UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
(Exact Name of Registrant as Specified in Its Charter)
(State or other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices)
(
(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 |
|
|
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.
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).
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.
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
The registrant had
The Chemours Company
TABLE OF CONTENTS |
||
|
||
|
|
Page |
Part I |
|
|
Item 1. |
2 |
|
|
2 |
|
|
Interim Consolidated Statements of Comprehensive Income (Unaudited) |
3 |
|
4 |
|
|
Interim Consolidated Statements of Stockholders’ Equity (Unaudited) |
5 |
|
6 |
|
|
Notes to the Interim Consolidated Financial Statements (Unaudited) |
7 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
48 |
Item 3. |
76 |
|
Item 4. |
77 |
|
|
|
|
Part II |
|
|
Item 1. |
78 |
|
Item 1A. |
79 |
|
Item 2. |
79 |
|
Item 3. |
80 |
|
Item 4. |
80 |
|
Item 5. |
80 |
|
Item 6. |
81 |
|
|
82 |
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 September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general, and administrative expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restructuring, asset-related, and other charges |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Total other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity in earnings of affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Gain (loss) on extinguishment of debt |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Provision for (benefit from) income taxes |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to Chemours |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Per share data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per share of common stock |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted earnings per share of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, |
|
|||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||
|
|
Pre-tax |
|
|
Tax |
|
|
After-tax |
|
|
Pre-tax |
|
|
Tax |
|
|
After-tax |
|
||||||
Net income |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
||||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Hedging activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Unrealized gain on net investment hedge |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
|
|
||||
Unrealized gain on cash flow hedge |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Reclassifications to net income - cash flow hedge |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
|
|||
Hedging activities, net |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Cumulative translation adjustment |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Defined benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Additions to accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Effect of foreign exchange rates |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Reclassifications to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amortization of actuarial loss |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Amortization of prior service gain |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Defined benefit plans, net |
|
$ |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
— |
|
|
|
|
||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Comprehensive income attributable to Chemours |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||
|
|
Pre-tax |
|
|
Tax |
|
|
After-tax |
|
|
Pre-tax |
|
|
Tax |
|
|
After-tax |
|
||||||
Net income |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
||||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Hedging activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Unrealized gain on net investment hedge |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
|
|
||||
Unrealized gain on cash flow hedge |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Reclassifications to net income - cash flow hedge |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
Hedging activities, net |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Cumulative translation adjustment |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Defined benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Additions to accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Effect of foreign exchange rates |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Reclassifications to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amortization of actuarial loss |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Amortization of prior service gain |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Defined benefit plans, net |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
|
|
||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Comprehensive income attributable to Chemours |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
See accompanying notes to the interim consolidated financial statements.
3
The Chemours Company
Interim Consolidated Balance Sheets (Unaudited)
(Dollars in millions, except per share amounts)
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Assets |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Accounts and notes receivable, net |
|
|
|
|
|
|
||
Inventories |
|
|
|
|
|
|
||
Prepaid expenses and other |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Property, plant, and equipment |
|
|
|
|
|
|
||
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property, plant, and equipment, net |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Other intangible assets, net |
|
|
|
|
|
|
||
Investments in affiliates |
|
|
|
|
|
|
||
Restricted cash and restricted cash equivalents |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Compensation and other employee-related cost |
|
|
|
|
|
|
||
Short-term and current maturities of long-term debt |
|
|
|
|
|
|
||
Current environmental remediation |
|
|
|
|
|
|
||
Other accrued liabilities |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Long-term debt, net |
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
|
|
|
|
||
Long-term environmental remediation |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
(Note 16) |
|
|
|
|
|
|
||
Equity |
|
|
|
|
|
|
||
Common stock (par value $ |
|
|
|
|
|
|
||
Treasury stock, at cost ( |
|
|
( |
) |
|
|
( |
) |
Additional paid-in capital |
|
|
|
|
|
|
||
Retained earnings |
|
|
|
|
|
|
||
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Total Chemours stockholders’ equity |
|
|
|
|
|
|
||
Non-controlling interests |
|
|
|
|
|
|
||
Total equity |
|
|
|
|
|
|
||
Total liabilities and equity |
|
$ |
|
|
$ |
|
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 |
|
|
Non-controlling |
|
|
|
|
|||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
(Loss) Income |
|
|
Interests |
|
|
Total Equity |
|
|||||||||
Balance at July 1, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
Common stock issued - |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Exercise of stock options, net |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Purchases of treasury stock, at cost |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Dividends declared on common shares ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Dividends to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at September 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance at July 1, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
Common stock issued - |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Exercise of stock options, net |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Purchases of treasury stock, at cost |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Dividends declared on common shares ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Non-controlling |
|
|
|
|
|||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
(Loss) Income |
|
|
Interests |
|
|
Total Equity |
|
|||||||||
Balance at January 1, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
Common stock issued - compensation plans |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Exercise of stock options, net |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Purchases of treasury stock, at cost |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Cancellation of unissued stock awards withheld to cover taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Dividends declared on common shares ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Dividends to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at September 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance at January 1, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
Common stock issued - compensation plans |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Exercise of stock options, net |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Purchases of treasury stock, at cost |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Cancellation of unissued stock awards withheld to cover taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Dividends declared on common shares ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
See accompanying notes to the interim consolidated financial statements.
5
The Chemours Company
Interim Consolidated Statements of Cash Flows (Unaudited)
(Dollars in millions)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Gain on sales of assets and businesses, net |
|
|
( |
) |
|
|
( |
) |
Equity in earnings of affiliates, net |
|
|
( |
) |
|
|
( |
) |
(Gain) loss on extinguishment of debt |
|
|
( |
) |
|
|
|
|
Amortization of debt issuance costs and issue discounts |
|
|
|
|
|
|
||
Deferred tax provision (benefit) |
|
|
|
|
|
( |
) |
|
Asset-related charges |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Net periodic pension cost |
|
|
|
|
|
|
||
Defined benefit plan contributions |
|
|
( |
) |
|
|
( |
) |
Other operating charges and credits, net |
|
|
( |
) |
|
|
|
|
Decrease (increase) in operating assets: |
|
|
|
|
|
|
||
Accounts and notes receivable |
|
|
( |
) |
|
|
( |
) |
Inventories and other operating assets |
|
|
( |
) |
|
|
( |
) |
(Decrease) increase in operating liabilities: |
|
|
|
|
|
|
||
Accounts payable and other operating liabilities |
|
|
|
|
|
|
||
Cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities |
|
|
|
|
|
|
||
Purchases of property, plant, and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from sales of assets and businesses |
|
|
|
|
|
|
||
Foreign exchange contract settlements, net |
|
|
|
|
|
( |
) |
|
Other investing activities |
|
|
( |
) |
|
|
|
|
Cash used for investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities |
|
|
|
|
|
|
||
Proceeds from issuance of debt |
|
|
|
|
|
|
||
Debt repayments |
|
|
( |
) |
|
|
( |
) |
Payments related to extinguishment of debt |
|
|
|
|
|
( |
) |
|
Payments on finance leases |
|
|
( |
) |
|
|
( |
) |
Payments of debt issuance cost |
|
|
( |
) |
|
|
( |
) |
Purchases of treasury stock, at cost |
|
|
( |
) |
|
|
( |
) |
Proceeds from exercised stock options, net |
|
|
|
|
|
|
||
Payments related to tax withholdings on vested stock awards |
|
|
( |
) |
|
|
( |
) |
Payments of dividends to the Company's common shareholders |
|
|
( |
) |
|
|
( |
) |
Distributions to non-controlling interest shareholders |
|
|
|
|
|
( |
) |
|
Cash used for financing activities |
|
|
( |
) |
|
|
( |
) |
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents |
|
|
( |
) |
|
|
( |
) |
(Decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents, restricted cash, and restricted cash equivalents at January 1, |
|
|
|
|
|
|
||
Cash, cash equivalents, restricted cash and restricted cash equivalents at September 30, |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental cash flows information |
|
|
|
|
|
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Purchases of property, plant, and equipment included in accounts payable |
|
$ |
|
|
$ |
|
||
Treasury Stock repurchased, not settled |
|
|
|
|
|
|
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
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 coatings, plastics, refrigeration and air conditioning, transportation, semiconductor and consumer electronics, general industrial, and oil and gas. The Company’s principal products include titanium dioxide (“TiO2”) pigment, refrigerants, industrial fluoropolymer resins, and performance chemicals and intermediates. Chemours manages and reports its operating results through its
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 “EID” refer to E. I. du Pont de Nemours and Company, which is Chemours’ former parent company and is now a subsidiary of Corteva, Inc. (“Corteva”). Reference herein to “DuPont” refer to DuPont de Nemours, Inc.
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, 2021.
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.
Note 2. Recent Accounting Pronouncements
Accounting Guidance Issued and Not Yet Adopted
Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”). The amendments in this update provide optional guidance for a limited period of time to ease the potential burden associated with accounting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. ASU No. 2020-04 is effective March 12, 2020 through December 31, 2022. The Company does not expect the impacts of adopting ASU No. 2020-04 to be material to its financial position, results of operations and cash flows.
7
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”), which requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Topic 606 as if the acquirer had originated the contracts. The guidance will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impacts the adoption of this standard will have on its consolidated financial statements.
Disclosures by Business Entities About Government Assistance
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance (“ASU No. 2021-10”), which requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The guidance will be effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company will adopt the guidance in its consolidated financial statements for the year ending December 31, 2022 and does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
Disclosure of Supplier Finance Program Obligations
In September 2022, the FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations ("ASU 2022-04"), which requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose qualitative and quantitative information about their programs, including key terms and activity during the period. The guidance will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted, and should be applied retrospectively to each period in which a balance sheet is presented subject to certain exceptions. The Company is currently evaluating the disclosure requirement of this standard that will be required to be included in its consolidated financial statements.
Note 3. Acquisitions and Divestitures
Divestitures
In December 2021, the Company entered into an agreement to sell land related to the Beaumont former operating site for cash consideration of approximately $
8
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 4. 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 and nine months ended September 30, 2022 and 2021.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net sales by geographic region (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
North America: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Titanium Technologies |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Thermal & Specialized Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Advanced Performance Materials |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total North America |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia Pacific: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Titanium Technologies |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Thermal & Specialized Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Advanced Performance Materials |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Europe, the Middle East, and Africa: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Titanium Technologies |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Thermal & Specialized Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Advanced Performance Materials |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Europe, the Middle East, and Africa |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Latin America (2): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Titanium Technologies |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Thermal & Specialized Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Advanced Performance Materials |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales by segment and product group |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Titanium Technologies: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Titanium dioxide and other minerals |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Thermal & Specialized Solutions: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Refrigerants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foam, propellants, and other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Advanced Performance Materials: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fluoropolymers and advanced materials |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Substantially all of the Company’s net sales are derived from goods and services transferred at a point in time.
9
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Contract Balances
The Company’s assets and liabilities from contracts with customers constitute accounts receivable - trade, deferred revenue, and customer rebates. An amount for accounts receivable - trade is recorded when the right to consideration under a contract becomes unconditional. An amount for deferred revenue is recorded when consideration is received prior to the conclusion that a contract exists, or when a customer transfers consideration prior to the Company satisfying its performance obligations under a contract. Customer rebates represent an expected refund liability to a customer based on a contract. In contracts with customers where a rebate is offered, it is generally applied retroactively based on the achievement of a certain sales threshold. As revenue is recognized, the Company estimates whether or not the sales threshold will be achieved to determine the amount of variable consideration to include in the transaction price.
The following table sets forth the Company’s contract balances from contracts with customers at September 30, 2022 and December 31, 2021.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Contract assets: |
|
|
|
|
|
|
||
Accounts receivable - trade, net (Note 8) |
|
$ |
|
|
$ |
|
||
Contract liabilities: |
|
|
|
|
|
|
||
Deferred revenue |
|
$ |
|
|
$ |
|
||
Customer rebates (Note 13) |
|
|
|
|
|
|
Changes in the Company’s deferred revenue balances resulting from additions for advance payments and deductions for amounts recognized in net sales during the three and nine months ended September 30, 2022 were not significant. For the three and nine months ended September 30, 2022, the amount of net sales recognized from performance obligations satisfied in prior periods (e.g., due to changes in transaction price) were not significant.
