Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 1. Basis of Pre
sentation
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. Results for interim periods should not be considered indicative of results for a full year and the year-end consolidated balance sheet does not include all disclosures required by U.S. GAAP. As such, these interim consolidated financial statements should be read in conjunction with the consolidated 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.
Unless the context otherwise requires, references herein to “The Chemours Company”, “Chemours”, “the Company”, “our Company”, “we”, “us” and “our” refer to The Chemours Company and its consolidated subsidiaries. References herein to “DuPont” refer to E.I. du Pont de Nemours and Company, a Delaware corporation, and its consolidated subsidiaries, unless the context otherwise requires.
Note 2. Recent Accounting Pronouncements
Accounting Guidance Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (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 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)”, which supersedes the leases requirements in Topic 840. The core principle of Topic 842 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 over 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 required to recognize and measure leases a
t the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply. The amendments in this update are effective for the Company’s fiscal year b
eginning 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 meas
ured 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, the FASB issued various updates to ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts 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.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815)”, 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 is effective for public business entities for fiscal years beginning after December 15, 2018, as well as interim periods within those fiscal years. Early adoption is permitted in any interim period. The amendments in this update should 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 impact of adopting this guidance on its financial position, results of operations and cash flows.
Recently Adopted Accounting Guidance
In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718).” The update sets forth areas for simplification within several aspects of the accounting for shared-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Chemours adopted this guidance effective January 1, 2017, and the adoption did not have a significant impact on the Company’s financial position, results of operations or cash flows except for the impact of windfall income tax benefits on share-based payments and the classification of employee withholding tax payments on vested 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 taxes in the consolidated statements of operations.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which eliminates the requirement to determine the fair value of the individual assets and liabilities of a
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. Under the amendments, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value
. Any impairment charges recognized would not exceed the total amount of goodwill allocated to the reporting unit
. The guidance is effective for annual and interim goodwill impairment tests i
n fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017.
The Company has adopted this guidance and will im
plement its provisions for interim and annual goodwill impairment tests performed prospectively. 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.
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
|
|
1
|
The three and nine months ended September 30, 2016 include an impairment charge of $46 related to the aniline facility in Pascagoula, Mississippi. The nine months ended September 30, 2016 includes an impairment charge of $58 related to the sale of the Sulfur business.
|
9
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Charges related to the Company’s restructuring programs impacted segment earnings for the three and nine months ended September 30, 2017 and 2016 as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Plant and product line closures
1
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Titanium Technologies
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
24
|
|
Fluoroproducts
|
|
|
—
|
|
|
|
1
|
|
|
|
3
|
|
|
|
6
|
|
Chemical Solutions
|
|
|
5
|
|
|
|
7
|
|
|
|
16
|
|
|
|
6
|
|
Subtotal
|
|
|
5
|
|
|
|
13
|
|
|
|
23
|
|
|
|
36
|
|
2015 Global Restructuring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Titanium Technologies
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Fluoroproducts
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
3
|
|
Chemical Solutions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Subtotal
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
5
|
|
2017 Restructuring Program
|
|
|
3
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
Total restructuring charges, net
|
|
$
|
8
|
|
|
$
|
14
|
|
|
$
|
31
|
|
|
$
|
41
|
|
1
|
Includes charges related to employee separation and decommissioning costs in connection with the restructuring activities.
|
Plant and Product Line Closures
In the Titanium Technologies segment, due to the closure of the Edge Moor, Delaware manufacturing plant in the U.S., the Company recorded decommissioning and dismantling-related charges of $4 for the nine months ended September 30, 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 for certain of its production lines in the U.S. of $3 for the nine months ended September 30, 2017 and $1 and $6 for the three and nine months ended September 30, 2016, respectively. As of September 30, 2017, the Company incurred, in the aggregate, approximately $17 of restructuring costs, excluding non-cash asset-related charges. The Company has substantially completed the actions related to these restructuring activities for certain of its Fluoroproducts production lines, which were initiated in 2015.
