10-Q 1 cc-10q_20170331.htm CC 10-Q 20170331 cc-10q_20170331.htm

 

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, 2017

OR

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

Commission File Number 001-36794

The Chemours Company

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

46-4845564

(State or other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

1007 Market Street, Wilmington, Delaware 19899

(Address of Principal Executive Offices)

(302) 773-1000

(Registrant’s Telephone Number)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files.) Yes ☒ No 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.  (Check one):

 

Large Accelerated Filer 

Accelerated Filer 

Non-Accelerated Filer 

Smaller reporting company 

 

Emerging growth company 

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

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

The Registrant had 184,463,611 shares of common stock, $0.01 par value, outstanding at April 28, 2017.

 

 

 

 


 

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

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

42

Item 4.

Controls and Procedures

43

 

 

 

Part II

Other Information

 

Item 1.

Legal Proceedings

43

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 3.

Defaults Upon Senior Securities

44

Item 4.

Mine Safety Disclosures

44

Item 5.

Other Information

44

Item 6.

Exhibits

44

Signature

 

45

Exhibit Index

 

46

 

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,

 

 

 

2017

 

 

2016

 

Net sales

 

$

1,437

 

 

$

1,297

 

Cost of goods sold

 

 

1,079

 

 

 

1,095

 

Gross profit

 

 

358

 

 

 

202

 

Selling, general and administrative expense

 

 

144

 

 

 

133

 

Research and development expense

 

 

19

 

 

 

23

 

Restructuring and asset-related charges, net

 

 

12

 

 

 

17

 

Total expenses

 

 

175

 

 

 

173

 

Equity in earnings of affiliates

 

 

7

 

 

 

5

 

Interest expense, net

 

 

(51

)

 

 

(57

)

Other income, net

 

 

34

 

 

 

93

 

Income before income taxes

 

 

173

 

 

 

70

 

Provision for income taxes

 

 

22

 

 

 

19

 

Net income

 

 

151

 

 

 

51

 

Less: Net income attributable to noncontrolling interests

 

 

1

 

 

 

 

Net income attributable to Chemours

 

$

150

 

 

$

51

 

Per share data

 

 

 

 

 

 

 

 

Basic earnings per share of common stock

 

$

0.82

 

 

$

0.28

 

Diluted earnings per share of common stock

 

$

0.79

 

 

$

0.28

 

Dividends per share of common stock

 

$

0.03

 

 

$

0.03

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

2017

 

 

2016

 

 

 

Pre-Tax

 

 

Tax

 

 

After-Tax

 

 

Pre-Tax

 

 

Tax

 

 

After-Tax

 

Net income

 

$

173

 

 

$

(22

)

 

$

151

 

 

$

70

 

 

$

(19

)

 

$

51

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on net

   investment hedge

 

 

(10

)

 

 

 

 

 

(10

)

 

 

(7

)

 

 

 

 

 

(7

)

Cumulative translation

   adjustments

 

 

103

 

 

 

 

 

 

103

 

 

 

19

 

 

 

 

 

 

19

 

Defined benefit plans, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign

   exchange rates

 

 

(10

)

 

 

2

 

 

 

(8

)

 

 

(5

)

 

 

1

 

 

 

(4

)

Reclassifications to net

   income 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of loss

 

 

5

 

 

 

(1

)

 

 

4

 

 

 

4

 

 

 

(1

)

 

 

3

 

Defined benefit plans, net

 

 

(5

)

 

 

1

 

 

 

(4

)

 

 

(1

)

 

 

 

 

 

(1

)

Other comprehensive income

 

 

88

 

 

 

1

 

 

 

89

 

 

 

11

 

 

 

 

 

 

11

 

Comprehensive income

 

 

261

 

 

 

(21

)

 

 

240

 

 

 

81

 

 

 

(19

)

 

 

62

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

1

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Chemours

 

$

260

 

 

$

(21

)

 

$

239

 

 

$

81

 

 

$

(19

)

 

$

62

 

 

1

These other comprehensive income components are included in the computation of net periodic benefit costs (refer to Note 15 for further information).

