finalizing any changes to accounting policies, (b) preparing new disclosures, (c) implementing new business processes and controls as needed and (d) quantifying the effect of adoption on opening retained earnings.
Based on the analysis conducted to date, the Company believes that the adoption of the standard will 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 evaluate the impact of the standard update on its consolidated financial statements and related disclosures and additional differences may be identified as new or amended contracts with customers that will impact future periods are executed. The Company expects that disclosure in the notes to the consolidated financial statements related to revenue recognition will be expanded in line with the requirements of the standard to further describe the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”2016-02), which supersedes the leases requirements in Topic 840. The core principle of Topic 842ASU 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 an improvement overa change from previous U.S. 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.
7
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Lessees and lessors are will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entitiesthe Company may elect to apply. The amendments in this updateprovisions of ASU No. 2016-02 are effective for the Company’s fiscal year beginning January 1, 2019, including interim periods within that fiscal year. Early application of the amendments in this update is permitted for all entities. At adoption, the Company will recognize a right-of-use asset and a lease liability initially measured at the present value of its operating lease payments. The Company is currently evaluating the other impacts of adopting this guidance on its financial position, results of operations, and cash flows.
In August 2016,
7
The Chemours Company
Notes to the FASB issued various updates to ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash ReceiptsInterim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Derivatives and Cash Payments”, which clarifies and amends the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied using a retrospective transition method (unless impractical to do so) for each period presented and earlier application is permitted. Chemours does not expect that the adoption will have a significant impact on its cash flows.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715)”, which requires that employers offering their employees defined benefit pension plans disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how 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 guidance is effective for public business entities for annual periods beginning after December 15, 2017, as well as interim periods within those annual periods. The amendments in this update 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. Early adoption is permitted within the first interim period of an annual period for which financial statements have not been issued or made available for issuance. Chemours does not expect that the adoption will have a significant impact on its financial position, results of operations or cash flows.Hedging
In August 2017, the FASB issued ASU No. 2017-12, “DerivativesDerivatives 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 income or loss. Pursuant to the amendments, these amounts are required to be subsequently reclassified to earnings in the same income statement line item in which the earnings effect of the hedged item is presented when the hedged item affects earnings. The guidance isprovisions of ASU No. 2017-12 are effective for public business entities forthe Company’s fiscal yearsyear beginning after December 15, 2018, as well asJanuary 1, 2019, including interim periods within thosethat fiscal years.year. Early adoption is permitted in any interim period. The amendments in this update shouldwill be applied 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 impacttiming of adoptingadoption and does not expect that the adoption of this guidance will have a significant impact on its financial position, results of operations, and cash flows.
Recently Adopted Accounting GuidanceReclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In March 2016,February 2018, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation2018-02, Income Statement – Reporting Comprehensive Income (Topic 718).” The update sets forth areas220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU No. 2018-02), which allows for simplification within several aspects of the accountinga reclassification from accumulated other comprehensive income or loss to retained earnings for shared-based payment transactions, including the incomestranded tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.effects resulting from U.S. tax reform. The amendments in this update arealso require certain disclosures about stranded tax effects. ASU No. 2018-02 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2016. Chemours adopted2018, including interim periods within those fiscal years. The Company does not expect that the adoption of this guidance effective January 1, 2017, and the adoption did notwill have a significant impact on its financial position.
Recently Adopted Accounting Guidance
Revenue from Contracts with Customers
In May 2014, the Company’s financial position, resultsFASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU No. 2014-09). The objective of operations or cash flows except forthis standard is to remove inconsistent practices with regard to revenue recognition between GAAP and International 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 ASU No. 2014-09, the FASB issued multiple clarifying updates in connection with the standard (collectively, Topic 606).
Effective January 1, 2018, Chemours adopted the new revenue recognition guidance contained in Topic 606 using the modified retrospective transition method. The Company elected to utilize a practical expedient allowed under the modified retrospective transition method to apply the new standard only to contracts that are not completed on the date of initial adoption. In applying this guidance, the Company evaluated its population of open contracts with customers on January 1, 2018 and determined that the impact of windfall income tax benefits on share-based paymentsadopting Topic 606 was not material to its consolidated financial statements as a whole, and no cumulative adjustment to the Company’s opening retained earnings balance was required. As a result of applying this new guidance, there are changes to the classification of employee withholding tax payments on vested restricted stock units (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 three and nine months ended September 30, 2017, Chemours recognized $5 and $18 of windfall tax benefits, respectively, primarily from significant options exercised and RSUs vested, which were included in the provision for income taxescertain amounts in the consolidated statements of operations.
In January 2017, Certain royalty income amounts for trademark licensing arrangements that were previously reflected as a component of other income, net in the FASB issued ASU No. 2017-04, “Intangibles - Goodwillconsolidated statements of operations will now be reflected as a component of net sales, which amounted to $2 for the three months ended March 31, 2018. Additionally, certain expenses related to the Company’s provision of technical services to customers that were previously reflected as a component of selling, general, and Other (Topic 350): Simplifyingadministrative expense in the Test for Goodwill Impairment”, which eliminates the requirement to determine the fair valueconsolidated statements of operations will now be reflected as a component of the individual assetscost of goods sold, which amounted to $1 for the three months ended March 31, 2018. Under the modified retrospective transition method, the Company’s comparative financial information as of and liabilitiesfor the three months ended March 31, 2017 and as of aDecember 31, 2017 has not been restated, and as such, continues to be reported using the accounting standards in effect during those time periods.
8
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
reporting unit to measure goodwill impairment. UnderThe following table sets forth the amendments, goodwill impairment testing will be performed by comparing the fair valueimpacts of the reporting unit with its carrying amount and recognizing an impairment chargeadoption of Topic 606 on the Company’s consolidated statements of operations for the amount bythree months ended March 31, 2018.
|
| Three Months Ended March 31, 2018 |
| |||||||||
|
| Without |
|
| Topic 606 |
|
|
|
|
| ||
|
| Topic 606 |
|
| Adjustments |
|
| As Reported |
| |||
Net sales |
| $ | 1,728 |
|
| $ | 2 |
|
| $ | 1,730 |
|
Cost of goods sold |
|
| 1,192 |
|
|
| 1 |
|
|
| 1,193 |
|
Gross profit |
|
| 536 |
|
|
| 1 |
|
|
| 537 |
|
Selling, general, and administrative expense |
|
| 144 |
|
|
| (1 | ) |
|
| 143 |
|
Research and development expense |
|
| 20 |
|
|
| — |
|
|
| 20 |
|
Restructuring, asset-related, and other charges, net |
|
| 10 |
|
|
| — |
|
|
| 10 |
|
Total expenses |
|
| 174 |
|
|
| (1 | ) |
|
| 173 |
|
Equity in earnings of affiliates |
|
| 12 |
|
|
| — |
|
|
| 12 |
|
Interest expense, net |
|
| (52 | ) |
|
| — |
|
|
| (52 | ) |
Other income, net |
|
| 59 |
|
|
| (2 | ) |
|
| 57 |
|
Income before income taxes |
|
| 381 |
|
|
| — |
|
|
| 381 |
|
Provision for income taxes |
|
| 84 |
|
|
| — |
|
|
| 84 |
|
Net income |
|
| 297 |
|
|
| — |
|
|
| 297 |
|
Less: Net income attributable to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
Net income attributable to Chemours |
| $ | 297 |
|
| $ | — |
|
| $ | 297 |
|
The adoption of Topic 606 did not impact the Company’s consolidated balance sheets or consolidated statements of cash flows as of and for the three months ended March 31, 2018 and is not expected to have a material impact on the Company’s financial position, results of operations, or cash flows in future periods.
Classification of Certain Cash Receipts and Cash Payments
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 carrying amount exceedspresentation and classification of certain cash receipts and cash payments in the reporting unit’s fair value. Any impairment charges recognized would not exceed the total amountstatement of goodwill allocated to the reporting unit.cash flows. The guidance isprovisions of ASU No. 2016-15 are effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019,2017, including interim periods within those fiscal years, and are to be applied using a retrospective transition method. The Company adopted ASU No. 2016-15 on January 1, 2018, the impact of which was not material to its cash flows. There were no adjustments to prior periods resulting from the retrospective application of this guidance.
Clarifying the Definition of a Business
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU No. 2017-01), which changes the definition of a business to assist entities in evaluating whether a transaction should be applied onaccounted for as an acquisition (or disposal) of assets or a prospective basis. Early adoptionbusiness. ASU No. 2017-01 is permittedeffective for annual orfiscal years beginning after December 15, 2017, including interim goodwill impairment testing performed after January 1, 2017.periods within those fiscal years. The Company has adopted this guidance and will implement its provisions for interim and annual goodwill impairment tests performed prospectively. The Company doeson January 1, 2018, the result of which is not expect that the adoption of this guidance willexpected to have a significant impact on its financial position, results of operations, or cash flows.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting”, 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: (a) the fair value of the award; (b) the vesting conditions of the award; and (c) the classification of the award as an equity instrument or a liability instrument. The amendments in this update 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 3. Restructuring and Asset-Related Charges, Net
For the three and nine months ended September 30, 2017 and 2016, Chemours recorded restructuring and asset-related charges, net as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Restructuring-related charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation charges |
| $ | — |
|
| $ | 1 |
|
| $ | 5 |
|
| $ | 3 |
|
Decommissioning and other charges, net |
|
| 8 |
|
|
| 13 |
|
|
| 26 |
|
|
| 38 |
|
Subtotal |
|
| 8 |
|
|
| 14 |
|
|
| 31 |
|
|
| 41 |
|
Asset-related charges - impairment 1 |
|
| — |
|
|
| 46 |
|
|
| — |
|
|
| 104 |
|
Total restructuring and asset-related charges, net |
| $ | 8 |
|
| $ | 60 |
|
| $ | 31 |
|
| $ | 145 |
|
|
|
9
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715) (ASU No. 2017-07), which requires that employers offering their employees defined benefit pension plans disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how 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 fiscal years beginning after December 31, 2017, as well as interim periods within those fiscal years, 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. The Company adopted this guidance on January 1, 2018, which resulted in a reclassification of non-operating pension income from the operating expense captions of the consolidated statements of operations to other income, net for the three months ended March 31, 2017.
The following table sets forth a reclassification of the Company’s non-operating pension and other post-retirement employee benefit income for the three months ended March 31, 2017.
|
| Three Months Ended March 31, 2017 |
| |||||||||
|
|
|
|
|
| ASU 2017-07 |
|
|
|
|
| |
|
| As Reported |
|
| Adjustments |
|
| As Reclassified |
| |||
Net sales |
| $ | 1,437 |
|
| $ | — |
|
| $ | 1,437 |
|
Cost of goods sold |
|
| 1,079 |
|
|
| 2 |
|
|
| 1,081 |
|
Gross profit |
|
| 358 |
|
|
| (2 | ) |
|
| 356 |
|
Selling, general, and administrative expense |
|
| 144 |
|
|
| 6 |
|
|
| 150 |
|
Research and development expense |
|
| 19 |
|
|
| — |
|
|
| 19 |
|
Restructuring, asset-related, and other charges, net |
|
| 12 |
|
|
| — |
|
|
| 12 |
|
Total expenses |
|
| 175 |
|
|
| 6 |
|
|
| 181 |
|
Equity in earnings of affiliates |
|
| 7 |
|
|
| — |
|
|
| 7 |
|
Interest expense, net |
|
| (51 | ) |
|
| — |
|
|
| (51 | ) |
Other income, net |
|
| 34 |
|
|
| 8 |
|
|
| 42 |
|
Income before income taxes |
|
| 173 |
|
|
| — |
|
|
| 173 |
|
Provision for income taxes |
|
| 22 |
|
|
| — |
|
|
| 22 |
|
Net income |
|
| 151 |
|
|
| — |
|
|
| 151 |
|
Less: Net income attributable to non-controlling interests |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Net income attributable to Chemours |
| $ | 150 |
|
| $ | — |
|
| $ | 150 |
|
Note 3. Significant Transactions and Events
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 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 has 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 in 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 in the consolidated balance sheets. Substantially all of the assets associated with the Linden site had been written-off or fully depreciated prior to its sale.
10
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Revenue Recognition
Prior to the adoption of Topic 606, Chemours recognized revenue when the earnings process was complete. Revenue for product sales was recognized when product was shipped to the customer in accordance with the terms of the agreement, when title and the risk of loss were transferred, when collectability was reasonably assured, and when pricing was fixed or determinable. Any payments received in advance were recorded as deferred revenue and recognized as shipments were made and title, ownership, and the risk of loss were transferred to the customer. The Company accrued for sales returns and other allowances based on its historical experience, with cash sales incentives reflected as a reduction in revenue and non-cash sales incentives reflected as a charge to the cost of goods sold contemporaneously with the related revenue or selling expense, depending on the nature of the incentive. Amounts billed to customers for shipping and handling fees were included in net sales, and the costs incurred by the Company for the delivery of goods were classified as a component of the cost of goods sold in the consolidated statements of operations. Taxes on revenue-producing transactions were excluded from net sales.
Licensing and royalty income was recognized as a component of other income, net in the consolidated statements of operations in accordance with agreed upon terms, when performance obligations were satisfied, when collectability was reasonably assured, and when pricing was fixed or determinable.
With the adoption of Topic 606, 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 probable 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 and serves as the unit of account for Topic 606. 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 outlined in Topic 606. 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 consolidated statements of operations as net sales, the vast majority of which represents product sales that consist of a single performance obligation. Product sales to customers are made 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 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 transfer of title and the risk of loss to the customer. Revenue 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 is 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 formulas or indices, price matching, and guarantees to certain customers. Such amounts are included in the Company’s estimated transaction price using either the expected value method or the most-likely amount, depending on the nature of the variable 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.
11
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
The Company also licenses the right to access certain of its trademarks to customers under specified terms and conditions in certain arrangements, which is recognized as a component of net sales in the consolidated statements of operations under Topic 606. Under such arrangements, the Company may receive a royalty payment for a trademark license that is entered into on a 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 included 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 Topic 606 as it is not a part of the Company’s ongoing major or central activities, and consistent with past practice, is recognized as a component of other income, net in the consolidated statements of operations in accordance with agreed upon terms, when performance obligations are satisfied, when collectability is reasonably assured, and when pricing is fixed or determinable.
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 under Topic 606. Additionally, the Company has elected to recognize 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.
Disaggregation of Net Sales
The following table sets forth a disaggregation of the Company’s net sales by geographic region, product group, and segment for the three months ended March 31, 2018.
|
| Three Months Ended March 31, 2018 |
| |||||||||||||
|
|
|
|
|
| Chemical |
|
| Titanium |
|
|
|
|
| ||
|
| Fluoroproducts |
|
| Solutions |
|
| Technologies |
|
| Total |
| ||||
Net sales by geographic region (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 303 |
|
| $ | 81 |
|
| $ | 233 |
|
| $ | 617 |
|
Asia Pacific |
|
| 153 |
|
|
| 19 |
|
|
| 242 |
|
|
| 414 |
|
Europe, the Middle East, and Africa |
|
| 222 |
|
|
| 5 |
|
|
| 247 |
|
|
| 474 |
|
Latin America (2) |
|
| 54 |
|
|
| 39 |
|
|
| 132 |
|
|
| 225 |
|
Total net sales |
| $ | 732 |
|
| $ | 144 |
|
| $ | 854 |
|
| $ | 1,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by product group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluorochemicals |
| $ | 395 |
|
| $ | — |
|
| $ | — |
|
| $ | 395 |
|
Fluoropolymers |
|
| 337 |
|
|
| — |
|
|
| — |
|
|
| 337 |
|
Mining solutions |
|
| — |
|
|
| 66 |
|
|
| — |
|
|
| 66 |
|
Performance chemicals and intermediates |
|
| — |
|
|
| 78 |
|
|
| — |
|
|
| 78 |
|
Titanium dioxide and other minerals |
|
| — |
|
|
| — |
|
|
| 854 |
|
|
| 854 |
|
Total net sales |
| $ | 732 |
|
| $ | 144 |
|
| $ | 854 |
|
| $ | 1,730 |
|
(1) | Net sales are attributed 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.
12
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
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 March 31, 2018 and December 31, 2017.
|
| March 31, 2018 |
|
| December 31, 2017 |
| ||
Accounts receivable - trade, net (1) |
| $ | 1,016 |
|
| $ | 847 |
|
Customer rebates |
|
| 54 |
|
|
| 83 |
|
(1) | Accounts receivable - trade, net includes trade notes receivable of $3 and $1 and is net of allowances for doubtful accounts of $6 and $5 at March 31, 2018 and December 31, 2017, respectively. Such allowances are equal to the estimated uncollectible amounts. |
The Company’s deferred revenue balance as of March 31, 2018 and December 31, 2017 was not significant. Additionally, changes in the Company’s deferred revenue balance resulting from additions for advance payments and deductions for amounts recognized in net sales during the three months ended March 31, 2018 were not significant. For the three months ended March 31, 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 no other contract asset balances or capitalized costs associated with obtaining or fulfilling customer contracts as of March 31, 2018 or December 31, 2017.
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. As of March 31, 2018, Chemours had $87 of remaining performance obligations. The Company expects to recognize approximately 20% of its remaining performance obligations as revenue in 2018, an additional 25% in 2019, and the balance thereafter. The Company applies the practical expedient in Topic 606 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 as of March 31, 2018 are also excluded.
Note 5. Restructuring, Asset-related, and Other Charges, relatedNet
The following table sets forth the components of the Company’s restructuring, asset-related, and other charges, net for the three months ended March 31, 2018 and 2017.
|
| Three Months Ended March 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
Employee separation charges |
| $ | 3 |
|
| $ | — |
|
Decommissioning and other charges, net |
|
| 7 |
|
|
| 12 |
|
Total restructuring, asset-related, and other charges, net |
| $ | 10 |
|
| $ | 12 |
|
13
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
The following table sets forth the impacts of the Company’s restructuring programs impactedto segment earnings for the three and nine months ended September 30, 2017March 31, 2018 and 2016 as follows:2017.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
| ||||||
Plant and product line closures 1 : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Titanium Technologies |
| $ | — |
|
| $ | 5 |
|
| $ | 4 |
|
| $ | 24 |
| ||||||||
Plant and product line closures: |
|
|
|
|
|
|
|
| ||||||||||||||||
Fluoroproducts |
|
| — |
|
|
| 1 |
|
|
| 3 |
|
|
| 6 |
|
| $ | — |
|
| $ | 3 |
|
Chemical Solutions |
|
| 5 |
|
|
| 7 |
|
|
| 16 |
|
|
| 6 |
|
|
| 1 |
|
|
| 5 |
|
Subtotal |
|
| 5 |
|
|
| 13 |
|
|
| 23 |
|
|
| 36 |
| ||||||||
2015 Global Restructuring: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Titanium Technologies |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 4 |
|
Fluoroproducts |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 3 |
| ||||||||
Chemical Solutions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||
Subtotal |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 5 |
| ||||||||
Total plant and product line closures |
|
| 1 |
|
|
| 12 |
| ||||||||||||||||
2017 Restructuring Program |
|
| 3 |
|
|
| — |
|
|
| 8 |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
Total restructuring charges, net |
| $ | 8 |
|
| $ | 14 |
|
| $ | 31 |
|
| $ | 41 |
| ||||||||
Total restructuring, asset-related, and other charges, net |
| $ | 10 |
|
| $ | 12 |
|
|
|
Plant and Product Line Closures
In August 2015, in an effort to improve the Titanium Technologiesprofitability of the Company’s Fluoroproducts segment, due tomanagement approved the closure of the Edge Moor, Delaware manufacturing plantcertain production lines in the segment’s U.S., manufacturing plants. For the Company recorded decommissioning and dismantling-related charges of $4 for the ninethree months ended September 30,March 31, 2017, and $5 and $24 for the three and nine months ended September 30, 2016, respectively. The Company completed all actions related to these restructuring activities and sold the site during the first quarter of 2017. The cumulative amount incurred, excluding non-cash asset-related charges in connection with the Edge Moor plant closure, was approximately $60.
In the Fluoroproducts segment, 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 U.S.aggregate, excluding non-cash asset-related charges.
In the fourth quarter of $3 for2015, the nineCompany announced the 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 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. For the three months ended September 30,March 31, 2018 and 2017, the Company recorded additional decommissioning and dismantling-related charges of $1 and $6$5, respectively. The Company expects to incur approximately $3 in additional restructuring charges for similar activities through the three and nine months ended September 30, 2016, respectively.end of 2018, which will be expensed as incurred. As of September 30, 2017,March 31, 2018, the Company incurred, in the aggregate, approximately $17$32 in restructuring charges related to these activities, excluding non-cash asset-related charges.
In August 2015, the Company announced the closure of restructuring costs,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 closed one under-used TiO2 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. For the three months ended March 31, 2017, the Company recorded additional decommissioning and dismantling-related charges of $4. The Company substantially completed these activities in 2017, which amounted to $60 in the aggregate, excluding non-cash asset-related charges. The Company has substantially completedsold the actions related to these restructuring activitiesland where the plant was located for certain$10 in the first quarter of its Fluoroproducts production lines, which were initiated in 2015.2017.
In the Chemicals Solutions segment, following the production shutdownfirst quarter of the Reactive Metals Solutions (RMS) manufacturing plant at Niagara Falls, New York in September 2016,2018, the Company immediately began decommissioninga 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. For the plant. As a result,three months ended March 31, 2018, the Company recorded $5 and $16 ofincurred less than $1 in decommissioning and dismantling-related charges for the three and nine months ended September 30, 2017, respectively, and $7 and $6 for the three and nine months ended September, 30, 2016, respectively. As of September 30, 2017, theassociated with these efforts. The Company incurred, in the aggregate,expects to incur approximately $30 of restructuring costs, excluding non-cash asset-related charges. Additionalin additional restructuring charges related to its Chambers Works site through the end of approximately $5 for decommissioning2020, which will be reflected in Corporate and site redevelopment are expected to be incurred for the remainder of 2017, whichOther, and will be expensed as incurred.
2017 Restructuring Program
In 2017, the Company announced certain restructuring activities designed to further the cost savings and productivity improvements outlined under management’s transformation plan. These activities include, among other efforts: (a)(i) outsourcing and further centralizing certain business process activities; (b)(ii) consolidating existing, outsourced third partythird-party information technology (IT) providers; and, (c)(iii) implementing various upgrades to the Company’s current IT infrastructure.
In connection with these corporate function efforts,2017, the Company recorded $3 and $8 in restructuring-related charges for the three and nine months ended September 30, 2017, respectively.
Also, in October 2017, the Companyalso announced a voluntary separation program (VSP) for certain eligible U.S. employees in an effort to better manage the anticipated future changes to its workforce. Employees who volunteervolunteered for, and arewere accepted under the VSP will 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 separate from the Company by 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 incremental, one-time financial incentives under the VSP will be recognized over the period that each participating employee continues to provide service to Chemours.
1014
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Chemours after providing a mutually agreed-upon service period. Based on current estimates, Chemours anticipates that approximately 300 to 350 employees will separate fromFor the three months ended March 31, 2018, the Company byrecorded additional charges of $9 related to its 2017 program. No such charges were recorded for the end of 2018. An accrual representing the majority of these termination benefits will be recognizedthree months ended March 31, 2017. The cumulative amount incurred, in the fourth quarter of 2017, and any remaining incremental, one-time financial incentives under the VSP will be recognized over the period each participating employee continues to provide service to Chemours. No amountsaggregate, for the VSP have been recognized in the consolidated financial statements as of September 30, 2017.Company’s 2017 program amounted to $41 at March 31, 2018.
As a result of its 2017 program, the Company expects to incur charges for restructuring-related activities and termination benefits ranging from $45 to $55of approximately $20 through December 31, 2018.the end of 2018, which will be expensed as incurred.
The following table showssets forth the change in the Company’s employee separation-related liability accountliabilities associated with its restructuring programs for the Company’s restructuring programs:three months ended March 31, 2018.
|
| Titanium Technologies Site Closures |
|
| Fluoro- Products Lines Shutdown |
|
| Chemical Solutions Site Closures |
|
| 2015 Global Restructuring |
|
| 2017 Restructuring Program |
|
| Total |
| ||||||
Balance at December 31, 2016 |
| $ | 4 |
|
| $ | 1 |
|
| $ | 8 |
|
| $ | 21 |
|
| $ | — |
|
| $ | 34 |
|
Charges to income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| 5 |
|
Payments |
|
| (3 | ) |
|
| (1 | ) |
|
| (4 | ) |
|
| (19 | ) |
|
| — |
|
|
| (27 | ) |
Net currency translation and other adjustments 1 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Balance at September 30, 2017 |
| $ | 1 |
|
| $ | — |
|
| $ | 4 |
|
| $ | 3 |
|
| $ | 5 |
|
| $ | 13 |
|
|
| Titanium Technologies Site Closures |
|
| Fluoroproducts Lines Shutdown |
|
| Chemical Solutions Site Closures |
|
| 2015 Global Restructuring Program |
|
| 2017 Restructuring Program |
|
| Total |
| ||||||
Balance at December 31, 2017 |
| $ | 1 |
|
| $ | — |
|
| $ | 2 |
|
| $ | 1 |
|
| $ | 23 |
|
| $ | 27 |
|
Charges to income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 3 |
|
Payments |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (5 | ) |
|
| (6 | ) |
Balance at March 31, 2018 |
| $ | 1 |
|
| $ | — |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | 21 |
|
| $ | 24 |
|
|
|
At September 30, 2017,March 31, 2018, there are no significant outstanding liabilities related to the Company’s decommissioning and other restructuring-related charges.