There were no material contract asset balances or capitalized costs associated with obtaining or fulfilling customer contracts as of September 30, 2022 and December 31, 2021.
Remaining Performance Obligations
Certain of the Company’s master services agreements or other arrangements contain take-or-pay clauses, whereby customers are required to purchase a fixed minimum quantity of product during a specified period, or pay the Company for such orders, even if not requested by the customer. The Company considers these take-or-pay clauses to be an enforceable contract, and as such, the legally-enforceable minimum amounts under such an arrangement are considered to be outstanding performance obligations on contracts with an original expected duration greater than one year. At September 30, 2022, Chemours had $
10
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 5. Restructuring, Asset-related, and Other Charges
The following table sets forth the components of the Company’s restructuring, asset-related, and other charges for the three and nine months ended September 30, 2022 and 2021.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Employee separation charges |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||
Decommissioning and other charges (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total restructuring and other charges |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Asset-related charges (2) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total restructuring, asset-related, and other charges |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
2022 Restructuring Program
In the first quarter of 2022, management initiated a severance program that was largely attributable to further aligning the cost structure of the Company’s businesses and corporate functions with its financial objectives. As a result, the Company recorded approximately $
The following table sets forth the change in the Company’s employee separation-related liabilities associated with its restructuring programs for the nine months ended September 30, 2022.
|
|
Other Segment |
|
|
2022 Restructuring |
|
|
Total |
|
|||
Balance at December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Charges to income |
|
|
|
|
|
|
|
|
|
|||
Payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
At September 30, 2022, there were no significant outstanding liabilities related to the Company’s decommissioning and other restructuring-related charges.
11
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 6. Other Income (Expense), Net
The following table sets forth the components of the Company’s other income (expense), net for the three and nine months ended September 30, 2022 and 2021.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Leasing, contract services, and miscellaneous income (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Royalty income (2) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on sales of assets and businesses, net (3) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exchange gains (losses), net (4) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Non-operating pension and other post-retirement employee benefit income (5) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total other income, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Note 7. Earnings Per Share of Common Stock
The following table sets forth the reconciliations of the numerators and denominators of the Company’s basic and diluted earnings per share (“EPS”) calculations for the three and nine months ended September 30, 2022 and 2021.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to Chemours |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average number of common shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of the Company’s employee compensation plans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average number of common shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per share of common stock |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted earnings per share of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the average number of stock options that were anti-dilutive and, therefore, were not included in the Company’s diluted EPS calculations for the three and nine months ended September 30, 2022 and 2021.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Average number of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
12
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 8. Accounts and Notes Receivable, Net
The following table sets forth the components of the Company’s accounts and notes receivable, net at September 30, 2022 and December 31, 2021.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Accounts receivable - trade, net (1) |
|
$ |
|
|
$ |
|
||
VAT, GST, and other taxes (2) |
|
|
|
|
|
|
||
Other receivables (3) |
|
|
|
|
|
|
||
Total accounts and notes receivable, net |
|
$ |
|
|
$ |
|
Accounts and notes receivable are carried at amounts that approximate fair value. Bad debt expense amounted to $
Note 9. Inventories
The following table sets forth the components of the Company’s inventories at September 30, 2022 and December 31, 2021.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Finished products |
|
$ |
|
|
$ |
|
||
Semi-finished products |
|
|
|
|
|
|
||
Raw materials, stores, and supplies |
|
|
|
|
|
|
||
Inventories before LIFO adjustment |
|
|
|
|
|
|
||
Less: Adjustment of inventories to LIFO basis |
|
|
( |
) |
|
|
( |
) |
Total inventories |
|
$ |
|
|
$ |
|
Inventory values, before last-in, first-out (“LIFO”) adjustment are generally determined by the average cost method, which approximates current cost. Inventories are valued under the LIFO method at substantially all of the Company’s U.S. locations, which comprised $
13
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 10. Property, Plant, and Equipment, Net
The following table sets forth the components of the Company’s property, plant, and equipment, net at September 30, 2022 and December 31, 2021.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Equipment |
|
$ |
|
|
$ |
|
||
Buildings |
|
|
|
|
|
|
||
Construction-in-progress |
|
|
|
|
|
|
||
Land |
|
|
|
|
|
|
||
Mineral rights |
|
|
|
|
|
|
||
Property, plant, and equipment |
|
|
|
|
|
|
||
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property, plant, and equipment, net |
|
$ |
|
|
$ |
|
Property, plant, and equipment, net included gross assets under finance leases of $
Depreciation expense amounted to $
Note 11. Investments in Affiliates
The Company engages in transactions with its equity method investees in the ordinary course of business. Net sales to the Company’s equity method investees amounted to $
Note 12. Other Assets
The following table sets forth the components of the Company’s other assets at September 30, 2022 and December 31, 2021.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Capitalized repair and maintenance costs |
|
$ |
|
|
$ |
|
||
Pension assets (1) |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Miscellaneous |
|
|
|
|
|
|
||
Total other assets |
|
$ |
|
|
$ |
|
14
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 13. Other Accrued Liabilities
The following table sets forth the components of the Company’s other accrued liabilities at September 30, 2022 and December 31, 2021.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Accrued litigation (1) |
|
$ |
|
|
$ |
|
||
Asset retirement obligations (2) |
|
|
|
|
|
|
||
Income taxes |
|
|
|
|
|
|
||
Customer rebates |
|
|
|
|
|
|
||
Accrued interest |
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
|
|
|
|
||
Miscellaneous (3) |
|
|
|
|
|
|
||
Total other accrued liabilities |
|
$ |
|
|
$ |
|
Note 14. Debt
The following table sets forth the components of the Company’s debt at September 30, 2022 and December 31, 2021.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Senior secured term loans: |
|
|
|
|
|
|
||
Tranche B-2 U.S. dollar term loan due April 2025 |
|
$ |
|
|
$ |
|
||
Tranche B-2 euro term loan due April 2025 |
|
|
|
|
|
|
||
Senior unsecured notes: |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Finance lease liabilities |
|
|
|
|
|
|
||
Financing obligation (1) |
|
|
|
|
|
|
||
Total debt principal |
|
|
|
|
|
|
||
Less: Unamortized issue discounts |
|
|
( |
) |
|
|
( |
) |
Less: Unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Less: Short-term and current maturities of long-term debt |
|
|
( |
) |
|
|
( |
) |
Total long-term debt, net |
|
$ |
|
|
$ |
|
15
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Senior Secured Credit Facilities
The Company’s credit agreement, as amended and restated on April 3, 2018 (“Credit Agreement”), provides for a
Note Repurchases
During the three months ended September 30, 2022, the Company repurchased through open market transactions, an aggregate principal of $
Accounts Receivable Securitization Facility
The Company, through a wholly-owned special purpose entity (“SPE”), maintains an amended and restated receivables purchase agreement dated March 9, 2020, which was amended on March 5, 2021 and further amended on November 24, 2021 (the “Amended Purchase Agreement”). Pursuant to the Amended Purchase Agreement, the Company does not maintain effective control over the transferred receivables, and therefore accounts for these transfers as sales of receivables.
Cash received from collections of sold receivables is used to fund additional purchases of receivables at
Maturities
The Company has required quarterly principal payments related to the Senior Secured Credit Facilities equivalent to
16
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
The following table sets forth the Company’s debt principal maturities for the next five years and thereafter.
Remainder of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total principal maturities on debt |
|
$ |
|
Debt Fair Value
The following table sets forth the estimated fair values of the Company’s senior debt issues, which are based on quotes received from third-party brokers, and are classified as Level 2 financial instruments in the fair value hierarchy.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
|
|
Carrying |
|
|
Fair Value |
|
|
Carrying |
|
|
Fair Value |
|
||||
Senior secured term loans: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tranche B-2 U.S. dollar term loan due April 2025 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Tranche B-2 euro term loan due April 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Senior unsecured notes: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total senior debt principal |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Less: Unamortized issue discounts |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Less: Unamortized debt issuance costs |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Total senior debt, net |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
Note 15. Other Liabilities
The following table sets forth the components of the Company’s other liabilities at September 30, 2022 and December 31, 2021.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Employee-related costs (1) |
|
$ |
|
|
$ |
|
||
Accrued litigation (2) |
|
|
|
|
|
|
||
Asset retirement obligations (3) |
|
|
|
|
|
|
||
Miscellaneous (4) |
|
|
|
|
|
|
||
Total other liabilities |
|
$ |
|
|
$ |
|
17
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 16. Commitments and Contingent Liabilities
Litigation Overview
The Company and certain of its subsidiaries, from time to time, are subject to various lawsuits, claims, assessments, and proceedings with respect to product liability, intellectual property, personal injury, commercial, contractual, employment, governmental, environmental, anti-trust, and other such matters that arise in the ordinary course of business. In addition, Chemours, by virtue of its status as a subsidiary of EID prior to its separation on July 1, 2015 (the “Separation”), is subject to or required under the Separation-related agreements executed prior to the Separation to indemnify EID against various pending legal proceedings. Except as noted below, while management believes it is reasonably possible that Chemours could incur losses in excess of the amounts accrued, if any, for the aforementioned proceedings, it does not believe any such loss would have a material impact on the Company’s consolidated financial position, results of operations, or cash flows. It is not possible to predict the outcomes of these various lawsuits, claims, assessments, or proceedings. Disputes between Chemours and EID may arise regarding indemnification matters, including disputes based on matters of law or contract interpretation. Should disputes arise, they could materially adversely affect Chemours.
The Company accrues for litigation matters when it is probable that a liability has been incurred, and the amount of the liability can be reasonably estimated. Where the available information is only sufficient to establish a range of probable liability, and no point within the range is more likely than any other, the lower end of the range has been used. When a material loss contingency is reasonably possible, but not probable, the Company does not record a liability, but instead discloses the nature of the matter and an estimate of the loss or range of loss, to the extent such estimate can be made. Legal costs such as outside counsel fees and expenses are recognized in the period in which the expense was incurred. Management believes the Company’s litigation accruals are appropriate based on the facts and circumstances for each matter, which are discussed in further detail below.
The following table sets forth the components of the Company’s accrued litigation at September 30, 2022 and December 31, 2021.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Asbestos |
|
$ |
|
|
$ |
|
||
PFOA |
|
|
|
|
|
|
||
All other matters (1) |
|
|
|
|
|
|
||
Total accrued litigation |
|
$ |
|
|
$ |
|
The following table sets forth the current and long-term components of the Company’s accrued litigation and their balance sheet locations at September 30, 2022 and December 31, 2021.
|
|
Balance Sheet Location |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Accrued Litigation: |
|
|
|
|
|
|
|
|
||
Current accrued litigation (1) |
|
Other accrued liabilities (Note 13) |
|
$ |
|
|
$ |
|
||
Long-term accrued litigation |
|
Other liabilities (Note 15) |
|
|
|
|
|
|
||
Total accrued litigation |
|
|
|
$ |
|
|
$ |
|
18
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Memorandum of Understanding (the “MOU”) with DuPont, Corteva and EID
In January 2021, Chemours, DuPont, Corteva, and EID, a subsidiary of Corteva, entered into a binding MOU, reflecting the parties’ agreement to share potential future legacy liabilities relating to per- and polyfluoroalkyl substances (“PFAS”) arising out of pre-July 1, 2015 conduct (i.e., “Indemnifiable Losses”, as defined in the separation agreement, dated as of June 26, 2015, as amended, between EID and Chemours (the “Separation Agreement”)) until the earlier to occur of: (i) December 31, 2040; (ii) the day on which the aggregate amount of Qualified Spend is equal to $
The parties have agreed that, during the term of the cost-sharing arrangement, Chemours will bear half of the cost of such future potential legacy PFAS liabilities, and DuPont and Corteva will collectively bear the other half of the cost of such future potential legacy PFAS liabilities up to an aggregate $
After the term of this arrangement, Chemours’ indemnification obligations under the Separation Agreement would continue unchanged, subject in each case to certain exceptions set out in the MOU. Pursuant to the terms of the MOU, the parties have agreed to release certain claims regarding Chemours’ Delaware lawsuit and confidential arbitration (concerning the indemnification of specified liabilities that EID assigned to Chemours in its spin-off), including that Chemours has released any claim set forth in the complaint filed in the Delaware lawsuit, any other similar claims arising out of or resulting from the facts recited by Chemours in the complaint or the process and manner in which EID structured or conducted the spin-off, and any other claims that challenge the spin-off or the assumption of Chemours Liabilities (as defined in the Separation Agreement) by Chemours and the allocation thereof, subject in each case to certain exceptions set out in the MOU. The parties have further agreed not to bring any future, additional claims regarding the Separation Agreement or the MOU outside of arbitration.
