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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 001-36794

The Chemours Company

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

46-4845564

(State or other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

1007 Market Street, Wilmington, Delaware 19801

(Address of Principal Executive Offices)

(302) 773-1000

(Registrant’s Telephone Number)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Exchange on Which Registered

Common Stock ($0.01 par value)

 

CC

 

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

The registrant had 164,218,483 shares of common stock, $0.01 par value, outstanding at May 1, 2020.

 

 

 

 


 

The Chemours Company

TABLE OF CONTENTS

 

 

 

Page

Part I

Financial Information

 

Item 1.

Interim Consolidated Financial Statements

 

 

Interim Consolidated Statements of Operations (Unaudited)

2

 

Interim Consolidated Statements of Comprehensive Income (Unaudited)

3

 

Interim Consolidated Balance Sheets

4

 

Interim Consolidated Statements of Stockholders’ Equity (Unaudited)

5

 

Interim Consolidated Statements of Cash Flows (Unaudited)

6

 

Notes to the Interim Consolidated Financial Statements (Unaudited)

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

60

Item 4.

Controls and Procedures

61

 

 

 

Part II

Other Information

 

Item 1.

Legal Proceedings

62

Item 1A.

Risk Factors

64

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

65

Item 3.

Defaults Upon Senior Securities

65

Item 4.

Mine Safety Disclosures

65

Item 5.

Other Information

65

Item 6.

Exhibits

66

 

Signature

 

 

67

 

 

 

1


 

PART I.  FINANCIAL INFORMATION

Item 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The Chemours Company

Interim Consolidated Statements of Operations (Unaudited)

(Dollars in millions, except per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net sales

 

$

1,305

 

 

$

1,376

 

Cost of goods sold

 

 

1,007

 

 

 

1,080

 

Gross profit

 

 

298

 

 

 

296

 

Selling, general, and administrative expense

 

 

125

 

 

 

156

 

Research and development expense

 

 

24

 

 

 

22

 

Restructuring, asset-related, and other charges

 

 

11

 

 

 

8

 

Total other operating expenses

 

 

160

 

 

 

186

 

Equity in earnings of affiliates

 

 

8

 

 

 

8

 

Interest expense, net

 

 

(54

)

 

 

(51

)

Other (expense) income, net

 

 

(15

)

 

 

40

 

Income before income taxes

 

 

77

 

 

 

107

 

(Benefit from) provision for income taxes

 

 

(23

)

 

 

13

 

Net income

 

 

100

 

 

 

94

 

Net income attributable to Chemours

 

$

100

 

 

$

94

 

Per share data

 

 

 

 

 

 

 

 

Basic earnings per share of common stock

 

$

0.61

 

 

$

0.56

 

Diluted earnings per share of common stock

 

 

0.61

 

 

 

0.55

 

 


See accompanying notes to the interim consolidated financial statements.

2


 

The Chemours Company

Interim Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in millions)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

Pre-tax

 

 

Tax

 

 

After-tax

 

 

Pre-tax

 

 

Tax

 

 

After-tax

 

Net income

 

$

77

 

 

$

23

 

 

$

100

 

 

$

107

 

 

$

(13

)

 

$

94

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedging activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on net investment hedge

 

 

10

 

 

 

(2

)

 

 

8

 

 

 

10

 

 

 

(3

)

 

 

7

 

Unrealized gain on cash flow hedge

 

 

2

 

 

 

 

 

 

2

 

 

 

2

 

 

 

 

 

 

2

 

Reclassifications to net income - cash flow hedge

 

 

(2

)

 

 

 

 

 

(2

)

 

 

(3

)

 

 

 

 

 

(3

)

Hedging activities, net

 

 

10

 

 

 

(2

)

 

 

8

 

 

 

9

 

 

 

(3

)

 

 

6

 

Cumulative translation adjustment

 

 

(115

)

 

 

 

 

 

(115

)

 

 

7

 

 

 

 

 

 

7

 

Defined benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to accumulated other

comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rates

 

 

1

 

 

 

 

 

 

1

 

 

 

3

 

 

 

 

 

 

3

 

Reclassifications to net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service gain

 

 

(1

)

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Amortization of actuarial loss

 

 

3

 

 

 

 

 

 

3

 

 

 

5

 

 

 

(1

)

 

 

4

 

Settlement loss

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Defined benefit plans, net

 

 

3

 

 

 

 

 

 

3

 

 

 

9

 

 

 

(1

)

 

 

8

 

Other comprehensive (loss) income

 

 

(102

)

 

 

(2

)

 

 

(104

)

 

 

25

 

 

 

(4

)

 

 

21

 

Comprehensive (loss) income

 

 

(25

)

 

 

21

 

 

 

(4

)

 

 

132

 

 

 

(17

)

 

 

115

 

Comprehensive (loss) income attributable to Chemours

 

$

(25

)

 

$

21

 

 

$

(4

)

 

$

132

 

 

$

(17

)

 

$

115

 

 

See accompanying notes to the interim consolidated financial statements.