Note 4.6. Other Income, Net
The following table sets forth the components of the Company’s other income, net for the three months ended March 31, 2018 and 2017.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Leasing, contract services and miscellaneous income |
| $ | 7 |
|
| $ | 6 |
|
| $ | 24 |
|
| $ | 18 |
|
Royalty income 1 |
|
| 2 |
|
|
| 3 |
|
|
| 12 |
|
|
| 11 |
|
Gain on sale of assets and businesses 2 |
|
| — |
|
|
| 169 |
|
|
| 14 |
|
|
| 258 |
|
Exchange (losses) gains, net 3 |
|
| (4 | ) |
|
| (17 | ) |
|
| 3 |
|
|
| (37 | ) |
Total other income, net |
| $ | 5 |
|
| $ | 161 |
|
| $ | 53 |
|
| $ | 250 |
|
|
| Three Months Ended March 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
Leasing, contract services, and miscellaneous income |
| $ | 3 |
|
| $ | 8 |
|
Royalty income (1) |
|
| 5 |
|
|
| 5 |
|
Gain on sale of assets and businesses (2) |
|
| 42 |
|
|
| 16 |
|
Exchange gains, net (3) |
|
| — |
|
|
| 5 |
|
Non-operating pension and other post-retirement employee benefit income |
|
| 7 |
|
|
| 8 |
|
Total other income, net |
| $ | 57 |
|
| $ | 42 |
|
| (1) | Royalty income for the three months ended March 31, 2018 is primarily from technology licensing. Royalty income for the three months ended March 31, 2017 is primarily from technology and trademark |
| (2) | For the |
| (3) | Exchange |
Note 7. Income Taxes
For the three months ended March 31, 2018 and 2017, Chemours recorded a provision for income taxes of $84 and $22, respectively, resulting in effective income tax rates of approximately 22% and 13%, respectively. The Company’s provision for income taxes for the three months ended March 31, 2018 is inclusive of income tax expenses of $10 related to asset sales that took place in the first quarter of 2018 and $8 related to the impact of certain U.S. tax reform provisions, which are offset by $5 in income tax benefits related to windfalls on share-based payments. The Company’s income tax provision for the three months ended March 31, 2017 is inclusive of income tax expenses of $6 related to asset sales that took place in the first quarter of 2017, which are offset by $10 in income tax benefits related to windfalls on share-based payments. The remaining change in the Company’s effective tax rate from the prior year is primarily attributable to changes in its geographic mix of earnings.
1115
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 5. Income TaxesIn connection with the new federal tax legislation commonly referred to as the Tax Cut and Jobs Act (Tax Act), the Company recorded provisional estimates for U.S. tax reform in its provision for income taxes for the year ended December 31, 2017 amounting to a net benefit of $3. Staff Accounting Bulletin No. 118 (SAB No. 118) issued by the U.S. Securities and Exchange Commission allows registrants to record provisional estimates for the Tax Act during a measurement period not to exceed one year from the enactment date, which was December 22, 2017. The impacts of the Tax Act may differ from the Company’s provisional estimates due to many factors, including, but not limited to, changes to its interpretations of the provisions in the Tax Act, U.S. Internal Revenue Service and U.S. Treasury guidance that may be issued, and actions that the Company may take.
For the three months ended September 30, 2017 and 2016, ChemoursMarch 31, 2018, the Company has not recorded a provisionany adjustments to its provisional estimates. The Company is still evaluating the effects of the Tax Act’s provisions on its consolidated financial statements; however, the Company expects to complete its evaluation within the applicable measurement period, pursuant to SAB No. 118. As such, the Company’s provisional estimates for income taxes of $43 and $30, respectively,the Tax Act could change significantly within this period, resulting in effective income tax ratesa material impact to its financial position, results of approximately 17% and 13%, respectively. For the nine months ended September 30, 2017 and 2016, Chemours recorded a provision for income taxes of $130 and $25, respectively, resulting in effective income tax rates of approximately 20% and 10%, respectively.
The provision for income taxes for the nine months ended September 30, 2017 is inclusive of an $18 benefit from windfalls on share-based payments in accordance with the recently adopted guidance in ASU No. 2016-09, as discussed in Note 2. The remaining change in the effective tax rate from the prior year is primarily due to the Company’s geographical mix of earnings, as well as the impact of the valuation allowance on U.S. foreign tax credits, from which the Company does not expect to benefit in 2017.operations, or cash flows.
Each year, Chemours and/or its subsidiaries file income tax returns in U.S. federal and state jurisdictions and non-U.S. jurisdictions. These tax returns are subject to examination and possible challenge by the cognizant taxing authorities. Positions challenged by the taxing authorities may be settled or appealed by Chemours. As a result, income tax uncertainties are recognized in Chemours’ consolidated financial statements in accordance with accounting for income taxes under Topic 740, “Income Taxes”Income Taxes, when applicable.
Management 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 September 30, 2017.
For the year ended December 31, 2016, the Company established a valuation allowance against its U.S. foreign tax credits. The Company regularly monitors positive and negative evidence that may change the most recent assessment of the Company’s ability to realize a benefit from these deferred tax assets. The Company continues to maintain a valuation allowance against its net deferred tax assets related to U.S. foreign tax credits of $65 and $50 at September 30, 2017 and December 31, 2016, respectively.
Note 6.8. Earnings Per Share of Common Stock
The following table shows a reconciliation
Reconciliations of the numeratornumerators and denominatordenominators for the Company’s basic and diluted earnings per share (EPS) calculations for the periods indicated:three months ended March 31, 2018 and 2017 are set forth in the following table.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
| ||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Chemours |
| $ | 207 |
|
| $ | 204 |
|
| $ | 518 |
|
| $ | 237 |
|
| $ | 297 |
|
| $ | 150 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding - basic |
|
| 185,431,036 |
|
|
| 181,596,161 |
|
|
| 184,641,599 |
|
|
| 181,452,194 |
|
|
| 182,069,982 |
|
|
| 183,408,309 |
|
Dilutive effect of the Company’s employee compensation plans 1 |
|
| 6,206,778 |
|
|
| 1,932,395 |
|
|
| 5,909,015 |
|
|
| 1,089,738 |
| ||||||||
Weighted-average number of common shares outstanding - diluted 1 |
|
| 191,637,814 |
|
|
| 183,528,556 |
|
|
| 190,550,614 |
|
|
| 182,541,932 |
| ||||||||
Dilutive effect of the Company’s employee compensation plans |
|
| 6,263,215 |
|
|
| 5,741,621 |
| ||||||||||||||||
Weighted-average number of common shares outstanding - diluted |
|
| 188,333,197 |
|
|
| 189,149,930 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic earnings per share of common stock |
| $ | 1.63 |
|
| $ | 0.82 |
| ||||||||||||||||
Diluted earnings per share of common stock |
|
| 1.58 |
|
|
| 0.79 |
|
|
|
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 calculation:EPS calculations for the three months ended March 31, 2018 and 2017.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Average number of stock options |
|
| 954 |
|
|
| 7,224,473 |
|
|
| 57,429 |
|
|
| 7,760,665 |
|
|
| Three Months Ended March 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
Average number of stock options |
|
| — |
|
|
| 169,118 |
|
12
16
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 7.9. Accounts and Notes Receivable, - Trade, Net
The following table sets forth the components of the Company’s accounts and notes receivable, net at March 31, 2018 and December 31. 2017.
|
|
|
| |||||
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Accounts receivable - trade, net 1 |
| $ | 872 |
|
| $ | 742 |
|
VAT, GST and other taxes 2 |
|
| 49 |
|
|
| 46 |
|
Other receivables 3 |
|
| 21 |
|
|
| 19 |
|
Total accounts and notes receivable - trade, net |
| $ | 942 |
|
| $ | 807 |
|
|
| March 31, 2018 |
|
| December 31, 2017 |
| ||
Accounts receivable - trade, net (1) |
| $ | 1,016 |
|
| $ | 847 |
|
VAT, GST, and other taxes (2) |
|
| 57 |
|
|
| 54 |
|
Other receivables (3) |
|
| 10 |
|
|
| 18 |
|
Total accounts and notes receivable, net |
| $ | 1,083 |
|
| $ | 919 |
|
| (1) | Accounts receivable - trade, net includes trade notes receivable of $3 and $1 and is net of allowances for doubtful accounts of $6 and $5 at |
| (2) | Value |
| (3) | Other receivables consist of notes receivable, advances, and other deposits. |
Accounts and notes receivable are carried at amounts that approximate fair value. Bad debt expense was less thanapproximately $1 for the three and nine months ended September 30,March 31, 2018 and 2017. Bad debt expense was $7 for the three and nine months ended September 30, 2016.
Note 8.10. Inventories
The following table sets forth the components of the Company’s inventories at March 31, 2018 and December 31, 2017.
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2018 |
|
| December 31, 2017 |
| ||||
Finished products |
| $ | 592 |
|
| $ | 532 |
|
| $ | 695 |
|
| $ | 648 |
|
Semi-finished products |
|
| 176 |
|
|
| 150 |
|
|
| 164 |
|
|
| 164 |
|
Raw materials, stores and supplies |
|
| 309 |
|
|
| 285 |
| ||||||||
Subtotal |
|
| 1,077 |
|
|
| 967 |
| ||||||||
Adjustment of inventories to LIFO basis |
|
| (200 | ) |
|
| (200 | ) | ||||||||
Raw materials, stores, and supplies |
|
| 326 |
|
|
| 313 |
| ||||||||
Inventories before LIFO adjustment |
|
| 1,185 |
|
|
| 1,125 |
| ||||||||
Less: Adjustment of inventories to LIFO basis |
|
| (193 | ) |
|
| (190 | ) | ||||||||
Total inventories |
| $ | 877 |
|
| $ | 767 |
|
| $ | 992 |
|
| $ | 935 |
|
Inventory values, before last-in, first-out (LIFO) adjustment, are generally determined by the average cost method, which approximates current cost. Inventories are valued under the LIFO method at substantially all U.S. locations, which comprised $472$542 and $465,$509, or 44%46% and 48%45%, of inventories before the LIFO adjustments at September 30, 2017March 31, 2018 and December 31, 2016,2017, respectively. The remainder of inventory held in international locations and certain U.S. locations is valued under the average cost method.
Note 9.11. Property, Plant, and Equipment, Net
The following table sets forth the components of the Company’s property, plant, and equipment, net at March 31, 2018 and December 31, 2017.
|
| March 31, 2018 |
|
| December 31, 2017 |
| ||
Equipment |
| $ | 7,047 |
|
| $ | 6,961 |
|
Buildings |
|
| 905 |
|
|
| 875 |
|
Construction-in-progress |
|
| 608 |
|
|
| 520 |
|
Land |
|
| 123 |
|
|
| 119 |
|
Mineral rights |
|
| 36 |
|
|
| 36 |
|
Property, plant, and equipment |
|
| 8,719 |
|
|
| 8,511 |
|
Less: Accumulated depreciation |
|
| (5,614 | ) |
|
| (5,503 | ) |
Total property, plant, and equipment, net |
| $ | 3,105 |
|
| $ | 3,008 |
|
Depreciation expense amounted to $61$69 and $201$70 for the three and nine months ended September 30,March 31, 2018 and 2017, respectively, and $72 and $210 for the three and nine months ended September 30, 2016, respectively. Property, plant, and equipment, net includes gross assets under capital leases of $5$7 at September 30, 2017March 31, 2018 and December 31, 2016.2017, and a build-to-suit lease asset of $19 and $8 at March 31, 2018 and December 31, 2017, respectively.
Note 10. Other Assets
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Capitalized repair and maintenance costs |
| $ | 105 |
|
| $ | 145 |
|
Pension assets 1 |
|
| 225 |
|
|
| 159 |
|
Deferred income taxes |
|
| 38 |
|
|
| 41 |
|
Asset held for sale |
|
| — |
|
|
| 29 |
|
Miscellaneous 2 |
|
| 36 |
|
|
| 43 |
|
Total other assets |
| $ | 404 |
|
| $ | 417 |
|
|
|
|
|
1317
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Asset Held for SaleNote 12. Other Assets
In December 2016, in connection with a sale agreement entered in January 2017 to sell
The following table sets forth the components of the Company’s corporate headquarters building located in Wilmington, Delaware,other assets at March 31, 2018 and December 31, 2017.
|
| March 31, 2018 |
|
| December 31, 2017 |
| ||
Capitalized repair and maintenance costs |
| $ | 102 |
|
| $ | 117 |
|
Pension assets (1) |
|
| 282 |
|
|
| 260 |
|
Deferred income taxes |
|
| 46 |
|
|
| 40 |
|
Miscellaneous (2) |
|
| 34 |
|
|
| 36 |
|
Total other assets |
| $ | 464 |
|
| $ | 453 |
|
(1) | Pension assets represent the funded status of certain of the Company's long-term employee benefit plans. |
(2) | Miscellaneous includes deferred financing fees related to the Company’s senior secured revolving credit facility of $8 and $9 at March 31, 2018 and December 31, 2017, respectively, and Company-owned life insurance policies on former key executives of a U.S. subsidiary. These life insurance policies have a cash surrender value of $64 at March 31, 2018 and December 31, 2017, and are presented net of outstanding loans from the policy issuer of $64 and $63 at March 31, 2018 and December 31, 2017, respectively. |
Note 13. Accounts Payable
The following table sets forth the Company recorded a $13 pre-tax impairment charge and classified the net book valuecomponents of the building as an asset held for sale for the year endedCompany’s accounts payable at March 31, 2018 and 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 its senior secured term loans. In connection with the sale, Chemours also entered into lease agreements to lease back a portion of the building beginning in April 2017. In connection with the sale and leaseback transaction, the Company deferred a gain of $2 million.
|
| March 31, 2018 |
|
| December 31, 2017 |
| ||
Trade payables |
| $ | 1,094 |
|
| $ | 1,008 |
|
Dividends payable (1) |
|
| — |
|
|
| 31 |
|
VAT and other payables |
|
| 27 |
|
|
| 36 |
|
Total accounts payable |
| $ | 1,121 |
|
| $ | 1,075 |
|
(1) | Represents a $0.17 per share dividend declared in December 2017, which was paid on March 15, 2018 to the Company’s shareholders of record as of the close of business on February 15, 2018. |
Note 11.14. Other Accrued Liabilities
The following table sets forth the components of the Company’s other accrued liabilities at March 31, 2018 and December 31, 2017.
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2018 |
|
| December 31, 2017 |
| ||||
Compensation and other employee-related costs |
| $ | 147 |
|
| $ | 154 |
|
| $ | 94 |
|
| $ | 174 |
|
Employee separation costs 1 |
|
| 13 |
|
|
| 31 |
| ||||||||
Accrued litigation 2 |
|
| 13 |
|
|
| 344 |
| ||||||||
Environmental remediation 2 |
|
| 86 |
|
|
| 71 |
| ||||||||
Employee separation costs (1) |
|
| 24 |
|
|
| 27 |
| ||||||||
Accrued litigation (2) |
|
| 10 |
|
|
| 13 |
| ||||||||
Environmental remediation (2) |
|
| 75 |
|
|
| 66 |
| ||||||||
Income taxes |
|
| 55 |
|
|
| 39 |
|
|
| 68 |
|
|
| 58 |
|
Customer rebates |
|
| 70 |
|
|
| 53 |
|
|
| 54 |
|
|
| 83 |
|
Deferred revenue 3 |
|
| 9 |
|
|
| 76 |
| ||||||||
Deferred income |
|
| 5 |
|
|
| 8 |
| ||||||||
Accrued interest |
|
| 73 |
|
|
| 21 |
|
|
| 69 |
|
|
| 24 |
|
Miscellaneous 4 |
|
| 80 |
|
|
| 83 |
| ||||||||
Miscellaneous (3) |
|
| 88 |
|
|
| 105 |
| ||||||||
Total other accrued liabilities |
| $ | 546 |
|
| $ | 872 |
|
| $ | 487 |
|
| $ | 558 |
|
|
| Represents the current portion of accrued employee separation |
|
| Represents the current portions of accrued litigation and environmental |
|
|
| 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 |
Note 12. Debt
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Senior secured term loans: |
|
|
|
|
|
|
|
|
Tranche B term loan due May 2022 |
| $ | — |
|
| $ | 1,372 |
|
Tranche B-1 Dollar Term Loan due May 2022 |
|
| 925 |
|
|
| — |
|
Tranche B-1 Euro Term Loan due May 2022 (€395 at September 30, 2017 and €0 at December 31, 2016) |
|
| 464 |
|
|
| — |
|
Senior unsecured notes: |
|
|
|
|
|
|
|
|
6.625% due May 2023 |
|
| 1,158 |
|
|
| 1,158 |
|
7.000% due May 2025 |
|
| 750 |
|
|
| 750 |
|
6.125% due May 2023 (€295 at September 30, 2017 and December 31, 2016) |
|
| 346 |
|
|
| 308 |
|
5.375% due May 2027 |
|
| 500 |
|
|
| — |
|
Capital lease obligations |
|
| 3 |
|
|
| 3 |
|
Total debt |
|
| 4,146 |
|
|
| 3,591 |
|
Less: Unamortized issue discounts |
|
| 9 |
|
|
| 5 |
|
Less: Unamortized debt issuance costs |
|
| 42 |
|
|
| 42 |
|
Less: Current maturities of long-term debt |
|
| 14 |
|
|
| 15 |
|
Total long-term debt, net |
| $ | 4,081 |
|
| $ | 3,529 |
|
14
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Senior Secured Credit Facilities
The credit agreement, as amended, provides for seven-year senior secured term loans and 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 under the Revolving Credit Facility at September 30, 2017 or December 31, 2016; however, Chemours had $102 and $132 in letters of credit issued and outstanding under this facility at September 30, 2017 and December 31, 2016, respectively. The Revolving Credit Facility bears variable interest of a range based on Chemours’ total net leverage ratio between (a) a 0.50% and 1.25% spread for base rate loans and (b) a 1.50% and 2.25% spread for LIBOR loans. The applicable margins were 0.50% for base rate loans and 1.50% for LIBOR loans at September 30, 2017. In addition, the Company is required to pay a commitment fee on the average daily unused amount of the Revolving Credit Facility at a rate based on its total net leverage ratio, between 0.20% and 0.35%. At September 30, 2017, commitment fees were assessed at a rate of 0.20% per annum.
On April 3, 2017, the Company completed an amendment (April 2017 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 (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 2017 Amendment also modified certain provisions of the credit agreement, including increasing 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 2017 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 3.74% and 3.00%, respectively, for the quarter ended September 30, 2017.
The credit agreement contains financial covenants which, solely with respect to the Revolving Credit Facility, as amended, require Chemours not to exceed a maximum senior secured net leverage ratio of: (a) 3.50 to 1.00 each quarter through December 31, 2016; (b) 3.00 to 1.00 through June 30, 2017; and (c) 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 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 Chemours’ and its 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. Chemours was in compliance with its debt covenants at September 30, 2017.
Senior Unsecured Notes
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 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 litigation, as discussed in Note 13. The remaining proceeds from the 2027 Notes are 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 U.S. Securities and Exchange Commission on May, 4, 2017.
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 (a) incurs or guarantees indebtedness under the Senior Secured Credit Facilities or (b) guarantees other indebtedness of Chemours or any guarantor in an aggregate principal amount in excess of $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 Chemours’ 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.
1518
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Chemours may redeemNote 15. Debt
The following table sets forth the 2027 Notes, in whole or in part, at an amount equal to 100%components of the aggregate principal amount plus a specified “make-whole” premiumCompany’s debt at March 31, 2018 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. December 31, 2017.
Maturities
|
| March 31, 2018 |
|
| December 31, 2017 |
| ||
Senior secured term loans: |
|
|
|
|
|
|
|
|
Tranche B-1 Dollar Term Loan due May 2022 |
| $ | 921 |
|
| $ | 923 |
|
Tranche B-1 Euro Term Loan due May 2022 (€393 at March 31, 2018 and €395 at December 31, 2017) |
|
| 487 |
|
|
| 469 |
|
Senior unsecured notes: |
|
|
|
|
|
|
|
|
6.625% due May 2023 |
|
| 1,158 |
|
|
| 1,158 |
|
7.000% due May 2025 |
|
| 750 |
|
|
| 750 |
|
6.125% due May 2023 (€295 at March 31, 2018 and December 31, 2017) |
|
| 365 |
|
|
| 350 |
|
5.375% due May 2027 |
|
| 500 |
|
|
| 500 |
|
Capital lease obligations |
|
| 2 |
|
|
| 3 |
|
Build-to-suit lease obligation |
|
| 19 |
|
|
| 8 |
|
Total debt |
|
| 4,202 |
|
|
| 4,161 |
|
Less: Unamortized issue discounts |
|
| (8 | ) |
|
| (8 | ) |
Less: Unamortized debt issuance costs |
|
| (39 | ) |
|
| (41 | ) |
Less: Current maturities of long-term debt |
|
| (14 | ) |
|
| (15 | ) |
Total long-term debt, net |
| $ | 4,141 |
|
| $ | 4,097 |
|
Chemours has required quarterly principal payments related to theSenior Secured Credit Facilities
The Company’s credit agreement, as amended, provides for seven-year, senior secured term loans equivalentand a five-year, $750 senior secured revolving credit facility (Revolving Credit Facility). No borrowings were outstanding under the Revolving Credit Facility at March 31, 2018 or December 31, 2017; however, Chemours had $106 and $101 in letters of credit issued and outstanding under this facility at March 31, 2018 and December 31, 2017, respectively. At March 31, 2018, the effective interest rates on the class of term loans denominated in U.S. dollars (Dollar Term Loan) and the class of term loans denominated in euros (Euro Term Loan) were 4.15% and 3.00%, respectively. Also, at March 31, 2018, commitment fees on the Revolving Credit Facility were assessed at a rate of 0.20% per annum.
As discussed more fully in “Note 23 – Subsequent Events,” on April 3, 2018, the Company entered into an amended and restated credit agreement with respect to 1.00% per annum through March 2022,its senior secured credit facilities.
Build-to-suit Lease Obligation
In October 2017, Chemours executed a build-to-suit lease 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 (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 Chemours will act as the construction agent and ultimate lessee of the facility based on the Company’s agreement with the owner-lessor. Project costs paid by the owner-lessor are reflected in the Company’s consolidated balance due at maturity. Term loan principal maturities,sheets as amended, overconstruction-in-progress within property, plant, and equipment, and a corresponding build-to-suit lease liability within long-term debt. Through March 31, 2018, project costs paid by the next five years are $3 for the remainderowner-lessor amounted to $19. Construction of 2017 and approximately $14 in each year from 2018The Chemours Discovery Hub is expected to 2021. be completed by early 2020.
Maturities
Debt maturities related to the New Term LoansCompany’s senior secured term loans under the amended and restated credit agreement are discussed more fully in “Note 23 – Subsequent Events.” Debt maturities related to the Company’s Notes (collectively, the 2023 Notes, the 2025 Notes, the Euro Notes, and the 2027 Notes) in 20222023 and beyond will be $4,085.
Following the end of each fiscal year commencing on the year ended December 31, 2016, on an annual basis, the Company is also required to make additional principal repayments, depending on leverage levels as defined in the credit agreement, equivalent to up to 50% of excess cash flow based on certain leverage targets with stepdowns to 25% and 0% as actual leverage decreases to below a 3.00 to 1.00 leverage target. No principal repayments were required to be made in 2017 based upon the December 31, 2016 excess cash flow determined under the credit agreement.$2,773.
Debt Fair Value
The fair values of the Dollar Term Loan, the Euro Term Loan, the 2023 Notes, the 2025 Notes, the Euro Notes, and the 2027 Notes at September 30, 2017March 31, 2018 were approximately $931, $469, $1,235, $834, $372$922, $490, $1,217, $812, $383, and $520,$502, respectively. The estimated fair values of the NewDollar Term LoansLoan, the Euro Term Loan, and the Notes are based on quotes received from third partythird-party brokers, and are classified as Level 2 financial instruments in the fair value hierarchy.
19
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
The following table sets forth the components of the Company’s other liabilities at March 31, 2018 and December 31, 2017.
|
| March 31, 2018 |
|
| December 31, 2017 |
| ||
Environmental remediation (1) |
| $ | 179 |
|
| $ | 187 |
|
Employee-related costs (2) |
|
| 131 |
|
|
| 123 |
|
Accrued litigation (1) |
|
| 50 |
|
|
| 48 |
|
Asset retirement obligations |
|
| 44 |
|
|
| 43 |
|
Deferred income |
|
| 5 |
|
|
| 6 |
|
Miscellaneous (3) |
|
| 66 |
|
|
| 68 |
|
Total other liabilities |
| $ | 475 |
|
| $ | 475 |
|
(1) | The Company’s accrued environmental remediation and accrued litigation liabilities are discussed further in “Note 17 – Commitments and Contingent Liabilities.” |
(2) | Employee-related costs primarily represent liabilities associated with the Company’s long-term employee benefits plans. |
(3) | Miscellaneous primarily includes an accrued indemnification liability of $50 and $52 at March 31, 2018 and December 31, 2017, respectively. |
Note 13.17. Commitments and Contingent Liabilities
Litigation
In addition to the matters discussed below, Chemours, by virtue of its status as a subsidiary of DuPont prior to the separation, is subject to or required under the separation-related agreements executed prior to the separation 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 antitrustanti-trust lawsuits. It is not possible to predict the outcomes of these various proceedings. Except for the litigation specific to PFOA (collectively, perfluorooctanoic acids and its salts, including the ammonium salt) and Fayetteville, North Carolina GenX and other perfluorinated and polyfluorinated compounds for which separate assessments are provided 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’ consolidated financial position, results of operations, or liquidity. 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.
| Asbestos |
In the separation, DuPont assigned its asbestos docket to Chemours. At September 30, 2017March 31, 2018 and December 31, 2016,2017, there were approximately 1,600 and 1,900 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 the U.S. Most of the actions were brought by contractors who worked at sites between 1950 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 September 30, 2017March 31, 2018 and December 31, 2016,2017, Chemours had an accrual of $41$38 related to this matter. Chemours reviews this estimate and related assumptions quarterly. Management believes that the likelihood is remote that Chemours would incur losses in excess of the amounts accrued in connection with this matter.
16Benzene
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
In the separation, DuPont assigned its benzene docket to Chemours. As of September 30, 2017March 31, 2018 and December 31, 2016,2017, there were 2018 and 2717 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.
20
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(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 have filed a cross appeal.
Management believes that a loss is reasonably possible related to these matters; 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 |
Prior to the fourth quarter of 2014, 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.
Chemours recorded accruals of $15$16 and $349$14 related to the PFOA matters discussed below at September 30, 2017March 31, 2018 and December 31, 2016,2017, 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.
These accruals also include charges related to DuPont’s obligations under agreements with the U.S. Environmental Protection Agency (EPA) and voluntary commitments to the New Jersey Department of Environmental Protection. These obligations and voluntary commitments include surveying, sampling, and testing drinking water in and around certain Company sites offering treatment or an alternative supply of drinking water if tests indicate the presence of PFOA in drinking water at or greater than 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 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 Actions
In August 2001, a class action, captioned Leach v. DuPont, was filed in West Virginia state court alleging that 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 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. DuPont funded a series of health studies which were completed in October 2012 by an independent science panel of experts (C8 Science Panel). The studies were conducted in communities exposed to PFOA 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.