19
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
The parties have also agreed to establish an escrow account to support and manage the payments for potential future PFAS liabilities. The MOU provides that: (i) no later than each of September 30, 2021 and September 30, 2022, Chemours shall deposit $
The parties will cooperate in good faith to enter into additional agreements reflecting the terms set forth in the MOU.
Asbestos
In the Separation, EID assigned its asbestos docket to Chemours. At September 30, 2022 and December 31, 2021, there were approximately
At September 30, 2022 and December 31, 2021, Chemours had an accrual of $
Benzene
In the Separation, EID assigned its benzene docket to Chemours. At September 30, 2022 and December 31, 2021, there were
Management believes that a loss is reasonably possible as to the docket as a whole; however, given the evaluation of each benzene matter is highly fact-driven and impacted by disease, exposure, and other factors, a range of such losses cannot be reasonably estimated at this time.
In May 2021, the Company and EID filed suit in Delaware state court against multiple insurance companies for breach of their contractual obligations to indemnify Chemours and EID against liabilities, costs and losses relating to benzene litigation which are covered under liability insurance policies purchased by EID during the period 1967 to 1986. EID and Chemours are seeking payment of all costs and settlement amounts for past and future benzene cases falling under those policies. The outcome of this matter is not expected to have a material impact on Chemours’ results of operations or financial position.
20
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
PFOA
Chemours does not, and has never, used “PFOA” (collectively, perfluorooctanoic acids and its salts, including the ammonium salt) as a polymer processing aid nor sold it as a commercial product. Prior to the Separation, the performance chemicals segment of EID made PFOA at its Fayetteville Works site in Fayetteville, North Carolina (“Fayetteville”) and used PFOA as a processing aid in the manufacture of fluoropolymers and fluoroelastomers at certain sites, including: Washington Works, Parkersburg, West Virginia; Chambers Works, Deepwater, New Jersey; Dordrecht Works, Netherlands; Changshu Works, China; and, Shimizu, Japan. These sites are now owned and/or operated by Chemours.
At September 30, 2022 and December 31, 2021, Chemours maintained accruals of $
Leach Settlement
In 2004, EID settled a class action captioned Leach v. DuPont, filed in West Virginia state court, alleging that approximately
The C8 Science Panel found probable links, as defined in the settlement agreement, between exposure to PFOA and pregnancy-induced hypertension, including preeclampsia, kidney cancer, testicular cancer, thyroid disease, ulcerative colitis, and diagnosed high cholesterol. Under the terms of the settlement, EID is obligated to fund up to $
In addition, under the Leach settlement agreement, EID must continue to provide water treatment designed to reduce the level of PFOA in water to
PFOA Leach Class Personal Injury
Further, under the Leach settlement, class members may pursue personal injury claims against EID only for those diseases for which the C8 Science Panel determined a probable link exists. Approximately
Concurrently with the First MDL Settlement, EID and Chemours agreed to a limited sharing of potential future PFOA costs (i.e. “Indemnifiable Losses”, as defined in the Separation Agreement between EID and Chemours) for a period of
21
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
While all MDL lawsuits were dismissed or resolved through the First MDL Settlement, the First MDL Settlement did not resolve PFOA personal injury claims of plaintiffs who did not have cases or claims in the MDL or personal injury claims based on diseases first diagnosed after February 11, 2017. Approximately
The single then-pending matter not included in the Second MDL Settlement is a testicular cancer case tried in March 2020 to a verdict of $
In August 2022, a personal injury case was filed in federal court in West Virginia on behalf of a plaintiff purporting to be a member of the Leach Class. The Company has opposed a recent filing by that plaintiff seeking to have the matter transferred to the Ohio federal court MDL.
State of Ohio
In February 2018, the State of Ohio initiated litigation against EID regarding historical PFOA emissions from the Washington Works site. Chemours is an additional named defendant. Ohio alleges damage to natural resources and fraudulent transfer in the spin-off that created Chemours and seeks damages including remediation and other costs and punitive damages.
PFAS
EID and Chemours have received governmental and regulatory inquiries and have been named in other litigations, including class actions, brought by individuals, municipalities, businesses, and water districts alleging exposure to and/or contamination from PFAS, including PFOA. Many actions include an allegation of fraudulent transfer in the spin-off that created Chemours. Chemours has declined EID’s requests for indemnity for fraudulent transfer claims.
Chemours has responded to letters and inquiries from governmental law enforcement entities regarding PFAS, including in January 2020, a letter informing it that the U.S. Department of Justice, Consumer Protection Branch, and the United States Attorney’s Office for the Eastern District of Pennsylvania are considering whether to open a criminal investigation under the Federal Food, Drug, and Cosmetic Act and asking that it retain its documents regarding PFAS and food contact applications. In July 2020, Chemours received a grand jury subpoena for documents. In October 2022, the Company along with other entities received a Notice of Intent to Commence Litigation from the State of California pursuant to its investigation relating to PFAS manufacturing, marketing, sale and disposal. The Company is presently unable to predict the duration, scope, or result of any potential governmental, criminal, or civil proceeding that may result, the imposition of fines and penalties, and/or other remedies. The Company is also unable to develop a reasonable estimate of a possible loss or range of losses, if any.
Fayetteville Works, Fayetteville, North Carolina
For information regarding the Company’s ongoing litigation and environmental remediation matters at Fayetteville, refer to “Fayetteville Works, Fayetteville, North Carolina” under the “Environmental Overview” within this “Note 16 – Commitments and Contingent Liabilities”.
22
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Aqueous Film Forming Foam Matters
Chemours does not, and has never, manufactured nor sold aqueous film forming foam (“AFFF”). Numerous defendants, including EID and Chemours have been named in approximately 3,100 matters, involving AFFF, which is used to extinguish hydrocarbon-based (i.e., Class B) fires and subject to U.S. military specifications. Most matters have been transferred to or filed directly into a multi-district litigation (“AFFF MDL”) in South Carolina federal court or identified by a party for transfer. The matters pending in the AFFF MDL allege damages as a result of contamination, in most cases due to migration from military installations or airports, or personal injury from exposure to AFFF. Plaintiffs seek to recover damages for investigating, monitoring, remediating, treating, and otherwise responding to the contamination. Others have claims for personal injury, property diminution, and punitive damages.
In March 2021, ten water provider cases within the AFFF MDL were approved by the court for purposes of commencing initial discovery (Tier One discovery) and in October 2021, the court approved three of these cases for additional discovery (Tier Two discovery). In September 2022, a water provider action filed by the City of Stuart, Florida was selected for the first bellwether trial and will be called for jury selection and/or trial on or after June 5, 2023. The court has encouraged all parties to discuss resolution of the water provider category of cases. Consistent with the court’s instruction and under the mutual obligations of the MOU, Chemours, Corteva/EID and DuPont, together, are engaged with Plaintiffs’ Counsel on these cases.
There are AFFF lawsuits pending outside the AFFF MDL that have not been designated by a party for inclusion in the MDL. These matters identifying EID and/or Chemours as a defendant are:
Valero Refining (“Valero”) has five pending state court lawsuits filed commencing in June 2019 regarding its Tennessee, Texas, Oklahoma, California, and Louisiana facilities. These lawsuits allege that several defendants that designed, manufactured, marketed, and/or sold AFFF or PFAS incorporated into AFFF have caused Valero to incur damages and costs including remediation, AFFF disposal, and replacement. Valero also alleges fraudulent transfer.
In New York, four individuals filed a lawsuit against numerous defendants including Chemours. The lawsuit alleges personal injury resulting from exposure to AFFF in Long Island drinking water and violation of New York Uniform Fraudulent Conveyance Act. Plaintiffs seek compensatory and punitive damages and medical monitoring.
In Texas, a lawsuit was filed against numerous defendants including Chemours, DuPont and Corteva. The lawsuit alleges personal injury from occupational exposure to AFFF. Plaintiffs seek compensatory and punitive damages. In the first quarter of 2022, certain defendants including Chemours, DuPont and Corteva were dismissed.
In Illinois, a lawsuit was filed in May 2022 in the state court against numerous defendants, including EID. The lawsuit alleges personal injury from occupational exposure, including from AFFF-related materials/products, and seeks compensatory damages and punitive damages. Chemours is not a named defendant.
State Natural Resource Damages Matters
In addition to the State of New Jersey actions (as detailed below) and the State of Ohio action (as detailed above), the states of Vermont, Massachusetts, New Hampshire, New York, Michigan, North Carolina, Mississippi, Alaska, Pennsylvania, Colorado, Florida and Wisconsin have filed lawsuits against defendants, including EID and Chemours, relating to the alleged contamination of state natural resources with PFAS compounds either from AFFF and/or other sources. These lawsuits seek damages including costs to investigate, clean up, restore, treat, monitor, or otherwise respond to contamination of natural resources and some include counts for fraudulent transfer.
23
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
On July 13, 2021, Chemours, DuPont, Corteva, and EID entered into a settlement agreement with the State of Delaware to settle such potential claims, including for environmental releases or sales of products containing PFAS or other known contaminants. Under the agreement, in January 2022, the companies paid a total amount of $
Other PFAS Matters
In New York courts, EID has been named in approximately
Furthermore, 13 Long Island water suppliers have filed lawsuits against several defendants including EID and Chemours alleging PFAS, PFOA, and perfluorooctanesulfonic acid (“PFOS”) contamination through releases from industrial and manufacturing facilities and business locations where PFAS-contaminated water was used for irrigation and sites where consumer products were disposed. Claims vary between matters but include claims of personal injury alleging various disease conditions, product liability, negligence, nuisance, trespass and fraudulent transfer. All matters are seeking compensatory and punitive damages and, in certain cases, medical monitoring, declaratory and/or injunctive relief. In January 2022, Chemours filed a third-party claim for indemnity in connection with one of the Long Island water supplier matters.
In New York and New Jersey, lawsuits were filed by Suez Water against several defendants, including EID and Chemours, alleging damages from PFAS releases into the environment, including PFOA and PFOS, that impacted water sources that the utilities use to provide water, as well as products liability, negligence, nuisance, and trespass. Defendants filed motions to dismiss the complaints in both matters. The motion was denied in the Suez Water New Jersey lawsuit in October 2021. In January 2022, the court granted defendants’ motion to dismiss in the Suez New York lawsuit without prejudice and the plaintiff filed a second amended complaint in February 2022. Following the filing of the second amended complaint in the Suez New York lawsuit, the defendants filed a motion to dismiss.
In New Jersey, lawsuits were filed against several defendants including EID and Chemours. The lawsuits include
24
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
In Georgia and Alabama, lawsuits were filed against numerous carpet manufacturers and suppliers and former suppliers, including EID and Chemours. The lawsuits include a matter filed by the Water Works and Sewer Board of the Town of Centre, Alabama and a matter filed by the City of Rome, Georgia alleging negligence, nuisance, and trespass in the release of PFAS, including PFOA, into a river leading to the town’s water source. Additionally, a putative class action was filed on behalf of customers of the Rome, Georgia water division and the Floyd County, Georgia water department alleging negligence and nuisance and related to the release of perfluorinated compounds, including PFOA, into a river leading to their water sources.