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the interim consolidated financial statements.

3


 

The Chemours Company

Interim Consolidated Balance Sheets

(Dollars in millions, except per share amounts)

 

 

 

March 31,

 

 

 

 

 

 

 

2017

 

 

December 31,

 

 

 

(Unaudited)

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

898

 

 

$

902

 

Accounts and notes receivable - trade, net

 

 

921

 

 

 

807

 

Inventories

 

 

822

 

 

 

767

 

Prepaid expenses and other

 

 

70

 

 

 

77

 

Total current assets

 

 

2,711

 

 

 

2,553

 

Property, plant and equipment

 

 

8,123

 

 

 

7,997

 

Less: Accumulated depreciation

 

 

(5,290

)

 

 

(5,213

)

Net property, plant and equipment

 

 

2,833

 

 

 

2,784

 

Goodwill and other intangible assets, net

 

 

169

 

 

 

170

 

Investments in affiliates

 

 

149

 

 

 

136

 

Other assets

 

 

420

 

 

 

417

 

Total assets

 

$

6,282

 

 

$

6,060

 

Liabilities and equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

941

 

 

$

884

 

Current maturities of long-term debt

 

 

14

 

 

 

15

 

Other accrued liabilities

 

 

780

 

 

 

872

 

Total current liabilities

 

 

1,735

 

 

 

1,771

 

Long-term debt, net

 

 

3,538

 

 

 

3,529

 

Deferred income taxes

 

 

140

 

 

 

132

 

Other liabilities

 

 

511

 

 

 

524

 

Total liabilities

 

 

5,924

 

 

 

5,956

 

Commitments and contingent liabilities

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

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

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

808

 

 

 

789

 

Retained earnings (accumulated deficit)

 

 

31

 

 

 

(114

)

Accumulated other comprehensive loss

 

 

(488

)

 

 

(577

)

Total Chemours stockholders’ equity

 

 

353

 

 

 

100

 

Noncontrolling interests

 

 

5

 

 

 

4

 

Total equity

 

 

358

 

 

 

104

 

Total liabilities and equity

 

$

6,282

 

 

$

6,060

 

 

 

 

 

 

 

 

See accompanying notes to the interim consolidated financial statements.

4


 

The Chemours Company

Interim Consolidated Statements of Stockholders’ Equity (Unaudited)

Three months ended March 31, 2017 and 2016

(Dollars in millions)

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Retained

Earnings

(Accumulated

 

 

Noncontrolling

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit)

 

 

Interests

 

 

Total

 

Balance at

   January 1, 2016

 

 

181,069,751

 

 

$

2

 

 

$

775

 

 

$

(536

)

 

$

(115

)

 

$

4

 

 

$

130

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51

 

 

 

 

 

 

51

 

Common stock issued -   compensation plans

 

 

390,558

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 

 

 

 

 

 

 

(5

)

 

 

 

 

 

 

 

 

 

 

 

(5

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

5

 

Balance at

   March 31, 2016

 

 

181,460,309

 

 

$

2

 

 

$

775

 

 

$

(525

)

 

$

(64

)

 

$

4

 

 

$

192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

   January 1, 2017

 

 

182,600,533

 

 

$

2

 

 

$

789

 

 

$

(577

)

 

$

(114

)

 

$

4

 

 

$

104

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

150

 

 

 

1

 

 

 

151

 

Common stock issued - compensation plans

 

 

415,518

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

 

 

 

(5

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

89

 

 

 

 

 

 

 

 

 

89

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

6

 

Cancellation of unissued stock awards

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

 

 

 

 

 

 

(7

)

Exercise of stock options

 

 

1,382,363

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

20

 

Balance at

   March 31, 2017

 

 

184,398,414

 

 

$

2

 