In the Chemicals Solutions segment, following the production shutdown of the Reactive Metals Solutions (RMS) manufacturing plant at Niagara Falls, New York in September 2016, the Company immediately began decommissioning the plant. As a result, the Company recorded $5 and $16 of 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, the Company incurred, in the aggregate, approximately $30 of restructuring costs, excluding non-cash asset-related charges. Additional restructuring charges of approximately $5 for decommissioning and site redevelopment are expected to be incurred for the remainder of 2017, which 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) outsourcing and further centralizing certain business process activities; (b) consolidating existing, outsourced third party information technology (IT) providers; and (c) implementing various upgrades to the Company’s current IT infrastructure. In connection with these corporate function efforts, 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 Company announced a voluntary separation program (VSP) for certain eligible U.S. employees in an effort to better manage anticipated future changes to its workforce. Employees who volunteer for, and are accepted under, the VSP will receive certain financial incentives above the Company’s customary involuntary termination benefits to end their employment with
10
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 from the Company by the end of 2018. An accrual repre
senting the majority of these termination benefits will be recognized 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 prov
ide service to Chemours. No amounts for the VSP have been recognized in the consolidated financial statements as of September 30, 2017.
As a result of its 2017 program, the Company expects to incur charges for restructuring-related activities and termination benefits ranging from $45 to $55 through December 31, 2018.
The following table shows the change in the employee separation-related liability account associated with the Company’s restructuring programs:
|
|
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
|
|
1
|
Amounts include net currency translation adjustment of less than $1 for the periods presented and rounding differences.
|
At September 30, 2017, there are no significant outstanding liabilities related to decommissioning and other restructuring-related charges.
Note 4. Other Income, Net
|
|
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
|
|
1
|
Royalty income is primarily from technology and trademark licensing.
|
2
|
For the nine months ended September 30, 2017, gain on sale includes a $12 gain associated with the sale of the Edge Moor, Delaware site.
For the three and nine months ended September 30, 2016, gain on sale includes gains of $169 and $89 associated with the sale of the Clean & Disinfect product line and the Beaumont, Texas site, respectively.
|
3
|
Exchange (losses) gains, net includes gains and losses on foreign currency forward contracts.
|
11
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 5. Income Taxes
For the three months ended September 30, 2017 and 2016, Chemours recorded a provision for income taxes of $43 and $30, respectively, resulting in effective income tax rates 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.
Each year, Chemours and/or its subsidiaries file income tax returns in U.S. federal and state 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”, 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. Earnings Per Share of Common Stock
The following table shows a reconciliation of the numerator and denominator for basic and diluted earnings per share calculations for the periods indicated:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Chemours
|
|
$
|
207
|
|
|
$
|
204
|
|
|
$
|
518
|
|
|
$
|
237
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares
outstanding - basic
|
|
|
185,431,036
|
|
|
|
181,596,161
|
|
|
|
184,641,599
|
|
|
|
181,452,194
|
|
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
|
|
1
|
Diluted earnings per share is calculated using net income available to common shareholders divided by diluted weighted-average common shares outstanding during each period, which includes unvested restricted shares. Diluted earnings per share considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect.
|
The following average number of stock options were anti-dilutive and, therefore, were not included in the diluted earnings per share calculation:
|
|
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
|
|
12
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 7. Accounts and Notes Receivable - Trade, Net
|
|
|
|
|
|
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
|
|
1
|
Accounts receivable - trade, net includes trade notes receivable and is net of allowances of $5 at September 30, 2017 and December 31, 2016. Allowances are equal to the estimated uncollectible amounts.
|
2
|
Value Added Tax (VAT) and Goods and Services Tax (GST).
|
3
|
Other receivables consist of advances and other deposits.
|
Accounts and notes receivable are carried at amounts that approximate fair value. Bad debt expense was less than $1 for the three and nine months ended September 30, 2017. Bad debt expense was $7 for the three and nine months ended September 30, 2016.
Note 8. Inventories
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Finished products
|
|
$
|
592
|
|
|
$
|
532
|
|
Semi-finished products
|
|
|
176
|
|
|
|
150
|
|
Raw materials, stores and supplies
|
|
|
309
|
|
|
|
285
|
|
Subtotal
|
|
|
1,077
|
|
|
|
967
|
|
Adjustment of inventories to LIFO basis
|
|
|
(200
|
)
|
|
|
(200
|
)
|
Total inventories
|
|
$
|
877
|
|
|
$
|
767
|
|
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 and $465, or 44% and 48%, of inventories before the LIFO adjustments at September 30, 2017 and December 31, 2016, respectively. The remainder of inventory held in international locations and certain U.S. locations is valued under the average cost method.