17
21
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
In May 2013, a panel 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. DuPont is obligated to fund up to $235 for a medical monitoring program for eligible class members and, in addition, administrative cost 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 Directordirector of Medical Monitoringmedical monitoring established 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 and associated payments to service providers are being disbursed from the escrow account. As of September 30, 2017, less thanMarch 31, 2018, approximately $1 has been disbursed from the escrow account related to medical monitoring. While it is probable that the Company will incur 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 six area water districts and private well users. At separation, this obligation was assigned to Chemours, which is included in the accrual amounts recorded as of September 30, 2017.March 31, 2018.
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 filed in various federal and state courts in Ohio and West Virginia and consolidated in multi-district litigation (MDL) in Ohio federal court.
Settlement of MDL between DuPont and MDL Plaintiffs
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 claim inventory, as well as cases that have been tried to a jury verdict (MDL Settlement). The total settlement amount is $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 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. As described below, the settling plaintiffs include all but approximately 10 of the plaintiffs who filed cases in the MDL. 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 hashad 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 approximately 10 plaintiffs who declined to participate inAll MDL lawsuits were dismissed or resolved through the MDL Settlement. Counsel representing most of these plaintiffs have filed motions to withdraw their representation.
The MDL Settlement does not resolve PFOA personal-injury claims of plaintiffs who did not have cases or claims in the MDL or personal-injury claims based on diseases first diagnosed after February 11, 2017. Since the resolution of the MDL, three personal-injury cases have been filed in West Virginia, Ohio, and New York courts. The New York matters, 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, including PFOA, into drinking water, and seeking compensatory and punitive damages against current and former owners and suppliers of a manufacturing facility in Hoosick Falls, New York.
18
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Management believes that the probability of loss is reasonably possible but not estimable at this time due to various reasons including, among others, that the proceedings are in early stages and there are significant factual issues to be resolved.
Centre 22
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
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, 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 of perfluorochemicals, in violation of the New Jersey Compensation and Control 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.
Management believes that the probability of loss as to these matters is remote.
PFOA Summary
Chemours accrued $335 associated with the MDL Settlement at December 31, 2016, of which all $335 hashad been paid through September 30,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 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 early stages and have significant factual issues to be resolved.
| U.S. Smelter and Lead Refinery, Inc. |
Six lawsuits, including one putative class action, are pending against DuPont by area residents concerning the U.S. Smelter and Lead Refinery multi-party Superfund site in East Chicago, Indiana. Five 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). At 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 early stages and have significant factual issues to be resolved.
GenX and Other Perfluorinated and Polyfluorinated Compounds |
|
|
As reported in the press and noted in public statements by the Company, governmental agencies and local community members have made inquiries 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) and perfluorinated and polyfluorinated compounds from the Company’s facility in Fayetteville, North Carolina into the Cape Fear River, groundwater, and air. The Company believes that such discharges have not impacted the safety of drinking water in North Carolina. Nevertheless, to address community concerns, theThe Company has voluntarily commenced capturing and separately disposing certain process wastewater from the Fayetteville facility. The Companyfacility and is also cooperating with a variety of ongoing inquiries and investigations from federal, state, and local authorities, regulators, and other governmental entities, including responding to two federal grand jury subpoenas.subpoenas, issued in connection with an ongoing investigation being conducted by the U.S. Attorney’s Office for the Eastern District of North Carolina and the Environmental and Natural Resources Division of the U.S. Department of Justice.
On
23
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
In September 5, 2017, the North Carolina Department of Environmental Quality (NC DEQ) issued a 60-day notice of intent to suspend the permit for the Fayetteville facility and the State of North Carolina filed an action in North Carolina state court regarding the discharges seeking a temporary restraining order and preliminary injunction, as well as other relief including abatement and site correction. On September 8, 2017, aA partial consent order was entered partially resolving the State’sstate’s action in return for the Company’s agreement to continue and supplement the voluntary wastewater-disposal measures it had previously commenced and to provide certain information. On October 24,In November 2017, NC DEQ informed the Company that based on measures taken byit was suspending the Company following September 5, 2017, it has concluded at the present time, that it is not necessary to suspend theprocess wastewater discharge permit for the Fayetteville facility. The Company thereafter commenced the capture and separate disposal of all process wastewater from the Fayetteville facility related to the Company’s own operations. In April 2018, the North Carolina Department of Air Quality (NC DAQ) issued a 60-day Notice of Intent to modify the Fayetteville site’s air emissions permit to ensure that air emissions do not contribute or cause violations of groundwater rules. The NC DEQ amended its complaint regarding air emissions and groundwater. The Company continues to take action in response to these issues and will continue efforts to reach final resolution. It is continuingpossible that issues relating to cooperategroundwater deposition and/or air emissions could result in further litigation or regulatory demands with and discuss these matters withregard to the State and NC DEQ.Fayetteville facility, including potential permit modifications that, if effected, could affect the facility’s continued operations.
A number of additionalCivil actions have been filed against the Company and DuPont in North Carolina federal court relating to discharges from the Fayetteville site, including ansite. These actions include, a consolidated action brought by the Cape Fear Public Utility Authority and one brought by Brunswick County, bothwater systems seeking damages and injunctive relief, and multiplea consolidated purported class actionsaction 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
19
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
that draw drinking water from the Cape Fear River.River, and an action by private well owners seeking compensatory and punitive damages. It is also 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.
As these issues are in their early stages, however, itIt is not possible at this point to predict the timing, course, or outcome of the governmental and regulatory inquiries, the noticenotices issued by NC DEQ and NC DAQ, 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 virtuedue to the terms 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. 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 September 30, 2017March 31, 2018 and December 31, 2016,2017, the consolidated balance sheets included a liability relating to these matters of $268$254 and $278,$253, respectively, which, in management’s opinion, is appropriate based on existing facts and circumstances. 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 ongoingoperation, maintenance, and monitoring (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, 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 above the amount accrued at September 30, 2017.March 31, 2018.
For the ninethree months ended September 30,March 31, 2018 and 2017, and 2016, Chemours incurred environmental remediation expenses of $36$11 and $16,$9, respectively.
Based on existing facts and circumstances, 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 the Company’s financial position, results of operations, or cash flows in any given year, as such obligation can be satisfied or settled over many years.
24
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
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. Under the share repurchase program, shares of Chemours’ common stock may 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 program became effective on November 30, 2017 and continues through its expiration on December 31, 2020. The program may be suspended or discontinued at any time. All common shares purchased under the share repurchase program are held as treasury stock and are accounted for using the cost method.
Under the share repurchase program, the Company purchased an additional 4,979,152 shares of Chemours’ issued and outstanding common stock during the first quarter of 2018, which amounted to $245 at an average share price of $49.17 per share. Of the 4,979,152 shares purchased by the Company, 324,600 shares amounting to $15 settled subsequent to March 31, 2018. As of March 31, 2018, the Company has purchased a cumulative 7,365,558 shares of Chemours’ issued and outstanding common stock, which amounted to $361 at an average share price of $49.05 per share. The aggregate amount of Chemours’ common stock that remained available for purchase under the share repurchase program at March 31, 2018 was $139.
Note 14.19. 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 operates within 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 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 flow 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 operations during the period in which they occurred. Gains and losses on the Company’s derivative instruments are intended to be offset by any gains or losses on the underlying asset or liability.
20
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
At September 30, 2017,March 31, 2018, there were 2620 foreign currency forward contracts outstanding, with an aggregate gross notional valueU.S. dollar equivalent of $619.$547. There were no foreign currency forward contracts outstanding at December 31, 2017. Chemours recognized in other income, net of the consolidated statements of operations, a net gain of $4 and a net loss of $1 and a net gain of $6 for the three and nine months ended September 30,March 31, 2018 and 2017, respectively, and net losses of $2 for the three and nine months ended September 30, 2016.respectively.
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 Euroeuro as their functional currency in order to reduce the volatility in stockholders’ equity caused by the changes in foreign currency exchange rates of the Euroeuro with respect to the U.S. Dollar.dollar. Chemours uses the spot method to measure the effectiveness of its net investment hedge. 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 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 ineffectiveness for the three and nine months ended September 30, 2017March 31, 2018 or 2016.2017. The Company recognized pre-tax losses of $26$34 and $76$10 on its net investment hedges within accumulated other comprehensive loss for the three and nine months ended September 30,March 31, 2018 and 2017, respectively.
25
The Chemours Company recognized pre-tax losses of $6 and $9 on its net investment hedges for
Notes to the three and nine months ended September 30, 2016, respectively.Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Fair Value of Derivative Instruments
The following table below presentssets forth the fair value of Chemours’the Company’s derivative assets and liabilities, and their level within the fair value hierarchy:hierarchy, at March 31, 2018 and December 31, 2017.
|
|
|
| Fair Value Using Level 2 Inputs |
|
|
|
| Fair Value Using Level 2 Inputs |
| ||||||||||
|
| Balance Sheet Location |
| September 30, 2017 |
|
| December 31, 2016 |
|
| Balance Sheet Location |
| March 31, 2018 |
|
| December 31, 2017 |
| ||||
Asset derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
| Accounts and notes receivable - trade, net |
| $ | 3 |
|
| $ | 2 |
|
| Accounts and notes receivable, net |
| $ | 1 |
|
| $ | — |
|
Total asset derivatives |
|
|
| $ | 3 |
|
| $ | 2 |
|
|
|
| $ | 1 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
| Other accrued liabilities |
| $ | 4 |
|
| $ | 4 |
|
| Other accrued liabilities |
| $ | 2 |
|
| $ | — |
|
Total liability derivatives |
|
|
| $ | 4 |
|
| $ | 4 |
|
|
|
| $ | 2 |
|
| $ | — |
|
The Company’s foreign currency forward contracts are classified as Level 2 financial instruments within the fair value hierarchy as the valuation inputs are based on quoted prices and market observable data of similar 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 and implied volatilities obtained from various market sources. Market inputs are obtained from well-established and recognized vendors of market data, and subjected to tolerance/quality checks.
Note 15.20. Long-term Employee Benefits
Chemours sponsors defined benefit pension plans for certain of its employees in various jurisdictions outside of the U.S. The Company’s net periodic pension income is based on estimated values and an extensive use of assumptions about the discount rate, expected return on plan assets, and the rate of future compensation increases received by the Company'sits employees.
21The following table sets forth the Company’s net periodic pension income and amounts recognized in other comprehensive income (loss) for the three months ended March 31, 2018 and 2017.
|
| Three Months Ended March 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
Net periodic pension (cost) income: |
|
|
|
|
|
|
|
|
Service cost |
| $ | (4 | ) |
| $ | (4 | ) |
Interest cost |
|
| (4 | ) |
|
| (4 | ) |
Expected return on plan assets |
|
| 15 |
|
|
| 17 |
|
Amortization of actuarial loss |
|
| (4 | ) |
|
| (5 | ) |
Net periodic pension income |
|
| 3 |
|
|
| 4 |
|
Changes in plan assets and benefit obligations recognized in other comprehensive income: |
|
|
|
|
|
|
|
|
Amortization of actuarial loss |
|
| 4 |
|
|
| 5 |
|
Benefit recognized in other comprehensive income |
|
| 4 |
|
|
| 5 |
|
Total net periodic pension income and benefit recognized in comprehensive income |
| $ | 7 |
|
| $ | 9 |
|
The Company made cash contributions of $4 to its pension plans during the three months ended March 31, 2018, and expects to make additional cash contributions of $11 to its pension plans during the remainder of 2018.
26
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
The components of net periodic pension income for all significant pension plans were as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
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| 2016 |
| ||||
Net periodic pension cost (income): |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 4 |
|
| $ | 3 |
|
| $ | 11 |
|
| $ | 10 |
|
Interest cost |
|
| 4 |
|
|
| 5 |
|
|
| 11 |
|
|
| 15 |
|
Expected return on plan assets |
|
| (18 | ) |
|
| (16 | ) |
|
| (52 | ) |
|
| (49 | ) |
Amortization of actuarial loss |
|
| 5 |
|
|
| 9 |
|
|
| 15 |
|
|
| 20 |
|
Amortization of prior service gain |
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| (1 | ) |
Curtailment gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
Settlement loss |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Net periodic pension (income) cost |
| $ | (5 | ) |
| $ | 1 |
|
| $ | (15 | ) |
| $ | (7 | ) |
The Company made cash contributions of $4 and $14 to its pension plans during the three and nine months ended September 30, 2017 and expects to make additional cash contributions of $11 to its pension plans during the fourth quarter of 2017. Of these remaining contributions, $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 date of separation, 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.
Note 16.21. Stock-based Compensation
Total stock-based compensation cost included in the consolidated statements of operations was $6$9 and $21$6 for the three and nine months ended September 30,March 31, 2018 and 2017, respectively, and $6 and $17 for the three and nine months ended September 30, 2016, respectively. The income tax provision for the three and nine months ended September 30, 2017 is inclusive of $5 and $18 in income tax benefit from windfalls on share-based payments, respectively, due to the Company’s adoption of ASU No. 2016-09 during 2017.
The Chemours Company 2017 Equity and Incentive Plan (2017 Plan) and The Chemours Company Equity and Incentive Plan (Prior Plan) provide for grants to certain employees, independent contractors, or non-employee directors of the Company of different forms of awards, including stock options, RSUsrestricted stock units (RSUs), and performance share units (PSUs). On April 26, 2017, Chemours’ stockholders approved the 2017 Plan. As a result, no further grants will be made under the Prior Plan, which provided for DuPont equity awards that converted into new Chemours equity awards at the separation date and had a maximum shares reserve of 13,500,000 for the grant of equity awards.
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 September 30, 2017, 17,650,034 shares of equity and incentive plan reserve are available for grants under the 2017 Plan.
The Chemours Compensation Committee determines the long-term incentive awards mix including stock options, RSUs and PSUs, and may authorize new grants annually.
22
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
In the three months ended March 31, 2018, Chemours granted approximately 470,000 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 expense related tofair value of the stock options is based upon the Black-Scholes valuation model.
The following table sets forth the assumptions used to determine the fair value of stock option awards granted induring the ninethree months ended September 30, 2017 was based on the weighted-average assumptions shown in the table below:March 31, 2018.
|
| Nine Months Ended September 30, 2017 |
|
| Three Months Ended March 31, 2018 |
| ||
Risk-free interest rate |
|
| 2.14 | % |
|
| 2.64 | % |
Expected term (years) |
|
| 6.00 |
|
|
| 6.00 |
|
Volatility |
|
| 44.49 | % |
|
| 47.56 | % |
Dividend yield |
|
| 0.35 | % |
|
| 1.40 | % |
Fair value per stock option |
| $ | 15.21 |
|
| $ | 20.55 |
|
The Company determined the dividend yield by dividing the expected annual dividend on the Company'srecorded $5 and $1 in stock-based compensation expense specific to its stock by the option exercise price. A historical daily measurement of volatility is determined based on the average volatility of peer companies adjustedoptions 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. Expected life is determined using a simplified approach, calculated as the midpoint between the graded vesting period and the contractual life of the award.
The following table summarizes Chemours’ stock option activity for the ninethree months ended September 30, 2017:
|
| Number of Shares (in thousands) |
|
| Weighted-Average Exercise Price (per share) |
|
| Weighted-Average Remaining Contractual Term (years) |
|
| Aggregate Intrinsic Value (in thousands) |
| ||||
Outstanding, December 31, 2016 |
|
| 7,969 |
|
| $ | 13.72 |
|
|
| 5.08 |
|
| $ | 66,668 |
|
Granted |
|
| 878 |
|
|
| 34.84 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (1,987 | ) |
|
| 14.41 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (40 | ) |
|
| 19.10 |
|
|
|
|
|
|
|
|
|
Expired |
|
| (28 | ) |
|
| 12.00 |
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2017 |
|
| 6,792 |
|
| $ | 15.69 |
|
|
| 5.27 |
|
| $ | 237,179 |
|
Exercisable, September 30, 2017 |
|
| 3,814 |
|
| $ | 14.03 |
|
|
| 3.63 |
|
| $ | 139,523 |
|
March 31, 2018 and 2017, respectively. At March 31, 2018, approximately 6,770,000 stock options remain outstanding.
The aggregate intrinsic values inRestricted Stock Units
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 options exercised for the ninethree months ended September 30, 2017 was $42. The total intrinsic value of options exercised for the nine months ended September 30, 2016 was insignificant.
At September 30, 2017, $8 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.18 years.
RSUs
March 31, 2018, Chemours granted approximately 110,000 RSUs to key managementcertain of its employees, that generallywhich will vest over a three-year period and, upon vesting, convert one-for-one to Chemours’ common stock. The fair value of all stock-settledthe RSUs is based upon the market price of the underlying common stock as of the grant date.
23
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
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 recorded $2 and revenue enhancements must be achieved for vesting to occur. Non-vested awards, both with and without a performance condition, at September 30, 2017 are shown below:
|
| Number of Shares (in thousands) |
|
| Weighted-Average Grant Date Fair Value (per share) |
| ||
Non-vested, December 31, 2016 |
|
| 2,316 |
|
| $ | 11.23 |
|
Granted |
|
| 211 |
|
|
| 36.42 |
|
Vested |
|
| (1,275 | ) |
|
| 11.09 |
|
Forfeited |
|
| (39 | ) |
|
| 15.10 |
|
Non-vested, September 30, 2017 |
|
| 1,213 |
|
| $ | 15.46 |
|
At September 30, 2017, there was $7 of unrecognized$4 in stock-based compensation expense relatedspecific to non-vested awards, which is expected to be recognized over a weighted-average period of 0.78 years.its RSUs for the three months ended March 31, 2018 and 2017, respectively. At March 31, 2018, approximately 970,000 RSUs remain non-vested.
PSUsPerformance Share Units
In the three months ended March 31, 2018, Chemours issuedgranted approximately 140,000 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 Company recorded stock-based compensation related to PSUs as a component of selling, general and administrative expense of approximately $2 and $5 for the three and nine months ended September 30, 2017, respectively, and less than $1 and $1 for the three and nine months ended September 30, 2016, respectively.
The following table provides compensation costs for stock-based compensation related to PSUs at 100% of target amounts:
|
| 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, September 30, 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 grantCompany recorded $2 and $1 in stock-based compensation expense specific to its PSUs for PSUs granted during the three and nine months ended September 30,March 31, 2018 and 2017, was $55.02 and $40.30, respectively. The fair value of each PSU grant is amortized monthly into compensation expense based on their respective vesting conditions over three annual measurement periods. The accrual of compensation costs is based on our estimateAt March 31, 2018, approximately 810,000 PSUs at 100% of the final expected value of the award, and 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.target amount remain non-vested.
At September 30, 2017, based on the Company’s assessment of its performance goals for 2016 and 2017, approximately 450,000 additional shares may be awarded under the 2016 and 2017 grant awards.
2427
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
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 areis 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 will beare 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 the first quarter of 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 approximately 12,000 shares of Chemours’ common stock for the purchase period ending December 31, 2017.
Note 17.22. Segment Information
Chemours’ operations are classified into three 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: Fluoroproducts, Chemical Solutions, and Titanium Technologies, Fluoroproducts and Chemical Solutions.Technologies. Corporate costs and certain legal and environmental expenses that are not allocated to the reportable segments and foreign exchange gains and losses are reflected in Corporate and Other.
Segment 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 research and development facilities and the amortization of other intangible assets, excluding write-downany write-downs of assets.
Adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA) is the primary measure of segment profitability used by the Company’s Chief Operating Decision Maker and is defined as income (loss) before income taxes, excluding the following:
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;
exchange (gains) losses included in other income (expense), net;
restructuring, asset-related, charges and other charges, net;
asset impairments;
(gains) losses on sale of business or assets; and,
other items not considered indicative of the Company’s ongoing operational performance and expected to occur infrequently.
The following table sets forth certain summary financial information for the Company’s reportable segments and Corporate and Other for the three months ended March 31, 2018 and 2017.
25
Three Months Ended March 31, |
| Fluoroproducts |
|
| Chemical Solutions |
|
| Titanium Technologies |
|
| Corporate and Other |
|
| Total |
| |||||
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
| $ | 732 |
|
| $ | 144 |
|
| $ | 854 |
|
| $ | — |
|
| $ | 1,730 |
|
Adjusted EBITDA |
|
| 206 |
|
|
| 11 |
|
|
| 294 |
|
|
| (43 | ) |
|
| 468 |
|
Depreciation and amortization |
|
| 28 |
|
|
| 5 |
|
|
| 30 |
|
|
| 7 |
|
|
| 70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
| $ | 652 |
|
| $ | 139 |
|
| $ | 646 |
|
| $ | — |
|
| $ | 1,437 |
|
Adjusted EBITDA |
|
| 155 |
|
|
| 12 |
|
|
| 159 |
|
|
| (41 | ) |
|
| 285 |
|
Depreciation and amortization |
|
| 26 |
|
|
| 4 |
|
|
| 33 |
|
|
| 8 |
|
|
| 71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Three Months Ended September 30, |
| Titanium Technologies |
|
| Fluoroproducts |
|
| Chemical Solutions |
|
| Corporate and Other |
|
| Total |
| |||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
| $ | 799 |
|
| $ | 637 |
|
| $ | 148 |
|
| $ | — |
|
| $ | 1,584 |
|
Adjusted EBITDA |
|
| 249 |
|
|
| 158 |
|
|
| 18 |
|
|
| (44 | ) |
|
| 381 |
|
Depreciation and amortization |
|
| 24 |
|
|
| 28 |
|
|
| 4 |
|
|
| 6 |
|
|
| 62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
| $ | 625 |
|
| $ | 591 |
|
| $ | 182 |
|
| $ | — |
|
| $ | 1,398 |
|
Adjusted EBITDA |
|
| 144 |
|
|
| 143 |
|
|
| 9 |
|
|
| (28 | ) |
|
| 268 |
|
Depreciation and amortization |
|
| 32 |
|
|
| 26 |
|
|
| 6 |
|
|
| 9 |
|
|
| 73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
| Titanium Technologies |
|
| Fluoroproducts |
|
| Chemical Solutions |
|
| Corporate and Other |
|
| Total |
| |||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
| $ | 2,173 |
|
| $ | 1,998 |
|
| $ | 437 |
|
| $ | — |
|
| $ | 4,608 |
|
Adjusted EBITDA |
|
| 601 |
|
|
| 510 |
|
|
| 37 |
|
|
| (120 | ) |
|
| 1,028 |
|
Depreciation and amortization |
|
| 89 |
|
|
| 81 |
|
|
| 13 |
|
|
| 21 |
|
|
| 204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
| $ | 1,742 |
|
| $ | 1,695 |
|
| $ | 641 |
|
| $ | — |
|
| $ | 4,078 |
|
Adjusted EBITDA |
|
| 309 |
|
|
| 333 |
|
|
| 30 |
|
|
| (89 | ) |
|
| 583 |
|
Depreciation and amortization |
|
| 87 |
|
|
| 75 |
|
|
| 24 |
|
|
| 26 |
|
|
| 212 |
|
The following istable sets forth a tabular reconciliation of Adjusted EBITDA to the Company’s consolidated net income before income taxes to Adjusted EBITDA:for the three months ended March 31, 2018 and 2017.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Income before income taxes |
| $ | 250 |
|
| $ | 234 |
|
| $ | 649 |
|
| $ | 262 |
|
Interest expense, net |
|
| 55 |
|
|
| 51 |
|
|
| 161 |
|
|
| 157 |
|
Depreciation and amortization |
|
| 62 |
|
|
| 73 |
|
|
| 204 |
|
|
| 212 |
|
Non-operating pension and other post-retirement employee benefit income |
|
| (7 | ) |
|
| (5 | ) |
|
| (24 | ) |
|
| (19 | ) |
Exchange losses (gains) |
|
| 4 |
|
|
| 17 |
|
|
| (3 | ) |
|
| 37 |
|
Restructuring charges |
|
| 8 |
|
|
| 14 |
|
|
| 31 |
|
|
| 41 |
|
Asset-related charges |
|
| 1 |
|
|
| 46 |
|
|
| 3 |
|
|
| 109 |
|
Gain on sale of assets and businesses |
|
| — |
|
|
| (169 | ) |
|
| (14 | ) |
|
| (258 | ) |
Transaction costs 1 |
|
| 1 |
|
|
| 2 |
|
|
| 3 |
|
|
| 18 |
|
Legal and other charges 2 |
|
| 7 |
|
|
| 5 |
|
|
| 18 |
|
|
| 24 |
|
Adjusted EBITDA |
| $ | 381 |
|
| $ | 268 |
|
| $ | 1,028 |
|
| $ | 583 |
|
|
| Three Months Ended March 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
Income before income taxes |
| $ | 381 |
|
| $ | 173 |
|
Interest expense, net |
|
| 52 |
|
|
| 51 |
|
Depreciation and amortization |
|
| 70 |
|
|
| 71 |
|
Non-operating pension and other post-retirement employee benefit income |
|
| (7 | ) |
|
| (8 | ) |
Exchange gains |
|
| — |
|
|
| (5 | ) |
Restructuring, asset-related, and other charges, net |
|
| 10 |
|
|
| 12 |
|
Gain on sale of assets and businesses (1) |
|
| (42 | ) |
|
| (16 | ) |
Legal and other charges (2) |
|
| 4 |
|
|
| 7 |
|
Adjusted EBITDA |
| $ | 468 |
|
| $ | 285 |
|
|
| For the three months ended March 31, 2018, gain on sale includes a $42 gain associated with the sale of the Company’s Linden, New Jersey site. For the three months ended March 31, 2017, gain on sale includes a $12 gain associated with the sale of the Company’s Edge Moor, Delaware site and |
| (2) | Includes litigation settlements, water treatment accruals, |
Note 23. Subsequent Events
Acquisition of ICOR International, Inc.
On April 2, 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, for $35 in total consideration. Pursuant to the terms of the SPA, the Company paid $32 at closing in the all-cash acquisition, which is subject to customary working capital and other adjustments 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 will account for the acquisition of ICOR as a business combination, and as such, all assets acquired and liabilities assumed will be recorded at their estimated fair values, and the excess of the consideration transferred over the fair value of the net assets acquired will be recorded as goodwill within the Fluoroproducts segment.
Amended and Restated Credit Agreement
On April 3, 2018, the Company entered into an amended and restated credit agreement that provides for a seven-year, senior secured term loan facility and a five-year, $800 senior secured revolving credit facility (New Revolving Credit Facility) (collectively, the New Senior Secured Credit Facilities).