In Ohio, a putative class action (“Hardwick”) was filed against several defendants including 3M, EID and Chemours seeking class action status for U.S. residents having a detectable level of PFAS in their blood serum. The complaint seeks declaratory and injunctive relief, including the establishment of a “PFAS Science Panel”. In March 2022, the court granted in part and denied in part the plaintiff’s class certification and certified a class covering anyone subject to Ohio laws having minimal levels of PFOA plus at least one other PFAS in their blood. The court requested further briefing on whether the class should be extended to include other states that recognize the claims for relief filed in the action. The defendants, including EID and Chemours, jointly filed a petition to appeal the class certification decision and in September 2022 the petition was granted and appellate review will proceed. Defendants will continue to defend at the trial court level while this appeal is pending. Management believes that a loss is reasonably possible as to the Hardwick matter, but not estimable at this time given the significant class issues to be resolved and that this matter is entering the discovery phase.
In California, several lawsuits were filed in state court against several defendants, including EID and Chemours. The complaints allege product liability, negligence, nuisance and trespass. Plaintiffs seek declaratory and injunctive relief, including abatement, as well as compensatory and punitive damages. The lawsuits include matters filed by:
In Delaware, a putative class action was filed against two electroplating companies, 3M and EID, and two other defendants added in an amended complaint, alleging responsibility for PFAS contamination, including PFOA and PFOS, in drinking water and the environment in the nearby community. Although initially named in the lawsuit, Chemours was subsequently dismissed. The putative class of residents alleges negligence, nuisance, trespass, and other claims and seeks medical monitoring, personal injury and property damages, and punitive damages.
In South Carolina, a putative class action was filed in March 2022 in the state court against 3M, EID and the Company alleging PFAS contamination from a former textile plant located in Society Hill, South Carolina which allegedly used PFAS containing textile treatment chemicals supplied by the defendants. The lawsuit alleges negligence, trespass, strict liability and nuisance and seeks monetary damages, including property diminution, and injunctive relief, including water treatment and remediation, as well as punitive damages. The matter has been removed to federal court.
In Alabama, a purported class action was filed in July 2022 in Alabama federal court on behalf of certain drinking water utilities against 3M, EID, Corteva and the Company alleging contamination of drinking water. The complaints allege negligence, public nuisance, private nuisance and trespass. The plaintiffs seek injunctive relief as well as compensatory and punitive damages.
25
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
In Maine, a previously filed lawsuit in federal court by individuals against various paper mills owners in Maine was amended in October 2022 to add various alleged suppliers to the paper mills as defendants, including EID. The lawsuit alleges PFAS chemicals were used in making paper products at the mills and that discharges, waste disposal and the selling of byproducts from paper mills caused property damages as well as personal injury to the plaintiffs. The lawsuit alleges various claims against the mills; alleges negligence, strict liability and nuisance against the supplier defendants; and seeks monetary damages.
In the Netherlands, Chemours, along with DuPont and Corteva, received a civil summons filed before the Court of Rotterdam by four municipalities (Dordrecht, Papendrecht, Sliedrecht and Molenlanden) seeking liability declarations relating to the Dordrecht site’s operations and emissions. Chemours reviewed the summons and filed a statement of defense during the fourth quarter of 2021, and in September 2022 the court entered an interlocutory judgment denying in part certain aspects of such statement of defense. At this time, management believes that a loss related to this matter is remote.
New Jersey Department of Environmental Protection Directives and Litigation
In March 2019, NJ DEP issued two Directives and filed
The lawsuits filed in New Jersey state courts by NJ DEP are: (i) in Salem County, against EID, 3M, and Chemours primarily alleging clean-up and removal costs and damages and natural resource damages under the Spill Act, the Water Pollution Control Act (“WPCA”), the Industrial Site Recovery Act (“ISRA”), and common law regarding past and present operations at Chambers Works, a site assigned to Chemours at Separation; (ii) in Middlesex County, against EID, DuPont SP USA, 3M, and Chemours primarily alleging clean-up and removal costs and damages and natural resource damages under the Spill Act, ISRA, WPCA, and common law regarding past and present operations at Parlin, an EID owned site; (iii) in Gloucester County, against EID and Chemours primarily alleging clean-up and removal costs and damages and natural resource damages under the Spill Act, WPCA, and common law regarding past operations at Repauno, a non-operating remediation site assigned to Chemours at Separation which has been sold; and, (iv) in Passaic County, against EID and Chemours primarily alleging clean-up and removal costs and damages and natural resource damages under the Spill Act, WPCA, and common law regarding past operations at Pompton Lakes, a non-operating remediation site assigned to Chemours at Separation. The alleged pollutants listed in the Salem County and Middlesex County matters above include PFAS. Each lawsuit also alleges fraudulent transfer.
In August 2020, a Second Amended Complaint was filed in each matter, adding fraudulent transfer and other claims against DuPont SP USA, Corteva, and DuPont. For the Salem County matter, NJ DEP added claims relating to failure to comply with state directives, including the state-wide PFAS Directive.
The matters were removed to federal court and consolidated for case management and pretrial purposes. In December 2021, the federal court entered a consolidated order granting, in part, and denying, in part, a motion to dismiss or strike parts of the Second Amended Complaints. In January 2022, NJ DEP filed a motion for a preliminary injunction requiring EID and Chemours to establish a remediation funding source (“RFS”) in the amount of $
EID requested that Chemours defend and indemnify it in these matters. Chemours has accepted the indemnity and defense of EID while reserving rights and declining EID’s demand as to matters involving other EID entities, as well as ISRA and fraudulent transfer, subject to the terms of the MOU.
26
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
PFOA and PFAS Summary
With the exception of the matters noted otherwise above, management believes that it is reasonably possible that the Company could incur losses related to PFOA and/or PFAS matters in excess of amounts accrued, but any such losses, which could be material, are not estimable at this time due to various reasons, including, among others, that some matters are in their early stages and that there are significant factual issues to be resolved.
U.S. Smelter and Lead Refinery, Inc.
There are six lawsuits, including a putative class action, pending against EID by area residents concerning the U.S. Smelter and Lead Refinery multi-party Superfund site in East Chicago, Indiana. Several of the lawsuits allege that Chemours is now responsible for EID environmental liabilities. The lawsuits include allegations for personal injury damages, property diminution, and other damages. At Separation, EID assigned Chemours its former plant site, which is located south of the residential portion of the Superfund area, and its responsibility for the environmental remediation at the Superfund site. In one of the six lawsuits, pursuant to a March 2021 court decision, there are no current pending claims against EID or Chemours. In four of the other lawsuits, pursuant to August 2021 and September 2021 court decisions, the court granted defendants’ motion to dismiss. In September 2022, the court granted plaintiffs' motions for leave to file amended complaints for certain claims. Management believes a loss is reasonably possible, but not estimable at this time due to various reasons including, among others, that such matters are in their early stages and have significant factual issues to be resolved.
Securities Litigation
In October 2019, a putative class action was filed in Delaware federal court against Chemours and certain of its officers. Following appointment of lead plaintiff, the New York State Teachers’ Retirement System, and counsel, the plaintiff filed an amended complaint alleging that the defendants violated the Securities and Exchange Act of 1934 by making materially false and misleading statements and omissions in public disclosures regarding environmental liabilities and litigation matters assigned to Chemours in connection with its spin-off from EID. The amended complaint seeks a class of purchasers of Chemours stock between February 16, 2017 and August 1, 2019 and demands compensatory damages and fees. In February 2022, the Delaware federal court granted in part and denied in part Chemours’ motion to dismiss the amended complaint and later ordered proceeding to determine if the remaining claims in the complaint shall proceed. In March 2022, plaintiff sought reconsideration of certain portions of the court’s ruling. In May 2022, lead plaintiff filed a Stipulation, Joint Motion and Proposed Order (“Stipulation”) withdrawing plaintiff’s motion for reconsideration, striking certain allegations in the complaint relating to the claims that remained, waiving any appeal in connection with the action, and jointly moving the court to reconsider its prior partial dismissal order and grant Chemours’ motion to dismiss the complaint. The court entered an order approving the Stipulation, granting Chemours’ motion to dismiss, and dismissing all claims in the complaint with prejudice.
Commencing in July 2020, follow-on derivative lawsuits were filed by individual shareholders in Delaware federal court against Chemours, its directors and certain of its officers. The lawsuits rely on factual allegations similar to those in the securities action discussed above and allege breach of fiduciary duty and other claims. In July 2021 and June 2022, the plaintiffs in the follow-on lawsuits voluntarily dismissed the actions. These matters are now closed.
Patent Infringement
In November 2017, Chemours filed an action for infringement of two of its patents against Daikin America, Inc. and Daikin Industries, LTD. (“Daikin”) in the Delaware federal court. Chemours alleges that Daikin have made, used, offered to sell, sold, or imported certain copolymers which infringe the patents-in-suit. In July 2022, the parties entered into a confidential settlement and the case has been dismissed.
27
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Environmental Overview
Chemours, due to the terms of the Separation-related agreements with EID, is subject to contingencies pursuant to environmental laws and regulations that in the future may require further action to correct the effects on the environment of prior disposal practices or releases of chemical substances, which are attributable to EID’s activities before it spun-off Chemours. Much of this liability results from 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 may require Chemours to undertake certain investigative, remediation, and restoration activities at sites where ownership was transferred to Chemours under the Separation-related agreements or at sites where EID-generated waste was disposed before the 2015 separation. The accrual also includes estimated costs related to a number of sites identified for which it is probable that environmental remediation will be required, but which are not currently the subject of enforcement activities.
Chemours accrues for remediation activities when it is probable that a liability has been incurred and a reasonable estimate of the liability can be made. Where the available information is sufficient to estimate the amount of liability, that estimate has been used. Where the available information is only sufficient to establish a range of probable liability, and no point within the range is more likely than any other, the lower end of the range has been used. Estimated liabilities are determined based on existing remediation laws and technologies and the Company’s planned remedial responses, which are derived from environmental studies, sampling, testing, and analyses. Inherent uncertainties exist in such evaluations, primarily due to unknown environmental conditions, changing governmental regulations regarding liability, and emerging remediation technologies. These accruals are adjusted periodically as remediation efforts progress and as additional technological, regulatory, and legal information becomes available. Environmental liabilities and expenditures include claims for matters that are liabilities of EID and its subsidiaries, which Chemours may be required to indemnify pursuant to the Separation-related agreements. These accrued liabilities are undiscounted and do not include claims against third parties. Costs related to environmental remediation are charged to expense in the period that the associated liability is accrued.
The following table sets forth the Company’s environmental remediation liabilities at September 30, 2022 and December 31, 2021 for the four sites that are deemed the most significant, together with the aggregate liabilities for all other sites.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Chambers Works, Deepwater, New Jersey |
|
$ |
|
|
$ |
|
||
Fayetteville Works, Fayetteville, North Carolina (1) |
|
|
|
|
|
|
||
Pompton Lakes, New Jersey |
|
|
|
|
|
|
||
USS Lead, East Chicago, Indiana |
|
|
|
|
|
|
||
All other sites |
|
|
|
|
|
|
||
Total environmental remediation |
|
$ |
|
|
$ |
|
The following table sets forth the current and long-term components of the Company’s environmental remediation liabilities at September 30, 2022 and December 31, 2021.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Current environmental remediation |
|
$ |
|
|
$ |
|
||
Long-term environmental remediation |
|
|
|
|
|
|
||
Total environmental remediation |
|
$ |
|
|
$ |
|
28
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Typically, the time-frame for a site to go through all phases of remediation (investigation and active clean-up) may take about
In October 2021, EPA released its PFAS Strategic Roadmap, identifying a comprehensive approach to addressing PFAS. The PFAS Strategic Roadmap sets timelines by which EPA plans to take specific actions through 2024, including establishing a national primary drinking water regulation for PFOA and PFOS and taking Effluent Limitations Guidelines actions to regulate PFAS discharges from industrial categories among other actions. As provided under its roadmap, EPA also released on the same day its National PFAS Testing Strategy, under which the agency will identify and select certain PFAS compounds for which it will require PFAS manufacturers to conduct testing pursuant to the Toxic Substances Control Act (“TSCA”) orders. EPA has indicated that Chemours will receive orders for certain of such compounds, including seven of the testing orders will be issued for PFAS compounds alleged to be associated with Fayetteville. In June 2022, EPA issued the first TSCA Section 4(a)(2) order under this program to five recipients, including Chemours and EID, and Chemours has met with the agency in July 2022 to discuss the order and responded to it.
