This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") supplements the unaudited Interim Consolidated Financial
Statements and the related notes thereto included elsewhere herein to help
provide an understanding of our financial condition, changes in our financial
condition, and the results of our operations for the periods presented. Unless
the context otherwise requires, references herein to "
This MD&A should be read in conjunction with the unaudited Interim Consolidated
Financial Statements and the related notes thereto included in Item 1 of this
Quarterly Report on Form 10-Q, as well as our audited Consolidated Financial
Statements and the related notes thereto included in our Annual Report on Form
10-K for the year ended
This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, within the meaning of the federal securities laws, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. The words "believe," "expect," "anticipate," "plan," "estimate," "target," "project," and similar expressions, among others, generally identify "forward-looking statements," which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those set forth in the forward-looking statements.
Our forward-looking statements are based on certain assumptions and expectations
of future events that may not be accurate or realized. These statements, as well
as our historical performance, are not guarantees of future performance.
Forward-looking statements also involve risks and uncertainties that are beyond
our control. Additionally, there may be other risks and uncertainties that we
are unable to identify at this time or that we do not currently expect to have a
material impact on our business. Factors that could cause or contribute to these
differences include, but are not limited to, the risks, uncertainties, and other
factors discussed in the Forward-looking Statements and the Risk Factors
sections in our Annual Report on Form 10-K for the year ended
Overview
We are a leading, global provider of performance chemicals that are key inputs in end-products and processes in a variety of industries. We deliver customized solutions with a wide range of industrial and specialty chemicals products for markets, including plastics and coatings, refrigeration and air conditioning, general industrial, electronics, mining, and oil refining. Our principal products include refrigerants, industrial fluoropolymer resins, sodium cyanide, performance chemicals and intermediates, and titanium dioxide ("TiO2") pigment. We manage and report our operating results through three reportable segments: Fluoroproducts, Chemical Solutions, and Titanium Technologies. Our Fluoroproducts segment is a leading, global provider of fluoroproducts, including refrigerants and industrial fluoropolymer resins. Our Chemical Solutions segment is a leading, North American provider of industrial chemicals used in gold production, industrial, and consumer applications. Our Titanium Technologies segment is a leading, global provider of TiO2 pigment, a premium white pigment used to deliver whiteness, brightness, opacity, and protection in a variety of applications.
We are committed to creating value for our customers and stakeholders through the reliable delivery of high-quality products and services around the world. To achieve this goal, we have a global team dedicated to upholding our five core values: (i) customer centricity - driving customer growth, and our own, by understanding our customers' needs and building long-lasting relationships with them; (ii) refreshing simplicity - cutting complexity by investing in what matters, and getting results faster; (iii) collective entrepreneurship - empowering our employees to act like they own our business, while embracing the power of inclusion and teamwork; (iv) safety obsession - living our steadfast belief that a safe workplace is a profitable workplace; and, (v) unshakable integrity - doing what's right for our customers, colleagues, and communities - always.
Additionally, our Corporate Responsibility Commitment focuses on three key principles - inspired people, a shared planet, and an evolved portfolio - in an effort to achieve, among other goals, increased diversity and inclusion in our global workforce, increased sustainability of our products, and becoming carbon positive. We call this responsible chemistry - it is rooted in who we are, and we expect that our Corporate Responsibility Commitment will drive sustainable, long-term earnings growth.
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The Chemours Company Recent Developments
Coronavirus Disease 2019 ("COVID-19")
The COVID-19 pandemic has, to date, resulted in millions of confirmed infections, over 200,000 deaths, and continues to spread throughout the world. As a global provider of performance chemicals that are key inputs in end-products and processes in a variety of industries, a pandemic presents obstacles that can adversely impact our supply chain effectiveness and efficiencies, our manufacturing operations, customer demand for our products, and ultimately, our financial results. Throughout the outbreak and subsequent stages of the COVID-19 pandemic that have occurred thus far, above all, we have remained steadfast in our commitment to the health, safety, and well-being of our employees and their families, while serving our customers, and conserving cash to ensure the continuity of our business operations into the future.