 

$

808

 

 

$

(488

)

 

$

31

 

 

$

5

 

 

$

358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

2017

 

 

2016

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

151

 

 

$

51

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

71

 

 

 

66

 

Amortization of deferred financing costs and issuance discount

 

 

3

 

 

 

8

 

Gain on sale of assets and businesses

 

 

(16

)

 

 

(89

)

Equity in earnings of affiliates

 

 

(7

)

 

 

(5

)

Deferred tax benefits

 

 

5

 

 

 

10

 

Other operating charges and credits, net

 

 

10

 

 

 

13

 

(Increase) decrease in operating assets:

 

 

 

 

 

 

 

 

Accounts and notes receivable - trade, net

 

 

(103

)

 

 

(40

)

Inventories and other operating assets

 

 

(31

)

 

 

18

 

(Decrease) increase in operating liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other operating liabilities

 

 

(42

)

 

 

4

 

Cash provided by operating activities

 

 

41

 

 

 

36

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(69

)

 

 

(89

)

Proceeds from sales of assets and business, net

 

 

9

 

 

 

140

 

Foreign exchange contract settlements

 

 

(3

)

 

 

(1

)

Cash (used for) provided by investing activities

 

 

(63

)

 

 

50

 

Financing activities

 

 

 

 

 

 

 

 

Debt repayments

 

 

(4

)

 

 

(9

)

Dividends paid

 

 

(5

)

 

 

(5

)

Deferred financing fees

 

 

 

 

 

(2

)

Proceeds from exercised stock options

 

 

20

 

 

 

 

Cash provided by (used for) financing activities

 

 

11

 

 

 

(16

)

Effect of exchange rate changes on cash

 

 

7

 

 

 

(1

)

(Decrease) increase in cash and cash equivalents

 

 

(4

)

 

 

69

 

Cash and cash equivalents at beginning of the period

 

 

902

 

 

 

366

 

Cash and cash equivalents at end of the period

 

$

898

 

 

$

435

 

NON-CASH INVESTING ACTIVITES:

 

 

 

 

 

 

 

 

Change in property, plant and equipment included in accounts payable

 

$

14

 

 

$

3

 

 

 

 

 

 

 

 

 

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. Basis of Presentation

The accompanying interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) 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 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.

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 (other than Chemours and its consolidated subsidiaries), unless the context otherwise requires.

Note 2. Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”.  The objective of this standard update is to remove inconsistent practices with regard to revenue recognition between US GAAP and IFRS. The standard intends to improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets.  The provisions of ASU No. 2014-09 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 plans to adopt ASU 2014-09 as of January 1, 2018.  Subsequent to the issuance of ASU No. 2014-09, the FASB has issued multiple updates in connection with Topic 606.  These updates affect the guidance contained within ASU 2014-09 and will be assessed as part of the Company's revenue recognition project plan.

The Company’s project plan includes a three-phase approach to implementing this standard update. Phase one, the assessment phase, was completed in the first quarter of 2017.  In connection with this initial phase, the Company performed the following activities: conducted internal surveys of its businesses, held revenue recognition workshops with sales and business unit finance leadership, and reviewed a representative sample of revenue arrangements across all businesses to initially identify a set of applicable qualitative revenue recognition changes related to the new standard update.  The Company is now entering its second phase of the project, where the objectives will be to establish and document key accounting policies, assess new disclosure requirements, business process and control impacts, and determine an initial quantitative impact resulting from the new standard update.  Phase two is expected to be completed in the second quarter of 2017.  Lastly, phase three’s objectives will comprise of effectively implementing the new standard update and embedding the new accounting treatment into the Company’s business processes and controls to support the financial reporting requirements.  Phase three is expected to be completed in the fourth quarter of 2017.

The Company is still evaluating the impact that the new standard will have on the Company’s consolidated financial statements and will be unable to quantify its impact until the third phase of the project has been completed.  The method of adoption has also not yet been determined and is not expected to be finalized until the second phase of the project plan has been completed.