Note 9. Property, Plant and Equipment, Net
Depreciation expense amounted to $61 and $201 for the three and nine months ended September 30, 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 at September 30, 2017 and December 31, 2016.
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
|
|
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 Revolving Credit Facility of $10 and $13 at September 30, 2017 and December 31, 2016, respectively, and Company-owned life insurance policies on former key executives of a U.S. subsidiary. The life insurance policies had a cash surrender value of $63 at September 30, 2017 and $61 at December 31, 2016, which are presented net of $63 and $61 in outstanding loans from the policy issuer, respectively.
|
13
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Asset Held for Sale
In December 2016, in connection with a sale agreement entered in January 2017 to sell the Company’s corporate headquarters building located in Wilmington, Delaware, the Company recorded a $13 pre-tax impairment charge and classified the net book value of the building as an asset held for sale for the year ended 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.
Note 11. Other Accrued Liabilities
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Compensation and other employee-related costs
|
|
$
|
147
|
|
|
$
|
154
|
|
Employee separation costs
1
|
|
|
13
|
|
|
|
31
|
|
Accrued litigation
2
|
|
|
13
|
|
|
|
344
|
|
Environmental remediation
2
|
|
|
86
|
|
|
|
71
|
|
Income taxes
|
|
|
55
|
|
|
|
39
|
|
Customer rebates
|
|
|
70
|
|
|
|
53
|
|
Deferred revenue
3
|
|
|
9
|
|
|
|
76
|
|
Accrued interest
|
|
|
73
|
|
|
|
21
|
|
Miscellaneous
4
|
|
|
80
|
|
|
|
83
|
|
Total other accrued liabilities
|
|
$
|
546
|
|
|
$
|
872
|
|
1
|
Current portion of employee separation costs.
|
2
|
Current portions of accrued litigation and environmental remediation. Accrued litigation includes the PFOA MDL Settlement accrual of $335 at December 31, 2016, which was paid in full by September 30, 2017.
|
3
|
Deferred revenue at December 31, 2016 includes $58 in outstanding prepayments by DuPont for specified goods and services. There were no such prepayments at September 30, 2017.
|
4
|
Miscellaneous primarily includes accrued utility expenses, property taxes, an accrued indemnification liability, asset retirement obligations and other miscellaneous accrued expenses.
|
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.
15
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Chemours may redeem the 2027 Notes, in whole or in part, at an amount equal to 100% of the aggregate principal amount plus a spe
cified “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 repurch
ases. 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.
Maturities
Chemours has required quarterly principal payments related to the senior secured term loans equivalent to 1.00% per annum through March 2022, with the balance due at maturity. Term loan principal maturities, as amended, over the next f
ive years are $3 for the remainder of 2017 and approximately $14 in each year from 2018 to 2021. Debt maturities related to the New Term Loans and the Notes (collectively, the 2023 Notes, the 2025 Notes, the Euro Notes and the 2027 Notes) in 2022 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.
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, 2017 were approximately $931, $469, $1,235, $834, $372 and $520, respectively. The estimated fair values of the New Term Loans and the Notes are based on quotes received from third party brokers, and are classified as Level 2 financial instruments in the fair value hierarchy.
Note 13. 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 antitrust 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 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.
In the separation, DuPont assigned its asbestos docket to Chemours. At September 30, 2017 and December 31, 2016, 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, 2017 and December 31, 2016, Chemours had an accrual of $41 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.
16
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, 2017 and December 31, 2016, there were 20 and 27 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.
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.
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 and $349 related to the PFOA matters discussed below at September 30, 2017 and December 31, 2016, respectively. Specific to the PFOA MDL Settlement (also discussed below), the Company recorded an accrual of $335 at December 31, 2016, which was paid in installments of $15 and $320 during the second and third quarters of 2017, respectively.