Specific to the first quarter of 2020, we experienced minimal disruption in our operations and business-related activities as a result of the COVID-19 pandemic. We are taking a number of measures to promote the safety and security of our employees, including requiring remote working arrangements for employees where practicable, the imposition of travel restrictions, limiting non-essential visits to plant sites, performing health checks before every shift, and providing personal protective equipment for our "essential" operations employees at our sites and labs. Due to reduced consumer demand for certain of our customers' end-products, we have witnessed the initial negative impact of COVID-19 in our results of operations, specific to certain of our businesses and certain markets in which we operate. As many of our products are key inputs for our customers' uses in end-products, many of which are used by consumers, we anticipate that weakened consumer demand will continue to have a negative impact on our financial results in the future. Refer to the "Segment Reviews" and "2020 Outlook" sections within this MD&A for further considerations regarding the quickly evolving market dynamics that are impacting our businesses and our associated response. We cannot predict with certainty the potential impact of the COVID-19 pandemic on our customers' ability to manufacture their products, as well as any potential future disruptions in our supply chain due to restrictions on travel and transport, regional quarantines, and other social distancing measures. The risks and uncertainties posed by this significant, widespread event are enumerable and far-reaching, including but not limited to those described in Item 1A - Risk Factors in this Quarterly Report on Form 10-Q.
Despite the health and safety, business continuity, and macroeconomic challenges
associated with conducting business in the current environment, we remain
committed to anticipating and meeting the demands of our customers, as they,
like us, navigate uncharted territory. As a precautionary measure in light of
macroeconomic uncertainties driven by COVID-19, we drew
Accounts Receivable Securitization Facility
In
2020 Restructuring Program
In an effort to better align our cost structure with our financial objectives,
we recorded estimated severance costs of
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The Chemours Company
Results of Operations and Business Highlights
Results of Operations
The following table sets forth our results of operations for the three months
ended
Three Months Ended March 31, (Dollars in millions, except per share amounts) 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 0.55Net Sales
The following table sets forth the impacts of price, volume, currency, and
portfolio changes on our net sales for the three months ended
Change in net sales from prior period Three Months EndedMarch 31, 2020 Price (5 )% Volume 3 % Currency (1 )% Portfolio (2 )% Total change in net sales (5 )%
Our net sales decreased by
The drivers of these changes for each of our segments are discussed further under the "Segment Reviews" section within this MD&A.
Cost of Goods Sold
Our cost of goods sold ("COGS") decreased by
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The Chemours Company
Selling, General, and Administrative Expense
Our selling, general, and administrative ("SG&A") expense decreased by
Research and Development Expense
Our research and development expense was largely unchanged at
Restructuring, Asset-Related, and Other Charges
Our restructuring, asset-related, and other charges increased by
Equity in Earnings of Affiliates
Our equity in earnings of affiliates was largely unchanged at
Interest Expense, Net
Our interest expense, net increased by
Other Income (Expense), Net
Our other income (expense), net decreased by
Provision for (Benefit from) Income Taxes
Our provision for (benefit from) income taxes amounted to a benefit from income
taxes of
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The Chemours Company Segment Reviews
Adjusted earnings before interest, taxes, depreciation, and amortization ("Adjusted EBITDA") is the primary measure of segment profitability used by our Chief Operating Decision Maker ("CODM") and is defined as income (loss) before income taxes, excluding the following:
• interest expense, depreciation, and amortization;
• non-operating pension and other post-retirement employee benefit costs,
which represents the component of net periodic pension (income) costs
excluding the service cost component;
• exchange (gains) losses included in other income (expense), net;
• restructuring, asset-related, and other charges;
• asset impairments;
• (gains) losses on sales of assets and businesses; and,
• other items not considered indicative of our ongoing operational performance
and expected to occur infrequently.