In August 2016, the FASB issued various updates to the Accounting Standards Update (ASU) 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”, which clarifies and amends certain cash receipts and cash payments presentation and classification 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) to each period presented and earlier application is permitted.  Chemours is currently evaluating the impact of adopting this guidance but does not expect 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 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

7


The Chemours Company

Notes to the Interim Consolidated Financial Statements (Unaudited)

(Dollars in millions, except per share amounts)

 

the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement 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 is currently evaluating the impact of adopting this guidance but does not expect the adoption will have a significant impact on its results of operations.  The adoption is not expected to have any impact on the Company’s financial position or cash flows.

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 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.  Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply.  The amendments in this update are effective for the Company’s fiscal year beginning January 1, 2019, including interim periods within that fiscal year.  Early application of the amendments in this update is permitted for all entities.  At adoption, the Company will recognize a right-of-use asset and a lease liability initially measured at the present value of its operating lease payments.  The Company is currently evaluating the other impacts of adopting this guidance on its financial position, results of operations and cash flows.

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 and cash flows except for the impact of windfall income tax benefits.  We expect the guidance will cause volatility in the Company’s 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.  In the first quarter of 2017, Chemours recognized approximately $10 of windfall tax benefits primarily from significant options exercised and RSUs vested during the period, which were included in the provision for income taxes for the period ended March 31, 2017.

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 individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but not to exceed the total amount of goodwill allocated to the reporting unit. The guidance is effective for annual and interim goodwill impairment tests in 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 implement its provisions for annual and interim goodwill impairment tests performed prospectively.

Note 3. Restructuring and Asset-Related Charges, Net

For the three months ended March 31, 2017 and 2016, Chemours recorded charges for restructuring and asset-related charges as follows:

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Restructuring Related Charges:

 

 

 

 

 

 

 

 

Employee Separation Charges

 

$

 

 

$

4

 

Decommissioning and other charges, net

 

 

12

 

 

 

13

 

Total restructuring charges, net

 

$

12

 

 

$

17

 

8


The Chemours Company

Notes to the Interim Consolidated Financial Statements (Unaudited)

(Dollars in millions, except per share amounts)

 

 

The charges related to the restructuring programs impacted segment earnings for the three months ended March 31, 2017 and 2016 as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Plant and product line closures 1

 

 

 

 

 

 

 

 

Titanium Technologies

 

$

4

 

 

$

8

 

Fluoroproducts

 

 

3

 

 

 

4

 

Chemical Solutions

 

 

5

 

 

 

1

 

Sub-total

 

 

12

 

 

 

13

 

2015 Global restructuring

 

 

 

 

 

 

 

 

Titanium Technologies

 

 

 

 

 

2

 

Fluoroproducts

 

 

 

 

 

2

 

Chemical Solutions

 

 

 

 

 

 

Sub-total

 

 

 

 

 

4

 

Total

 

$

12

 

 

$

17

 

1

Includes charges related to employee separation, decommissioning and dismantling costs, and asset-related charges 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 approximately $4 and $8 for the three months ended March 31, 2017 and 2016, respectively.  The Company completed all actions related to these restructuring activities and sold the site during the first quarter of 2017.  Cumulative amount incurred, excluding non-cash asset charges, in connection with the Edge Moor plant closure was approximately $60.

Also, in the Fluoroproducts segment, the Company recorded additional decommissioning and dismantling related charges for certain of its production lines in the U.S. of approximately $3 and $4 for the three months ended March 31, 2017 and 2016, respectively.  To date, the Company incurred in aggregate approximately $16 of restructuring costs, excluding non-cash asset charges.  As of March 31, 2017, the Company has substantially completed the actions related to the restructuring activities initiated in 2015.