Also in October 2021, EPA published a final toxicity assessment for GenX compounds that decreased the draft reference dose for GenX compounds based on EPA’s review of new studies and analyses. On March 18, 2022, Chemours filed a petition to EPA requesting to withdraw and correct its toxicity assessment for GenX compounds, which was denied by EPA on June 14, 2022. The next day, on June 15, 2022, EPA released health advisories for four PFAS, including interim updated lifetime drinking water health advisories for PFOA and PFOS, and final health advisories for GenX compounds, including hexafluoropropylene oxide dimer acid (“HFPO Dimer Acid”), and another PFAS compound (PFBS). On July 13, 2022 the Company filed a Petition for Review of the GenX compounds health advisory. The Company continues to evaluate the impact of EPA’s June 15th health advisories and the PFAS Strategic Roadmap. The environmental remediation liabilities and accrued litigation, as applicable, recorded for Fayetteville, Washington Works, Parkersburg, West Virginia and Chambers Works, Deepwater, New Jersey as of September 30, 2022 are based upon the existing Consent Orders, agreements and/or voluntary commitments with EPA, state and other local regulators and depending on the ultimate outcome of EPA’s actions, could require adjustment to meet any new drinking water standards. It is reasonably possible that additional costs could be incurred in connection with EPA’s actions, however, the Company cannot estimate the potential impact or additional cost at this time, due in part to the uncertainties on EPA’s development of maximum contaminant levels for PFOA and PFOS and the implementation of the June 15th health advisories. Refer to “Fayetteville Works, Fayetteville, North Carolina” below for further detail on the impact of EPA’s final drinking water health advisory for GenX compound, including HFPO Dimer Acid.
Chemours environmental remediation expenses were $
29
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Fayetteville Works, Fayetteville, North Carolina
Fayetteville has been in operation since the 1970s and is located next to the Cape Fear River southeast of the City of Fayetteville, North Carolina. HFPO Dimer Acid, (sometimes referred to as “GenX” or “C3 Dimer Acid”) is manufactured at Fayetteville. The Company has operated the site since its Separation from EID in 2015.
While the Company believes that discharges from Fayetteville to the Cape Fear River, on-site surface water, groundwater, and air emissions have not impacted the safety of drinking water in North Carolina, the Company is cooperating with a variety of ongoing inquiries and investigations from federal, state, and local authorities, regulators, and other governmental entities including EPA.
Consent Order with North Carolina Department of Environmental Quality (“NC DEQ”)
In September 2017, NC DEQ issued a 60-day notice of intent to suspend the National Pollutant Discharge Elimination System (“NPDES”) permit for Fayetteville, and the State of North Carolina filed an action in North Carolina state court regarding site discharges, seeking a temporary restraining order and preliminary injunction, as well as other relief, including abatement and site correction. The state court entered a partial consent order resolving NC DEQ’s motion for a temporary restraining order.
In November 2017, NC DEQ informed the Company that it was suspending the NPDES permit for Fayetteville. The Company thereafter commenced the capture and separate disposal of all process wastewater from Fayetteville related to the Company’s own operations.
In June 2018, the North Carolina Legislature enacted legislation (i) granting the governor the authority, in certain circumstances, to require a facility with unauthorized PFAS discharges to cease operations, and (ii) granting the governor the authority, in certain circumstances, to direct NC DEQ secretary to order a PFAS discharger to establish permanent replacement water supplies for parties whose water was contaminated by the discharge.
In July 2018, Cape Fear River Watch (“CFRW”), a non-profit organization, sued NC DEQ in North Carolina state court, seeking to require NC DEQ to take additional actions at Fayetteville. In August 2018, CFRW sued the Company in North Carolina federal court for alleged violations of the Clean Water Act (“CWA”) and TSCA, seeking declaratory and injunctive relief and penalties.
In February 2019, the North Carolina Superior Court for Bladen County approved a Consent Order (“CO”) between NC DEQ, CFRW, and the Company, resolving the State’s and CFRW’s lawsuits and other matters (including Notices of Violation (“NOVs”) issued by the State). Under the terms of the CO, Chemours paid $
30
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
In August 2020, NC DEQ, CFRW, and the Company reached agreement on the terms of an addendum to the CO (the “Addendum”), which includes procedures for implementing specified remedial measures for reducing PFAS loadings from Fayetteville to the Cape Fear River. The Addendum also includes stipulated financial penalties, inclusive of daily and weekly fines for untimeliness in meeting deadlines for construction, installation and other requirements, as well as intermittent performance-based fines for noncompliance in meeting PFAS loading reduction requirements and removal efficiency targets. After a period of public comment, the Addendum was approved by the North Carolina Superior Court for Bladen County on October 12, 2020. A Motion to Intervene filed by Cape Fear Public Utility Authority was denied.
The following table sets forth the on-site and off-site components of the Company’s accrued environmental remediation liabilities related to PFAS at Fayetteville at September 30, 2022 and December 31, 2021.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
On-site remediation |
|
$ |
|
|
$ |
|
||
Off-site groundwater remediation |
|
|
|
|
|
|
||
Total Fayetteville environmental remediation |
|
$ |
|
|
$ |
|
The following table sets forth the current and long-term components of the Company’s accrued environmental remediation liabilities related to PFAS at Fayetteville at September 30, 2022 and December 31, 2021.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Current environmental remediation |
|
$ |
|
|
$ |
|
||
Long-term environmental remediation |
|
|
|
|
|
|
||
Total Fayetteville environmental remediation |
|
$ |
|
|
$ |
|
Chemours environmental remediation expenses related to Fayetteville were $
Emissions to air
Fayetteville operates multiple permitted air discharge stacks, blowers, and vents as part of its manufacturing activities. A TO became fully operational at the site on December 27, 2019, and Chemours switched to the permitted operating scenario for the TO on December 31, 2019 as set forth in the CO. The TO is designed to reduce aerial PFAS emissions from Fayetteville, and testing results showed that the TO is controlling PFAS emissions at an average efficiency exceeding
31
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Off-site replacement drinking water supplies
The CO requires the Company to provide permanent replacement drinking water supplies, including via connection to public water supply, whole building filtration units and/or RO units, to qualifying surrounding residents, businesses, schools, and public buildings with private drinking water wells. Qualifying surrounding properties with private drinking water wells that have tested for GenX above the state provisional health goal of 140 parts per trillion (“ppt”), or any applicable health advisory, whichever is lower, may be eligible for public water or a whole building filtration system. Qualifying surrounding properties with private drinking water wells that have tested above 10 ppt for GenX or other perfluorinated compounds (“Table 3 Compounds”) are eligible for three under-sink RO units. The Company provides bottled drinking water to a qualifying property when it becomes eligible for a replacement drinking water supply, and continues to provide delivery of bottled drinking water to the qualifying property until the eligible supply is established or installed. Under the terms of the CO, Chemours must make the offer to install a water treatment system to property owners in writing multiple times, and property owners have approximately one year to accept the Company’s offer before it expires. In September 2021, the Company entered into an agreement with Bladen County, North Carolina to fund public water system upgrades and connections associated with providing permanent replacement drinking water supplies under the CO.
In June 2022, following EPA’s release of a final drinking water health advisory for GenX compounds, including HFPO Dimer Acid, by EPA, NC DEQ sent a notice to Chemours requiring the Company to revise its drinking water compliance plan and feasibility study report, and to provide public water or whole building filtration systems to eligible properties with a private drinking water well that have tested above 10 ppt for GenX compounds under Paragraph 19 of the CO. On July 13, 2022, Chemours submitted its response to NC DEQ, providing information and other items requested by NCDEQ for its approval. Notwithstanding the Petition for Review of the EPA GenX compounds health advisory, and reserving its rights related thereto, the Company proposed a plan to extend Paragraph 19 options to properties that have tested above 10 ppt for GenX compounds, including conducting a feasibility review. As a result of Chemours’ proposed plan in response to the NC DEQ notice, in the second quarter of 2022, the Company recorded approximately $
The Company’s estimated liability for off-site replacement drinking water supplies is based on management’s assessment of the current facts and circumstances for this matter, which is subject to various assumptions that include, but are not limited to, the number of affected surrounding properties, response rates to the Company’s offer, the timing of expiration of offers made to the property owners, the type of water treatment systems selected (i.e., public water or whole building filtration system, or RO units), the cost of installation of the selected water treatment systems, and any related OM&M requirements, fines and penalties, and other charges contemplated by the CO. For off-site drinking water supplies, OM&M is accrued for
At September 30, 2022 and December 31, 2021, the Company had $
In November 2021, NC DEQ sent a notice to Chemours regarding PFAS contamination from the Cape Fear River of groundwater monitoring wells and water supply wells in New Hanover County and potentially three other downstream counties based on new sampling data by NC DEQ and its determination of Chemours’ obligations for such contamination. NC DEQ directed Chemours to submit for its review and approval a comprehensive groundwater contamination assessment in such counties, as well as an updated drinking water program to provide for sampling under the CO in such counties. In response, the Company submitted in February 2022 an interim drinking water plan and a separate assessment framework plan, which were subsequently updated based on comments received from NC DEQ.
32
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
As of September 30, 2022 and December 31, 2021, the Company had accrued $
On-site surface water and groundwater remediation
Abatement and remediation measures already taken by Chemours, including the capture and disposal of its operations’ process wastewater and other interim actions, have addressed and abated nearly all PFAS discharges from the Company’s continuing operations at Fayetteville. However, the Company continues to have active dialogue with NC DEQ and other stakeholders regarding the potential remedies that are both economically and technologically feasible to achieve the CO and Addendum objectives related to the impact of site surface water and groundwater contamination from historical operations.
In 2019, the Company completed and submitted its Cape Fear River PFAS Loading Reduction Plan - Supplemental Information Report and its CAP to NC DEQ. The Supplemental Information Report provided information to support the evaluation of potential interim remedial options to reduce PFAS loadings to surface waters. The CAP described potential long-term remediation activities to address PFAS in on-site groundwater and surface waters at the site, in accordance with the requirements of the CO and the North Carolina groundwater standards, and built upon the previous submissions to NC DEQ. The NC DEQ received comments on the CAP during a public comment period, and the Company is awaiting formal response to the CAP from NC DEQ. With respect to the CO, the Addendum was approved by the North Carolina Superior Court for Bladen County in October 2020 and establishes the procedure to implement specified remedial measures for reducing PFAS loadings from Fayetteville to the Cape Fear River, including construction of a barrier wall with a groundwater extraction system to be completed by March 15, 2023, or an extended date in accordance with the Addendum.
The Company began operation of a capture and treatment system from the site’s old outfall channel following the issuance of an NPDES permit by NC DEQ in September 2020. In January 2021, the operation of the old outfall treatment system was interrupted on two occasions, and notice was provided to NC DEQ of the low treatment flow conditions through the system. The Company received an NOV from NC DEQ, alleging violations of the CO and the NPDES water permit arising from the design and operation of the treatment system related to the old outfall. The Company and its third-party service provider have taken, and continue to take, interim actions intended to improve the operation of the old outfall treatment system and address challenges posed by substantial rain events, sediment loading into the system, and variability in water influent conditions. In addition, the Company and its third-party service provider are actively working on long-term enhancements to the treatment system based on learnings from the recent challenges. System enhancements completed or being implemented consist of a holding pond, installation of new ultra-filtration units and additional water pretreatment equipment which is anticipated to be completed in early 2023.
In 2021, work commenced on the detailed engineering design of the barrier wall and refinement of models for the planned groundwater extraction system. Engineering designs for the Company’s major construction projects are typically reviewed at 30, 60 and 90% complete.
33
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
In June 2021, the Company reviewed the 30% complete design and associated preliminary vendor estimates for the construction and operation of a barrier wall and groundwater treatment system at Fayetteville. Based upon the 30% design information, the planned construction site of the future barrier wall, that will address both on-site groundwater and long-term seep remediation, is expected to be located at an approximately 30 feet higher elevation above the Cape Fear River and depth of the wall to approximately 85 feet below ground along most of its length. Additionally, construction of approximately 69 pumping wells, are expected to extract groundwater for treatment. A 2-mile access road, with retaining walls above and below the road to reduce slope erosion and landslides are also expected for large, heavy construction equipment to access the barrier wall location safely. Further, the construction of a larger treatment plant is required to capture the volume of groundwater, seep water, and stormwater (up to a 0.5 inch rain event in any 24 hour period per the Addendum) up to a maximum of 1,500 gallons per minute (“gpm”) based on groundwater flow modeling.