3


 

The Chemours Company

Interim Consolidated Balance Sheets

(Dollars in millions, except per share amounts)

 

 

 

(Unaudited)

 

 

 

 

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

714

 

 

$

943

 

Accounts and notes receivable, net

 

 

681

 

 

 

674

 

Inventories

 

 

1,114

 

 

 

1,079

 

Prepaid expenses and other

 

 

82

 

 

 

81

 

Total current assets

 

 

2,591

 

 

 

2,777

 

Property, plant, and equipment

 

 

9,214

 

 

 

9,413

 

Less: Accumulated depreciation

 

 

(5,770

)

 

 

(5,854

)

Property, plant, and equipment, net

 

 

3,444

 

 

 

3,559

 

Operating lease right-of-use assets

 

 

281

 

 

 

294

 

Goodwill and other intangible assets, net

 

 

172

 

 

 

174

 

Investments in affiliates

 

 

167

 

 

 

162

 

Other assets

 

 

293

 

 

 

292

 

Total assets

 

$

6,948

 

 

$

7,258

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

841

 

 

$

923

 

Short-term and current maturities of long-term debt

 

 

22

 

 

 

134

 

Other accrued liabilities

 

 

480

 

 

 

484

 

Total current liabilities

 

 

1,343

 

 

 

1,541

 

Long-term debt, net

 

 

4,012

 

 

 

4,026

 

Operating lease liabilities

 

 

233

 

 

 

245

 

Deferred income taxes

 

 

88

 

 

 

118

 

Other liabilities

 

 

611

 

 

 

633

 

Total liabilities

 

 

6,287

 

 

 

6,563

 

Commitments and contingent liabilities

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Common stock (par value $0.01 per share; 810,000,000 shares authorized;

189,537,718 shares issued and 164,218,483 shares outstanding at March 31, 2020;

188,893,478 shares issued and 163,574,243 shares outstanding at December 31, 2019)

 

 

2

 

 

 

2

 

Treasury stock, at cost (25,319,235 shares at March 31, 2020

and December 31, 2019)

 

 

(1,072

)

 

 

(1,072

)

Additional paid-in capital

 

 

870

 

 

 

859

 

Retained earnings

 

 

1,308

 

 

 

1,249

 

Accumulated other comprehensive loss

 

 

(453

)

 

 

(349

)

Total Chemours stockholders’ equity

 

 

655

 

 

 

689

 

Non-controlling interests

 

 

6

 

 

 

6

 

Total equity

 

 

661

 

 

 

695

 

Total liabilities and equity

 

$

6,948

 

 

$

7,258

 

 

See accompanying notes to the interim consolidated financial statements.

4


 

The Chemours Company

Interim Consolidated Statements of Stockholders’ Equity (Unaudited)

(Dollars in millions, except per share amounts)

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

 

 

Retained

 

 

Accumulated

Other Comprehensive

 

 

Non-controlling

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Earnings

 

 

(Loss) Income

 

 

Interests

 

 

Total Equity

 

Balance at January 1, 2019

 

 

187,204,567

 

 

$

2

 

 

 

16,424,093

 

 

$

(750

)

 

$

860

 

 

$

1,466

 

 

$

(564

)

 

$

6

 

 

$

1,020

 

Common stock issued - compensation plans

 

 

1,078,034

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Exercise of stock options, net

 

 

410,483

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

6

 

Purchases of treasury stock, at cost

 

 

 

 

 

 

 

 

7,278,002

 

 

 

(261

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(261

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

8

 

Cancellation of unissued stock awards withheld to cover taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

 

 

 

 

 

 

 

 

 

(30

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

94

 

 

 

 

 

 

 

 

 

94

 

Dividends ($0.25 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(42

)

 

 

 

 

 

 

 

 