Further, in the Chemicals Solutions segment, following the production shutdown of our Reactive Metals Solutions manufacturing plant at Niagara Falls, New York in September 2016, the Company immediately began decommissioning the plant.  As a result, for the three months ended March 31, 2017, the Company recorded approximately $5 of decommissioning and dismantling related charges.  To date, the Company incurred in aggregate approximately $21 of restructuring costs, excluding non-cash asset charges. Additional restructuring charges of approximately $5 for decommissioning and site redevelopment are expected to be incurred in 2017, which will be expensed as incurred.

The following table shows the change in the employee separation related liability account associated with the restructuring programs:

 

 

 

Titanium

Technologies

Site Closures

 

 

Fluoroproducts       Lines

Shutdown

 

 

Chemical

Solutions Site

Closures

 

 

2015 Global

Restructuring

 

 

Total

 

Balance as of December 31, 2016

 

$

4

 

 

$

1

 

 

$

8

 

 

$

21

 

 

$

34

 

Charges to income for the three months ended March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charges to liability accounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments

 

 

(1

)

 

 

(1

)

 

 

(1

)

 

 

(9

)

 

 

(12

)

Net currency translation and other adjustment 1

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

Balance as of March 31, 2017

 

$

2

 

 

$

 

 

$

7

 

 

$

13

 

 

$

22

 

1

Amounts include net currency translation adjustment of less than $1 for the periods presented and rounding difference.

9


The Chemours Company

Notes to the Interim Consolidated Financial Statements (Unaudited)

(Dollars in millions, except per share amounts)

 

As of March 31, 2017, there are no significant outstanding liabilities related to decommissioning and other restructuring related charges.

Note 4. Other Income, Net

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Leasing, contract services and miscellaneous income

 

$

8

 

 

$

7

 

Royalty income 1

 

 

5

 

 

 

3

 

Gain on sale of assets and businesses 2

 

 

16

 

 

 

89

 

Exchange gains (losses), net 3

 

 

5

 

 

 

(6

)

Total other income, net

 

$

34

 

 

$

93

 

 

1

Royalty income is primarily from technology and trademark licensing.

2

For the three months ended March 31, 2017, gain on sale includes a gain on sale of the Edge Moor site of approximately $12 and other land sale. The three months ended March 31, 2016 represents a gain on sale of the aniline facility in Beaumont, Texas to the Dow Chemical Company (“Dow”).  The transaction closed on March 1, 2016 and Chemours received $140 from Dow.  

3

Exchange gains (losses), net includes gains and losses on foreign currency forward contracts.  See Note 14 for additional information.

Note 5. Income Taxes

For the three months ended March 31, 2017 and 2016, Chemours recorded a provision for income tax of $22 and $19, respectively, resulting in an effective income tax rate of approximately 13% and 27%, respectively.  The income tax provision for the quarter ended March 31, 2017 is inclusive of a $10 income tax benefit from stock option windfalls in accordance with the recently adopted guidance discussed in Note 2.  The income tax provision for the quarter ended March 31, 2016 is inclusive of $34 income tax expense related to fixed asset sales that took place during the quarter.  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 the U.S. federal jurisdiction and various states and non-U.S. jurisdictions. These tax returns are subject to examination and possible challenge by the 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’ interim consolidated financial statements in accordance with accounting for income taxes, when applicable.  Although it is difficult to predict the timing, the Company estimates that approximately $6 of unrecognized income tax benefits, excluding the impact relating to accrued interest and penalties, could be resolved within the next twelve months as a result of an accounting method change request filed with the Internal Revenue Service in the fourth quarter of 2016. We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected in the Interim Consolidated Balance Sheet as of March 31, 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 net deferred tax assets related to the foreign tax credit of $55 and $50 at March 31, 2017 and December 31, 2016, respectively.

10


The Chemours Company

Notes to the Interim Consolidated Financial Statements (Unaudited)

(Dollars in millions, except per share amounts)

 

Note 6. Earnings Per Share of Common Stock

The table below shows a reconciliation of the numerator and denominator for basic and diluted earnings per share calculations for the periods indicated.