The senior secured term loan facility provides for a class of term loans, denominated in U.S. dollars, in an aggregate principal amount of $900 (New Dollar Term Loan) and a class of term loans, denominated in euros, in an aggregate principal amount of €350 (New Euro Term Loan) (collectively, the New Term Loans). The proceeds of the New Term Loans, together with cash on hand, were primarily used to prepay in full all outstanding amounts under the Company’s existing credit agreement, which amounted to $921 and €393 at March 31, 2018. The New Dollar Term Loan bears a variable interest rate equal to, at the election of the Company, adjusted LIBOR plus 1.75% or adjusted base rate plus 0.75%, subject to an adjusted LIBOR or an adjusted base rate floor of 0.00% or 1.00%, respectively. The New 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 New Term Loans will mature on April 3, 2025, and are subject to acceleration in certain circumstances.
2629
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
The proceeds of any loans made under the New Revolving Credit Facility can be used for working capital needs and other general corporate purposes, including permitted acquisitions and other transactions, as defined under the amended and restated credit agreement. The New Revolving Credit Facility bears a variable interest rate range based on the Company’s total net leverage ratio, as defined in the amended and restated credit agreement, between (i) a 0.25% and a 1.00% spread for adjusted base rate loans, and (ii) a 1.25% and a 2.00% spread for LIBOR and EURIBOR loans. In addition, the Company is required to pay a commitment fee on the average daily unused amount of the New Revolving Credit Facility within an interest rate range based on its total net leverage ratio, between 0.10% and 0.25%. The New Revolving Credit Facility will mature on April 3, 2023, and is subject to acceleration in certain circumstances.
The amended and restated credit agreement also modifies or eliminates certain provisions of the Company’s existing credit agreement, including certain negative covenants to allow for further flexibility. Under the amended and restated credit agreement, solely with respect to the New Revolving Credit Facility, the Company is required to not exceed a maximum senior secured net leverage ratio of: (i) 2.50 to 1.00 in each quarter through June 30, 2018; (ii) 2.25 to 1.00 in each quarter through December 31, 2018; and, (iii) 2.00 to 1.00 in each quarter beginning January 1, 2019, through the date of maturity. The Company’s minimum interest coverage ratio requirements under the existing credit agreement were eliminated in the amended and restated credit agreement. In addition, the amended and restated credit agreement contains customary affirmative and negative covenants that, among other things, limit or restrict the Company’s and its subsidiaries’ ability, subject to certain exceptions, to incur additional indebtedness or liens, pay dividends, and engage in certain transactions, including mergers, acquisitions, asset sales, or investments, outside of specified carve-outs. The amended and restated credit agreement also contains customary representations and warranties and events of default, which are substantially similar to those in the existing credit agreement. The Company was in compliance with its debt covenants at March 31, 2018.
The Company’s obligations under the New Senior Secured Credit 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 exceptions. The obligations under the New Senior Secured Credit Facilities are also, subject to certain exceptions, secured by a first priority lien on substantially all of the Company’s assets and substantially all of the assets of its wholly-owned, material domestic subsidiaries, including 100% of the stock of certain of its domestic subsidiaries and 65% of the stock of certain of its foreign subsidiaries.
The Company has required quarterly payments related to the New Senior Secured Credit Facilities equivalent to 1.00% per annum through December 2024, with the balance due at maturity. Principal maturities on the New Senior Secured Credit Facilities over the next five years are $10 for the remainder of 2018, approximately $13 in each year from 2019 to 2022, and approximately $1,270 in 2023 and beyond. Also, following the end of each fiscal year commencing on the year ended December 31, 2019, on an annual basis, the Company is required to make additional principal 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 3.50 to 1.00 leverage target.
The transaction resulted in a net prepayment of the Company’s total outstanding senior secured debt balance by approximately $75, based on the euro exchange rate on April 3, 2018. The Company is currently evaluating the accounting treatment for its amended and restated credit agreement, including the treatment of any related transaction costs.
Share Repurchase Program
In connection with its share repurchase program, the Company purchased an additional 764,786 shares of Chemours’ issued and outstanding common stock in April 2018, which amounted to $39.
30
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 18.24. Guarantor Condensed Consolidating Financial Information
The following guarantor financial information is included in accordance with Rule 3-10 of Regulation S-X (Rule 3-10) in connection with the issuance of the Notes by The Chemours Company (Parent Issuer). The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured unsubordinated basis, in each case, subject to certain exceptions, by the Parent Issuer and by certain of its subsidiaries (together, the Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is 100% owned by the Company. NoNone of the other subsidiaries of the Company, either direct or indirect, guarantee the Notes (together, Non-Guarantor Subsidiaries). The Guarantor Subsidiaries, mayexcluding 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 condensed consolidating statements of comprehensive income for the three and nine months ended September 30, 2017March 31, 2018 and 2016;2017;
the condensed consolidating balance sheets as of September 30, 2017at March 31, 2018 and December 31, 2016;2017; and,
the condensed consolidating statements of cash flows for the ninethree months ended September 30, 2017March 31, 2018 and 2016.2017.
The condensed consolidating financial information is presented using the equity method of accounting for the Company’s investments in its 100% owned subsidiaries. Under the equity method, the investments in subsidiaries are recorded at cost and adjusted for Chemours’the Company’s share of theits 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 in this footnoteincluded herein should be read in conjunction with the consolidated financial statements presented and other notesthe related thereto contained in this Quarterly Report on Form 10-Q.notes.
2731
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Condensed Consolidating Statements of Comprehensive Income
| Three Months Ended September 30, 2017 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Net sales | $ | — |
|
| $ | 960 |
|
| $ | 1,053 |
|
| $ | (429 | ) |
| $ | 1,584 |
|
Cost of goods sold |
| — |
|
|
| 773 |
|
|
| 753 |
|
|
| (409 | ) |
|
| 1,117 |
|
Gross profit |
| — |
|
|
| 187 |
|
|
| 300 |
|
|
| (20 | ) |
|
| 467 |
|
Selling, general and administrative expense |
| 7 |
|
|
| 105 |
|
|
| 43 |
|
|
| (7 | ) |
|
| 148 |
|
Research and development expense |
| — |
|
|
| 19 |
|
|
| 1 |
|
|
| — |
|
|
| 20 |
|
Restructuring and asset-related charges, net |
| — |
|
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| 8 |
|
Total expenses |
| 7 |
|
|
| 132 |
|
|
| 44 |
|
|
| (7 | ) |
|
| 176 |
|
Equity in earnings of affiliates |
| — |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| 9 |
|
Equity in earnings of subsidiaries |
| 233 |
|
|
| — |
|
|
| — |
|
|
| (233 | ) |
|
| — |
|
Interest (expense) income, net |
| (57 | ) |
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| (55 | ) |
Intercompany interest income (expense), net |
| 16 |
|
|
| — |
|
|
| (16 | ) |
|
| — |
|
|
| — |
|
Other income (expense), net |
| 6 |
|
|
| 22 |
|
|
| (17 | ) |
|
| (6 | ) |
|
| 5 |
|
Income before income taxes |
| 191 |
|
|
| 79 |
|
|
| 232 |
|
|
| (252 | ) |
|
| 250 |
|
(Benefit from) provision for income taxes |
| (16 | ) |
|
| 18 |
|
|
| 42 |
|
|
| (1 | ) |
|
| 43 |
|
Net income |
| 207 |
|
|
| 61 |
|
|
| 190 |
|
|
| (251 | ) |
|
| 207 |
|
Less: Net income attributable to non-controlling interests |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income attributable to Chemours | $ | 207 |
|
| $ | 61 |
|
| $ | 190 |
|
| $ | (251 | ) |
| $ | 207 |
|
Comprehensive income attributable to Chemours | $ | 228 |
|
| $ | 63 |
|
| $ | 225 |
|
| $ | (288 | ) |
| $ | 228 |
|
| Three Months Ended September 30, 2016 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Net sales | $ | — |
|
| $ | 961 |
|
| $ | 847 |
|
| $ | (410 | ) |
| $ | 1,398 |
|
Cost of goods sold |
| — |
|
|
| 791 |
|
|
| 656 |
|
|
| (391 | ) |
|
| 1,056 |
|
Gross profit |
| — |
|
|
| 170 |
|
|
| 191 |
|
|
| (19 | ) |
|
| 342 |
|
Selling, general and administrative expense |
| 5 |
|
|
| 115 |
|
|
| 34 |
|
|
| (6 | ) |
|
| 148 |
|
Research and development expense |
| — |
|
|
| 19 |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
Restructuring and asset-related charges, net |
| — |
|
|
| 60 |
|
|
| — |
|
|
| — |
|
|
| 60 |
|
Total expenses |
| 5 |
|
|
| 194 |
|
|
| 34 |
|
|
| (6 | ) |
|
| 227 |
|
Equity in earnings of affiliates |
| — |
|
|
| 1 |
|
|
| 8 |
|
|
| — |
|
|
| 9 |
|
Equity in earnings of subsidiaries |
| 226 |
|
|
| — |
|
|
| — |
|
|
| (226 | ) |
|
| — |
|
Interest expense, net |
| (50 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (51 | ) |
Intercompany interest income (expense), net |
| 15 |
|
|
| 1 |
|
|
| (16 | ) |
|
| — |
|
|
| — |
|
Other income, net |
| 5 |
|
|
| 70 |
|
|
| 94 |
|
|
| (8 | ) |
|
| 161 |
|
Income before income taxes |
| 191 |
|
|
| 47 |
|
|
| 243 |
|
|
| (247 | ) |
|
| 234 |
|
(Benefit from) provision for income taxes |
| (13 | ) |
|
| 29 |
|
|
| 29 |
|
|
| (15 | ) |
|
| 30 |
|
Net income |
| 204 |
|
|
| 18 |
|
|
| 214 |
|
|
| (232 | ) |
|
| 204 |
|
Less: Net income attributable to non-controlling interests |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income attributable to Chemours | $ | 204 |
|
| $ | 18 |
|
| $ | 214 |
|
| $ | (232 | ) |
| $ | 204 |
|
Comprehensive income attributable to Chemours | $ | 210 |
|
| $ | 18 |
|
| $ | 226 |
|
| $ | (244 | ) |
| $ | 210 |
|
28
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Condensed Consolidating Statements of Comprehensive Income (Loss)
| Nine Months Ended September 30, 2017 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Net sales | $ | — |
|
| $ | 2,904 |
|
| $ | 2,941 |
|
| $ | (1,237 | ) |
| $ | 4,608 |
|
Cost of goods sold |
| — |
|
|
| 2,358 |
|
|
| 2,210 |
|
|
| (1,227 | ) |
|
| 3,341 |
|
Gross profit |
| — |
|
|
| 546 |
|
|
| 731 |
|
|
| (10 | ) |
|
| 1,267 |
|
Selling, general and administrative expense |
| 26 |
|
|
| 339 |
|
|
| 101 |
|
|
| (22 | ) |
|
| 444 |
|
Research and development expense |
| — |
|
|
| 57 |
|
|
| 4 |
|
|
| — |
|
|
| 61 |
|
Restructuring and asset-related charges, net |
| — |
|
|
| 28 |
|
|
| 3 |
|
|
| — |
|
|
| 31 |
|
Total expenses |
| 26 |
|
|
| 424 |
|
|
| 108 |
|
|
| (22 | ) |
|
| 536 |
|
Equity in earnings of affiliates |
| — |
|
|
| — |
|
|
| 26 |
|
|
| — |
|
|
| 26 |
|
Equity in earnings of subsidiaries |
| 594 |
|
|
| — |
|
|
| — |
|
|
| (594 | ) |
|
| — |
|
Interest (expense) income, net |
| (164 | ) |
|
| 1 |
|
|
| 2 |
|
|
| — |
|
|
| (161 | ) |
Intercompany interest income (expense), net |
| 48 |
|
|
| — |
|
|
| (48 | ) |
|
| — |
|
|
| — |
|
Other income (expense), net |
| 19 |
|
|
| 93 |
|
|
| (37 | ) |
|
| (22 | ) |
|
| 53 |
|
Income before income taxes |
| 471 |
|
|
| 216 |
|
|
| 566 |
|
|
| (604 | ) |
|
| 649 |
|
(Benefit from) provision for income taxes |
| (47 | ) |
|
| 40 |
|
|
| 136 |
|
|
| 1 |
|
|
| 130 |
|
Net income |
| 518 |
|
|
| 176 |
|
|
| 430 |
|
|
| (605 | ) |
|
| 519 |
|
Less: Net income attributable to non-controlling interests |
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Net income attributable to Chemours | $ | 518 |
|
| $ | 176 |
|
| $ | 429 |
|
| $ | (605 | ) |
| $ | 518 |
|
Comprehensive income attributable to Chemours | $ | 675 |
|
| $ | 178 |
|
| $ | 640 |
|
| $ | (818 | ) |
| $ | 675 |
|
| Nine Months Ended September 30, 2016 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Net sales | $ | — |
|
| $ | 2,898 |
|
| $ | 2,367 |
|
| $ | (1,187 | ) |
| $ | 4,078 |
|
Cost of goods sold |
| — |
|
|
| 2,506 |
|
|
| 1,921 |
|
|
| (1,160 | ) |
|
| 3,267 |
|
Gross profit |
| — |
|
|
| 392 |
|
|
| 446 |
|
|
| (27 | ) |
|
| 811 |
|
Selling, general and administrative expense |
| 17 |
|
|
| 350 |
|
|
| 103 |
|
|
| (16 | ) |
|
| 454 |
|
Research and development expense |
| — |
|
|
| 58 |
|
|
| 2 |
|
|
| — |
|
|
| 60 |
|
Restructuring and asset-related charges (credits), net |
| — |
|
|
| 147 |
|
|
| (2 | ) |
|
| — |
|
|
| 145 |
|
Total expenses |
| 17 |
|
|
| 555 |
|
|
| 103 |
|
|
| (16 | ) |
|
| 659 |
|
Equity in (loss) earnings of affiliates |
| — |
|
|
| (2 | ) |
|
| 19 |
|
|
| — |
|
|
| 17 |
|
Equity in earnings of subsidiaries |
| 307 |
|
|
| — |
|
|
| — |
|
|
| (307 | ) |
|
| — |
|
Interest expense, net |
| (155 | ) |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (157 | ) |
Intercompany interest income (expense), net |
| 44 |
|
|
| 4 |
|
|
| (48 | ) |
|
| — |
|
|
| — |
|
Other income, net |
| 15 |
|
|
| 178 |
|
|
| 72 |
|
|
| (15 | ) |
|
| 250 |
|
Income before income taxes |
| 194 |
|
|
| 15 |
|
|
| 386 |
|
|
| (333 | ) |
|
| 262 |
|
(Benefit from) provision for income taxes |
| (43 | ) |
|
| 25 |
|
|
| 53 |
|
|
| (10 | ) |
|
| 25 |
|
Net income (loss) |
| 237 |
|
|
| (10 | ) |
|
| 333 |
|
|
| (323 | ) |
|
| 237 |
|
Less: Net income attributable to non-controlling interests |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income (loss) attributable to Chemours | $ | 237 |
|
| $ | (10 | ) |
| $ | 333 |
|
| $ | (323 | ) |
| $ | 237 |
|
Comprehensive income (loss) attributable to Chemours | $ | 250 |
|
| $ | (10 | ) |
| $ | 355 |
|
| $ | (345 | ) |
| $ | 250 |
|
29
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Condensed Consolidating Balance Sheets
| September 30, 2017 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | — |
|
| $ | 504 |
|
| $ | 1,031 |
|
| $ | — |
|
| $ | 1,535 |
|
Accounts and notes receivable - trade, net |
| — |
|
|
| 316 |
|
|
| 626 |
|
|
| — |
|
|
| 942 |
|
Intercompany receivable |
| 19 |
|
|
| 684 |
|
|
| 196 |
|
|
| (899 | ) |
|
| — |
|
Inventories |
| — |
|
|
| 348 |
|
|
| 592 |
|
|
| (63 | ) |
|
| 877 |
|
Prepaid expenses and other |
| — |
|
|
| 59 |
|
|
| 20 |
|
|
| — |
|
|
| 79 |
|
Deferred income taxes |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total current assets |
| 19 |
|
|
| 1,911 |
|
|
| 2,465 |
|
|
| (962 | ) |
|
| 3,433 |
|
Property, plant and equipment |
| — |
|
|
| 6,346 |
|
|
| 2,066 |
|
|
| — |
|
|
| 8,412 |
|
Less: Accumulated depreciation |
| — |
|
|
| (4,410 | ) |
|
| (1,052 | ) |
|
| — |
|
|
| (5,462 | ) |
Property, plant and equipment, net |
| — |
|
|
| 1,936 |
|
|
| 1,014 |
|
|
| — |
|
|
| 2,950 |
|
Goodwill and other intangible assets, net |
| — |
|
|
| 153 |
|
|
| 14 |
|
|
| — |
|
|
| 167 |
|
Investments in affiliates |
| — |
|
|
| — |
|
|
| 166 |
|
|
| — |
|
|
| 166 |
|
Investment in subsidiaries |
| 4,114 |
|
|
| — |
|
|
| — |
|
|
| (4,114 | ) |
|
| — |
|
Intercompany notes receivable |
| 1,150 |
|
|
| — |
|
|
| — |
|
|
| (1,150 | ) |
|
| — |
|
Other assets |
| 35 |
|
|
| 101 |
|
|
| 292 |
|
|
| (24 | ) |
|
| 404 |
|
Total assets | $ | 5,318 |
|
| $ | 4,101 |
|
| $ | 3,951 |
|
| $ | (6,250 | ) |
| $ | 7,120 |
|
Liabilities and equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable | $ | — |
|
| $ | 589 |
|
| $ | 421 |
|
| $ | — |
|
| $ | 1,010 |
|
Current maturities of long-term debt |
| 14 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14 |
|
Intercompany payable |
| 354 |
|
|
| 196 |
|
|
| 349 |
|
|
| (899 | ) |
|
| — |
|
Other accrued liabilities |
| 72 |
|
|
| 310 |
|
|
| 164 |
|
|
| — |
|
|
| 546 |
|
Total current liabilities |
| 440 |
|
|
| 1,095 |
|
|
| 934 |
|
|
| (899 | ) |
|
| 1,570 |
|
Long-term debt, net |
| 4,078 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 4,081 |
|
Intercompany notes payable |
| — |
|
|
| — |
|
|
| 1,150 |
|
|
| (1,150 | ) |
|
| — |
|
Deferred income taxes |
| — |
|
|
| 107 |
|
|
| 92 |
|
|
| (24 | ) |
|
| 175 |
|
Other liabilities |
| — |
|
|
| 392 |
|
|
| 97 |
|
|
| — |
|
|
| 489 |
|
Total liabilities |
| 4,518 |
|
|
| 1,597 |
|
|
| 2,273 |
|
|
| (2,073 | ) |
|
| 6,315 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Chemours stockholders’ equity |
| 800 |
|
|
| 2,504 |
|
|
| 1,673 |
|
|
| (4,177 | ) |
|
| 800 |
|
Non-controlling interests |
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 5 |
|
Total equity |
| 800 |
|
|
| 2,504 |
|
|
| 1,678 |
|
|
| (4,177 | ) |
|
| 805 |
|
Total liabilities and equity | $ | 5,318 |
|
| $ | 4,101 |
|
| $ | 3,951 |
|
| $ | (6,250 | ) |
| $ | 7,120 |
|
30
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Condensed Consolidating Balance Sheets
| December 31, 2016 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | — |
|
| $ | 224 |
|
| $ | 678 |
|
| $ | — |
|
| $ | 902 |
|
Accounts and notes receivable - trade, net |
| — |
|
|
| 299 |
|
|
| 508 |
|
|
| — |
|
|
| 807 |
|
Intercompany receivable |
| 3 |
|
|
| 1,050 |
|
|
| 46 |
|
|
| (1,099 | ) |
|
| — |
|
Inventories |
| — |
|
|
| 341 |
|
|
| 476 |
|
|
| (50 | ) |
|
| 767 |
|
Prepaid expenses and other |
| — |
|
|
| 38 |
|
|
| 32 |
|
|
| 7 |
|
|
| 77 |
|
Total current assets |
| 3 |
|
|
| 1,952 |
|
|
| 1,740 |
|
|
| (1,142 | ) |
|
| 2,553 |
|
Property, plant and equipment, net |
| — |
|
|
| 6,136 |
|
|
| 1,861 |
|
|
| — |
|
|
| 7,997 |
|
Less: Accumulated depreciation |
| — |
|
|
| (4,285 | ) |
|
| (928 | ) |
|
| — |
|
|
| (5,213 | ) |
Property, plant and equipment, net |
| — |
|
|
| 1,851 |
|
|
| 933 |
|
|
| — |
|
|
| 2,784 |
|
Goodwill and other intangible assets, net |
| — |
|
|
| 156 |
|
|
| 14 |
|
|
| — |
|
|
| 170 |
|
Investments in affiliates |
| — |
|
|
| — |
|
|
| 136 |
|
|
| — |
|
|
| 136 |
|
Investment in subsidiaries |
| 3,258 |
|
|
| — |
|
|
| — |
|
|
| (3,258 | ) |
|
| — |
|
Intercompany notes receivable |
| 1,150 |
|
|
| — |
|
|
| — |
|
|
| (1,150 | ) |
|
| — |
|
Other assets |
| 13 |
|
|
| 178 |
|
|
| 226 |
|
|
| — |
|
|
| 417 |
|
Total assets | $ | 4,424 |
|
| $ | 4,137 |
|
| $ | 3,049 |
|
| $ | (5,550 | ) |
| $ | 6,060 |
|
Liabilities and equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable | $ | — |
|
| $ | 573 |
|
| $ | 311 |
|
| $ | — |
|
| $ | 884 |
|
Current maturities of long-term debt |
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
Intercompany payable |
| 762 |
|
|
| 46 |
|
|
| 291 |
|
|
| (1,099 | ) |
|
| — |
|
Other accrued liabilities |
| 21 |
|
|
| 718 |
|
|
| 133 |
|
|
| — |
|
|
| 872 |
|
Total current liabilities |
| 798 |
|
|
| 1,337 |
|
|
| 735 |
|
|
| (1,099 | ) |
|
| 1,771 |
|
Long-term debt, net |
| 3,526 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 3,529 |
|
Intercompany notes payable |
| — |
|
|
| — |
|
|
| 1,150 |
|
|
| (1,150 | ) |
|
| — |
|
Deferred income taxes |
| — |
|
|
| 59 |
|
|
| 73 |
|
|
| — |
|
|
| 132 |
|
Other liabilities |
| — |
|
|
| 428 |
|
|
| 96 |
|
|
| — |
|
|
| 524 |
|
Total liabilities |
| 4,324 |
|
|
| 1,827 |
|
|
| 2,054 |
|
|
| (2,249 | ) |
|
| 5,956 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Chemours stockholders’ equity |
| 100 |
|
|
| 2,310 |
|
|
| 991 |
|
|
| (3,301 | ) |
|
| 100 |
|
Non-controlling interests |
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
|
Total equity |
| 100 |
|
|
| 2,310 |
|
|
| 995 |
|
|
| (3,301 | ) |
|
| 104 |
|
Total liabilities and equity | $ | 4,424 |
|
| $ | 4,137 |
|
| $ | 3,049 |
|
| $ | (5,550 | ) |
| $ | 6,060 |
|
31
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Condensed Consolidating Statements of Cash Flows
| Nine Months Ended September 30, 2017 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used for) provided by operating activities | $ | (60 | ) |
| $ | 32 |
|
| $ | 364 |
|
| $ | — |
|
| $ | 336 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
| — |
|
|
| (204 | ) |
|
| (42 | ) |
|
| — |
|
|
| (246 | ) |
Proceeds from sales of assets and businesses, net |
| — |
|
|
| 39 |
|
|
| — |
|
|
| — |
|
|
| 39 |
|
Intercompany investing activities |
| — |
|
|
| 408 |
|
|
| — |
|
|
| (408 | ) |
|
| — |
|
Foreign exchange contract settlements, net |
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Cash provided by (used for) investing activities |
| — |
|
|
| 248 |
|
|
| (42 | ) |
|
| (408 | ) |
|
| (202 | ) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of debt, net |
| 494 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 494 |
|
Intercompany short-term borrowing repayments, net |
| (408 | ) |
|
| — |
|
|
| — |
|
|
| 408 |
|
|
| — |
|
Debt repayments |
| (24 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (24 | ) |
Dividends paid |
| (16 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16 | ) |
Debt issuance costs |
| (6 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
Tax payments related to withholdings on vested restricted stock units |
| (10 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10 | ) |
Proceeds from issuance of stock options, net |
| 30 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30 |
|
Cash provided by financing activities |
| 60 |
|
|
| — |
|
|
| — |
|
|
| 408 |
|
|
| 468 |
|
Effect of exchange rate changes on cash and cash equivalents |
| — |
|
|
| — |
|
|
| 31 |
|
|
| — |
|
|
| 31 |
|
Increase in cash and cash equivalents |
| — |
|
|
| 280 |
|
|
| 353 |
|
|
| — |
|
|
| 633 |
|
Cash and cash equivalents at beginning of the period |
| — |
|
|
| 224 |
|
|
| 678 |
|
|
| — |
|
|
| 902 |
|
Cash and cash equivalents at end of the period | $ | — |
|
| $ | 504 |
|
| $ | 1,031 |
|
| $ | — |
|
| $ | 1,535 |
|
| Three Months Ended March 31, 2018 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Net sales | $ | — |
|
| $ | 1,017 |
|
| $ | 1,174 |
|
| $ | (461 | ) |
| $ | 1,730 |
|
Cost of goods sold |
| — |
|
|
| 798 |
|
|
| 871 |
|
|
| (476 | ) |
|
| 1,193 |
|
Gross profit |
| — |
|
|
| 219 |
|
|
| 303 |
|
|
| 15 |
|
|
| 537 |
|
Selling, general, and administrative expense |
| 10 |
|
|
| 102 |
|
|
| 40 |
|
|
| (9 | ) |
|
| 143 |
|
Research and development expense |
| — |
|
|
| 19 |
|
|
| 1 |
|
|
| — |
|
|
| 20 |
|
Restructuring, asset-related, and other charges, net |
| — |
|
|
| 9 |
|
|
| 1 |
|
|
| — |
|
|
| 10 |
|
Total expenses |
| 10 |
|
|
| 130 |
|
|
| 42 |
|
|
| (9 | ) |
|
| 173 |
|
Equity in earnings of affiliates |
| — |
|
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| 12 |
|
Equity in earnings of subsidiaries |
| 331 |
|
|
| — |
|
|
| — |
|
|
| (331 | ) |
|
| — |
|
Interest (expense) income, net |
| (56 | ) |
|
| 2 |
|
|
| 2 |
|
|
| — |
|
|
| (52 | ) |
Intercompany interest income (expense), net |
| 13 |
|
|
| 1 |
|
|
| (14 | ) |
|
| — |
|
|
| — |
|
Other income (expense), net |
| 9 |
|
|
| 73 |
|
|
| (16 | ) |
|
| (9 | ) |
|
| 57 |
|
Income before income taxes |
| 287 |
|
|
| 165 |
|
|
| 245 |
|
|
| (316 | ) |
|
| 381 |
|
(Benefit from) provision for income taxes |
| (10 | ) |
|
| 50 |
|
|
| 45 |
|
|
| (1 | ) |
|
| 84 |
|
Net income |
| 297 |
|
|
| 115 |
|
|
| 200 |
|
|
| (315 | ) |
|
| 297 |
|
Less: Net income attributable to non-controlling interests |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income attributable to Chemours | $ | 297 |
|
| $ | 115 |
|
| $ | 200 |
|
| $ | (315 | ) |
| $ | 297 |
|
Comprehensive income attributable to Chemours | $ | 373 |
|
| $ | 117 |
|
| $ | 299 |
|
| $ | (416 | ) |
| $ | 373 |
|
32
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Condensed Consolidating Statements of Cash FlowsComprehensive Income
| Nine Months Ended September 30, 2016 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used for) provided by operating activities | $ | (105 | ) |