(42

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21

 

 

 

 

 

 

21

 

Balance at March 31, 2019

 

 

188,693,084

 

 

$

2

 

 

 

23,702,095

 

 

$

(1,011

)

 

$

845

 

 

$

1,517

 

 

$

(543

)

 

$

6

 

 

$

816

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2020

 

 

188,893,478

 

 

$

2

 

 

 

25,319,235

 

 

$

(1,072

)

 

$

859

 

 

$

1,249

 

 

$

(349

)

 

$

6

 

 

$

695

 

Common stock issued - compensation plans

 

 

210,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options, net

 

 

433,483

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

5

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

8

 

Cancellation of unissued stock awards withheld to cover taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

(2

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100

 

 

 

 

 

 

 

 

 

100

 

Dividends ($0.25 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(41

)

 

 

 

 

 

 

 

 

(41

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(104

)

 

 

 

 

 

(104

)

Balance at March 31, 2020

 

 

189,537,718

 

 

$

2

 

 

 

25,319,235

 

 

$

(1,072

)

 

$

870

 

 

$

1,308

 

 

$

(453

)

 

$

6

 

 

$

661

 

 


See accompanying notes to the interim consolidated financial statements.

5


 

The Chemours Company

Interim Consolidated Statements of Cash Flows (Unaudited)

(Dollars in millions)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

100

 

 

$

94

 

Adjustments to reconcile net income to cash provided by (used for) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

79

 

 

 

76

 

Equity in earnings of affiliates, net

 

 

(4

)

 

 

(7

)

Amortization of debt issuance costs and issue discounts

 

 

2

 

 

 

3

 

Deferred tax benefit

 

 

(43

)

 

 

(7

)

Asset-related charges

 

 

1

 

 

 

 

Stock-based compensation expense

 

 

8

 

 

 

8

 

Net periodic pension cost

 

 

3

 

 

 

1

 

Defined benefit plan contributions

 

 

(8

)

 

 

(6

)

Other operating charges and credits, net

 

 

3

 

 

 

4

 

Decrease (increase) in operating assets:

 

 

 

 

 

 

 

 

Accounts and notes receivable, net

 

 

(11

)

 

 

16

 

Inventories and other operating assets

 

 

(42

)

 

 

(49

)

(Decrease) increase in operating liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other operating liabilities

 

 

(44

)

 

 

(177

)

Cash provided by (used for) operating activities

 

 

44

 

 

 

(44

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property, plant, and equipment

 

 

(106

)

 

 

(133

)

Foreign exchange contract settlements, net

 

 

(6

)

 

 

(1

)

Cash used for investing activities

 

 

(112

)

 

 

(134

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from accounts receivable securitization facility

 

 

12

 

 

 

 

Debt repayments

 

 

(128

)

 

 

(3

)

Payments on finance leases

 

 

(1

)

 

 

 

Purchases of treasury stock, at cost

 

 

 

 

 

(255

)

Proceeds from exercised stock options, net

 

 

5

 

 

 

6

 

Payments related to tax withholdings on vested stock awards

 

 

(2

)

 

 

(30

)

Payments of dividends

 

 

(41

)

 

 

(42

)

Cash used for financing activities

 

 

(155

)

 

 

(324

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(6

)

 

 

(2

)

Decrease in cash and cash equivalents

 

 

(229

)

 

 

(504

)

Cash and cash equivalents at January 1,

 

 

943

 

 

 

1,201

 

Cash and cash equivalents at March 31,

 

$

714

 

 

$

697

 

 

 

 

 

 

 

 

 

 

Supplemental cash flows information

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Changes in property, plant, and equipment included in accounts payable

 

$

37

 

 

$

(11

)

Obligations incurred under build-to-suit lease arrangement

 

 

 

 

 

17

 

Purchases of treasury stock not settled by period-end

 

 

 

 

 

6

 

 

 

 

See accompanying notes to the interim consolidated financial statements.