In August 2021, the Company reviewed the 60% complete design and associated updated preliminary vendor estimates, which was submitted to NC DEQ for review and approval. There were no material changes in estimate upon completing the review of the 60% design. Additionally, applications for the necessary permit for the groundwater extraction system have been submitted. In September 2021, the Company received a ‘conditional approval’ of the 60% design of the barrier wall and groundwater extraction and treatment system which included comments that NC DEQ requested the Company to address, which the Company responded to in October 2021. The NC DEQ’s comments also addressed other onsite remediation activities under the CO, but unrelated to the design of the barrier wall and groundwater treatment system.
On March 25, 2022, the Company submitted the 90% design of the barrier wall and groundwater extraction and treatment system which included additional response to NC DEQ comments concerning the 60% design. Based on the 90% design report, the Company believes that the design of the barrier wall and groundwater extraction and treatment system meets the requirements for this project under the CO and Addendum. On September 15, 2022, the Company received an approval of the 90% design report with specific conditions that NC DEQ directed the Company to address, which the Company responded to and received an approval of the design, as supplemented, in October 2022. Additionally, on September 15, 2022, NC DEQ issued a permit for discharge of treated groundwater and surface water associated with the project which contained conditions and limits that exceeded the requirements contained within the Consent Order and the previously public-noticed draft discharge permit. The Company filed an administrative petition contesting the discharge permit on October 14, 2022.
The Company does not believe that the incremental costs to comply with the NC DEQ conditions will be material. Other uncertainties remain with respect to the ultimate completion of the remediation project, including but not limited to, the resolution of the administrative petition contesting the discharge permit. It is reasonably possible that additional costs may be incurred related to the discharge permit, depending on the ultimate outcome of the petition filed by the Company, which cannot be predicted at this time. Complying with the higher thresholds outlined in the discharge permit may not be feasible and/or could impact the design of the groundwater treatment system reflected in the 90% design plan.
Pre-construction site preparation activities for the barrier wall are in progress and in the second quarter of 2022, construction of the water conveyance and treatment facility has begun. Construction of the barrier wall is dependent on resolution of the Company's appeal of the discharge permit.
As the Company progressed in its soil testing, finalization of certain elements of the technical construction design for the barrier wall and mechanical and electrical elements of the groundwater treatment system, as well as obtaining new and revised vendor estimates or bids reflecting final design requirements, and increased cost of materials, equipment, and consumables for the construction of a barrier wall and groundwater treatment system, the Company recorded additional accrual of approximately $
Accordingly, based on the CO, the Addendum, the CAP, and management’s plans, which are based on current regulations and technology, the Company has accrued $
34
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
At September 30, 2022, several significant uncertainties remain, principally related to obtaining required operating permits, including resolution of the petition of the treated groundwater and surface water discharge permit, completion or finalization of contract negotiations with key construction and water treatment vendors, and the estimated future cost and time period of OM&M. Accordingly, at September 30, 2022, the Company estimated that the cost for the barrier wall and groundwater OM&M could range up to $
The final cost of the on-site groundwater treatment system primarily depends on receiving timely NC DEQ permit approvals and thus the timely finalization of remaining design details, notably water treatment requirements and estimated carbon usage. Per the Addendum, NC DEQ was required to use best efforts to complete its review and notify the Company whether the 90% design is approved within 30 days after submittal. If not approved within 30 days, subsequent deadlines shall be extended by the time required for NC DEQ approval in excess of 30 days. Unanticipated schedule delays or other factors beyond the Company’s control could lead to further increases in the cost of the barrier wall and groundwater treatment system, which could be material. Changes in estimates are recorded in results of operations in the period that the events and circumstances giving rise to such changes occur. If the Company does not achieve project completion of the barrier wall and groundwater treatment system by March 15, 2023, subject to the extension provided in the Addendum relating to approval of the 90% design report, and subject further to obtaining the required permits, the Addendum specifies penalties of $
The Company’s estimated liability for the remediation activities that are probable and estimable is based on the CO, the Addendum, the CAP, and management’s assessment of the current facts and circumstances, which is subject to various assumptions including the transport pathways (being pathways by which PFAS reaches the Cape Fear River) which will require remedial actions, the types of interim and permanent site surface water and on-site remedies and treatment systems selected and implemented, the estimated cost of such potential remedies and treatment systems, any related OM&M requirements, and other charges contemplated by the CO and the Addendum.
Consistent with prior periods, the Company accrued 20 years of OM&M for Fayetteville environmental remediation systems based on the CO and Addendum, which includes estimated higher power consumption, ongoing monitoring, pretreatment, filtering supplies (principally carbon) and regular maintenance of the system over a
It is possible that issues relating to site discharges in various transport pathways, the selection of remediation alternatives to achieve PFAS loading reductions, or the operating effectiveness of the TO could result in further litigation and/or regulatory demands with regards to Fayetteville, including potential permit modifications or penalties under the CO and the Addendum. It is also possible that, as additional data is collected on the transport pathways and dialogue continues with NC DEQ and other stakeholders, the type or extent of remediation actions required to achieve the objectives committed to in the CO may change (increase or decrease) or remediation activities could be delayed. If such issues arise, or if the CO is further amended, an additional loss is reasonably possible, but not estimable at this time.
Other matters related to Fayetteville
In February 2019, the Company received an NOV from EPA, alleging certain TSCA violations at Fayetteville. Matters raised in the NOV could have the potential to affect operations at Fayetteville. For this NOV, the Company responded to EPA in March 2019, asserting that the Company has not violated environmental laws. The Company also received an NOV in April 2020 from NC DEQ, alleging an air permit violation under the North Carolina Administrative Code. As of September 30, 2022, management does not believe that a loss is probable.
35
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
In August 2021, the Company received a NOV from NC DEQ alleging violations of the facility’s Title V air permit for failure to reduce facility-wide annual emissions of GenX compounds and failure to properly operate and maintain a carbon absorber unit. The Company provided a response to the NOV in September 2021. In October 2021, the Company received
In 2019, civil actions were filed against EID and Chemours in North Carolina federal court relating to discharges from Fayetteville. These actions include a consolidated action brought by public water suppliers seeking damages and injunctive relief, a consolidated purported class action seeking medical monitoring, and property damage and/or other monetary and injunctive relief on behalf of the putative classes of property owners and residents in areas near or that draw drinking water from the Cape Fear River, and two actions encompassing approximately
In addition to natural resource damages matter filed by the State of North Carolina (as discussed within the “PFAS” section of this “Note 16 – Commitments and Contingent Liabilities”), in September 2020,
In March 2022, a lawsuit was filed on behalf of an individual residing near the Fayetteville site against Chemours, EID and other defendants alleging negligence, nuisance and other claims related to the discharges from the Fayetteville site. The individual seeks compensatory property damages, punitive damages and medical monitoring. The lawsuit also alleges fraudulent transfer against EID and other EID entities, but not against Chemours.
In March 2022, Cumberland County, North Carolina filed suit in state court against Chemours, EID and other defendants related to discharges from the Fayetteville site alleging negligence, nuisance, trespass and fraudulent transfer. The lawsuit seeks damages as well as injunctive and equitable relief.
It is not possible at this point to predict the timing, course, or outcome of all governmental and regulatory inquiries and notices and litigation related to Fayetteville, and it is reasonably possible that these matters could have a material adverse effect on the Company’s financial position, results of operations, and cash flows. In addition, local communities, organizations, and federal and state regulatory agencies have raised questions concerning HFPO Dimer Acid and other perfluorinated and polyfluorinated compounds at certain other manufacturing sites operated by the Company. It is possible that additional developments similar to those described above and centering on Fayetteville could arise in other locations.
36
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Other
In addition, in the ordinary course of business, the Company may make certain commitments, including representations, warranties, and indemnities relating to current and past operations, including environmental remediation and other potential costs related to divested assets and businesses, and issue guarantees of third-party obligations. The Company accrues for these matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. In connection with the sale of the Mining Solutions business, the Company provided a limited indemnification with respect to environmental liabilities that may arise from activities prior to the closing date. Such indemnification would not exceed approximately $
Note 17. Equity
2018 Share Repurchase Program
In 2018, the Company’s board of directors approved a share repurchase program authorizing the purchase of shares of Chemours’ issued and outstanding common stock in an aggregate amount not to exceed $
The following table sets forth the Company’s share repurchase activity under the 2018 Share Repurchase Program for the three and nine months ended September 30, 2022 and 2021, respectively.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Total number of shares purchased |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Total amount for shares purchased |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Average price paid per share |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
37
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
2022 Share Repurchase Program
On April 27, 2022, the Company’s board of directors approved a share repurchase program authorizing the purchase of shares of Chemours’ issued and outstanding common stock in an aggregate amount not to exceed $
The following table sets forth the Company’s share repurchase activity under the 2022 Share Repurchase Program for the three and nine months ended September 30, 2022 and 2021, respectively.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Total number of shares purchased |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total amount for shares purchased |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Average price paid per share |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
The Company purchased an aggregate
Through September 30, 2022, the Company purchased a cumulative
38
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note
The Company’s total stock-based compensation expense amounted to $
Stock Options
On March 1, 2022, Chemours granted approximately
The following table sets forth the weighted-average assumptions used at the respective grant dates to determine the fair value of the Company’s stock option awards granted during the nine months ended September 30, 2022.
|
|
Nine Months Ended September 30, 2022 |
|
|
Risk-free interest rate |
|
|
% |
|
Expected term (years) |
|
|
|
|
Volatility |
|
|
% |
|
Dividend yield |
|
|
% |
|
Fair value per stock option |
|
$ |
|
The Company recorded $
Restricted Stock Units
During the nine months ended September 30, 2022, Chemours granted approximately
The Company recorded $
Performance Share Units
On March 1, 2022, Chemours granted approximately
A portion of the fair value of PSUs was estimated at the grant date based on the probability of satisfying the market-based conditions associated with the PSUs using the Monte Carlo valuation method, which assesses probabilities of various outcomes of market conditions. The other portion of the fair value of the PSUs is based on the fair market value of the Company’s stock at the grant date, regardless of whether the market-based conditions are satisfied.
The Company recorded $
39
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note
The following table sets forth the changes and after-tax balances of the Company’s accumulated other comprehensive loss for the nine months ended September 30, 2022 and 2021.
|
|
Net Investment Hedge |
|
|
Cash Flow Hedge |
|
|
Cumulative Translation Adjustment |
|
|
Defined Benefit Plans |
|
|
Total |
|
|||||
Balance at January 1, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Balance at September 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at January 1, 2021 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Balance at September 30, 2021 |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Note 20. Financial Instruments
Objectives and Strategies for Holding Financial Instruments
In the ordinary course of business, Chemours enters into contractual arrangements to reduce its exposure to foreign currency risks. The Company has established a financial risk management program, which currently includes four distinct risk management instruments: (i) foreign currency forward contracts, which are used to minimize the volatility in the Company’s earnings related to foreign exchange gains and losses resulting from remeasuring its monetary assets and liabilities that are denominated in non-functional currencies; (ii) foreign currency forward contracts, which are used to mitigate the risks associated with fluctuations in the euro against the U.S. dollar for forecasted U.S. dollar-denominated inventory purchases in certain of the Company’s international subsidiaries that use the euro as their functional currency; (iii) interest rate swaps, which are used to mitigate the volatility in the Company’s cash payments for interest due to fluctuations in LIBOR, as is applicable to the portion of the Company’s senior secured term loan facility denominated in U.S. dollars; and, (iv) euro-denominated debt, which is used to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates of the euro with respect to the U.S. dollar for certain of its international subsidiaries that use the euro as their functional currency. The Company’s financial risk management program reflects varying levels of exposure coverage and time horizons based on an assessment of risk. The program operates within Chemours’ financial risk management policies and guidelines, and the Company does not enter into derivative financial instruments for trading or speculative purposes.