| $ | 173 |
|
| $ | 256 |
|
| $ | — |
|
| $ | 324 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
| — |
|
|
| (142 | ) |
|
| (93 | ) |
|
| — |
|
|
| (235 | ) |
Proceeds from sales of assets and businesses, net |
| — |
|
|
| 590 |
|
|
| 117 |
|
|
| — |
|
|
| 707 |
|
Intercompany investing activities |
| — |
|
|
| (328 | ) |
|
| — |
|
|
| 328 |
|
|
| — |
|
Foreign exchange contract settlements |
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
Investment in affiliates |
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
Cash provided by investing activities |
| — |
|
|
| 119 |
|
|
| 22 |
|
|
| 328 |
|
|
| 469 |
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany short-term borrowings, net |
| 328 |
|
|
| — |
|
|
| — |
|
|
| (328 | ) |
|
| — |
|
Debt repayments |
| (205 | ) |
|
| (7 | ) |
|
| — |
|
|
| — |
|
|
| (212 | ) |
Dividends paid |
| (16 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16 | ) |
Deferred financing fees |
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
Cash provided by (used for) financing activities |
| 105 |
|
|
| (7 | ) |
|
| — |
|
|
| (328 | ) |
|
| (230 | ) |
Effect of exchange rate changes on cash and cash equivalents |
| — |
|
|
| — |
|
|
| 28 |
|
|
| — |
|
|
| 28 |
|
Increase in cash and cash equivalents |
| — |
|
|
| 285 |
|
|
| 306 |
|
|
| — |
|
|
| 591 |
|
Cash and cash equivalents at beginning of the period |
| — |
|
|
| 95 |
|
|
| 271 |
|
|
| — |
|
|
| 366 |
|
Cash and cash equivalents at end of the period | $ | — |
|
| $ | 380 |
|
| $ | 577 |
|
| $ | — |
|
| $ | 957 |
|
| Three Months Ended March 31, 2017 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Net sales | $ | — |
|
| $ | 960 |
|
| $ | 894 |
|
| $ | (417 | ) |
| $ | 1,437 |
|
Cost of goods sold |
| — |
|
|
| 795 |
|
|
| 706 |
|
|
| (420 | ) |
|
| 1,081 |
|
Gross profit |
| — |
|
|
| 165 |
|
|
| 188 |
|
|
| 3 |
|
|
| 356 |
|
Selling, general, and administrative expense |
| 7 |
|
|
| 114 |
|
|
| 35 |
|
|
| (6 | ) |
|
| 150 |
|
Research and development expense |
| — |
|
|
| 18 |
|
|
| 1 |
|
|
| — |
|
|
| 19 |
|
Restructuring, asset-related, and other charges, net |
| — |
|
|
| 11 |
|
|
| 1 |
|
|
| — |
|
|
| 12 |
|
Total expenses |
| 7 |
|
|
| 143 |
|
|
| 37 |
|
|
| (6 | ) |
|
| 181 |
|
Equity in earnings of affiliates |
| — |
|
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| 7 |
|
Equity in earnings of subsidiaries |
| 172 |
|
|
| — |
|
|
| — |
|
|
| (172 | ) |
|
| — |
|
Interest (expense) income, net |
| (51 | ) |
|
| (1 | ) |
|
| 1 |
|
|
| — |
|
|
| (51 | ) |
Intercompany interest income (expense), net |
| 16 |
|
|
| — |
|
|
| (16 | ) |
|
| — |
|
|
| — |
|
Other income, net |
| 6 |
|
|
| 42 |
|
|
| — |
|
|
| (6 | ) |
|
| 42 |
|
Income before income taxes |
| 136 |
|
|
| 63 |
|
|
| 143 |
|
|
| (169 | ) |
|
| 173 |
|
(Benefit from) provision for income taxes |
| (14 | ) |
|
| 5 |
|
|
| 30 |
|
|
| 1 |
|
|
| 22 |
|
Net income |
| 150 |
|
|
| 58 |
|
|
| 113 |
|
|
| (170 | ) |
|
| 151 |
|
Less: Net income attributable to non-controlling interests |
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Net income attributable to Chemours | $ | 150 |
|
| $ | 58 |
|
| $ | 112 |
|
| $ | (170 | ) |
| $ | 150 |
|
Comprehensive income attributable to Chemours | $ | 239 |
|
| $ | 59 |
|
| $ | 210 |
|
| $ | (269 | ) |
| $ | 239 |
|
33
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Condensed Consolidating Balance Sheets
|
|
| March 31, 2018 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | — |
|
| $ | 470 |
|
| $ | 964 |
|
| $ | — |
|
| $ | 1,434 |
|
Accounts and notes receivable, net |
| — |
|
|
| 367 |
|
|
| 716 |
|
|
| — |
|
|
| 1,083 |
|
Intercompany receivable |
| 19 |
|
|
| 1,175 |
|
|
| 589 |
|
|
| (1,783 | ) |
|
| — |
|
Inventories |
| — |
|
|
| 419 |
|
|
| 647 |
|
|
| (74 | ) |
|
| 992 |
|
Prepaid expenses and other |
| — |
|
|
| 45 |
|
|
| 30 |
|
|
| — |
|
|
| 75 |
|
Total current assets |
| 19 |
|
|
| 2,476 |
|
|
| 2,946 |
|
|
| (1,857 | ) |
|
| 3,584 |
|
Property, plant, and equipment |
| — |
|
|
| 6,538 |
|
|
| 2,181 |
|
|
| — |
|
|
| 8,719 |
|
Less: Accumulated depreciation |
| — |
|
|
| (4,484 | ) |
|
| (1,130 | ) |
|
| — |
|
|
| (5,614 | ) |
Property, plant and equipment, net |
| — |
|
|
| 2,054 |
|
|
| 1,051 |
|
|
| — |
|
|
| 3,105 |
|
Goodwill and other intangible assets, net |
| — |
|
|
| 151 |
|
|
| 14 |
|
|
| — |
|
|
| 165 |
|
Investments in affiliates |
| — |
|
|
| — |
|
|
| 166 |
|
|
| — |
|
|
| 166 |
|
Investment in subsidiaries |
| 4,844 |
|
|
| — |
|
|
| — |
|
|
| (4,844 | ) |
|
| — |
|
Intercompany notes receivable |
| 1,150 |
|
|
| — |
|
|
| — |
|
|
| (1,150 | ) |
|
| — |
|
Other assets |
| 30 |
|
|
| 103 |
|
|
| 353 |
|
|
| (22 | ) |
|
| 464 |
|
Total assets | $ | 6,043 |
|
| $ | 4,784 |
|
| $ | 4,530 |
|
| $ | (7,873 | ) |
| $ | 7,484 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable | $ | — |
|
| $ | 626 |
|
| $ | 495 |
|
| $ | — |
|
| $ | 1,121 |
|
Current maturities of long-term debt |
| 14 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14 |
|
Intercompany payable |
| 827 |
|
|
| 589 |
|
|
| 367 |
|
|
| (1,783 | ) |
|
| — |
|
Other accrued liabilities |
| 85 |
|
|
| 240 |
|
|
| 163 |
|
|
| (1 | ) |
|
| 487 |
|
Total current liabilities |
| 926 |
|
|
| 1,455 |
|
|
| 1,025 |
|
|
| (1,784 | ) |
|
| 1,622 |
|
Long-term debt, net |
| 4,120 |
|
|
| 21 |
|
|
| — |
|
|
| — |
|
|
| 4,141 |
|
Intercompany notes payable |
| — |
|
|
| — |
|
|
| 1,150 |
|
|
| (1,150 | ) |
|
| — |
|
Deferred income taxes |
| — |
|
|
| 156 |
|
|
| 111 |
|
|
| (23 | ) |
|
| 244 |
|
Other liabilities |
| — |
|
|
| 384 |
|
|
| 91 |
|
|
| — |
|
|
| 475 |
|
Total liabilities |
| 5,046 |
|
|
| 2,016 |
|
|
| 2,377 |
|
|
| (2,957 | ) |
|
| 6,482 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Chemours stockholders’ equity |
| 997 |
|
|
| 2,768 |
|
|
| 2,148 |
|
|
| (4,916 | ) |
|
| 997 |
|
Non-controlling interests |
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 5 |
|
Total equity |
| 997 |
|
|
| 2,768 |
|
|
| 2,153 |
|
|
| (4,916 | ) |
|
| 1,002 |
|
Total liabilities and equity | $ | 6,043 |
|
| $ | 4,784 |
|
| $ | 4,530 |
|
| $ | (7,873 | ) |
| $ | 7,484 |
|
Introduction34
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Condensed Consolidating Balance Sheets
| December 31, 2017 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | — |
|
| $ | 761 |
|
| $ | 795 |
|
| $ | — |
|
| $ | 1,556 |
|
Accounts and notes receivable, net |
| — |
|
|
| 308 |
|
|
| 611 |
|
|
| — |
|
|
| 919 |
|
Intercompany receivable |
| 3 |
|
|
| 904 |
|
|
| 581 |
|
|
| (1,488 | ) |
|
| — |
|
Inventories |
| — |
|
|
| 394 |
|
|
| 631 |
|
|
| (90 | ) |
|
| 935 |
|
Prepaid expenses and other |
| — |
|
|
| 57 |
|
|
| 15 |
|
|
| 11 |
|
|
| 83 |
|
Total current assets |
| 3 |
|
|
| 2,424 |
|
|
| 2,633 |
|
|
| (1,567 | ) |
|
| 3,493 |
|
Property, plant, and equipment |
| — |
|
|
| 6,449 |
|
|
| 2,062 |
|
|
| — |
|
|
| 8,511 |
|
Less: Accumulated depreciation |
| — |
|
|
| (4,438 | ) |
|
| (1,065 | ) |
|
| — |
|
|
| (5,503 | ) |
Property, plant and equipment, net |
| — |
|
|
| 2,011 |
|
|
| 997 |
|
|
| — |
|
|
| 3,008 |
|
Goodwill and other intangible assets, net |
| — |
|
|
| 152 |
|
|
| 14 |
|
|
| — |
|
|
| 166 |
|
Investments in affiliates |
| — |
|
|
| — |
|
|
| 173 |
|
|
| — |
|
|
| 173 |
|
Investment in subsidiaries |
| 4,393 |
|
|
| — |
|
|
| — |
|
|
| (4,393 | ) |
|
| — |
|
Intercompany notes receivable |
| 1,150 |
|
|
| — |
|
|
| — |
|
|
| (1,150 | ) |
|
| — |
|
Other assets |
| 23 |
|
|
| 115 |
|
|
| 328 |
|
|
| (13 | ) |
|
| 453 |
|
Total assets | $ | 5,569 |
|
| $ | 4,702 |
|
| $ | 4,145 |
|
| $ | (7,123 | ) |
| $ | 7,293 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable | $ | 31 |
|
| $ | 606 |
|
| $ | 438 |
|
| $ | — |
|
| $ | 1,075 |
|
Current maturities of long-term debt |
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
Intercompany payable |
| 542 |
|
|
| 581 |
|
|
| 365 |
|
|
| (1,488 | ) |
|
| — |
|
Other accrued liabilities |
| 34 |
|
|
| 343 |
|
|
| 181 |
|
|
| — |
|
|
| 558 |
|
Total current liabilities |
| 622 |
|
|
| 1,530 |
|
|
| 984 |
|
|
| (1,488 | ) |
|
| 1,648 |
|
Long-term debt, net |
| 4,087 |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| 4,097 |
|
Intercompany notes payable |
| — |
|
|
| — |
|
|
| 1,150 |
|
|
| (1,150 | ) |
|
| — |
|
Deferred income taxes |
| — |
|
|
| 127 |
|
|
| 105 |
|
|
| (24 | ) |
|
| 208 |
|
Other liabilities |
| — |
|
|
| 388 |
|
|
| 87 |
|
|
| — |
|
|
| 475 |
|
Total liabilities |
| 4,709 |
|
|
| 2,055 |
|
|
| 2,326 |
|
|
| (2,662 | ) |
|
| 6,428 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Chemours stockholders’ equity |
| 860 |
|
|
| 2,647 |
|
|
| 1,814 |
|
|
| (4,461 | ) |
|
| 860 |
|
Non-controlling interests |
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 5 |
|
Total equity |
| 860 |
|
|
| 2,647 |
|
|
| 1,819 |
|
|
| (4,461 | ) |
|
| 865 |
|
Total liabilities and equity | $ | 5,569 |
|
| $ | 4,702 |
|
| $ | 4,145 |
|
| $ | (7,123 | ) |
| $ | 7,293 |
|
35
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Condensed Consolidating Statements of Cash Flows
| Three Months Ended March 31, 2018 |
| |||||||||||||||||
| Parent Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations and Adjustments |
|
| Consolidated |
| |||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used for) provided by operating activities | $ | (17 | ) |
| $ | 33 |
|
| $ | 180 |
|
| $ | — |
|
| $ | 196 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment |
| — |
|
|
| (80 | ) |
|
| (22 | ) |
|
| — |
|
|
| (102 | ) |
Proceeds from sales of assets and businesses, net |
| — |
|
|
| 39 |
|
|
| — |
|
|
| — |
|
|
| 39 |
|
Intercompany investing activities |
| — |
|
|
| (288 | ) |
|
| — |
|
|
| 288 |
|
|
| — |
|
Foreign exchange contract settlements, net |
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Cash used for investing activities |
| — |
|
|
| (324 | ) |
|
| (22 | ) |
|
| 288 |
|
|
| (58 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt repayments |
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
Purchases of treasury stock at cost |
| (240 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (240 | ) |
Intercompany financing activities |
| 288 |
|
|
|
|
|
|
|
|
|
|
| (288 | ) |
|
| — |
|
Proceeds from exercised stock options, net |
| 5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Tax payments related to withholdings on vested restricted stock units |
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
Payment of dividends |
| (31 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (31 | ) |
Cash provided by (used for) financing activities |
| 17 |
|
|
| — |
|
|
| — |
|
|
| (288 | ) |
|
| (271 | ) |
Effect of exchange rate changes on cash and cash equivalents |
| — |
|
|
| — |
|
|
| 11 |
|
|
| — |
|
|
| 11 |
|
(Decrease) increase in cash and cash equivalents |
| — |
|
|
| (291 | ) |
|
| 169 |
|
|
| — |
|
|
| (122 | ) |
Cash and cash equivalents at beginning of the period |
| — |
|
|
| 761 |
|
|
| 795 |
|
|
| — |
|
|
| 1,556 |
|
Cash and cash equivalents at end of the period | $ | — |
|
| $ | 470 |
|
| $ | 964 |
|
| $ | — |
|
| $ | 1,434 |
|
36
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Condensed Consolidating Statements of Cash Flows
| Three Months Ended March 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 | $ | (3 | ) |
| $ | (2 | ) |
| $ | 46 |
|
| $ | — |
|
| $ | 41 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment |
| — |
|
|
| (50 | ) |
|
| (19 | ) |
|
| — |
|
|
| (69 | ) |
Proceeds from sales of assets and businesses, net |
| — |
|
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
Intercompany investing activities |
| — |
|
|
| 8 |
|
|
| — |
|
|
| (8 | ) |
|
| — |
|
Foreign exchange contract settlements, net |
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| (3 | ) |
Cash used for investing activities |
| — |
|
|
| (36 | ) |
|
| (19 | ) |
|
| (8 | ) |
|
| (63 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany short-term borrowing repayments, net |
| (8 | ) |
|
| — |
|
|
| — |
|
|
| 8 |
|
|
| — |
|
Debt repayments |
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
Proceeds from exercised stock options, net |
| 20 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20 |
|
Payment of dividends |
| (5 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
Cash provided by financing activities |
| 3 |
|
|
| — |
|
|
| — |
|
|
| 8 |
|
|
| 11 |
|
Effect of exchange rate changes on cash and cash equivalents |
| — |
|
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| 7 |
|
(Decrease) increase in cash and cash equivalents |
| — |
|
|
| (38 | ) |
|
| 34 |
|
|
| — |
|
|
| (4 | ) |
Cash and cash equivalents at beginning of the period |
| — |
|
|
| 224 |
|
|
| 678 |
|
|
| — |
|
|
| 902 |
|
Cash and cash equivalents at end of the period | $ | — |
|
| $ | 186 |
|
| $ | 712 |
|
| $ | — |
|
| $ | 898 |
|
37
The Chemours Company
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s discussionDiscussion and analysisAnalysis of our resultsFinancial Condition and Results of operations and financial condition, which we refer to as “MD&A”,Operations (MD&A) supplements the unaudited interim consolidated financial statementsInterim 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. The discussion and analysis presented below, refer to, and should be read in conjunction with, the unaudited interim consolidated financial statements and the related notes included in Item 1 of this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-Koperations for the year ended December 31, 2016.
periods presented. Unless the context otherwise requires, references herein to “The Chemours Company”, “Chemours”,Company,” “Chemours,” “the Company”,Company,” “our Company”, “we”, “us”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, a Delaware corporation, and its consolidated subsidiaries (other than Chemours and its consolidated subsidiaries), unless the context otherwise requires.
Forward-LookingThis MD&A should be read in conjunction with the unaudited Interim Consolidated Financial Statements and the related notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, as well as our audited Consolidated Financial Statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017.
This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995,federal securities laws, 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”“believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” and similar expressions, among others, generally identify “forward-looking statements”,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.
Forward-lookingOur forward-looking statements are based on certain assumptions and expectations of future events whichthat 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 many of whichthat are beyond Chemours’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. 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, thosebut are not limited to, the risks, uncertainties, and other factors discussed in the Forward-LookingForward-looking Statements and the Risk Factors sections in our Annual Report on Form 10-K for the year ended December 31, 2016. The Company assumes2017. We assume no obligation to revise or update any forward-looking statement for any reason, except as required by law.
Overview
Chemours isWe 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 mining. Principaloil refining. Our principal products include titanium dioxide (TiO2), refrigerants, industrial fluoropolymer resins, sodium cyanide, and performance chemicals and intermediates.
Chemours managesintermediates, and reports operating results throughtitanium dioxide (TiO2) pigment. Our business consists of three reportable segments: Fluoroproducts, Chemical Solutions, and Titanium 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, and consumer applications. The Titanium Technologies Fluoroproductssegment is a leading, global provider of TiO2 pigment, a premium white pigment used to deliver whiteness, brightness, opacity, and Chemical Solutions. protection in a variety of applications.
Our position withpositions within each of these businesses reflectsreflect the strong value proposition we provide to our customers based on our long history and reputation in the chemical industry for safety, quality, and reliability.
Transformation PlanRecent Developments
AfterIn March 2018, we sold a plot of land that formerly housed a DuPont manufacturing facility in Linden, New Jersey for a gain of $42 million and net cash proceeds of $39 million.
In March 2018, a civil association in Mexico filed a complaint against the separation from DuPontgovernmental authorities involved in 2015,the permitting process of our new Mining Solutions facility under construction in Laguna, Mexico. The claimant sought and obtained a suspension of our construction permits. We, as an intervener, have filed an appeal. We have declared force majeure with our vendors while plant construction is idled. Our project permits fully comply with the laws and regulations at the federal, state, and municipal levels and we are working with local and federal authorities, along with community leaders, to address the complaint.
38
The Chemours announcedCompany
In April 2018, we completed the acquisition of all of the outstanding stock of ICOR International, Inc. (ICOR), a planclosely-held private company that produces, sells, and distributes replacement refrigerant gases for use in commercial, industrial, and automotive applications for $35 million in total consideration. We paid $32 million in cash at closing, which is subject to transformcustomary working capital and other adjustments within a specified time period. We are still working through our preliminary purchase price allocation, including the Company by reducing structural costs, growing market positions, optimizing its portfolio, refocusing investmentsinitial estimates of fair value for our acquired tangible and enhancing its organization.identifiable intangible assets, if any, and the fair value of the liabilities assumed. We expect to finalize our accounting for the acquisition of ICOR within one year of the acquisition date. The acquisition of ICOR is not expected to have a material impact on our results of operations or cash flows.
In April 2018, we entered into an amended and restated credit agreement that provides for a seven-year, senior secured term loan facility and a five-year, $800 million senior secured revolving credit facility (New Revolving Credit Facility) (collectively, the New Senior Secured Credit Facilities). The New Senior Secured Credit Facilities replace our senior secured debt under our existing credit agreement, the details of which are discussed further under the heading “Credit Facilities and Notes” within this MD&A and in “Note 23 – Subsequent Events” to the Interim Consolidated Financial Statements.
Our First Quarter 2018 Results and Business Highlights
Results of Operations
Our net sales for the three months ended March 31, 2018 amounted to $1.7 billion, representing a 20% increase when compared with net sales of $1.4 billion for the three months ended March 31, 2017.
Our net income attributable to Chemours expectsfor the transformation planthree months ended March 31, 2018 amounted to deliver at least $500$297 million, representing a 98% increase when compared with net income attributable to Chemours of incremental$150 million for the three months ended March 31, 2017.
Our basic and diluted earnings per share (EPS) for the three months ended March 31, 2018 amounted to $1.63 per share and $1.58 per share, respectively, representing increases of approximately 100% when compared with basic and diluted EPS of $0.82 per share and $0.79 per share, respectively, for the three months ended March 31, 2017.
Our adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA) improvement over 2015 throughfor the three months ended March 31, 2018 amounted to $468 million, representing a 64% increase when compared with Adjusted EBITDA of $285 million for the three months ended March 31, 2017.
Our results of operations for the three months ended March 31, 2018 when compared with the same period in 2017 based onreflected a higher global average selling price and our anticipated cost reductioncustomers’ preference for Ti-PureTM TiO2 pigment in our Titanium Technologies segment, strong demand for OpteonTM refrigerants, higher price for our base refrigerant offerings, and growth initiatives. We expect cost savingsincreased demand and price for our fluoropolymer products within our Fluoroproducts segment, and solid demand for our Mining Solutions and Performance Chemicals and Intermediates products in our Chemical Solutions segment. Increases to our results of approximately $350 million and approximately $150 million in improvementsoperations from growth initiatives will also improve our pre-tax earnings by similar amounts. Through year-end 2016, we realized approximately $200 million in cost savings, and we continue to implement additional cost reduction initiatives in order to realize our target additional structural costs savings of approximately $150 million through 2018 and beyond. These improvements will bethe aforementioned items were partially offset by higher costs for certain raw materials and higher distribution expenses during the impactfirst quarter 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 plans. The results of our transformation actions are further discussed in the Results of Operations, Segment Reviews and Outlook sections of this MD&A and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2018.
34
39
The Chemours Company
In August 2017, we paidThe following table sets forth our results of operations for the remaining $320 million of the $335 million in settlement payments we accrued in connection with the PFOA MDL Settlement for a complete release of all claims by the settling plaintiffs. Details of the PFOA MDL Settlement are discussed further in Note 13 to the Interim Consolidated Financial Statements in Item 1.three months ended March 31, 2018 and 2017.
|
| Three Months Ended March 31, |
| |||||
(Dollars in millions, except per share amounts) |
| 2018 |
|
| 2017 |
| ||
Net sales |
| $ | 1,730 |
|
| $ | 1,437 |
|
Cost of goods sold |
|
| 1,193 |
|
|
| 1,081 |
|
Gross profit |
|
| 537 |
|
|
| 356 |
|
Selling, general, and administrative expense |
|
| 143 |
|
|
| 150 |
|
Research and development expense |
|
| 20 |
|
|
| 19 |
|
Restructuring, asset-related, and other charges, net |
|
| 10 |
|
|
| 12 |
|
Total expenses |
|
| 173 |
|
|
| 181 |
|
Equity in earnings of affiliates |
|
| 12 |
|
|
| 7 |
|
Interest expense, net |
|
| (52 | ) |
|
| (51 | ) |
Other income, net |
|
| 57 |
|
|
| 42 |
|
Income before income taxes |
|
| 381 |
|
|
| 173 |
|
Provision for income taxes |
|
| 84 |
|
|
| 22 |
|
Net income |
|
| 297 |
|
|
| 151 |
|
Less: Net income attributable to non-controlling interests |
|
| — |
|
|
| 1 |
|
Net income attributable to Chemours |
| $ | 297 |
|
| $ | 150 |
|
|
|
|
|
|
|
|
|
|
Per share data |
|
|
|
|
|
|
|
|
Basic earnings per share of common stock |
| $ | 1.63 |
|
| $ | 0.82 |
|
Diluted earnings per share of common stock |
|
| 1.58 |
|
|
| 0.79 |
|
In
Net Sales
The following table sets forth the third quarterimpact of 2017, we announced a restructuring program designed to outsourceprice, volume, currency, and consolidate certain business process activities, consolidate outsourced third party information technology (IT) providers and implement various upgrades to the Company’s IT infrastructure. Further, in October, we announced a voluntary separation program (VSP) for certain eligible U.S. employees in an effort to better manage anticipated futureportfolio and/or other changes to the Company’s workforce. We anticipate that the Company will incur approximately $45 to $55 in charges for restructuring-related activities and termination benefits through the end of 2018 associated with this program, which is described in further detail in Note 3 to the Interim Consolidated Financial Statements in Item 1.