6


The Chemours Company

Notes to the Interim Consolidated Financial Statements (Unaudited)

(Dollars in millions, except per share amounts)

 

Note 1. Background, Description of the Business, and Basis of Presentation

 

The Chemours Company (“Chemours,” or the “Company”) is a leading, global provider of performance chemicals that are key inputs in end-products and processes in a variety of industries. The Company delivers customized solutions with a wide range of industrial and specialty chemical products for markets, including plastics and coatings, refrigeration and air conditioning, general industrial, electronics, mining, and oil refining. The Company’s principal products include refrigerants, industrial fluoropolymer resins, sodium cyanide, performance chemicals and intermediates, and titanium dioxide (“TiO2”) pigment. Chemours manages and reports its operating results through three reportable segments: Fluoroproducts, Chemical Solutions, and Titanium Technologies. The Fluoroproducts segment is a leading, global provider of fluoroproducts, including refrigerants and industrial fluoropolymer resins. The Chemical Solutions segment is a leading, North American provider of industrial chemicals used in gold production, industrial, and consumer applications. The Titanium Technologies segment is a leading, global provider of TiO2 pigment, a premium white pigment used to deliver whiteness, brightness, opacity, and protection in a variety of applications.

 

Chemours separated from E. I. du Pont de Nemours and Company (“DuPont”) on July 1, 2015 (the “Separation”). On August 31, 2017, DuPont completed a merger with The Dow Chemical Company (“Dow”). Following their merger, DuPont and Dow engaged in a series of reorganization steps and, in 2019, separated into three publicly-traded companies named Dow Inc., DuPont de Nemours, Inc., and Corteva, Inc. (“Corteva”).

 

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 to “DuPont” refer to E. I. du Pont de Nemours and Company, which is now a subsidiary of Corteva.

 

The accompanying interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair statement of the Company’s results for interim periods have been included. The notes that follow are an integral part of the Company’s interim consolidated financial statements. The Company’s results for interim periods should not be considered indicative of its results for a full year, and the year-end consolidated balance sheet does not include all of the disclosures required by 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, 2019.

 

Certain prior period amounts have been reclassified to conform to the current period presentation, the effect of which was not material to the Company’s interim consolidated financial statements.

 


7


The Chemours Company

Notes to the Interim Consolidated Financial Statements (Unaudited)

(Dollars in millions, except per share amounts)

 

Considerations related to the recent novel coronavirus disease (“COVID-19”)

 

In December 2019, an outbreak of illness caused by COVID-19 was identified in Wuhan, China, and the virus has since continued to spread globally. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. In an attempt to minimize transmission of COVID-19, significant social and economic restrictions have been imposed in the United States and abroad. These restrictions, while necessary and important for public health, have negative business-related implications for the Company and the U.S. and global economy. The magnitude and duration of these negative implications create significant uncertainties for the Company’s financial results and will have an adverse impact on its future operating cash flows. However, management continues to expect that available cash, cash from operations, and existing debt financing arrangements will provide the Company with sufficient liquidity through at least May 2021.

 

In the preparation of these financial statements and related disclosures, management has assessed the impact of COVID-19 on its estimates, assumptions, forecasts, and accounting policies and made additional disclosures, as necessary. As the COVID-19 situation is unprecedented and ever evolving, future events and effects related to the illness cannot be determined with precision, and actual results could significantly differ from estimates or forecasts.

 

 

Note 2. Recent Accounting Pronouncements

 

Recently Adopted Accounting Guidance

 

Measurement of Credit Losses on Financial Instruments

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU No. 2016-13”). The amendments in this update affect loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash, which, for the Company, primarily consists of accounts and notes receivable, net. ASU No. 2016-13 requires an entity to recognize expected credit losses rather than incurred losses for financial assets. The Company adopted ASU No. 2016-13 on January 1, 2020 using the modified retrospective transition method, the effect of which was not material to its financial position, results of operations, and cash flows.  

 


8


The Chemours Company

Notes to the Interim Consolidated Financial Statements (Unaudited)

(Dollars in millions, except per share amounts)

 

Note 3. Net Sales                                   

 

Disaggregation of Net Sales

 

The following table sets forth a disaggregation of the Company’s net sales by geographic region and segment and product group for the three months ended March 31, 2020 and 2019.

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net sales by geographic region (1)

 

 

 

 

 

 

 

 

North America:

 

 

 

 

 

 

 

 

Fluoroproducts

 

$

264

 

 

$

288

 

Chemical Solutions

 

 

54

 

 

 

74

 

Titanium Technologies

 

 

193

 

 

 

197

 

Total North America

 

 

511

 

 

 

559

 

Asia Pacific:

 

 

 

 

 

 

 

 

Fluoroproducts

 

 

133

 

 

 

163

 

Chemical Solutions

 

 

8

 

 

 

16

 

Titanium Technologies

 

 

193