A reconciliation of Adjusted EBITDA to net income attributable to Chemours for
the three months ended
The following table sets forth our Adjusted EBITDA by segment for the three
months ended
Three Months Ended March 31, (Dollars in millions) 2020 2019 Fluoroproducts $ 140 $ 159 Chemical Solutions 15 15 Titanium Technologies 138 126 Corporate and Other (36 ) (38 ) Total Adjusted EBITDA $ 257 $ 262 41
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The Chemours Company Fluoroproducts The following table sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Fluoroproducts segment for the three months endedMarch 31, 2020 and 2019. Three Months Ended March 31, (Dollars in millions) 2020 2019 Segment net sales $ 600 $ 687 Adjusted EBITDA 140 159 Adjusted EBITDA margin 23 % 23 %
The following table sets forth the impacts of price, volume, currency, and
portfolio changes on our Fluoroproducts segment's net sales for the three months
ended
Three Months EndedMarch 31 , Change in segment net sales from prior period 2020 Price (4 )% Volume (8 )% Currency (1 )% Portfolio - % Total change in segment net sales (13 )% SegmentNet Sales
Our Fluoroproducts segment's net sales decreased by
Adjusted EBITDA and Adjusted EBITDA Margin
Segment Adjusted EBITDA decreased by
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The Chemours Company Chemical Solutions
The following table sets forth the net sales, Adjusted EBITDA, and Adjusted
EBITDA margin amounts for our Chemical Solutions segment for the three months
ended
Three Months Ended March 31, (Dollars in millions) 2020 2019 Segment net sales $ 92 $ 134 Adjusted EBITDA 15 15 Adjusted EBITDA margin 16 % 11 %
The following table sets forth the impacts of price, volume, currency, and
portfolio changes on our Chemical Solutions segment's net sales for the three
months ended
Three Months EndedMarch 31 , Change in segment net sales from prior period 2020 Price (4 )% Volume (7 )% Currency - % Portfolio (20 )% Total change in segment net sales (31 )% SegmentNet Sales
Our Chemical Solutions segment's net sales decreased by
Adjusted EBITDA and Adjusted EBITDA Margin
Segment Adjusted EBITDA remained constant at
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The Chemours Company Titanium Technologies
The following table sets forth the net sales, Adjusted EBITDA, and Adjusted
EBITDA margin amounts for our Titanium Technologies segment for the three months
ended
Three Months Ended March 31, (Dollars in millions) 2020 2019 Segment net sales $ 613 $ 555 Adjusted EBITDA 138 126 Adjusted EBITDA margin 23 % 23 %
The following table sets forth the impacts of price, volume, currency, and
portfolio changes on our Titanium Technologies segment's net sales for the three
months ended
Three Months Ended March Change in segment net sales from prior period 31, 2020 Price (8 )% Volume 19 % Currency (1 )% Portfolio - % Total change in segment net sales 10 % SegmentNet Sales
Our Titanium Technologies segment's net sales increased by
Adjusted EBITDA and Adjusted EBITDA Margin
Segment Adjusted EBITDA increased by
Corporate and Other
Corporate and Other costs decreased by
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The Chemours Company 2020 Outlook
In light of the COVID-19 pandemic, a tremendous amount of uncertainty has been
introduced into global markets and local economies. We believe that we are
well-positioned to respond to the rapidly evolving market dynamics that are
impacting our businesses. However, in consideration of anticipated, yet
uncertain future declines in customer demand driven by COVID-19, we are
implementing a range of actions aimed at reducing costs by reducing all
discretionary spend, freezing non-critical hiring, and delaying external spend
wherever possible. We are also reducing structural plant fixed costs to improve
the efficiency of our production units, an initiative that was already in flight
at the end of 2019. In addition, where legally permissible, we are making
temporary base pay reductions for salaried employees globally, until we see an
improvement in demand across the Company. This includes our Chief Executive
Officer who is taking a temporary base salary reduction of 40% and the executive
team who are taking a temporary base salary reduction of 30%. These actions are
expected to reduce our costs for the year ending
In our Fluoroproducts segment, we anticipate a continued decline in global
customer demand, as COVID-19 continues to negatively impact end-market demand
from our customers, across several market sectors. In particular, in the
automotive sector, OEM shutdowns in the EU and
In our Chemical Solutions segment, we anticipate that the decline in end-market demand experienced during the first quarter of 2020 will extend into the second quarter, as customer mining operations are impacted by COVID-19. We continue to focus on operations productivity, inventory management, and cash generation in this segment.
In our Titanium Technologies segment, we have yet to experience the material negative effects of COVID-19 on our financial results. However, we expect that the pandemic will negatively impact our typical seasonal growth in sales volumes beyond the first quarter. We continue to collaborate with and remain connected to our customers in meeting their future demands, while mitigating the negative impacts of COVID-19 in certain markets and regions. Given our strong position in ore feedstock supply, we are appropriately positioned to maintain our commitment to our Ti-PureTM Value Stabilization ("TVS") strategy, allowing us to continue to offer our customers a predictable and reliable supply of high-quality TiO2. Through execution of this strategy, our Assured Value Agreements ("AVA") promote net working capital stability, allowing our customers to purchase TiO2 with supply assurance and price predictability once the market recovery begins. Alternatively, our Ti-PureTM Flex online portal provides our customers with the opportunity to log-in from any location and secure their respective product needs and pricing for up to six months. Our third-party agents and distributors also continue to serve markets that we may not reach directly. Through these means of remaining connected with our customers, as well as our strength in ore supply, we anticipate maintaining our market share regained during the first quarter of 2020.