Our Third Quarter 2017 Results and Business Highlights
Ouron our total net sales for the three and nine months ended September 30, 2017 were $1.6 billion and $4.6 billion, respectively, representing increases of 13% when compared with $1.4 billion and $4.1 billion for the three and nine months ended September 30, 2016, respectively.March 31, 2018.
We recognized net income attributable to Chemours of $207 million and $518 million for the three and nine months ended September 30, 2017, respectively, representing increases of 1% and 119% when compared with $204 million and $237 million for the three and nine months ended September 30, 2016, respectively.
Our Adjusted EBITDA for the three and nine months ended September 30, 2017 was $381 million and $1.0 billion, respectively, representing increases of 42% and 76% when compared with $268 million and $583 million for the three and nine months ended September 30, 2016, respectively.
Our results for the periods presented reflect our customers’ preference and higher global average selling price for Ti-PureTM TiO2 in our Titanium Technologies segment and strong demand for OpteonTM refrigerants and other fluoropolymers in our Fluoroproducts segment, which are partially offset by the impact of portfolio changes in our Chemical Solutions segment.
Results of Operations
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net sales |
| $ | 1,584 |
|
| $ | 1,398 |
|
| $ | 4,608 |
|
| $ | 4,078 |
|
Cost of goods sold |
|
| 1,117 |
|
|
| 1,056 |
|
|
| 3,341 |
|
|
| 3,267 |
|
Gross profit |
|
| 467 |
|
|
| 342 |
|
|
| 1,267 |
|
|
| 811 |
|
Selling, general and administrative expense |
|
| 148 |
|
|
| 148 |
|
|
| 444 |
|
|
| 454 |
|
Research and development expense |
|
| 20 |
|
|
| 19 |
|
|
| 61 |
|
|
| 60 |
|
Restructuring and asset-related charges, net |
|
| 8 |
|
|
| 60 |
|
|
| 31 |
|
|
| 145 |
|
Total expenses |
|
| 176 |
|
|
| 227 |
|
|
| 536 |
|
|
| 659 |
|
Equity in earnings of affiliates |
|
| 9 |
|
|
| 9 |
|
|
| 26 |
|
|
| 17 |
|
Interest expense, net |
|
| (55 | ) |
|
| (51 | ) |
|
| (161 | ) |
|
| (157 | ) |
Other income, net |
|
| 5 |
|
|
| 161 |
|
|
| 53 |
|
|
| 250 |
|
Income before income taxes |
|
| 250 |
|
|
| 234 |
|
|
| 649 |
|
|
| 262 |
|
Provision for income taxes |
|
| 43 |
|
|
| 30 |
|
|
| 130 |
|
|
| 25 |
|
Net income |
|
| 207 |
|
|
| 204 |
|
|
| 519 |
|
|
| 237 |
|
Less: Net income attributable to non-controlling interests |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Net income attributable to Chemours |
| $ | 207 |
|
| $ | 204 |
|
| $ | 518 |
|
| $ | 237 |
|
Change in net sales from prior period | Three Months Ended March 31, 2018 | |||
Price | 10 | % | ||
Volume | 6 | % | ||
Currency | 4 | % | ||
Portfolio/other | — | % | ||
Total change in net sales | 20 | % |
Net Sales
Our net sales increased by $186$293 million, or 13%20%, to $1.6$1.7 billion for the three months ended September 30, 2017 fromMarch 31, 2018 when compared with $1.4 billion for the three months ended September 30, 2016. TheMarch 31, 2017. This increase in net sales reflectsreflected a 9% improvement in price, primarily attributable to our Titanium Technologies segment, higher demand in all segments driving a volume increase of 6% and slightly favorable foreign currency exchange rates. The increase in net sales was partially offset by a negative 3% impact resulting primarily from portfolio changes in our Chemical Solutions segment.
35
The Chemours Company
Our net sales increased by $530 million, or 13%, to $4.6 billion for the nine months ended September 30, 2017 from $4.1 billion for the nine months ended September 30, 2016. The increase in net sales reflects a 7%10% improvement in price, primarily attributable to our Titanium Technologies segment, and a 6% increase in volume, which was driven by higher demand in all segments driving a volumeof our segments. Additionally, our net sales benefitted 4% from favorable currency movement during the first quarter of 2018, primarily attributable to movements of the euro and the Japanese yen against the U.S. dollar.
Cost of goods sold
Our cost of goods sold increased by $112 million, or 10%, to $1.2 billion for the three months ended March 31, 2018 when compared with $1.1 billion for the three months ended March 31, 2017. This increase of 12%. Thewas primarily attributable to an increase in our net sales volume, as well as increased costs for certain raw materials, higher distribution expenses, and changes in product mix during the first quarter of 2018. This increase was partially offset by a negative 6% impact resulting primarily from portfolio changesreduction in our Chemical Solutions segment.
The following table shows the impact of price, volume, currency and portfolio changes on net sales for the three and nine months ended September 30, 2017 when compared with the three and nine months ended September 30, 2016:
Change in net sales from prior period |
| Three Months Ended September 30, 2017 |
|
| Nine Months Ended September 30, 2017 |
| ||
Price |
|
| 9 | % |
|
| 7 | % |
Volume |
|
| 6 | % |
|
| 12 | % |
Currency |
|
| 1 | % |
|
| — | % |
Portfolio / other |
|
| (3 | )% |
|
| (6 | )% |
Total change |
|
| 13 | % |
|
| 13 | % |
Cost of goods sold
Cost of goods sold (COGS) increased by $61 million, or 6%, and $74 million, or 2%, for the three and nine months ended September 30, 2017, respectively, when compared with the same periods in 2016. The increase in COGS for the three months ended September 30, 2017 was primarily driven by costs related to volume increases, incremental increases in raw material inputs and distribution costs, capital-related expenses and expenditures related to Hurricane Harvey. The increase in COGS for the nine months ended September 30, 2017 was primarily driven by increases in volume, as well as costs associated with our transformation activities and higher performance-related compensation. These increases were partially offset byduring the impactfirst quarter of portfolio changes in our Chemical Solutions segment.2017.
Selling, general, and administrative expense
Selling,
Our selling, general, and administrative (SG&A) expense decreased by $7 million, or 5%, to $143 million for the three months ended September 30, 2017 and 2016 remained flat at $148 million. For the nine months ended September 30, 2017, SG&A expense decreased by $10 million, or 2%, to $444 millionMarch 31, 2018 when compared with $454$150 million for the ninethree months ended September 30, 2016. TheMarch 31, 2017. This decrease in SG&A expense for the nine months ended September 30, 2017 was primarily attributable to a reduction in management and administrative expense. Additionally, we incurred $17 million in transaction-related costs associated with our transformation activities during the salefirst quarter of our Clean & Disinfect (C&D) product line and Sulfur business in 20162017, which did not recur in 2017. Our reduction in transaction-related costs was partially offset by $28 million in incrementalincreased costs for transformation activitieslong-term employee-related compensation and higher performance-related compensation forenvironmental expenses during the nine months ended September 30, 2017.first quarter of 2018.
40
The Chemours Company
Research and development expense
Research
Our research and development (R&D) expense increased marginally towas largely unchanged at $20 million for the three months ended September 30, 2017 when compared withand $19 million for the three months ended September 30, 2016. R&D expense for the nine months ended September 30,March 31, 2018 and 2017, also increased marginally to $61 million when compared with $60 million for the nine months ended September 30, 2016. The marginal increase in R&D expense for the three and nine months ended September 30, 2017 was primarily attributable to increased investment in product development and higher performance-related compensation.respectively.
Restructuring, asset-related, and asset-relatedother charges, net
Restructuring and
Our restructuring, asset-related, charges, net, on a pre-tax basis, amounted to $8 million and $31 million for the three and nine months ended September 30, 2017, respectively, and $60 million and $145 million for the three and nine months ended September 30, 2016, respectively. Our restructuring charges for the three and nine months ended September 30, 2017 primarily reflect decommissioning and other charges associated with the production shutdown at our Reactive Metals Solutions (RMS) facility in Niagara Falls, New York, and our 2017 corporate restructuring activities. Our restructuring charges for the three and nine months ended September 30, 2016 primarily reflect decommissioning and other charges associated with the closure of our Edge Moor, Delaware production facility, the production shutdown at our RMS facility and asset-related charges of $46amounted to $10 million and $58 million for pre-tax impairment losses associated with our aniline facility in Pascagoula, Mississippi and the sale of our Sulfur business, respectively.
Interest expense, net
We incurred interest expense, net of $55 million and $161 million for the three and nine months ended September 30, 2017, respectively, and $51 million and $157 million for the three and nine months ended September 30, 2016, respectively. Interest
36
The Chemours Company
expense, net increased by $4$12 million for the three months ended September 30,March 31, 2018 and 2017, primarily duerespectively. For the three months ended March 31, 2018, restructuring, asset-related, and other charges represented continued progress on our business process and information technology outsourcing efforts of $6 million, and $3 million in additional severance accruals under our 2017 restructuring program. Additionally, we incurred $1 million for decommissioning and dismantling-related charges related to increased interest resulting fromthe closure of our issuanceReactive Metals Solutions (RMS) manufacturing facility in Niagara Falls, New York. For the three months ended March 31, 2017, restructuring, asset-related, and other charges represented decommissioning and dismantling-related charges of $5 million for the 2027 Notes in May 2017. Interest expense, net increased byclosure of our RMS manufacturing facility, $4 million for the nine months ended September 30, 2017, primarily due to the aforementioned increaseclosure of our TiO2 pigment manufacturing facility in interest from our 2027 Notes, which was partially offset by decreased interest resulting from our April 2017 repricingEdge Moor, Delaware, and lower outstanding principal on our senior secured term loans, 2023 Notes and Euro Notes. In addition,$3 million for the nine months ended September 30, 2016, we recorded a non-recurring net gain of $10 million on debt extinguishment resulting from the repurchaseclosure of certain portions of our senior unsecured notesproduction lines in the open market, which was partially offset by a non-recurring net loss of $4 million resulting from the write-off of unamortized debt issuance costs associated with the reduction in commitment on our Revolving Credit Facility.Fluoroproducts segment.
Other income,Interest expense, net
Other income,
Our interest expense, net was $5largely unchanged at $52 million and $51 million for the three months ended September 30,March 31, 2018 and 2017, representingrespectively. During the first quarter of 2018, we incurred additional interest charges in connection with our offering of a decrease$500 million aggregate principal amount of $156senior unsecured notes in May 2017, which was partially offset by increases in interest income and capitalized interest during the first quarter of 2018, as well as a reduction in interest charges attributable to the repricing of our senior secured term loans in April 2017.
Other income, net
Our other income, net amounted to $57 million when compared with $161and $42 million for the three months ended September 30, 2016. This decreaseMarch 31, 2018 and 2017, respectively. For the three months ended March 31, 2018, our other income, net was primarily attributable to a non-recurring$42 million gain of $169 million onfrom the sale of our C&D product lineLinden, New Jersey site, and $7 million in 2016, partially offset by a $13 million decreasenon-operating pension and other post-retirement employee benefit income, primarily attributable to our pension plan in foreign currency exchange losses in 2017. Otherthe Netherlands. For the three months ended March 31, 2017, our other income, net was $53primarily attributable to: a $12 million forgain from the nine months ended September 30, 2017, representingsale of our Edge Moor, Delaware site; a decrease$4 million gain from the sale of $197our land in Repauno, New Jersey that was previously deferred and realized upon meeting certain milestones; $8 million when compared with $250in non-operating pension and other post-retirement employee benefit income, primarily attributable to our pension plan in the Netherlands; and, $5 million for the nine months ended September 30, 2016. This decrease wasin foreign exchange gains, primarily attributable to a non-recurring gainweakening of $89the U.S. dollar against the Mexican peso.
Provision for income taxes
Our provision for income taxes amounted to $84 million on the sale of our Beaumont, Texas facility during the first quarter of 2016, plus the aforementioned sale of our C&D product line during the third quarter of 2016. A non-recurring gain of $12and $22 million on the sale of land which formerly held our Edge Moor, Delaware facility during the first quarter of 2017, and $40 million in net favorable foreign currency exchange activity partially offsets the decrease in other income, net for the ninethree months ended September 30,March 31, 2018 and 2017, respectively, which represented effective income tax rates of 22% and 13%, respectively. The $62 million increase in our provision for income taxes for the three months ended March 31, 2018 when compared with the same period in 2016.
Provision for income taxes
We recorded a provision for income taxes of $43 million and $30 million for the three months ended September 30, 2017 and 2016, respectively, resulting in effective income tax rates of 17% and 13%, respectively. For the nine months ended September 30, 2017 and 2016, we recorded a provision for income taxes of $130 million and $25 million, respectively, resulting in effective income tax rates of 20% and 10%, respectively. Our provision for income taxes for the three and nine months ended September 30, 2017 is inclusive of $5 million and $18 million in benefit from windfalls on share-based payments, respectively, duewas primarily attributable to our adoption of ASU No. 2016-09 during 2017. The remaining changeincreased profitability, changes in our effective tax rate from the prior year is primarily due to the Company’s geographicalgeographic mix of earnings, and additional tax expense generated by certain provisions of U.S. tax reform, such as well as the impact of the additional valuation allowance on U.S. foreign tax credits of $65 million and $50 million for the three and nine months ended September 30, 2017, respectively,those resulting from which theGlobal Intangibles Low Tax Income.
41
The Chemours Company does not expect to benefit in the current year.
Adjusted EBITDA represents ouris 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;
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;
exchange (gains) losses included in other income (expense), net;
restructuring, asset-related, charges and other charges, net;
asset impairments;
(gains) losses on sale of business or assets; and,
other items not considered indicative of our ongoing operational performance and expected to occur infrequently.
A reconciliation of Adjusted EBITDA to net income attributable to Chemours for the three and nine months ended September 30,March 31, 2018 and 2017 and 2016 is included in the Non-GAAP“Non-GAAP Financial MeasuresMeasures” in this Item 2.MD&A.
37The following table sets forth our total Adjusted EBITDA by segment for the three months ended March 31, 2018 and 2017.
|
| Three Months Ended March 31, |
| |||||
(Dollars in millions) |
| 2018 |
|
| 2017 |
| ||
Fluoroproducts |
| $ | 206 |
|
| $ | 155 |
|
Chemical Solutions |
|
| 11 |
|
|
| 12 |
|
Titanium Technologies |
|
| 294 |
|
|
| 159 |
|
Corporate and Other |
|
| (43 | ) |
|
| (41 | ) |
Total Adjusted EBITDA |
| $ | 468 |
|
| $ | 285 |
|
Fluoroproducts
The following chart sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Fluoroproducts segment for the three months ended March 31, 2018 and 2017.
|
| Three Months Ended March 31, |
| |||||
(Dollars in millions) |
| 2018 |
|
| 2017 |
| ||
Segment net sales |
| $ | 732 |
|
| $ | 652 |
|
Adjusted EBITDA |
|
| 206 |
|
|
| 155 |
|
Adjusted EBITDA margin |
|
| 28 | % |
|
| 24 | % |
42
The Chemours Company
The following table represents Chemours’ total consolidated Adjusted EBITDA by segment:sets forth the impacts of price, volume, currency, and portfolio and/or other changes on our Fluoroproducts segment’s net sales for the three months ended March 31, 2018.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Titanium Technologies |
| $ | 249 |
|
| $ | 144 |
|
| $ | 601 |
|
| $ | 309 |
|
Fluoroproducts |
|
| 158 |
|
|
| 143 |
|
|
| 510 |
|
|
| 333 |
|
Chemical Solutions |
|
| 18 |
|
|
| 9 |
|
|
| 37 |
|
|
| 30 |
|
Corporate and Other |
|
| (44 | ) |
|
| (28 | ) |
|
| (120 | ) |
|
| (89 | ) |
Total Adjusted EBITDA |
| $ | 381 |
|
| $ | 268 |
|
| $ | 1,028 |
|
| $ | 583 |
|
Titanium Technologies
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Segment net sales |
| $ | 799 |
|
| $ | 625 |
|
| $ | 2,173 |
|
| $ | 1,742 |
|
Adjusted EBITDA |
|
| 249 |
|
|
| 144 |
|
|
| 601 |
|
|
| 309 |
|
Adjusted EBITDA margin |
|
| 31 | % |
|
| 23 | % |
|
| 28 | % |
|
| 18 | % |
Change in segment net sales from prior period |
| Three Months Ended September 30, 2017 |
|
| Nine Months Ended September 30, 2017 |
| ||
Price |
|
| 18 | % |
|
| 16 | % |
Volume |
|
| 8 | % |
|
| 9 | % |
Currency |
|
| 2 | % |
|
| — | % |
Portfolio / other |
|
| — | % |
|
| — | % |
Total change |
|
| 28 | % |
|
| 25 | % |
Change in segment net sales from prior period | Three Months Ended March 31, 2018 | |||
Price | — | % | ||
Volume | 8 | % | ||
Currency | 4 | % | ||
Portfolio/other | — | % | ||
Total change in segment net sales | 12 | % |
Segment Net Sales
NetSegment net sales increased by 28% and 25%$80 million, or 12%, for the three and nine months ended September 30, 2017, respectively,March 31, 2018 when compared with the same periodsperiod in 2016. For2017. This increase was primarily attributable to an 8% increase in volume, driven by the continued adoption of OpteonTM refrigerants, primarily in Europe and the U.S., as well as higher demand for our fluoropolymer products. Additionally, segment net sales benefitted 4% from favorable currency movement, primarily attributable to the euro and the Japanese yen against the U.S. dollar, while price remained flat during the first quarter of 2018.
Adjusted EBITDA and Adjusted EBITDA Margin
Segment Adjusted EBITDA increased by $51 million, or 33%, and segment Adjusted EBITDA margin increased by approximately 400 basis points for the three months ended September 30, 2017, 18% ofMarch 31, 2018 when compared with the same period in 2017. These increases were primarily attributable to the aforementioned increase in volume, which was partially offset by higher costs for certain raw materials, distribution expenses, product mix, and water treatment costs.
Chemical Solutions
The following chart sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Chemical Solutions segment for the three months ended March 31, 2018 and 2017.
|
| Three Months Ended March 31, |
| |||||
(Dollars in millions) |
| 2018 |
|
| 2017 |
| ||
Segment net sales |
| $ | 144 |
|
| $ | 139 |
|
Adjusted EBITDA |
|
| 11 |
|
|
| 12 |
|
Adjusted EBITDA margin |
|
| 8 | % |
|
| 9 | % |
43
The Chemours Company
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 three months ended March 31, 2018.
Change in segment net sales from prior period | Three Months Ended March 31, 2018 | |||
Price | — | % | ||
Volume | 3 | % | ||
Currency | 1 | % | ||
Portfolio/other | — | % | ||
Total change in segment net sales | 4 | % |
Segment Net Sales
Segment net sales increased by $5 million, or 4%, for the three months ended March 31, 2018 when compared with the same period in 2017. This increase was primarily attributable to a 3% increase in volume, driven by higher demand for our Mining Solutions and Performance Chemicals and Intermediates products, and 1% from favorable currency movement.
Adjusted EBITDA and Adjusted EBITDA Margin
Segment Adjusted EBITDA decreased by $1 million, or 8%, and segment Adjusted EBITDA margin decreased by approximately 100 basis points for the three months ended March 31, 2018 when compared with the same period in 2017. These decreases were primarily attributable to higher raw materials costs, costs related to the construction of our new mining facility in Laguna, Mexico, and lower licensing income during the first quarter of 2018.
Titanium Technologies
The following chart sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Titanium Technologies segment for the three months ended March 31, 2018 and 2017.
|
| Three Months Ended March 31, |
| |||||
(Dollars in millions) |
| 2018 |
|
| 2017 |
| ||
Segment net sales |
| $ | 854 |
|
| $ | 646 |
|
Adjusted EBITDA |
|
| 294 |
|
|
| 159 |
|
Adjusted EBITDA margin |
|
| 34 | % |
|
| 25 | % |
44
The Chemours Company
The following table sets forth the impacts of price, volume, currency, and portfolio and/or other changes on our Titanium Technologies segment’s net sales for the three months ended March 31, 2018.
Change in segment net sales from prior period | Three Months Ended March 31, 2018 | |||
Price | 22 | % | ||
Volume | 5 | % | ||
Currency | 5 | % | ||
Portfolio/other | — | % | ||
Total change in segment net sales | 32 | % |
Segment Net Sales
Segment net sales increased by $208 million, or 32%, for the three months ended March 31, 2018 when compared with the same period in 2017. This increase was primarily attributable to a 22% increase in price and a 5% increase in volume, driven by a higher global average selling price and our customers’ preference for Ti-PureTM TiO2, 8% of the increase was pigment. Additionally, segment net sales benefitted 5% from favorable currency movement, primarily attributable to higher demand and 2% of the increase was attributable to favorable foreign currency exchange rates. Foreuro against the nine months ended September 30, 2017, 16% of the increase in net sales was attributable to improved price and 9% of the increase was attributable to higher demand.U.S. dollar.
Adjusted EBITDA and Adjusted EBITDA Margin
Segment Adjusted EBITDA increased by 73%$135 million, or 85%, and 95%segment Adjusted EBITDA margin increased by approximately 900 basis points for the three and nine months ended September 30, 2017, respectively,March 31, 2018 when compared with the same periodsperiod in 2016. Our Adjusted EBITDA margin increased by 8% and 10% for the three and nine months ended September 30, 2017, respectively, when compared with the same periods in 2016. The2017. These increases in Adjusted EBITDA and Adjusted EBITDA margin for the three months ended September 30, 2017 were primarily attributable to the aforementioned increases in price and volume, which were partially offset by incrementalanticipated increases in costs for certain raw material inputs and distribution costs. The increases in Adjusted EBITDA and Adjusted EBITDA margin for the nine months ended September 30, 2017 were primarily attributable to the aforementioned increases in price and volume, which were partially offset by costs associated with transformation activitiesmaterials and higher performance-related compensation.
Fluoroproducts
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Segment net sales |
| $ | 637 |
|
| $ | 591 |
|
| $ | 1,998 |
|
| $ | 1,695 |
|
Adjusted EBITDA |
|
| 158 |
|
|
| 143 |
|
|
| 510 |
|
|
| 333 |
|
Adjusted EBITDA margin |
|
| 25 | % |
|
| 24 | % |
|
| 26 | % |
|
| 20 | % |
38
The Chemours Company
Change in segment net sales from prior period |
| Three Months Ended September 30, 2017 |
|
| Nine Months Ended September 30, 2017 |
| ||
Price |
|
| 2 | % |
|
| 1 | % |
Volume |
|
| 5 | % |
|
| 17 | % |
Currency |
|
| 1 | % |
|
| — | % |
Portfolio / other |
|
| — | % |
|
| — | % |
Total change |
|
| 8 | % |
|
| 18 | % |
Segment Net Sales
Net sales increased by 8% and 18% for the three and nine months ended September 30, 2017, respectively, when compared with the same periods in 2016. The increase in net sales for the three and nine months ended September 30, 2017 was primarily attributable to continuing solid demand for Opteon™ refrigerant in Europe and the U.S. as well as increases in demand for our fluoropolymer products, leading to volume increases of 5% and 17% over the same periods in 2016, respectively. Marginal price increases and slightly favorable foreign currency exchange rates further improved net sales for the three and nine months ended September 30, 2017 when compared with the same period in 2016.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA increased by 10% and 53% for the three and nine months ended September 30, 2017, respectively, when compared with the same periods in 2016. Our Adjusted EBITDA margin increased by 1% and 6% for the three and nine months ended September 30, 2017, respectively, when compared with the same periods in 2016. The increases in Adjusted EBITDA and Adjusted EBITDA margin for the three months ended September 30, 2017 were primarily attributable to the aforementioned volume increases, which were partially offset by higher performance-related compensation, expenditures associated with Hurricane Harvey and capital-relateddistribution expenses. The increases in Adjusted EBITDA and Adjusted EBITDA margin for the nine months ended September 30, 2017 were primarily attributable to the aforementioned volume increases, which were partially offset by costs associated with transformation activities and higher performance-related compensation.
Chemical Solutions
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Segment net sales |
| $ | 148 |
|
| $ | 182 |
|
| $ | 437 |
|
| $ | 641 |
|
Adjusted EBITDA |
|
| 18 |
|
|
| 9 |
|
|
| 37 |
|
|
| 30 |
|
Adjusted EBITDA margin |
|
| 12 | % |
|
| 5 | % |
|
| 9 | % |
|
| 5 | % |
Change in segment net sales from prior period |
| Three Months Ended September 30, 2017 |
|
| Nine Months Ended September 30, 2017 |
| ||
Price |
|
| — | % |
|
| 1 | % |
Volume |
|
| 5 | % |
|
| 5 | % |
Currency |
|
| — | % |
|
| — | % |
Portfolio / other |
|
| (24 | )% |
|
| (38 | )% |
Total change |
|
| (19 | )% |
|
| (32 | )% |
Segment Net Sales
Net sales decreased by 19% and 32% for the three and nine months ended September 30, 2017, respectively, when compared with the same periods in 2016. The decrease in net sales for the three and nine months ended September 30, 2017 was primarily attributable to portfolio changes resulting from the sales of our aniline facility in Beaumont, Texas and our C&D and Sulfur businesses, as well as the production shutdown at our RMS facility in Niagara Falls, New York. Collectively, our portfolio changes represented a decrease in net sales of 24% and 38% when compared with the three and nine months ended September 30, 2016, respectively. The decrease in net sales was partially offset by volume increases of 5% and marginal price increases in the remaining segment for the three and nine months ended September 30, 2017.
39
The Chemours Company
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA increased by 100% and 23% for the three and nine months ended September 30, 2017, respectively, when compared with the same periods in 2016. Our Adjusted EBITDA margin increased by 7% and 4% for the three and nine months ended September 30, 2017, respectively, when compared with the same periods in 2016. The increases in Adjusted EBITDA and Adjusted EBITDA margin for the three and nine months ended September 30, 2017 were primarily attributable to the aforementioned volume increases and cost reductions associated with portfolio changes and other initiatives in the remaining segment.
Corporate and Other
Corporate costs and certain legal and environmental expenses that are not allocated to the segments, stock-based compensation costs, and foreign exchange gains and losses arising from the remeasurement of balances in currencies other than the functional currency of the legal entity are reflected in Corporate and Other. The increase of $16 million in Corporate and Other costs remain largely unchanged at $43 million and $41 million for the three months ended September 30,March 31, 2018 and 2017, when comparedrespectively.