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.
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
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
In May 2013, a panel of t
hree 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 test
ing, 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, administr
ative 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 Director of Medical Monitoring established th
e 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 esc
row account. As of September 30, 2017, less than $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 canno
t 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.
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 has 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 in 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 courts.
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 Water
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. Management believes that the probability of loss is remote.
PFOA Summary
Chemours accrued $335 associated with the MDL Settlement at December 31, 2016, of which all $335 has been paid through September 30, 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.
|
(d)
|
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.
|
(e)
|
Fayetteville, North Carolina
|
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, the Company has voluntarily commenced capturing and separately disposing certain process wastewater from the Fayetteville facility. The Company 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.
On 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, a partial consent order was entered partially resolving the State’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, 2017, NC DEQ informed the Company that, based on measures taken by the Company following September 5, 2017, it has concluded at the present time, that it is not necessary to suspend the permit for the Fayetteville facility. The Company is continuing to cooperate with and discuss these matters with the State and NC DEQ.
A number of additional actions have been filed against the Company and DuPont in North Carolina federal court relating to discharges from the Fayetteville site, including an action brought by the Cape Fear Public Utility Authority and one brought by Brunswick County, both seeking damages and injunctive relief, and multiple purported class actions 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. 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, it is not possible at this point to predict the timing, course or outcome of the governmental and regulatory inquiries, the notice issued by NC DEQ, the action brought by North Carolina and the other litigation, and it is possible that these matters could materially affect the Company’s results and operations. In addition, local communities, organizations and regulatory agencies have raised questions concerning HFPO Dimer Acid at certain other manufacturing sites operated by the Company, and it is possible that similar developments to those described above and centering on the Fayetteville site could arise in other locations.
Environmental
Chemours, by virtue of its status as a subsidiary of 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, 2017 and December 31, 2016, the consolidated balance sheets included a liability relating to these matters of $268 and $278, 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 ongoing 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.
For the nine months ended September 30, 2017 and 2016, Chemours incurred environmental remediation expenses of $36 and $16, 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.
Note 14. Financial Instruments
Derivative Instruments
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.
20
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
At September 30, 2017,
there were
26
foreign currency forward contracts outstanding with an aggregate gross notional value of $
619
. Chemours recognized in other income, net of the consolidated statements of operations, a net loss of $1 and a net gain of $6
for the three and nine
months ended September 30, 2017, respectively, and net losses of $2 for the three and nine months ended September 30, 2016.
Net Investment Hedge - Foreign Currency Borrowings
Chemours designated its Euro Notes and, beginning in April 2017, also designated its new Euro Term Loan as a hedge of its net investments in certain of its international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in stockholders’ equity caused by the changes in foreign currency exchange rates of the Euro with respect to the U.S. 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, 2017 or 2016. The Company recognized pre-tax losses of $26 and $76 on its net investment hedges for the three and nine months ended September 30, 2017, respectively. The Company recognized pre-tax losses of $6 and $9 on its net investment hedges for the three and nine months ended September 30, 2016, respectively.
Fair Value of Derivative Instruments
The table below presents the fair value of Chemours’ derivative assets and liabilities within the fair value hierarchy:
|
|
|
|
Fair Value Using Level 2 Inputs
|
|
|
|
Balance Sheet Location
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Asset derivatives:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Accounts and notes receivable - trade, net
|
|
$
|
3
|
|
|
$
|
2
|
|
Total asset derivatives
|
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability derivatives:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Other accrued liabilities
|
|
$
|
4
|
|
|
$
|
4
|
|
Total liability derivatives
|
|
|
|
$
|
4
|
|
|
$
|
4
|
|
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. Long-term Employee Benefits
The 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's employees.