In responding to the COVID-19 pandemic and its subsequent impacts on global markets and local economies, we remain focused on matters that are within our control. Through the underlying strengths of our business operations, financial results and condition, and cash flows, we are fully engaged to protect the health and well-being of our employees and serve our customers.
However, in considering the unpredictability of the duration and magnitude of
the impact of the COVID-19 pandemic, which may be material to our operations and
end-market demand, we are withdrawing our previously published full-year 2020
financial guidance, as issued on
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The Chemours Company
Liquidity and Capital Resources
Our primary sources of liquidity are cash generated from operations, available
cash, receivables securitization, and borrowings under our debt financing
arrangements, which are described in further detail in "Note 14 - Debt" to the
Interim Consolidated Financial Statements and "Note 20 - Debt" to the
Consolidated Financial Statements in our Annual Report on Form 10-K for the year
ended
At
Subsequent to the quarter ended
We anticipate making significant payments for interest, critical capital
expenditures, environmental remediation costs and investments, dividends, and
other actions over the next 12 months, which we expect to fund through cash
generated from operations, available cash, receivables securitization, and
borrowings. We continue to believe our sources of liquidity are sufficient to
fund our planned operations and to meet our interest, dividend, and contractual
obligations through at least
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The Chemours Company Cash Flows
The following table sets forth a summary of the net cash provided by (used for)
our operating, investing, and financing activities for the three months ended
Three Months Ended March 31, (Dollars in millions) 2020 2019 Cash provided by (used for) operating activities $ 44 $ (44 ) Cash used for investing activities (112 ) (134 ) Cash used for financing activities (155 ) (324 ) Operating Activities
We generated
Investing Activities
We used
Financing Activities
We used
We used
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The Chemours Company Current Assets The following table sets forth the components of our current assets atMarch 31, 2020 andDecember 31, 2019 . (Dollars in millions) March 31, 2020 December 31, 2019 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
Our accounts and notes receivable, net increased by
Our inventories increased by
Our prepaid expenses and other assets were largely unchanged at
Current Liabilities
The following table sets forth the components of our current liabilities at
(Dollars in millions) March 31, 2020 December 31, 2019 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
Our accounts payable decreased by
Our short-term and current maturities of long-term debt decreased by
Our other accrued liabilities decreased by
Credit Facilities and Notes
See "Note 14 - Debt" to the Interim Consolidated Financial Statements and "Note
20 - Debt" to the Consolidated Financial Statements in our Annual Report on Form
10-K for the year ended
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The Chemours Company
Guarantor Financial Information
The following disclosures set forth summarized financial information and
alternative disclosures in accordance with Rule 13-01 of Regulation S-X ("Rule
13-01"). These disclosures have been made in connection with certain
subsidiaries' guarantees of the 6.625% senior unsecured notes due
Our summarized financial information is presented on a combined basis,
consisting of the Parent Issuer and Guarantor Subsidiaries (collectively, the
"
(Dollars in millions) Three Months Ended March 31, 2020 Net sales $ 868 Gross profit 132 Income before income taxes 11 Net income 43 Net income attributable to Chemours 43 (Dollars in millions) March 31, 2020 December 31, 2019 Assets Current assets (1,2,3) $ 1,428 $ 1,063 Long-term assets (4) 4,333 4,339 Liabilities Current liabilities (2) $ 1,373 $ 1,045 Long-term liabilities 4,800 4,871 (1) Current assets includes$385 million and$104 million of cash and cash equivalents atMarch 31, 2020 andDecember 31, 2019 , respectively. (2) Current assets includes$330 million and$346 million of intercompany accounts receivable from the Non-Guarantor Subsidiaries atMarch 31, 2020 andDecember 31, 2019 , respectively. Current liabilities includes$510 million and$179 million of intercompany accounts payable to the Non-Guarantor Subsidiaries atMarch 31, 2020 andDecember 31, 2019 , respectively. (3) As ofMarch 31, 2020 andDecember 31, 2019 ,$107 million and$176 million of accounts receivable generated by theObligor Group , respectively, remained outstanding with one of the Non-Guarantor Subsidiaries under the Securitization Facility. (4) Long-term assets includes$1.2 billion of intercompany notes receivable from the Non-Guarantor Subsidiaries atMarch 31, 2020 andDecember 31, 2019 , respectively.