Growth Expectations and Outlook
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 Fluoroproducts segment, we are optimizing our fluorochemicals product mix with the same period in 2016 was primarily attributableexpansion of OpteonTM refrigerants capacity and renewing our fluoropolymers portfolio through application development. For our Chemical Solutions segment, we are expanding our capacity to increased costs associated with legacy environmental liabilities. The increase of $31 million in Corporate and Other costsmeet demand for the nine months ended September 30, 2017 when compared with the same period in 2016 was primarily attributable to increased costs associated with legacy environmental liabilities, legal costs and performance-related compensation.
2017 Outlook
our Mining Solutions products. For the remainder of the year,our Titanium Technologies segment, we continue to anticipate that the Company’s revenue and earnings performance will remain strong. We expect to deliver full-year Adjusted EBITDA improvement, with similar pre-tax income improvement, substantially in excess of our transformation goals. We are targeting additional structural cost savings of approximately $150 million, and we continue to implement certain initiativesimplementing a value stabilization strategy in order to realizeseek to reduce volatility for our target cost savings,Ti-PureTM TiO2 pigment earnings. To the extent we are successful in implementing such plans, as to which are expectedno 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, Free Cash Flows (FCF), and Return on Invested Capital (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 of our Annual Report on Form 10-K for the year ended December 31, 2017. 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.
We expect our earnings growth to meet or exceed our three-year targets. Our 2018 results will be driven by the expectation that (i) average prices for our TiO2 pigment will be above 2017 average prices, (ii) there will be continued transition to OpteonTM refrigerants, (iii) there will be increased demand for our fluoropolymer products, and (iv) there will be strong demand for our Mining Solutions products. We expect our capital expenditures to be fully realizedbetween $475 million and $525 million, which will be driven largely by capital expenditures associated with our new OpteonTM plant under construction in 2018Corpus Christi, Texas and beyond. We also expect to generate positive free cash flowour Mining Solutions plant under construction in Laguna, Mexico. Our outlook for the full-year 2017, including payments relating to the PFOA MDL Settlement. Our outlook2018 reflects our current visibility and expectations based on market factors, such as currency movements, TiO2 pigment pricing, and end-market demand, and seasonality.our ability to meet these targets is subject to numerous risks, such as those described in Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2017.
45
The Chemours Company
Liquidity and Capital Resources
Chemours’Our primary sources of liquidity are cash generated from operations, available cash, and borrowings under our debt financing arrangements.arrangements, which are described in further detail below. We believe these sources are sufficient to fund our planned operations and to meet our interest, dividend, and contractual obligations. Our financial policy seeks to (a)(i) selectively invest forin organic and inorganic growth to enhance our portfolio, including certain strategic capital investments, (b)(ii) return cash to shareholders through dividend paymentsdividends and possible share repurchases, in the future and (c)(iii) maintain appropriate leverage by using free cash flowflows to repay outstanding borrowings. Subject to approval by our board of directors, we may raise additional capital or borrowings from time-to-time; however, theretime to time, or seek to refinance our existing debt. There can be no assurance 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 flows generation is driven by, among other things, the general global economic conditions at any point in time and its resulting impact 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.
We anticipate making significant payments for interest, capital expenditures, restructuringdividends, and dividendsother actions over the next 12 months, which we expect to fund through cash generated from operations, available cash, and borrowings. We further anticipate that our operations and existing debt financing arrangements will provide us with sufficient liquidity for the Company over the next 12 months. The availability of funds under our New Revolving Credit Facility, which is discussed further inunder the Creditheading “Credit Facilities and Notes, section of this MD&A,” is subject to the last 12 months of our consolidated EBITDA, as defined in the amended and restated credit agreement.
At September 30, 2017 and DecemberMarch 31, 2016,2018, we had $1.0 billion and $678 million, respectively, oftotal cash and cash equivalents on our consolidated balance sheetsof $1.4 billion, of which, $964 million was held by our foreign subsidiaries, allsubsidiaries. All of whichour cash and cash equivalents held by our foreign subsidiaries is readily convertible into currencies used in our operations, including the U.S. Dollar.dollar. Cash and earnings of our foreign subsidiaries are generally used to finance their operations and capital expenditures. At September 30, 2017 and DecemberMarch 31, 2016,2018, management believed that sufficient liquidity was available in the U.S., and it is our intention to indefinitely reinvest the undistributed earnings of our 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 regard to the $1.0 billion and $678$964 million of cash and cash equivalents held by our foreign subsidiaries at September 30, 2017 and DecemberMarch 31, 2016, respectively,2018, or on our undistributed earnings. The potential tax implications of the repatriation of unremitted earnings are driven by facts at the time of distribution. Therefore, it is not practicable to estimate the income tax liabilities that might be incurred if such cash and earnings were repatriateddistribution; however, due to the U.S. deemed repatriation transition tax as a result of U.S. tax reform, the incremental cost to repatriate earnings would be reduced if a distribution was made in the future.
40
The Chemours Company
The following table sets forth a summary of theour net cash provided by (used for) our operating, investing, and financing activities:activities for the three months ended March 31, 2018 and 2017.
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
| ||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
| ||||
Cash provided by operating activities |
| $ | 336 |
|
| $ | 324 |
|
| $ | 196 |
|
| $ | 41 |
|
Cash (used for) provided by investing activities |
|
| (202 | ) |
|
| 469 |
| ||||||||
Cash provided by (used for) financing activities |
|
| 468 |
|
|
| (230 | ) | ||||||||
Cash used for investing activities |
|
| (58 | ) |
|
| (63 | ) | ||||||||
Cash (used for) provided by financing activities |
|
| (271 | ) |
|
| 11 |
|
Operating Activities
Cash provided by
We received $196 million and $41 million in cash flows from our operating activities was $336 million and $324 million for the ninethree months ended September 30,March 31, 2018 and 2017, and 2016, respectively. Increases resulting from net income of $519The $155 million for the nine months ended September 30, 2017 when compared with $237 million for the nine months ended September 30, 2016 were offset by our payment of the PFOA MDL Settlement for $335 million and our full utilization of the $190 million prepayment received from DuPontincrease in 2016 during 2017, which negatively impacted our operating cash flows resulting from changes in working capital.
Investing Activities
Cash used for investing activities was $202 million for the nine months ended September 30, 2017 compared with cash provided by investing activities of $469 million for the nine months ended September 30, 2016. Our capital expenditures for the nine months ended September 30, 2017 and 2016 remained consistent at $246 million and $235 million, respectively. In the nine months ended September 30, 2017, we sold our corporate headquarters building in Wilmington, Delaware and the land which formerly held our manufacturing facility in Edge Moor, Delaware for net proceeds of $29 million and $9 million, respectively. In the nine months ended September 30, 2016, we sold our aniline facility in Beaumont, Texas, land in Repauno, New Jersey, and our C&D and Sulfur businesses for net proceeds of $140 million, $22 million, $223 million and $321 million, respectively.
We expect our full year capital expenditures in 2017 to be between $400 million and $450 million, which exceeds our annual capital expenditures in 2016, primarily due to expenditures associated with our new OpteonTM plant under construction in Corpus Christi, Texas and our Mining Solutions expansion in Laguna, Mexico, which began in June 2017.
Financing Activities
Cash provided by financing activities was $468 million for the nine months ended September 30, 2017 compared with cash used for financing activities of $230 million for the nine months ended September 30, 2016. In May 2017, we issued a $500 million aggregate principal amount of 5.375% senior unsecured notes, which are due in May 2027. Proceeds from this offering were $489 million, which is net of an original issue discount of $5 million and underwriting fees and other related expenses of $6 million. We received $30 million from the exercise of employees’ stock options during 2017. Repayments on our senior secured term loans, payments for dividends and tax payments for withholdings on vested restricted stock units of $24 million, $16 million and $10 million, respectively, offset our financing cash inflows for the ninethree months ended September 30, 2017.
InMarch 31, 2018 when compared with the third quarter of 2016, we repurchased a portion ofsame period in 2017 was primarily attributable to improvements in our senior secured term loans with an aggregate principal amount of $50net income, which amounted to $297 million and $151 million for $49 million, a portion of our 2023 Notes with an aggregate principal amount of $116 million for $107 million and a portion of our Euro Notes with an aggregate principal amount of $42 million for $39 million. These repurchases were made in addition to our required quarterly repayments on our senior secured term loans throughout the year. We also paid dividends amounting to $16 million during the ninethree months ended September 30, 2016.March 31, 2018 and 2017, respectively.
Current Assets
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Cash and cash equivalents |
| $ | 1,535 |
|
| $ | 902 |
|
Accounts and notes receivable - trade, net |
|
| 942 |
|
|
| 807 |
|
Inventories |
|
| 877 |
|
|
| 767 |
|
Prepaid expenses and other |
|
| 79 |
|
|
| 77 |
|
Total current assets |
| $ | 3,433 |
|
| $ | 2,553 |
|
4146
The Chemours Company
We used $58 million and $63 million in cash flows for our investing activities for the three months ended March 31, 2018 and 2017, respectively. For the three months ended March 31, 2018, our investing cash outflows were primarily attributable to capital expenditures of $102 million, which were partially offset by net proceeds of $39 million from the sale of assets and businesses, primarily associated with the sale of our Linden, New Jersey site, and $5 million in foreign exchange contract settlements, net. For the three months ended March 31, 2017, our investing cash outflows were primarily attributable to capital expenditures of $69 million and $3 million in foreign exchange contract settlements, net, which were partially offset by net proceeds of $9 million from the sale of assets and businesses, primarily associated with the sale of our Edge Moor, Delaware site.
Financing Activities
We used $271 million for, and received $11 million in cash flows from, our financing activities for the three months ended March 31, 2018 and 2017, respectively. For the three months ended March 31, 2018, our financing cash outflows were primarily attributable to purchases of approximately 4,980,000 shares of our issued and outstanding common stock under our share repurchase program for $240 million, $31 million in payments for dividends during the first quarter of 2018, and $4 million in debt repayments for our senior secured term loans. For the three months ended March 31, 2017, our financing cash inflows were primarily attributable to $20 million in net proceeds from the exercise of employee stock options, which were partially offset by $5 million in payments for dividends during the first quarter of 2017, and $4 million in debt repayments for our senior secured term loans.
Current Assets
The following table sets forth the components of our current assets at March 31, 2018 and December 31, 2017.
(Dollars in millions) |
| March 31, 2018 |
|
| December 31, 2017 |
| ||
Cash and cash equivalents |
| $ | 1,434 |
|
| $ | 1,556 |
|
Accounts and notes receivable, net |
|
| 1,083 |
|
|
| 919 |
|
Inventories |
|
| 992 |
|
|
| 935 |
|
Prepaid expenses and other |
|
| 75 |
|
|
| 83 |
|
Total current assets |
| $ | 3,584 |
|
| $ | 3,493 |
|
Our accounts and notes receivable, - trade, net at September 30, 2017 increased by $135$164 million, or 18%, to $1.1 billion at March 31, 2018 from $919 million at December 31, 2017. This increase was primarily attributable to an increase in our net sales during the first quarter of 2018 when compared with December 31, 2016 due to higher sales in the third quarter of 2017 over the fourth quarter of 2016 and a favorable currency translation impact of $22 million.2017.
Inventories at September 30, 2017Our inventories increased by $110$57 million, when compared withor 6%, to $992 million at March 31, 2018 from $935 million at December 31, 2016 due2017. This increase was primarily attributable to a build-up of inventory build for increased salesto meet anticipated demand, primarily in Europe and a favorable currency translation impact of $17 million.the U.S.
Our prepaid expenses and other was largely unchanged at $75 million and $83 million at March 31, 2018 and December 31, 2017, respectively.
Current Liabilities
The following table sets forth the components of our current liabilities at March 31, 2018 and December 31, 2017.
|
|
|
|
|
|
|
|
| ||||||||
(Dollars in millions) |
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2018 |
|
| December 31, 2017 |
| ||||
Accounts payable |
| $ | 1,010 |
|
| $ | 884 |
|
| $ | 1,121 |
|
| $ | 1,075 |
|
Current maturities of long-term debt |
|
| 14 |
|
|
| 15 |
|
|
| 14 |
|
|
| 15 |
|
Other accrued liabilities |
|
| 546 |
|
|
| 872 |
|
|
| 487 |
|
|
| 558 |
|
Total current liabilities |
| $ | 1,570 |
|
| $ | 1,771 |
|
| $ | 1,622 |
|
| $ | 1,648 |
|
AccountsOur accounts payable at September 30, 2017 increased by $126$46 million, when compared withor 4%, to $1.1 billion at March 31, 2018 from $1.1 billion at December 31, 2016 due2017. This increase was primarily attributable to higher inventories andthe timing of payments to vendors.vendor payments.
OtherOur current maturities of long-term debt was largely unchanged at $14 million and $15 million at March 31, 2018 and December 31, 2017, respectively.
47
The Chemours Company
Our other accrued liabilities at September 30, 2017 decreased by $326$71 million, when compared withor 13%, to $487 million at March 31, 2018 from $558 million at December 31, 20162017. This decrease was primarily dueattributable to paymenta reduction in accrued compensation and employee-related costs, consistent with payments of accrued performance-related compensation during the PFOA MDL Settlement for $335 million.first quarter of 2018, which was partially offset by an increase in accrued interest, consistent with the timing of our semi-annual interest payments on our senior unsecured notes.
Credit Facilities and Notes
Our credit agreement, as amended, provides for seven-year senior, secured term loans and a five-year, $750 million 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. Availability under the Revolving Credit Facility is subject to certain covenant limitations. At September 30, 2017,March 31, 2018, the facility had a full borrowing capacity of $750 million, from which we had $102$106 million in letters of credit issued and outstanding.
On April 3, 2017,2018, we completedentered into an amendment (April 2017 Amendment) to ouramended and restated credit agreement whichthat provides for a new class ofthe New Senior Secured Credit Facilities, which replaced our existing credit agreement. The senior secured term loans, denominated in Euros, in an aggregate principal amount of €400 million (Euro Term Loan), andloan facility provides for a new class of term loans, denominated in U.S. Dollars,dollars, in an aggregate principal amount of $940$900 million (Dollar(New Dollar Term Loan,Loan) and collectively with thea class of term loans, denominated in euros, in an aggregate principal amount of €350 million (New Euro Term Loan,Loan) (collectively, the New Term Loans). The proceeds of the New Term Loans, replacedtogether with cash on hand, were primarily used to prepay in full the prior term loan (Prior Term Loan)all outstanding of $1.4 billion.amounts under our existing credit agreement, which amounted to $921 million and €393 million at March 31, 2018. The New Dollar Term Loans mature on May 12, 2022, which is the same maturity dateLoan bears a variable interest rate equal to, at our election, adjusted LIBOR plus 1.75% or adjusted base rate plus 0.75%, subject to an adjusted LIBOR or an adjusted base rate floor of the Prior Term Loan.0.00% or 1.00%, respectively. The New Euro Term Loan bears a variable interest rate equal to adjusted EURIBOR plus 2.25%2.00%, subject to aan adjusted EURIBOR floor of 0.75%,0.50%. The New Term Loans will mature on April 3, 2025, and are subject to acceleration in certain circumstances.
The proceeds of any loans made under the Dollar Term LoanNew Revolving Credit Facility can be used for working capital needs and other general corporate purposes, including permitted acquisitions and other transactions, as defined under the amended and restated credit agreement. The New Revolving Credit Facility bears a variable interest rate equalrange based on our total net leverage ratio, as defined in the amended and restated credit agreement, between (i) a 0.25% and a 1.00% spread for adjusted base rate loans, and (ii) a 1.25% and a 2.00% spread for LIBOR and EURIBOR loans. In addition, we are required to LIBOR plus 2.50%,pay a commitment fee on the average daily unused amount of the New Revolving Credit Facility within an interest rate range based on our total net leverage ratio, between 0.10% and 0.25%. The New Revolving Credit Facility will mature on April 3, 2023, and is subject to a LIBOR floor of 0.00%. acceleration in certain circumstances.
The April 2017 Amendmentamended and restated credit agreement also modifiedmodifies or eliminates certain provisions of theour existing credit agreement, including increasing certain incurrence limitsnegative covenants to allow for further flexibility forflexibility. Under the Company. All other provisions, including financial covenants, remained unchanged. No incremental debt was issued as a result of the April 2017 Amendment, although the Euro Term Loan is subject to remeasurement gains or losses. We recorded a $3 million loss on debt extinguishmentamended and related amendment fees in the second quarter of 2017.
Therestated credit agreement, contains financial covenants which, solely with respect to the New Revolving Credit Facility, as amended, require uswe are required to not to exceed a maximum senior secured net leverage ratio of: (a) 3.50(i) 2.50 to 1.00 in each quarter through June 30, 2018; (ii) 2.25 to 1.00 in each quarter through December 31, 2016; (b) 3.00 to 1.00 through June 30, 2017;2018; and, (c) further decreasing by 0.25 to 1.00 every subsequent six months to(iii) 2.00 to 1.00 byin each quarter beginning January 1, 2019, and thereafter. We are also required to maintain athrough the date of maturity. Our minimum interest coverage ratio of 1.75 to 1.00 each quarter through June 30, 2017requirements under the existing credit agreement were eliminated in the amended 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.restated credit agreement. In addition, the amended and restated 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, 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 amended and restated credit agreement also contains customary representations and warranties and events of default. The senior secureddefault, which are substantially similar to those in the existing credit facilities and the Notes (collectively, the 2023 Notes, the 2025 Notes, the Euro Notes and the 2027 Notes) contain events of default customary for these types of financings, including cross default and cross acceleration provisions to material indebtedness of Chemours.agreement. We were in compliance with our debt covenants at September 30, 2017.March 31, 2018.
In the event of default under our Revolving Credit Facility, our lenders
Our obligations under the RevolvingNew Senior Secured Credit Facility can terminate their commitments thereunder, cease making further revolving loans and accelerate anyFacilities are guaranteed on a senior secured basis by all of our material domestic subsidiaries, which are also guarantors of our outstanding revolving loans. This would allow the lendersnotes, subject to certain exceptions. The obligations under the RevolvingNew Senior Secured Credit FacilityFacilities are also, subject to declarecertain exceptions, secured by a first priority lien on substantially all of our assets and substantially all of the assets of our wholly-owned, material domestic subsidiaries, including 100% of the stock of certain of our domestic subsidiaries and 65% of the stock of certain of our foreign subsidiaries.
The transaction resulted in a net prepayment of our total outstanding term loans to be immediately duesenior secured debt balances by approximately $75 million, based on the euro exchange rate on April 3, 2018. We are currently evaluating the accounting treatment for our amended 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 therestated credit agreement, also may result in an eventincluding the treatment of default under the indentures governing the Notes. Any such default, event of default or declaration of acceleration could materially and adversely affect our resultsany related transaction costs.
42
48
The Chemours Company
of operations and financial condition. Please see the section titled Risks Related to Our Indebtedness of the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2016 for additional detail.
For the remainder of 2017, under the April 2017 Amendment, we are required to make principal payments related to the New Term Loans of $3 million and approximately $14 million in each year from 2018 to 2021. Debt maturities related to the New Term Loans and the Notes in 2022 and beyond will be $4,085 million. In addition, following the end of each fiscal year commencing on 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 flow based on certain leverage targets with stepdowns 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 flow determined under the credit agreement. See Note 12 to the Interim Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information related to our indebtedness.
On May 23, 2017, Chemours 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. The Company 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 accrued for the global settlement of the PFOA MDL Settlement, and the remainder is available for 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 (a) incurs or guarantees indebtedness under the Senior Secured Credit Facilities or (b) guarantees other indebtedness of Chemours or any guarantor in an aggregate principal amount in excess of $100 million. 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 Chemours’ 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.
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.
We maintain global paying services agreements with twoseveral financial institutions. Under these agreements, the financial institutions act as theour paying agents for Chemours 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 September 30, 2017,March 31, 2018, total payment instructions from Chemoursus amounted to $158$142 million. 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 investors and/or financial institutions participating in these programs at any point in time.
Contractual Obligations
DuringOur contractual obligations at March 31, 2018 did not significantly change from the quarter ended September 30, 2017, we entered into a raw materials supply contract with a third party supplier which resultedcontractual obligations previously disclosed in an increase to our total purchase obligations for raw materials. This increase has been reflected in the table below, which shows the Company’s total purchase obligation-related contractual obligations.
|
|
|
|
|
| Payments Due In |
| |||||||||||||
(Dollars in millions) |
| Total at September 30, 2017 |
|
| Remainder of 2017 |
|
| 2018 - 2019 |
|
| 2020 - 2021 |
|
| 2022 and Beyond |
| |||||
Purchase obligations for raw materials |
| $ | 1,240 |
|
| $ | 40 |
|
| $ | 218 |
|
| $ | 142 |
|
| $ | 840 |
|
43
The Chemours Company
Off Balance Sheet Arrangements
Information with respect to Chemours’ guarantees is included in Note 20 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2016.2017.
Off Balance Sheet Arrangements
Information with respect to our guarantees is included in “Note 20 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2017. Historically, we have not made significant payments to satisfy guarantee obligations; however, we believe Chemours haswe have the financial resources to satisfy these guarantees in the event required. Any remaining guarantees outstanding at September 30, 2017March 31, 2018 were insignificant.
Critical Accounting Policies and Estimates
Chemours’Our significant accounting policies are described in Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical“Critical Accounting Policies and EstimatesEstimates” within MD&A and Note“Note 3 – Summary of Significant Accounting Policies” to the Consolidated Financial Statements in our Annual Report on Form 10-K. There10-K for the year ended December 31, 2017. Aside from the critical accounting policies and estimates set forth below, there have been no material changes to ourthe critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU No. 2014-09). The objective of this standard is to remove inconsistent practices with regard to revenue recognition between GAAP and International 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 ASU No. 2014-09, the FASB issued multiple clarifying updates in connection with the standard (collectively, Topic 606).
Effective January 1, 2018, we adopted the new revenue recognition guidance contained in Topic 606 using the modified retrospective transition method. With the adoption of Topic 606, we recognize 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) we enter 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 probable that we will collect the consideration to which we are 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 and serves as the unit of account for Topic 606. The transaction price is the customary amount of consideration that we expect to be entitled to in exchange for a transfer of the promised goods or services to a customer, excluding any amounts collected by us 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 outlined in Topic 606. Management is required to make certain estimates and assumptions about our contracts with customers, including, among others, the nature and extent of our performance obligations, our transaction price amounts and any allocations thereof, the critical events which constitute satisfaction of our performance obligations, and when control of any promised goods or services is transferred to our customers.
49
The Chemours Company
Our revenue from contracts with customers is reflected in the consolidated statements of operations as net sales, the vast majority of which represents product sales that consist of a single performance obligation. Product sales to customers are made 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 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 our 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 transfer of title and the risk of loss to the customer. Revenue 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 is generally the amount specified in the PO or in the request under an MSA; however, as is common in our industry, we offer variable consideration in the form of rebates, volume discounts, early payment discounts, pricing based on formulas or indices, price matching, and guarantees to certain customers. Such amounts are included in our estimated transaction price using either the expected value method or the most-likely amount, depending on the nature of the variable consideration included in the contract. We regularly assess our customers’ creditworthiness, and product sales are made based on established credit limits. Payment terms for our invoices are typically less than 90 days.
We also license the right to access certain of our trademarks to customers under specified terms and conditions in certain arrangements, which is recognized as a component of net sales in the consolidated statements of operations under Topic 606. Under such arrangements, we may receive a royalty payment for a trademark license that is entered into on a 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 included in the transaction price, we recognize royalty income ratably over the license period for the minimum amount. When there is no consideration specified for the use of our trademark, the entire transaction price is recognized in connection with the transfer of control of product. Royalty income resulting from the right to use our technology is considered outside the scope of Topic 606 as it is not a part of our ongoing major or central activities, and consistent with past practice, is recognized as a component of other income, net in the consolidated statements of operations in accordance with agreed upon terms, when performance obligations are satisfied, when collectability is reasonably assured, and when pricing is fixed or determinable.
Consistent with the fact that the vast majority of our 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 under Topic 606. Additionally, we have elected to recognize incremental costs associated with obtaining contracts as an expense when incurred if the amortization period of the assets that we 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 us for the delivery of goods are classified as a component of the cost of goods sold in the consolidated statements of operations.
The adoption of Topic 606 is not expected to have a material impact on our financial position, results of operations, or cash flows in future periods.
U.S. Income Tax Reform
In December 2017, the U.S. enacted new federal tax legislation commonly referred to as the Tax Cuts and Jobs Act (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.
We have performed preliminary analyses of the 2017 impacts of the Tax Act in accordance with the U.S. Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin No. 118 (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, U.S. Internal Revenue Service and U.S. Treasury guidance that may be issued, and actions that we may take. For the three months ended March 31, 2018, we did not record any adjustments to our provisional estimates.
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 applicable measurement period, pursuant to SAB No. 118. As such, our provisional estimates for the Tax Act could change significantly within this period, resulting in a material impact to our financial position, results of operations, or cash flows.
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The Chemours Company
Recent Accounting Pronouncements
See Note“Note 2 – Recent Accounting Pronouncements” to the Interim Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for discussions ofa discussion about our recent accounting pronouncements.
Environmental Matters
Consistent with Chemours’our values and our Environment, Health, and Safety Policy,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. Chemours isWe 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.
Mainly 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 Chemourswe may be required to indemnify pursuant to the separation-related agreements executed prior to the separation.our separation from DuPont.
Our environmental reserve includes estimated costs 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 Comprehensive Environmental Response Compensation and Liability Act (CERCLA, often referred to as Superfund), the Resource Conservation and Recovery Act (RCRA), and similar federal, state, federallocal, and foreign laws. These laws require certain investigative, remediation, and restoration activities at sites where Chemours conductswe conduct or once conducted operations or at sites where Chemours-generatedour generated waste was disposed. At September 30, 2017March 31, 2018 and December 31, 2016,2017, we recorded environmental remediation accruals of $268$254 million and $278$253 million, respectively, relating to these matters which, in management’s opinion, isare appropriate based on existing facts and circumstances.