21
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
|
|
|
2016
|
|
Net periodic pension cost (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. Stock-based Compensation
Total stock-based compensation cost included in the consolidated statements of operations was $6 and $21 for the three and nine months ended September 30, 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, 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 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)
Stock Options
Chemours granted non-qualified 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 to stock options granted in the nine months ended September 30, 2017 was based on the weighted-average assumptions shown in the table below:
|
|
Nine Months Ended September 30, 2017
|
|
Risk-free interest rate
|
|
|
2.14
|
%
|
Expected term (years)
|
|
|
6.00
|
|
Volatility
|
|
|
44.49
|
%
|
Dividend yield
|
|
|
0.35
|
%
|
Fair value per stock option
|
|
$
|
15.21
|
|
The Company determined the dividend yield by dividing the expected annual dividend on the Company's stock by the option exercise price. A historical daily measurement of volatility is determined based on the average volatility of peer companies adjusted for the Company’s debt leverage. The risk-free interest rate is determined by reference to the yield on an outstanding U.S. Treasury note with a term equal to the expected life of the option granted. 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 nine 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
|
|
The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day at the end of the quarter and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at quarter-end. The amount changes based on the fair market value of the Company’s stock. The total intrinsic value of options exercised for the nine 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
Chemours granted RSUs to key management employees that generally vest over a three-year period and, upon vesting, convert one-for-one to Chemours’ common stock. The fair value of all stock-settled RSUs is based upon the market price of the underlying common stock as of the grant date.
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 perf
ormance condition, as well as a small subset of awards for which specific levels of cost savings and revenue enhancements must be achieved for vesting to occur. Non-vested awards, both with and without a performance condition, at September 30, 2017 are sho
wn 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 stock-based compensation expense related to non-vested awards, which is expected to be recognized over a weighted-average period of 0.78 years.
PSUs
Chemours issued PSUs to key senior management employees which, upon vesting, convert one-for-one to Chemours’ common stock if specified performance goals, including certain market-based conditions, are met over the three-year performance period specified in the grant, subject to exceptions through the respective vesting period of three years. Each grantee is granted a target award of PSUs, and may earn between 0% and 200% of the target amount depending on the Company’s performance against stated performance goals. The 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 grant for PSUs granted during the three and nine months ended September 30, 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 estimate 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.
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.
24
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Employee Stock Purchase Plan
On January 26, 2017, the Company’s board of directors approved The Chemours Company Employee Stock Purchase Plan (ESPP), which was approved by Chemours’ stockholders on April 26, 2017. Under the ESPP, a total of 7,000,000 shares of Chemours’ common stock are reserved and authorized for issuance to participating employees, as defined by the ESPP, which excludes executive officers of the Company. The ESPP provides for consecutive 12-month offering periods, each with four purchase periods beginning and ending on the calendar quarters within those offering periods. The initial offering period under the ESPP began on October 2, 2017. Participating employees will be 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.
Note 17. 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: Titanium Technologies, Fluoroproducts and Chemical Solutions. 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 amortization of other intangible assets, excluding write-down of assets.
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) is the primary measure of segment profitability used by the 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 service cost component;
|
|
•
|
exchange (gains) losses included in other income (expense), net;
|
|
•
|
restructuring, asset-related charges and other charges, net;
|
|
•
|
(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.
|
25
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 is a tabular reconciliation of consolidated income before income taxes to Adjusted EBITDA:
|
|
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
|
|
1
|
Includes accounting, legal and bankers’ transaction fees incurred related to the Company's strategic initiatives.
|
2
|
Includes litigation settlements, water treatment accruals related to PFOA, employee separation costs and lease termination charges.
|
26
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 18. 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 subsidiaries (together, Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is 100% owned by the Company. No other subsidiaries of the Company, either direct or indirect, guarantee the Notes (together, Non-Guarantor Subsidiaries). The Guarantor Subsidiaries may 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, 2017 and 2016;
|
|
•
|
the condensed consolidating balance sheets as of September 30, 2017 and December 31, 2016; and
|
|
•
|
the condensed consolidating statements of cash flows for the nine months ended September 30, 2017 and 2016.
|
The condensed consolidating financial information is presented using the equity method of accounting for the Company’s investments in 100% owned subsidiaries. Under the equity method, the investments in subsidiaries are recorded at cost and adjusted for Chemours’ share of the 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 footnote should be read in conjunction with the consolidated financial statements presented and other notes related thereto contained in this Quarterly Report on Form 10-Q.
27
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Condensed Consolidating Statem
ents 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
|
|
32
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, 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
|
|
33
The Chemours Company