There are no significant restrictions that may affect the ability of the Guarantor Subsidiaries in guaranteeing the Parent Issuer's obligations under our debt financing arrangements. While the Non-Guarantor Subsidiaries do not guarantee the Parent Issuer's obligations under our debt financing arrangements, we may, from time to time, repatriate post-2017 earnings from certain of these subsidiaries to meet our financing obligations, as well.
Supplier Financing
We maintain global paying services agreements with several financial
institutions. Under these agreements, the financial institutions act as our
paying agents with respect to accounts payable due to our suppliers who elect to
participate in the program. The agreements allow our suppliers to sell their
receivables to one of the participating financial institutions at the discretion
of both parties on terms that are negotiated between the supplier and the
respective financial institution. Our obligations to our suppliers, including
the amounts due and scheduled payment dates, are not impacted by our suppliers'
decisions to sell their receivables under this program. At
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The Chemours Company Contractual Obligations
Our contractual obligations at
On
Off-Balance Sheet Arrangements
In
Historically, we have not made significant payments to satisfy guarantee obligations; however, we believe we have the financial resources to satisfy these guarantees in the event required.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in our MD&A and "Note 3 -
Summary of Significant Accounting Policies" to the Consolidated Financial
Statements in our Annual Report on Form 10-K for the year ended
Goodwill
The excess of the purchase price over the estimated fair value of the net assets
acquired in a business combination, including any identified intangible assets,
is recorded as goodwill. We test our goodwill for impairment at least annually
on
During the first quarter of 2020, due to the potential effects of the COVID-19
pandemic on our expected earnings and future operating cash flows, it was
determined that an interim goodwill impairment test was necessary as of
The fair values of our reporting units were determined by using a combination of income-based and/or market-based valuation techniques. These valuation models incorporated a number of assumptions and judgments surrounding general market and economic conditions, the projected duration of the COVID-19 pandemic and the timing and rate of the associated macroeconomic recovery, short and long-term revenue growth rates, gross margins, and prospective financial information surrounding future reporting unit cash flows. Projections are based on internal forecasts of future business performance and are based on growth assumptions which exclude business growth opportunities not yet fully realized. Discount rate and market multiple assumptions were determined based on relevant peer companies in the chemicals sector.
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The Chemours Company
The estimated fair value of the Fluoropolymers reporting unit was determined by
utilizing a discount rate of 9.83% and a market multiple of 6.5 times Adjusted
EBITDA, resulting in an estimated fair value 18% higher than its carrying value.
Fluoropolymers has
The estimated fair value of the Fluorochemicals reporting unit was determined by
utilizing a discount rate of 9.83% and a market multiple of 6.0 times Adjusted
EBITDA, resulting in an estimated fair value more than 200% higher than its
carrying value. Fluorochemicals has
The estimated fair value of the Mining Solutions reporting unit was determined
by utilizing a discount rate of 10.33%, resulting in an estimated fair value 40%
higher than its carrying value. Mining Solutions has
Our determination of the fair value of the Mining Solutions reporting unit
considered further delays and additional costs of construction for our new
Mining Solutions facility under construction in
Based upon the results of our interim goodwill impairment tests, no adjustments
to the carrying value of goodwill were necessary during the quarter ended
Recent Accounting Pronouncements
See "Note 2 - Recent Accounting Pronouncements" to the Interim Consolidated Financial Statements for a discussion about recent accounting pronouncements.
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The Chemours Company Environmental Matters
Consistent with our values and our Environment, Health, Safety, and Corporate Responsibility policy, we are committed to preventing releases to the environment at our manufacturing sites to keep our people and communities safe, and to be good stewards of the environment. We are also subject to environmental laws and regulations relating to the protection of the environment. We believe that, as a general matter, our policies, standards, and procedures are properly designed to prevent unreasonable risk of harm to people and the environment, and that our handling, manufacture, use, and disposal of hazardous substances are in accordance with applicable environmental laws and regulations.