Our remediation portfolio is relatively mature, with many of our sites under active clean-up moving towards final completion. As remediation efforts progress, sites move from the investigation phase (Investigation) to the active clean-up phase (Active Remediation), and as construction is completed at active clean-ups,Active Remediation sites, those sites move to the ongoingoperation, maintenance, and monitoring (OM&M), or closure phase. As final clean-upsclean-up activities for some significant sites are completed over the next several years, we expect our annual expensespayments related to these active sites to decline over time. The time-frametime frame for a site to go through all phases of remediation (investigation(Investigation and active clean-up)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 potentially responsible parties.parties (PRPs). In addition, for claims that Chemourswe may be required to indemnify DuPont pursuant to the separation-related agreements, Chemours,we, through DuPont, hashave limited available information for certain sites or isare 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 million above the amount accrued at September 30, 2017.March 31, 2018. In general, uncertainty is greatest and the range of potential liability is widest in the investigationInvestigation phase, and narrowsnarrowing over time as regulatory agencies approve site remedial plans,plans. As a result, uncertainty is reduced,
44
The Chemours Company
and sites ultimately sites move into OM&M, whereas needed. As more sites advance from investigationInvestigation to active clean-upActive 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 monitoring and/or operations and maintenanceOM&M of remedial systems. In addition, portfolio changes, such as an acquisition or divestiture, or notification as a potentially responsible partyPRP 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 inat any given year, as such obligation can be satisfied or settled over many years. For additional information, refer to the Environmental Matters“Environmental Matters” section of Management’s Discussion and Analysis of Financial Condition and Results of OperationsMD&A included in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.
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The Chemours Company
While there are many remediation sites that contribute to the total environmental remediation accrual, the following table sets forth the sites that are among the most significant:significant.
|
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|
|
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|
|
|
| ||||||||
(Dollars in millions) |
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2018 |
|
| December 31, 2017 |
| ||||
Beaumont, Texas |
| $ | 12 |
|
| $ | 12 |
|
| $ | 12 |
|
| $ | 12 |
|
Chambers Works, New Jersey |
|
| 21 |
|
|
| 24 |
|
|
| 18 |
|
|
| 19 |
|
East Chicago, Indiana |
|
| 20 |
|
|
| 20 |
|
|
| 20 |
|
|
| 20 |
|
Pompton Lakes, New Jersey |
|
| 64 |
|
|
| 77 |
|
|
| 54 |
|
|
| 55 |
|
USS Lead, East Chicago, Indiana |
|
| 28 |
|
|
| 21 |
|
|
| 22 |
|
|
| 26 |
|
All other sites |
|
| 123 |
|
|
| 124 |
|
|
| 128 |
|
|
| 121 |
|
Total accrued environmental remediation |
| $ | 268 |
|
| $ | 278 |
|
| $ | 254 |
|
| $ | 253 |
|
The five sites listed above represent more thanapproximately 50% of our reserve as of March 31, 2018 and weDecember 31, 2017. We expect to spend, in the aggregate, approximately $100$80 million over the next three years. For all other sites, we expect to spend approximately $80$90 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, withWith our sale of the aniline production unit to The Dow Chemical Company (Dow) in 2016, Chemours haswe have no ongoing manufacturing operations on the site. Dow and Lucite International, Inc. (Lucite) remain as long-term manufacturing tenants.
As site owner, Chemours remainswe remain responsible for remediation of historical chemical releases from past operations and isare 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. Chemours hasWe have recently completed a remedial action planRemedial 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 expectswe 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.
45
The Chemours Company
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. Chemours continuesWe 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) was installed in 1970, which was designed to contain contaminated groundwater and restrict off-site migration. Additional remediation is being completed under a Federalfederal RCRA Corrective Action 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 a site perimeter sheet pile barrier intended to more efficiently contain groundwater, completion of various targeted studies onsite and in adjacent water bodies to close investigation data gaps, andas 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.
52
The Chemours Company
East Chicago is a former manufacturing facility owned by Chemoursus in East Chicago, Lake County, Indiana. The approximate 440-acre site is bounded to the south by the East Brancheast 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 chlorofluorocarbons production. Current operations, including support activities, now cover 28 acres of the site. The remaining business was sold to W.R.W. R. Grace Company (Grace) in early 2000, and Grace operates the unit as a tenant. 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 actionCorrective Action process. Studies of historical site impacts began in 1983 in response to preliminary CERCLA actions undertaken by the 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.
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-long2,000-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 work is in progress to define the final remedy for the site.site has been selected by the EPA and posted for public comment.
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. PrimaryThe primary contaminants in the soil and sediments are lead and mercury. Ground waterGroundwater contaminants include volatile organic compounds. Under the authority of the EPA and the New Jersey Department of Environmental Protection, remedial actions at the site are focused on investigating and cleaning upcleaning-up the area. Ground waterGroundwater monitoring at the site is ongoing, and Chemours haswe have installed and continuescontinue to install vapor mitigation systems at residences within the ground watergroundwater plume. In addition, Chemours iswe are further assessing ground watergroundwater conditions. In June 2015, the EPA issued a modification to the site’s RCRA permit that requires Chemoursus 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 expected to be complete in 2018.
46
The Chemours Company
U.S. Smelter and Lead Refinery, Inc., East Chicago, Indiana
The U.S. Smelter and Lead Refinery, Inc. (USS Lead) Superfund Sitesite 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 Chemours iswe 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 Chemoursus in the 2015 separationseparation-related agreement.
The USS Lead Superfund site was listed on the National Priorities List in 2009. To facilitate negotiations with potentially responsible parties,PRPs, the EPA divided the residential part of the USS Lead Superfund Sitesite into three zones, referred to as Zone 1, Zone 2, and Zone 3. The division into three zones resulted in Atlantic Richfield Co. and DuPont entering into an agreement in 2014 with the EPA and the State of Indiana to reimburse the EPA’s costs to implement cleanupclean-up in Zone 1 and Zone 3. More recently, in March 2017, Chemourswe and three other parties (Atlantic Richfield Co., DuPont, and the U.S. Metals Refining Co.) entered into an administrative order on consent to reimburse the EPA’s costs to clean upclean-up a portion of Zone 2. The EPA is continuing its efforts to identify additional potentially responsible parties (PRPs)PRPs for the USS Lead Superfund site cleanup,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 potentially responsible partiesPRPs 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 ZonesZone 1 and Zone 3, as well as the current estimate of Chemours’our share of the EPA’s Zone 2 cleanupclean-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 Chemours’our future obligations. In response to the latest cost information received from the EPA for Zone 3 work, as well as the EPA’s stated objective to order Chemours and other PRPs to complete the remainder of the Zone 2 work, Chemours increased its accrual for USS Lead by $8 million in the third quarter of 2017.
PFOA
See our discussion under PFOAthe heading “PFOA” in Note 13“Note 17 – Commitments and Contingent Liabilities” to the Interim Consolidated Financial Statements included in this Quarterly Report on Form 10‑Q..
Fayetteville, North Carolina53
The Chemours Company
See discussion under Fayetteville, North Carolina in Note 13 to the Interim Consolidated Financial Statements included in this Quarterly Report on Form 10‑Q.
We prepare our interim consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (U.S. GAAP)(GAAP). To supplement our financial information presented in accordance with U.S. GAAP, we provide the following non-GAAP financial measures – Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, FCF, and Free Cash Flow,ROIC – in order to clarify and provide investors with a better understanding of the Company’sour 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.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;
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;
restructuring, asset-related, charges and other charges, net;
asset impairments;
(gains) losses on sale of business or assets; and,
other items not considered indicative of our ongoing operational performance and expected to occur infrequently.
Adjusted net incomeNet Income is defined as our net income attributable to Chemoursor loss, adjusted for items excluded from Adjusted EBITDA, except interest expense, depreciation, and amortization, and certain provision for (benefit from) income taxes. Free Cash Flowtax 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
47
The Chemours Company
our cash flows provided by (used for) operating activities, less cash used for purchases of property, plant, and equipment as disclosedshown in theour consolidated statements of cash flows. ROIC is defined as Adjusted 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 U.S. GAAP financial measures, is a useful financial analysis tool that can assist investors in assessing the Company’sour 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 U.S. 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 Free Cash FlowROIC 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 provided in this Quarterly Report on Form 10-Q, should be read in conjunction with the Company’s interim consolidated financial statementsInterim Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q,report, as well as the Company's consolidated financial statementsConsolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.
54
The Chemours Company
The following table reconcilessets forth a reconciliation of Adjusted EBITDA, and Adjusted Net Income, discussed aboveand Adjusted EPS to our net income attributable to Chemours for the periods presented:three months ended March 31, 2018 and 2017.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(Dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net income attributable to Chemours |
| $ | 207 |
|
| $ | 204 |
|
| $ | 518 |
|
| $ | 237 |
|
Non-operating pension and other post-retirement employee benefit income |
|
| (7 | ) |
|
| (5 | ) |
|
| (24 | ) |
|
| (19 | ) |
Exchange losses (gains) |
|
| 4 |
|
|
| 17 |
|
|
| (3 | ) |
|
| 37 |
|
Restructuring charges |
|
| 8 |
|
|
| 14 |
|
|
| 31 |
|
|
| 41 |
|
Asset-related charges |
|
| 1 |
|
|
| 46 |
|
|
| 3 |
|
|
| 109 |
|
Gain on sale of assets or businesses |
|
| — |
|
|
| (169 | ) |
|
| (14 | ) |
|
| (258 | ) |
Transaction costs 1 |
|
| 1 |
|
|
| 2 |
|
|
| 3 |
|
|
| 18 |
|
Legal and other charges 2 |
|
| 7 |
|
|
| 5 |
|
|
| 18 |
|
|
| 24 |
|
Benefit from income taxes relating to reconciling items 3 |
|
| (7 | ) |
|
| (2 | ) |
|
| (10 | ) |
|
| (16 | ) |
Adjusted Net Income |
|
| 214 |
|
|
| 112 |
|
|
| 522 |
|
|
| 173 |
|
Net income attributable to non-controlling interests |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Interest expense, net |
|
| 55 |
|
|
| 51 |
|
|
| 161 |
|
|
| 157 |
|
Depreciation and amortization |
|
| 62 |
|
|
| 73 |
|
|
| 204 |
|
|
| 212 |
|
All remaining provision for income taxes 3 |
|
| 50 |
|
|
| 32 |
|
|
| 140 |
|
|
| 41 |
|
Adjusted EBITDA |
| $ | 381 |
|
| $ | 268 |
|
| $ | 1,028 |
|
| $ | 583 |
|
|
| Three Months Ended March 31, |
| |||||
(Dollars in millions, except per share amounts) |
| 2018 |
|
| 2017 |
| ||
Net income attributable to Chemours |
| $ | 297 |
|
| $ | 150 |
|
Non-operating pension and other post-retirement employee benefit income |
|
| (7 | ) |
|
| (8 | ) |
Exchange gains |
|
| — |
|
|
| (5 | ) |
Restructuring, asset-related, and other charges, net |
|
| 10 |
|
|
| 12 |
|
Gain on sale of assets or businesses (1) |
|
| (42 | ) |
|
| (16 | ) |
Legal and other charges (2) |
|
| 4 |
|
|
| 7 |
|
Adjustments made to income taxes (3,5) |
|
| (5 | ) |
|
| (10 | ) |
Provision for income taxes relating to reconciling items (4,5) |
|
| 9 |
|
|
| 1 |
|
Adjusted Net Income |
|
| 266 |
|
|
| 131 |
|
Net income attributable to non-controlling interests |
|
| — |
|
|
| 1 |
|
Interest expense, net |
|
| 52 |
|
|
| 51 |
|
Depreciation and amortization |
|
| 70 |
|
|
| 71 |
|
All remaining provision for income taxes (5) |
|
| 80 |
|
|
| 31 |
|
Adjusted EBITDA |
| $ | 468 |
|
| $ | 285 |
|
|
|
|
|
|
|
|
|
|
Per share data |
|
|
|
|
|
|
|
|
Basic earnings per share of common stock |
| $ | 1.63 |
|
| $ | 0.82 |
|
Diluted earnings per share of common stock |
|
| 1.58 |
|
|
| 0.79 |
|
Adjusted basic earnings per share of common stock |
|
| 1.46 |
|
|
| 0.72 |
|
Adjusted diluted earnings per share of common stock |
|
| 1.41 |
|
|
| 0.70 |
|
|
| For the three months ended March 31, 2018, gain on sale includes a $42 million gain associated with the sale of our Linden, New Jersey site. For the three months ended March 31, 2017, gain on sale includes a $12 million gain associated with the sale of our Edge Moor, Delaware site and |
| (2) | Includes litigation settlements, water treatment accruals, |
|
| Includes the removal of |
(4) | 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 include both current and deferred income tax expense or benefit based on the nature of the non-GAAP financial measure. |
(5) | The total provision for income taxes reconciles to the amount reported in the |
The following table sets forth a reconciliation of FCF to our cash flows provided by operating activities for the three months ended March 31, 2018 and 2017.
|
| Three Months Ended March 31, |
| |||||
(Dollars in millions) |
| 2018 |
|
| 2017 |
| ||
Cash flows provided by operating activities |
| $ | 196 |
|
| $ | 41 |
|
Less: Purchases of property, plant, and equipment |
|
| (102 | ) |
|
| (69 | ) |
Free Cash Flows |
| $ | 94 |
|
| $ | (28 | ) |
55
The Chemours Company
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 three months ended March 31, 2018 and 2017.
|
| Three Months Ended March 31, |
| |||||
(Dollars in millions) |
| 2018 |
|
| 2017 |
| ||
Adjusted EBITDA (1) |
| $ | 1,605 |
|
| $ | 979 |
|
Less: Depreciation and amortization (1) |
|
| (272 | ) |
|
| (289 | ) |
Adjusted EBIT |
|
| 1,333 |
|
|
| 690 |
|
|
|
|
|
|
|
|
|
|
Total debt |
|
| 4,155 |
|
|
| 3,552 |
|
Total equity |
|
| 1,002 |
|
|
| 358 |
|
Less: Cash and cash equivalents |
|
| (1,434 | ) |
|
| (898 | ) |
Invested capital, net |
| $ | 3,723 |
|
| $ | 3,012 |
|
|
|
|
|
|
|
|
|
|
Average invested capital (2) |
| $ | 3,327 |
|
| $ | 3,257 |
|
|
|
|
|
|
|
|
|
|
Return on Invested Capital |
|
| 40.1 | % |
|
| 21.2 | % |
(1) | Based on amounts for the trailing twelve months ended March 31, 2018 and 2017. Reconciliations of Adjusted EBITDA to net income (loss) attributable to Chemours are provided on a quarterly basis. See the preceding table for the reconciliation of Adjusted EBITDA to net income attributable to Chemours for the three months ended March 31, 2018 and 2017. |
|
| Average invested capital is based on a five-quarter trailing average of invested capital, net. |
56
The Chemours Company
Item 3. QUANTITATIVE AND QUALITATIVE 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 flowflows 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.
Chemours entersWe enter into foreign currency forward contracts to minimize volatility in earnings related to the foreign exchange gains and losses resulting from remeasuring monetary assets and liabilities that Chemours holdswe hold which are denominated in non-functional currencies. These derivatives are stand-alone and have not been designated as a hedge. As of September 30, 2017, we had openAt March 31, 2018, there were 20 foreign exchangecurrency forward contracts outstanding, with an aggregate notional U.S. Dollardollar equivalent of $619$547 million, the fair value of which amounted to approximately $1 million of net unrealized loss.
In There were no foreign currency forward contracts outstanding at December 31, 2017. We recognized a hypothetical adverse change in the market prices or rates that existed at September 30, 2017,net gain of $4 million and a 10% appreciationnet loss $1 million within other income, net of the U.S. Dollar againstconsolidated statements of operations for the three months ended March 31, 2018 and 2017, respectively, related to our outstanding hedged contracts on foreign currencies, suchcurrency forward contracts.
We designated our euro notes and our senior secured term loan denominated in euros as the Euro and Chinese Yuan, at the currency exchange
48
The Chemours Company
rates asa hedge of September 30, 2017 would decrease our net income by approximately $10 million, while a 10% depreciation of the U.S. Dollar against the same hedged currencies would increase our net income by approximately $10 million.
Chemours hedges its net investment in certain European operations. Changesof our international subsidiaries that use the euro as their functional currency in order to reduce the fair valuevolatility in stockholders’ equity caused by the changes in foreign currency exchange rates of the hedge ineuro with respect to the U.S. dollar. At the beginning of every quarter, we use the spot method to measure the effectiveness of the net investment of certain European operations are recorded in accumulated other comprehensive income (loss). For the three and nine months ended September 30, 2017, Chemourshedge. We did not record any ineffectiveness andfor the three months ended March 31, 2018 or 2017. We recognized pre-tax losses of $26$34 million and $76$10 million respectively, on itsour net investment hedges within accumulated other comprehensive income (loss).loss for the three months ended March 31, 2018 and 2017, respectively.
Chemours’Our risk management programs and the underlying exposure are closely correlated, such that the potential loss in value for the risk management portfolio described above would be largely offset by the changechanges in the value of the underlying exposure. See Note 14“Note 19 – Financial Instruments” to the Interim Consolidated Financial Statements in Item 1 for further information.
Additional Information
See Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk of, in our Annual Report on Form 10-K for the year ended December 31, 20162017 for additional information on the Company’srelated to our utilization of financial instruments and an analysis of the sensitivity of these instruments. There have been no material changes in the market risks previously disclosed in the Company’sour Annual Report on Form 10-K for the year ended December 31, 2016.2017, other than as set forth above.
Disclosure Controls and Procedures
The Company maintainsWe maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the Company’sour reports filed or submitted under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission.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 itsour Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow timely decisions regarding required disclosures.
As of September 30, 2017, the Company’sMarch 31, 2018, our CEO and CFO, together with management, conducted an evaluation of the effectiveness of the Company’sour disclosure controls and procedures as defined in RulesRule 13a-15(e) and 15d-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 the Company'sour internal control over financial reporting that occurred during the quarter ended September 30, 2017March 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
57
The Chemours Company
PART II. OTHEROTHER INFORMATION
The Company isItem 1. LEGAL PROCEEDINGS
Legal Proceedings
We are subject to various legal proceedings, including, but not limited to, product liability, patent infringement, antitrust claims, and claims for property damage or personal injury. Information regarding certain of these matters is set forth below and in Note 13 to“Note 17 – Commitments and Contingent Liabilities” within the Interim Consolidated Financial Statements in Part I, Item 1, which is incorporated by reference herein..
Litigation
PFOA: Environmental and Litigation Proceedings
For purposes of this report, the term 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 13 to“Note 17 – Commitments and Contingent Liabilities” within the Interim Consolidated Financial Statements in Part I, Item 1, which is incorporated by reference herein..
49
The Chemours Company
The following actions related to Fayetteville, North Carolina, as discussed in Note 13 to“Note 17 – Commitments and Contingent Liabilities” within the Interim Consolidated Financial Statements in Part I, Item 1,, are filed in the U.S. District Court for the Eastern District of North Carolina, Southern Division:
Carey et al. vs. E. I. du PontDuPont 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 (7:17-cv-00195-D);
Nix vs. The Chemours Company FC, LLC (2:17-cv-0046-D);
Morton vs. The Chemours Company FC, LLC (7:17-cv-00197-FL);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. The ChemoursE. I. DuPont de Nemours and Company (7:17-cv-00209-BO)et al. (17:18-cv-00030-D).
Environmental Proceedings
LaPorte Plant, LaPorte, Texas
The 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'sfacility’s waste water treatment system, hazardous waste management, flare, and air emissions. These negotiations continue. Chemours operatesWe operate a fluoroproducts production facility at this site.
PFOA: Dordrecht, Netherlands
The Company hasWe have received 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 Water Authority (RWS) in the Netherlands for information and documents regarding the Dordrecht site’s operations. We have complied with the requests, and the agencies will decide whether additional information is warranted. Since the publication of reports by the National Institute for Public Health and the Environment (RIVM) in the Netherlands for informationMay 2017 and documents regarding the Dordrecht site's operations. The Company has complied with the requests, andiSZW in July 2017, no further documents related to these completed reports have been requested ofrequested. We continue to cooperate with the Company since the publication of the reportsauthorities in May 2017 (RIVM) and July 2017 (ISZW). The agencies will decide whether additional investigation is warranted. We understand that some of theresponding to information requests from OZHZ are part ofrelated to a preliminary investigation initiated by a public prosecutor, although we have not received notice that it intendsof any specific legal action.
58
The Chemours Company
Upon notifying the North Carolina Department of Environmental Quality (NC DEQ) of findings from groundwater studies conducted on the site, we received, on September 6, 2017, a Notice of Violation (NOV) and Notice of Intent to pursue such action.Enforce from NC DEQ pursuant to North Carolina groundwater quality standards. Since then, we have been conducting further studies on-site and off-site in cooperation with NC DEQ to better understand the nature and extent of environmental contamination involving certain perfluorinated compounds 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 NOV related to groundwater on and around the site which directs us to respond with source control measures. We continue to take action in response to the NOV and will continue to cooperate with NC DEQ.
Except for the Risk Factors set forth below, which have been amended and restated in their entirety, thereThere have been no material changes to the Risk Factorsrisk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.
Risks Related to Our Business
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.
Our revenue and profitability is largely dependent on the titanium dioxide (TiO2) industry and the industries that are 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 gross domestic product 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 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. 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 global warming potential), changes in or 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 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, investigation and litigation matters, such as product liability, patent infringement, antitrust claims and claims for third party property damage or personal injury stemming from alleged
50
The Chemours Company
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. We have noted a nationwide trend in purported 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. Various factors or developments can lead to changes in current estimates of liabilities such as a final adverse judgment, significant settlement or changes in applicable law. A future adverse ruling or unfavorable development 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 could adversely impact the value of any of our brands that are associated with any such matters. As discussed in more detail in Note 13 to the Interim Consolidated Financial Statements in Part I, Item 1, although the 2017 MDL settlement resolved almost all of the approximately 3,500 personal injury lawsuits against DuPont alleging that the respective plaintiffs were exposed to PFOA in drinking water as a result of DuPont’s use of PFOA at the Washington Works plant in Parkersburg, West Virginia, there are risks of additional lawsuits arising out of 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. A number of additional PFOA lawsuits have been filed since the MDL Settlement. In addition, as discussed in more detail in Note 13 to the Interim Consolidated Financial Statements in Part I, Item 1, the Company has received governmental inquiries, and the Company and DuPont have been named in multiple lawsuits, relating to HFPO Dimer Acid and/or other perfluorinated or polyfluorinated compounds, and there are risks that additional lawsuits could be filed. The existing lawsuits and inquiries, and any such additional litigation, relating to PFOA, HFPO Dimer Acid or these other compounds 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 are 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 spin-off. These indemnification obligations to date have included defense costs associated with certain litigation matters as well as certain damages awards, settlements and penalties. In connection with the MDL Settlement entered above, as detailed in Note 13 to the Interim Consolidated Financial Statements in Part I, Item 1, DuPont and Chemours entered into an amendment to the separation agreement concerning PFOA costs. As we are required to make payments, such payments 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 between Chemours and DuPont many 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 us.
For further information about the Company’s litigation and other commitments and contingencies, see Note 13 to the Interim Consolidated Financial Statements in Part I, Item 1 or Legal Proceedings in Part II, Item 1 of this Quarterly Report on Form 10-Q.
We are subject to extensive environmental, health and safety laws and regulations that may result in unanticipated loss or liability related to our current and past operations, which could reduce our profitability.
Our operations and production facilities are subject to extensive environmental and health and safety laws and regulations 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 and storing and disposing of hazardous wastes. Such laws include, in the U.S., the Comprehensive Environmental Response, Compensation and Liability Act (often referred to as Superfund), the Resource Conservation and Recovery Act and similar state and global laws for management and remediation of hazardous materials, the Clean Air Act and the Clean Water Act, for protection of air and water resources, the Toxic Substances Control Act, and in the European Union (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. If we are found to be in violation of these laws or regulations, 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. In addition, the manner in which adopted regulations (including environmental 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
51
The Chemours Company
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.
As a result of our operations, including the operations of divested businesses and certain discontinued operations, we could incur substantial costs, including remediation and restoration costs. The costs of complying with complex environmental laws and regulations, as well as internal voluntary programs, are significant and will continue to be significant for the foreseeable future. This includes costs we expect to continue to incur 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 generally accepted accounting principles, 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) at multi-party sites and the number and financial viability of other PRPs. For further information about the Company’s environmental matters and other commitments and contingencies, see Note 13 to the Interim Consolidated Financial Statements in Part I, Item 1, Environmental Matters within Part I, Item 2, Management’s Discussion and Analysis of Financial Conditions and Results of Operations or Legal Proceedings in Part II, Item 1 of this Quarterly Report on Form 10-Q.
There is also a risk that one or more of our key raw materials or one or more of our products may be found to have, or be characterized 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 us 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 the relevant materials or products, including products of our customers incorporating our materials or products, may be recalled 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.
In May 2016, the European Chemicals Agency (ECHA) accepted a proposal from France’s competent authority under REACH that would classify TiO2 as a carcinogen for humans by inhalation, starting an ECHA Committee for Risk Action (RAC) process to review and decide on this proposal. In June 2017, ECHA’s RAC announced its preliminary conclusion that the evidence meets the criteria under the EU’s Classification, Labeling and Packaging Regulation to classify TiO2 as a Category 2 Carcinogen (suspected human carcinogen) by inhalation. The European Commission (EC) will evaluate the RAC’s formal recommendation in determining whether any regulatory measures should be taken. If the EC were to adopt the regulatory measures that classify TiO2 as a suspected carcinogen, it could increase our TiO2 manufacturing and handling processes and costs.
In connection with our separation, we were required to assume, and indemnify DuPont for, certain liabilities. As we are 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 spin-off, 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 above under Our results of operations could be adversely affected by litigation and other commitments and contingencies, DuPont and Chemours entered into an amendment to the separation agreement concerning PFOA costs, the terms of which are described in Note 13 to the Interim Consolidated Financial Statements in Part I, Item 1. 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 between Chemours and DuPont may also arise with respect to indemnification matters, including disputes based on matter of law or contract interpretation. If and to the extent these disputes arise, they could materially adversely affect us.
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
52
The Chemours Company
risks could negatively affect our business, financial condition, results of operations and cash flows. See Note 13 to the Interim Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.
| Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Issuer Purchases of Equity Securities 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. Under the share repurchase program, shares of our common stock may be 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 program became effective on November 30, 2017 and continues through its expiration on December 31, 2020. The program may be suspended or discontinued at any time. All common shares purchased under the share repurchase program are held as treasury stock and are accounted for using the cost method. Our share repurchase program was announced to the public on December 1, 2017. The following table sets forth the purchases of our issued and outstanding common stock under the share repurchase program for the three months ended March 31, 2018.
None. Information regarding mine safety and other regulatory actions at the Company’s surface mine in Starke, Florida is included in Exhibit 95 to this report. None. See the
The Chemours Company
* Management contract or compensatory plan or arrangement.
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.
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