Net Monetary Assets and Liabilities Hedge – Foreign Currency Forward Contracts
At September 30, 2022, the Company had
40
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Cash Flow Hedge – Foreign Currency Forward Contracts
At September 30, 2022, the Company had
The Company expects to reclassify approximately $
Cash Flow Hedge – Interest Rate Swaps
At December 31, 2021, the Company had
The Company expects to reclassify approximately $
Net Investment Hedge – Foreign Currency Borrowings
The Company recognized pre-tax gains of $
41
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Fair Value of Derivative Instruments
The following table sets forth the fair value of the Company’s derivative assets and liabilities at September 30, 2022 and December 31, 2021.
|
|
|
|
Fair Value Using Level 2 Inputs |
|
|||||
|
|
Balance Sheet Location |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Asset derivatives: |
|
|
|
|
|
|
|
|
||
Foreign currency forward contracts |
|
Accounts and notes receivable, net (Note 8) |
|
$ |
|
|
$ |
|
||
Foreign currency forward contracts |
|
Accounts and notes receivable, net (Note 8) |
|
|
|
|
|
|
||
Interest rate swaps |
|
Accounts and notes receivable, net (Note 8) |
|
|
— |
|
|
|
— |
|
Total asset derivatives |
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
||
Liability derivatives: |
|
|
|
|
|
|
|
|
||
Foreign currency forward contracts |
|
Other accrued liabilities (Note 13) |
|
$ |
|
|
$ |
|
||
Total liability derivatives |
|
|
|
$ |
|
|
$ |
|
The Company’s foreign currency forward contracts and interest rate swaps are classified as Level 2 financial instruments within the fair value hierarchy as the valuation inputs are based on quoted prices and market observable data of similar instruments. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates and implied volatilities obtained from various market sources. Market inputs are obtained from well-established and recognized vendors of market data, and are subjected to tolerance and/or quality checks.
42
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Summary of Financial Instruments
The following table sets forth the pre-tax changes in fair value of the Company’s financial instruments for the three and nine months ended September 30, 2022 and 2021.
|
|
Gain (Loss) Recognized In |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
||||
|
|
|
|
|
|
|
|
|
|
|
Other |
|
||||
|
|
Cost of |
|
|
Interest |
|
|
Other Income |
|
|
Comprehensive |
|
||||
Three Months Ended September 30, |
|
Goods Sold |
|
|
Expense, Net |
|
|
(Expense), Net |
|
|
Loss |
|
||||
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts not designated as a hedging instrument |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
Foreign currency forward contracts designated as a cash flow hedge |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Interest rate swaps designated as a cash flow hedge |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Euro-denominated debt designated as a net investment hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts not designated as a hedging instrument |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
Foreign currency forward contracts designated as a cash flow hedge |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
Interest rate swaps designated as a cash flow hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Euro-denominated debt designated as a net investment hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Gain (Loss) Recognized In |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
||||
|
|
|
|
|
|
|
|
|
|
|
Other |
|
||||
|
|
Cost of |
|
|
Interest |
|
|
Other Income |
|
|
Comprehensive |
|
||||
Nine Months Ended September 30, |
|
Goods Sold |
|
|
Expense, Net |
|
|
(Expense), Net |
|
|
Loss |
|
||||
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts not designated as a hedging instrument |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
Foreign currency forward contracts designated as a cash flow hedge |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Interest rate swaps designated as a cash flow hedge |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Euro-denominated debt designated as a net investment hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts not designated as a hedging instrument |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
Foreign currency forward contracts designated as a cash flow hedge |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
Interest rate swaps designated as a cash flow hedge |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Euro-denominated debt designated as a net investment hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
43
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note 21. Long-term Employee Benefits
Chemours sponsors defined benefit pension plans for certain of its employees in various jurisdictions outside of the U.S. The Company’s net periodic pension (cost) income is based on estimated values and the use of assumptions about the discount rate, expected return on plan assets, and the rate of future compensation increases received by its employees.
The following table sets forth the Company’s net periodic pension (cost) income and amounts recognized in other comprehensive income (loss) for the three and nine months ended September 30, 2022 and 2021.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Service cost |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Interest cost |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Expected return on plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of actuarial loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of prior service gain |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total net periodic pension cost |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of prior service gain |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Effect of foreign exchange rates |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Benefit recognized in other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total changes in plan assets and benefit obligations recognized in other comprehensive income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The Company made cash contributions of $
Note 22. Supplemental Cash Flow Information
The following table provides a reconciliation of cash and cash equivalents, as reported on the Company’s consolidated balance sheets, to cash, cash equivalents, restricted cash and restricted cash equivalents, as reported on the Company’s consolidated statements of cash flows.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash and restricted cash equivalents (1) |
|
|
|
|
|
|
||
Cash, cash equivalents, restricted cash and restricted cash equivalents |
|
$ |
|
|
$ |
|
44
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Note
Chemours operates through its
Beginning with reports filed in the first quarter of 2022, the Company changed its methodology used to allocate certain corporate function expenses to the operating segments to provide the Company's Chief Operating Decision Maker (“CODM”) with a more meaningful representation of segment profitability. This allocation methodology change reflects corporate function resource usage by each operating segment based on certain commercial drivers, in addition to the cost drivers, as well as consideration of the Company's recent sale of the Mining Solutions business in 2021. The historical segment information, including adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”), has been recast to conform to the current segment presentation.
Adjusted EBITDA is the primary measure of segment profitability used by the Company’s CODM and is defined as income (loss) before income taxes, excluding the following:
45
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
The following table sets forth certain summary financial information for the Company’s segments for the periods presented.
|
|
Titanium Technologies |
|
|
Thermal & Specialized Solutions |
|
|
Advanced Performance Materials |
|
|
Other Segment |
|
|
Segment Total |
|
|||||
Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales to external customers |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Three Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales to external customers |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Titanium Technologies |
|
|
Thermal & Specialized Solutions |
|
|
Advanced Performance Materials |
|
|
Other Segment |
|
|
Segment Total |
|
|||||
Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales to external customers |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Nine Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales to external customers |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
September 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other depreciation and amortization expense amounted to $
46
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
The following table sets forth a reconciliation of Segment Adjusted EBITDA to the Company’s consolidated net income (loss) before income taxes for the three and nine months ended September 30, 2022 and 2021.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Segment Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Corporate and Other expenses (excluding items below) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Non-operating pension and other post-retirement employee benefit income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exchange gains (losses), net |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Restructuring, asset-related, and other charges (1) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Gain (loss) on extinguishment of debt |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Gain on sales of assets and businesses, net (2) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Natural disasters and catastrophic events (3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Transaction costs (4) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Qualified spend recovery (5) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Legal and environmental charges (6,7) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Income before income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
47
The Chemours Company
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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 “The Chemours Company”, “Chemours”, “the Company”, “our Company”, “we”, “us”, and “our” refer to The Chemours Company and its consolidated subsidiaries. References herein to “EID” refer to E. I. du Pont de Nemours and Company, which is our former parent company and is now a subsidiary of Corteva, Inc. (“Corteva”), a Delaware corporation, unless the context otherwise requires. References herein to “DuPont” refer to DuPont de Nemours, Inc., a Delaware Corporation.
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 December 31, 2021.
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 December 31, 2021, and as otherwise discussed in this report. We assume no obligation to revise or update any forward-looking statement for any reason, except as required by law.
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 chemical products for markets, including coatings, plastics, refrigeration and air conditioning, transportation, semiconductor and consumer electronics, general industrial, and oil and gas. Our principal products include titanium dioxide (“TiO2”) pigment, refrigerants, industrial fluoropolymer resins, and performance chemicals and intermediates. We manage and report our operating results through three reportable segments: Titanium Technologies, Thermal & Specialized Solutions, and Advanced Performance Materials. 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. Our Thermal & Specialized Solutions segment is a leading, global provider of refrigerants, thermal management solutions, propellants, blowing agents, and specialty solvents. Our Advanced Performance Materials segment is a leading, global provider of high-end polymers and advanced materials that deliver unique attributes, including low friction coefficients, extreme temperature resistance, weather resistance, ultraviolet and chemical resistance, and electrical insulation. Our Performance Chemicals and Intermediates business and our Mining Solutions business (prior to the business sale in 2021) are presented under Other Segment.
48
The Chemours Company
We are a different kind of chemistry company, driven by our vision to create a better world through the power of our chemistry. Our world-class product portfolio brings everyday convenience to virtually everything people touch in their daily lives, making our products and the solutions they enable both vital and essential. We are committed to creating value for our customers and stakeholders around the world through innovative and sustainable solutions, environmental leadership, community impact and making Chemours the greatest place to work for every employee. Our global workforce, renowned for its deep and unmatched expertise, bring our chemistry to life, guided by five core values that form the bedrock foundation for how we operate: (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 addressing our carbon emissions. 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.
Recent Developments
Russia-Ukraine Conflict
In response to the ongoing conflict between Russia and Ukraine, there have been targeted economic sanctions on Russia, and in March 2022 we announced suspension of our business with Russian entities. While neither Russia nor Ukraine has composed or is expected to compose a material portion of Chemours’s total consolidated revenues, further escalation of geopolitical tensions could have a broader impact that expands into other geographical regions where we do business, which could adversely impact the economic activity in those regions and cause broader disruption of global supply chains. Potential impacts from further escalation of this rapidly evolving situation are currently unknown and could potentially subject our business to materially adverse consequences should the situation escalate beyond its current scope. The risks and uncertainties around operating as a multi-national corporation, include, but are not limited to, those described in Item 1A - Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021.
49
The Chemours Company
Results of Operations and Business Highlights
Results of Operations
The following table sets forth our results of operations for the three and nine months ended September 30, 2022 and 2021.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions, except per share amounts) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net sales |
|
$ |
1,777 |
|
|
$ |
1,680 |
|
|
$ |
5,456 |
|
|
$ |
4,770 |
|
Cost of goods sold |
|
|
1,345 |
|
|
|
1,253 |
|
|
|
4,042 |
|
|
|
3,782 |
|
Gross profit |
|
|
432 |
|
|
|
427 |
|
|
|
1,414 |
|
|
|
988 |
|
Selling, general, and administrative expense |
|
|
140 |
|
|
|
124 |
|
|
|
535 |
|
|
|
433 |
|
Research and development expense |
|
|
32 |
|
|
|
27 |
|
|
|
88 |
|
|
|
78 |
|
Restructuring, asset-related, and other charges |
|
|
(1 |
) |
|
|
3 |
|
|
|
10 |
|
|
|
4 |
|
Total other operating expenses |
|
|
171 |
|
|
|
154 |
|
|
|
633 |
|
|
|
515 |
|
Equity in earnings of affiliates |
|
|
16 |
|
|
|
12 |
|
|
|
44 |
|
|
|
32 |
|
Interest expense, net |
|
|
(41 |
) |
|
|
(45 |
) |
|
|
(123 |
) |
|
|
(142 |
) |
Gain (loss) on extinguishment of debt |
|
|
7 |
|
|
|
(20 |
) |
|
|
7 |
|
|
|
(20 |
) |
Other income, net |
|
|
56 |
|
|
|
11 |
|
|
|
101 |
|
|
|
31 |
|
Income before income taxes |
|
|
299 |
|
|
|
231 |
|
|
|
810 |
|
|
|
374 |
|
Provision for (Benefit from) income taxes |
|
|
59 |
|
|
|
17 |
|
|
|
135 |
|
|
|
(1 |
) |
Net income |
|
|
240 |
|
|
|
214 |
|
|
|
675 |
|
|
|
375 |
|
Net income attributable to Chemours |
|
$ |
240 |
|
|
$ |
214 |
|
|
$ |
675 |
|
|
$ |
375 |
|
Per share data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per share of common stock |
|
$ |
1.54 |
|
|
$ |
1.30 |
|
|
$ |
4.30 |
|
|
$ |
2.26 |
|
Diluted earnings per share of common stock |
|
|
1.52 |
|
|
|
1.27 |
|
|
|
4.21 |
|
|
|
2.21 |
|
50
The Chemours Company
Net Sales
The following table sets forth the impacts of price, volume, currency, and portfolio changes on our net sales for the three and nine months ended September 30, 2022, compared with the same periods in 2021.