Environmental Remediation
In large part, because of past operations, operations of predecessor companies,
or past disposal practices, we, like many other similar companies, have clean-up
responsibilities and associated remediation costs, and are subject to claims by
other parties, including claims for matters that are liabilities of DuPont and
its subsidiaries that we may be required to indemnify pursuant to the
Separation-related agreements executed prior to our separation from DuPont on
Our environmental liabilities include estimated costs, including certain
accruable costs associated with on-site capital projects, related to a number of
sites for which it is probable that environmental remediation will be required,
whether or not subject to enforcement activities, as well as those obligations
that result from environmental laws such as the Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA," often referred to as
"Superfund"), the Resource Conservation and Recovery Act ("RCRA"), and similar
federal, state, local, and foreign laws. These laws require certain
investigative, remediation, and restoration activities at sites where we conduct
or once conducted operations or at sites where our generated waste was disposed.
At
As remediation efforts progress, sites move from the investigation phase
("Investigation") to the active clean-up phase ("Active Remediation"), and as
construction is completed at Active Remediation sites, those sites move to the
operation, maintenance, and monitoring ("OM&M"), or closure phase. As final
clean-up activities for some significant sites are completed over the next
several years, we expect our annual expenses related to these active sites to
decline over time. The time frame for a site to go through all phases of
remediation (Investigation and Active Remediation) may take about 15 to 20
years, followed by several years of OM&M activities. Remediation activities,
including OM&M activities, vary substantially in duration and cost from site to
site. These activities, and their associated costs, depend on the mix of unique
site characteristics, evolving remediation technologies, and diverse regulatory
requirements, as well as the presence or absence of other Potentially
Responsible Parties ("PRPs"). In addition, for claims that we may be required to
indemnify DuPont pursuant to the Separation-related agreements, we and DuPont
may have limited available information for certain sites or are in the early
stages of discussions with regulators. For these sites, 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
Some remediation sites will achieve site closure and will require no further action to protect people and the environment and comply with laws and regulations. At certain sites, we expect that there will continue to be some level of remediation activity due to ongoing OM&M of remedial systems. In addition, portfolio changes, such as an acquisition or divestiture, or notification as a PRP for a multi-party Superfund site, could result in additional remediation activity and potentially additional accrual.
Management does not believe that any loss, in excess of amounts accrued, related to remediation activities at any individual site will have a material impact on our financial position or cash flows for any given year, as such obligation can be satisfied or settled over many years.
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The Chemours Company
Significant Environmental Remediation Sites
While there are many remediation sites that contribute to our total accrued
environmental remediation liabilities at
(Dollars in millions) March 31, 2020 December 31, 2019 Chambers Works, Deepwater, New Jersey $ 20 $ 20 East Chicago, Indiana 17 17 Fayetteville Works, Fayetteville, North Carolina 196 201 Pompton Lakes, New Jersey 42 43 USS Lead, East Chicago, Indiana 13 13 All other sites 108 112 Total environmental remediation $ 396 $ 406
The five sites listed above represent 73% and 72% of our total accrued
environmental remediation liabilities at
Chambers Works,
The Chambers Works complex is located on the eastern shore of the
In response to identified groundwater contamination, a groundwater interceptor well system ("IWS") was installed in 1970, which was designed to contain contaminated groundwater and restrict off-site migration. Additional remediation is being completed under a federal RCRA Corrective Action permit. The site has been studied extensively over the years, and more than 25 remedial actions have been completed to date and engineering and institutional controls put in place to ensure protection of people and the environment. In the fourth quarter of 2017, a site perimeter sheet pile barrier intended to more efficiently contain groundwater was completed.
Remaining work beyond continued operation of the IWS and groundwater monitoring includes completion of various targeted studies on site and in adjacent water bodies to close investigation data gaps, as well as selection and implementation of final remedies under RCRA Corrective Action for various solid waste management units and areas of concern not yet addressed through interim measures.