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Numerator:

 

 

 

 

 

 

 

 

Net income attributable to Chemours

 

$

150

 

 

$

51

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average number of common shares

   outstanding- Basic

 

 

183,408,309

 

 

 

181,281,166

 

Dilutive effect of the Company’s employee

   compensation plans 1

 

 

5,741,621

 

 

 

221,974

 

Weighted average number of common shares outstanding -

   Diluted 1

 

 

189,149,930

 

 

 

181,503,140

 

1

Diluted earnings per share is calculated using net income available to common shareholders divided by diluted weighted-average shares of 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 antidilutive effect.         

The following average number of stock options were antidilutive and, therefore, were not included in the diluted earnings per share calculation:

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Average number of stock options

 

 

169,118

 

 

 

8,701,474

 

 

Note 7. Accounts and Notes Receivable – Trade, Net

 

 

 

 

 

 

 

March 31, 2017

 

 

December 31, 2016

 

Accounts receivable—trade, net 1

 

$

840

 

 

$

742

 

VAT, GST and other taxes 2

 

 

61

 

 

 

46

 

Other receivables 3

 

 

20

 

 

 

19

 

Total

 

$

921

 

 

$

807

 

 

1

Accounts receivable – trade, net includes trade notes receivable and is net of allowances of $5 as of March 31, 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 months ended March 31, 2017 and 2016.

Note 8. Inventories

 

 

 

March 31, 2017

 

 

December 31, 2016

 

Finished products

 

$

568

 

 

$

532

 

Semi-finished products

 

 

150

 

 

 

150

 

Raw materials, stores and supplies

 

 

304

 

 

 

285

 

Subtotal

 

 

1,022

 

 

 

967

 

Adjustment of inventories to LIFO basis

 

 

(200

)

 

 

(200

)

Total

 

$

822

 

 

$

767

 

 

11


The Chemours Company

Notes to the Interim Consolidated Financial Statements (Unaudited)

(Dollars in millions, except per share amounts)

 

Inventory values, before LIFO adjustment, are generally determined by the average cost method, which approximates current cost.  Inventories are valued under the LIFO method at substantially all of the U.S. locations, which comprised $459 and $465 or 45% and 48% of inventories before the LIFO adjustments at March 31, 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

Depreciation expense amounted to $70 and $65 for the three months ended March 31, 2017 and 2016, respectively. Property, plant and equipment includes gross assets under capital leases of $5 at March 31, 2017 and $5 at December 31, 2016.

 

Note 10. Other Assets

 

 

March 31, 2017

 

 

December 31, 2016

 

Capitalized repair and maintenance costs

 

$

126

 

 

$

145

 

Pension assets 1

 

 

180

 

 

 

159

 

Deferred income taxes

 

 

45

 

 

 

41

 

Asset held for sale

 

 

29

 

 

 

29

 

Miscellaneous 2

 

 

40

 

 

 

43

 

Total

 

$

420

 

 

$

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 $12 and $13 as of March 31, 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 $61 at March 31, 2017 and December 31, 2016, which are presented net of $61 in outstanding loans from the policy issuer.

 

Asset Held for Sale

In December 2016, in connection with a sale agreement entered into in January 2017 to sell the Company’s corporate headquarters building located in Wilmington, Delaware, the Company recorded an approximately $13 pre-tax impairment charge and classified the net book value of the building as asset held for sale for the year ended December 31, 2016.  The Company completed the sale in April 2017 for gross proceeds of $32.  In connection with the sale, Chemours also entered into lease agreements to lease back a portion of the building beginning in April 2017.  No significant gain or loss is expected to be recognized as a result of the sale and leaseback transaction.

 

Note 11. Other Accrued Liabilities

 

 

 

March 31, 2017

 

 

December 31, 2016

 

Compensation and other employee-related costs

 

$

101

 

 

$