East Chicago, Indiana
A comprehensive evaluation of soil and groundwater conditions at the site was
performed as part of the RCRA Corrective Action process. Studies of historical
site impacts began in 1983 in response to preliminary CERCLA actions undertaken
by the
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The Chemours Company
Subsequent investigations included the preparation of initial environmental site
assessments and multiple phases of investigation. In 2002, as an interim
remedial measure, two 2,000-foot long permeable reactive barrier treatment walls
were installed along the northern property boundary to address migration of
chemicals in groundwater. Since that time, the investigation process has been
completed and approved by the
On
Fayetteville Works,
Beginning in 1996, several stages of site investigation were conducted under
oversight by the
As discussed in "Note 16 - Commitments and Contingent Liabilities" to the
Interim Consolidated Financial Statements, we and the NC DEQ have filed a final
Consent Order that comprehensively addressed various issues, NOVs, and court
filings made by the NC DEQ regarding
In the fourth quarter of 2019, we completed and submitted our Cape Fear River
PFAS Loading Reduction Plan - Supplemental Information Report and Corrective
Action Plan ("CAP") to NC DEQ. The Supplemental Information Report provides
information to support the evaluation of potential remedial options to reduce
PFAS loadings to surface waters, including interim alternatives. The CAP
describes potential remediation activities to address PFAS in on-site
groundwater and surface waters at the site, in accordance with the requirements
of the Consent Order and the
In the fourth quarter of 2019, based on the Consent Order, CAP, and our plans,
we accrued an additional
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The Chemours Company Pompton Lakes, New Jersey
During the 20th century, blasting caps, fuses, and related materials were
manufactured at
The USS Lead Superfund site was listed on the National Priorities List in 2009.
To facilitate negotiations with PRPs, the
The environmental accrual for USS Lead continues to include completion of the
remaining obligations under the 2012 Record of Decision ("ROD") and Statement of
Work, which principally encompasses completion of Zone 1. The
In
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The Chemours Company Climate Change
In 2018, we issued our inaugural Corporate Responsibility Commitment Report, which expresses our Corporate Responsibility Commitment - an extension of our growth strategy - as 10 ambitious goals targeted for completion by 2030. Built on the principles of inspired people, shared planet, and an evolved portfolio, our shared planet principle underlines our commitment to deliver essential solutions responsibly, without causing harm to the Earth. With a focus on the responsible treatment of climate, water, and waste, our shared planet goals are comprised of the following:
• Reduce greenhouse gas ("GHG") emissions intensity by 60%; • Advance our plan to become carbon positive by 2050; • Reduce air and water process emissions of fluorinated organic chemicals by 99% or more; and, • Reduce our landfill volume intensity by 70%.
We are committed to improving our resource efficiency, acting on opportunities to reduce our GHG emissions, enhancing the eco-efficiency of our supply chain, and encouraging our employees to reduce their own environmental footprints. We understand that maintaining safe, sustainable operations has an impact on us, our communities, the environment, and our collective future. We continue to invest in research and development in order to develop safer, cleaner, and more efficient products and processes that help our customers and consumers reduce both their GHGs and their overall environmental footprint. We value collaboration to drive change and commit to working with policymakers, our value chain, and other organizations to encourage collective action for reducing GHGs.
PFOA
See our discussion under the heading "PFOA" in "Note 16 - Commitments and Contingent Liabilities" to the Interim Consolidated Financial Statements.
GenX
On
In
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The Chemours Company Non-GAAP Financial Measures
We prepare our interim consolidated financial statements in accordance with
generally accepted accounting principles in the
Adjusted EBITDA is defined as income (loss) before income taxes, excluding the following:
• interest expense, depreciation, and amortization; • non-operating pension and other post-retirement employee benefit costs, which represents the components of net periodic pension (income) costs excluding the service cost component; • exchange (gains) losses included in other income (expense), net; • restructuring, asset-related, and other charges; • asset impairments; • (gains) losses on sales of assets and businesses; and, • other items not considered indicative of our ongoing operational performance and expected to occur infrequently.
Adjusted Net Income is defined as our net income (loss), adjusted for items excluded from Adjusted EBITDA, except interest expense, depreciation, amortization, and certain provision for (benefit from) income tax amounts. Adjusted EPS is calculated by dividing Adjusted Net Income by the weighted-average number of our common shares outstanding. Diluted Adjusted EPS accounts for the dilutive impact of our stock-based compensation awards, which includes unvested restricted shares. FCF is defined as our cash flows provided by (used for) operating activities, less purchases of property, plant, and equipment as shown in our consolidated statements of cash flows. ROIC is defined as Adjusted Earnings before Interest and Taxes ("EBIT"), divided by the average of our invested capital, which amounts to our net debt, or debt less cash and cash equivalents, plus equity.
We believe the presentation of these non-GAAP financial measures, when used in
conjunction with GAAP financial measures, is a useful financial analysis tool
that can assist investors in assessing our operating performance and underlying
prospects. This analysis should not be considered in isolation or as a
substitute for analysis of our results as reported under GAAP. In the future, we
may incur expenses similar to those eliminated in this presentation. Our
presentation of Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, FCF, and
ROIC should not be construed as an inference that our future results will be
unaffected by unusual or infrequently occurring items. The non-GAAP financial
measures we use may be defined differently from measures with the same or
similar names used by other companies. This analysis, as well as the other
information provided in this Quarterly Report on Form 10-Q, should be read in
conjunction with the Interim Consolidated Financial Statements and notes thereto
included in this report, as well as the Consolidated Financial Statements and
notes thereto included in our Annual Report on Form 10-K for the year ended
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The Chemours Company
The following table sets forth a reconciliation of Adjusted EBITDA, Adjusted Net
Income, and Adjusted EPS to our net income attributable to Chemours for the
three months ended
Three Months Ended March 31, (Dollars in millions, except per share amounts) 2020 2019 Net income attributable to Chemours $ 100 $ 94 Non-operating pension and other post-retirement employee benefit income - (3 ) Exchange losses (gains), net 24 (6 ) Restructuring, asset-related, and other charges (1) 11 8 Transaction costs 2 - Legal and environmental charges (2) 10 29 Adjustments made to income taxes (3) (19 ) (5 ) Benefit from income taxes relating to reconciling items (4) (10 ) (8 ) Adjusted Net Income 118 109 Interest expense, net 54 51 Depreciation and amortization 79 76 All remaining provision for income taxes 6 26 Adjusted EBITDA $ 257 $ 262 Weighted-average number of common shares outstanding - basic 164,247,449 167,866,468 Dilutive effect of our employee compensation plans 1,010,542 4,194,432 Weighted-average number of common shares outstanding - diluted 165,257,991 172,060,900 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 Adjusted basic earnings per share of common stock 0.72 0.65 Adjusted diluted earnings per share of common stock 0.71 0.63 (1) Includes restructuring, asset-related, and other charges, which are discussed in further detail in "Note 4 - Restructuring, Asset-related, and Other Charges" to the Interim Consolidated Financial Statements. (2) Legal charges pertains to litigation settlements, PFOA drinking water treatment accruals, and other legal charges. Environmental charges pertains to estimated liabilities associated with on-site remediation, off-site groundwater remediation, and toxicity studies related toFayetteville . The three months endedMarch 31, 2020 includes$8 million in additional charges for the approved final Consent Order associated with certain matters atFayetteville . The three months endedMarch 31, 2019 includes$27 million in additional charges for the estimated liability associated withFayetteville . See "Note 16 - Commitments and Contingent Liabilities" to the Interim Consolidated Financial Statements for further details. (3) Includes the removal of certain discrete income tax impacts within our provision for income taxes, such as shortfalls and windfalls on our share-based payments, historical valuation allowance adjustments, unrealized gains and losses on foreign exchange rate changes, and other discrete income tax items. (4) The income tax impacts included in this caption are determined using the applicable rates in the taxing jurisdictions in which income or expense occurred and represents both current and deferred income tax expense or benefit based on the nature of the non-GAAP financial measure. 58
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The Chemours Company The following table sets forth a reconciliation of FCF to our cash flows provided by (used for) operating activities for the three months endedMarch 31, 2020 and 2019. Three Months Ended March 31, (Dollars in millions) 2020 2019 Cash flows provided by (used for) operating activities $ 44 $ (44 ) Less: Purchases of property, plant, and equipment (106 ) (133 ) Free Cash Flows $ (62 ) $ (177 ) The following table sets forth a reconciliation of ROIC to Adjusted EBIT and average invested capital, and their nearest respective GAAP measures, for the periods presented. Twelve Months Ended March 31, (Dollars in millions) 2020 2019 Adjusted EBITDA (1) $ 1,015 $ 1,535 Less: Depreciation and amortization (1) (313 ) (289 ) Adjusted EBIT $ 702 $ 1,246 As of March 31, (Dollars in millions) 2020 2019 Total debt $ 4,034 $ 3,978 Total equity 661 816 Less: Cash and cash equivalents (714 ) (697 ) Invested capital, net $ 3,981 $ 4,097 Average invested capital (2) $ 4,140 $ 3,853 Return on Invested Capital 17 % 32 % (1) Reconciliations of Adjusted EBITDA to net income (loss) attributable to Chemours are provided on a quarterly basis. See the preceding table for the reconciliation of Adjusted EBITDA to net income attributable to Chemours for the three months endedMarch 31, 2020 and 2019. (2) Average invested capital is based on a five-quarter trailing average of invested capital, net. 59
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The Chemours Company
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