Change in net sales from prior period |
|
Three Months Ended September 30, 2022 |
|
|
Nine Months Ended September 30, 2022 |
|
||
Price |
|
|
18 |
% |
|
|
22 |
% |
Volume |
|
|
(5 |
)% |
|
|
(1 |
)% |
Currency |
|
|
(3 |
)% |
|
|
(3 |
)% |
Portfolio |
|
|
(4 |
)% |
|
|
(4 |
)% |
Total change in net sales |
|
|
6 |
% |
|
|
14 |
% |
Our net sales increased by $97 million (or 6%) to $1.8 billion for the three months ended September 30, 2022, compared with net sales of $1.7 billion for the same period in 2021. The increase in our net sales for the three months ended September 30, 2022 was primarily attributable to an increase in price of 18%, partially offset by a decrease in volume of 5%, and portfolio change of 4% driven by the sale of our Mining Solutions business in 2021. Price increased across all our reportable segments, while volume decreases were attributed to our Titanium Technologies segment, substantially offset by higher volume in our Thermal and Specialized Solutions and Advanced Performance Materials segments. Unfavorable currency movements in all our reportable segments added a headwind of 3% to our net sales.
Our net sales increased by $686 million (or 14%) to $5.5 billion for the nine months ended September 30, 2022, compared with net sales of $4.8 billion for the same period in 2021. The increase in our net sales for the nine months ended September 30, 2022 was primarily attributable to an increase in price of 22%, partially offset by a decrease in volume of 1%, and portfolio change of 4% driven by the sale of our Mining Solutions business in 2021. Price increased across all our reportable segments and volume increased in our Thermal & Specialized Solutions and Advanced Performance Materials segments. Unfavorable currency movements in all our reportable segments added a headwind of 3% to our net sales.
The key drivers of these changes for each of our reportable segments are discussed further under the “Segment Reviews” section within this MD&A.
Cost of Goods Sold
Our cost of goods sold (“COGS”) increased by $92 million (or 7%) and $260 million (or 7%) to $1.3 billion and $4.0 billion for the three and nine months ended September 30, 2022, respectively, compared with COGS of $1.3 billion and $3.8 billion for the same periods in 2021. The increases in our COGS for the three and nine months ended September 30, 2022 were primarily attributable to higher net sales, higher raw material costs due to inflation and supply constraints, higher distribution, freight, and logistics expenses, In addition, in the third quarter of 2021, we recognized a payroll tax credit under the Employee Retention Credit of the Coronavirus Aid, Relief, and Economic Security Act. The increase for the nine months ended September 30, 2022 was partially offset by higher on-site remediation costs at our Fayetteville Works site in Fayetteville, North Carolina (“Fayetteville”) during the second quarter of 2021 and higher Qualified Spend recovery from DuPont and Corteva recognized during the nine months ended September 30, 2022 as compared to 2021.
Selling, General, and Administrative Expense
Our selling, general, and administrative (“SG&A”) expense increased by $16 million (or 13%) and $102 million (or 24%) to $140 million and $535 million for the three and nine months ended September 30, 2022, respectively, compared with SG&A expense of $124 million and $433 million for the same periods in 2021. The increase in our SG&A expense for the three months ended September 30, 2022 was primarily attributable to higher legal expenses related to legacy liabilities and increased efforts related to regulatory matters, and higher long-term performance-related compensations expenses relative to the third quarter of 2021. The increase in our SG&A expense for the nine months ended September 30, 2022 was primarily attributable to increased off-site environmental remediation costs at Fayetteville during the second quarter of 2022 of approximately $108 million as well as the factors noted in the three months ended. These increases were partially offset by the $25 million charge incurred in the second quarter of 2021 in connection with our portion of the settlement agreement with the State of Delaware.
51
The Chemours Company
Research and Development Expense
Our research and development (“R&D”) expense increased by $5 million (or 19%) and $10 million (or 13%) to $32 million and $88 million for the three and nine months ended September 30, 2022, compared with R&D expense of $27 million and $78 million for the same periods in 2021. The increases in our R&D expense for the three and nine months ended September 30, 2022 were primarily attributable to growth initiatives in the current year and our increased focus on product development in our Advanced Performance Materials segment.
Restructuring, Asset-Related, and Other Charges
Our restructuring, asset-related, and other charges decreased by $4 million (or over 100%) to $(1) million for the three months ended September 30, 2022, compared with restructuring, asset-related, and other charges of $3 million for the same period in 2021, and was primarily attributable to a $2 million reduction of employee separation charges incurred in connection with our 2022 Restructuring Program. Our restructuring, asset-related, and other charges increased by $6 million (or over 100%) to $10 million for the nine months ended September 30, 2022, compared with restructuring, asset-related, and other charges of $4 million for the same period in 2021, and was primarily attributable to $5 million of asset charges resulting from the conflict between Russia and Ukraine and our decision to suspend business with Russian entities, and $4 million of employee separation charges incurred in connection with our 2022 Restructuring Program.
Our restructuring, asset-related, and other charges for the three and nine months ended September 30, 2021 were primarily attributable to $2 million and $10 million of decommissioning and dismantling related charges in connection with our decision to exit the Aniline business and stop production at our Pascagoula, Mississippi manufacturing plants. For the nine months ended September 30, 2021, the decrease was offset by a net $7 million gain in Other Charges in connection with our contract termination with a third-party services provider at our previously owned Mining Solutions facility in Gomez Palacio, Durango, Mexico.
Equity in Earnings of Affiliates
Our equity in earnings of affiliates increased by $4 million (or 33%) and $12 million (or 38%) to $16 million and $44 million for the three and nine months ended September 30, 2022, respectively, compared with equity in earnings of affiliates of $12 million and $32 million for the same periods in 2021. The increases in our equity in earnings of affiliates for the three and nine months ended September 30, 2022 were primarily attributable to increased pricing and demand for our investees’ products.
Interest Expense, Net
Our interest expense, net decreased by $4 million (or 9%) and $19 million (or 13%) to $41 million and $123 million for the three and nine months ended September 30, 2022, respectively, compared with interest expense, net of $45 million and $142 million for the same periods in 2021. The decreases in our interest expense were primarily attributable to a reduction in associated interest rates following the refinancing of our 7.000% senior notes due May 2025 in August of 2021.
Gain (Loss) on Extinguishment of Debt
For the three and nine months ended September 30, 2022, we recognized a net gain on extinguishment of debt of $7 million in connection with the open market repurchases of various portions of our senior unsecured notes.
For the three and nine months ended September 30, 2021, we recognized a loss on extinguishment of debt of $20 million in connection with our tender offer and make-whole call to purchase any and all of the $750 million 7.000% senior unsecured notes due May 2025.
52
The Chemours Company
Other Income, Net
Our other income, net increased by $45 million (or over 100%) and $70 million (or over 100%) to $56 million and $101 million for the three and nine months ended September 30, 2022, respectively, compared with other income, net of $11 million and $31 million for the same periods in 2021. The increases in our other income were primarily attributable to settlement of a patent infringement matter relating to certain copolymer patents associated with our Advanced Performance Materials segment and favorable changes in net exchange gains and losses of $10 million and $13 million, respectively, driven by the favorable movements in several foreign currencies, primarily the strengthening of the U.S. dollar against the euro, and foreign currency forward contracts. For the nine months ended September 30, 2022, the comparative increase in our other income, net was also attributable to a net pre-tax gain on sale of $11 million and $18 million associated with the sale of our land related to the Beaumont former operating site (the “Beaumont Transaction”) and the stock sale of certain of our wholly-owned subsidiaries and the remaining assets at our former Aniline business facilities in Pascagoula, Mississippi (the “Pascagoula Transaction”), respectively, as well as the favorable changes in net exchange gains and losses noted above.
Provision for (Benefit from) Income Taxes
We have a provision for income taxes of $59 million and $17 million for the three months ended September 30, 2022 and 2021, respectively, which represented effective tax rates of 20% and 7%, respectively. The $42 million increase in our provision for income taxes for the three months ended September 30, 2022 was attributable to increased profitability, changes to our geographical mix of earnings, and changes to non-recurring items. In the third quarter of 2022, we recognized additional income tax expense from a settlement in a patent infringement matter relating to certain copolymer patents associated with our Advanced Performance Materials segment. In the third quarter of 2021, we recognized a $10 million income tax benefit associated with the reversal of a valuation allowance on a certain foreign subsidiary's deferred tax assets in relation to the Mining Solutions business sale entered into in that period.
We have a provision for income taxes of $135 million for the nine months ended September 30, 2022 and a benefit from income taxes of $1 million for the nine months ended September 30, 2021, which represented effective tax rates of 17% and less than negative 1%, respectively. The $136 million increase in our provision for income taxes for the nine months ended September 30, 2022 was primarily attributable to the same factors discussed in the preceding paragraph; as well as an income tax expense of $6 million associated with the gain recognized related to the Beaumont and Pascagoula Transactions during the second quarter of 2022 and an $11 million income tax benefit associated with a 2012 income tax refund from a foreign subsidiary during the second quarter of 2021.
53
The Chemours Company
Segment Reviews
Beginning with reports filed in the first quarter of 2022, we changed our methodology used to allocate certain corporate function expenses to our operating segments to provide our Chief Operating Decision Maker (“CODM”) with a more meaningful representation of segment profitability. This allocation methodology change reflects corporate function resource usage by each operating segment based on certain commercial drivers, in addition to the cost drivers, as well as consideration of our recent sale of the Mining Solutions business in 2021. The historical segment information, including adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”), has been recast to conform to the current segment presentation.
Adjusted EBITDA is the primary measure of segment profitability used by our CODM and is defined as income (loss) before income taxes, excluding the following:
A reconciliation of net income (loss) attributable to Chemours to Adjusted EBITDA for the three and nine months ended September 30, 2022 and 2021 is included in the “Non-GAAP Financial Measures” section of this MD&A.
The following table sets forth our Adjusted EBITDA by segment for the three and nine months ended September 30, 2022 and 2021.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Titanium Technologies |
|
$ |
137 |
|
|
$ |
221 |
|
|
$ |
559 |
|
|
$ |
604 |
|
Thermal & Specialized Solutions |
|
|
162 |
|
|
|
103 |
|
|
|
549 |
|
|
|
307 |
|
Advanced Performance Materials |
|
|
112 |
|
|
|
76 |
|
|
|
306 |
|
|
|
212 |
|
Other Segment |
|
|
3 |
|
|
|
14 |
|
|
|
1 |
|
|
|
42 |
|
Corporate and Other |
|
|
(51 |
) |
|
|
(42 |
) |
|
|
(174 |
) |
|
|
(159 |
) |
Total Adjusted EBITDA |
|
$ |
363 |
|
|
$ |
372 |
|
|
$ |
1,241 |
|
|
$ |
1,006 |
|
54
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 and nine months ended September 30, 2022 and 2021.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Segment net sales |
|
$ |
877 |
|
|
$ |
908 |
|
|
$ |
2,774 |
|
|
$ |
2,490 |
|
Adjusted EBITDA |
|
|
137 |
|
|
|
221 |
|
|
|
559 |
|
|
|
604 |
|
Adjusted EBITDA margin |
|
|
16 |
% |
|
|
24 |
% |
|
|
20 |
% |
|
|
24 |
% |
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 and nine months ended September 30, 2022, compared with the same periods in 2021.
Change in segment net sales from prior period |
|
Three Months Ended September 30, 2022 |
|
|
Nine Months Ended September 30, 2022 |
|
||
Price |
|
|
16 |
% |
|
|
20 |
% |
Volume |
|
|
(16 |
)% |
|
|
(7 |
)% |
Currency |
|
|
(3 |
)% |
|
|
(2 |
)% |
Portfolio |
|
|
— |
% |
|
|
— |
% |
Total change in segment net sales |
|
|
(3 |
)% |
|
|
11 |
% |
Segment Net Sales
Our Titanium Technologies segment’s net sales decreased by $31 million (or 3%) to $877 million for the three months ended September 30, 2022 compared with segment net sales of $908 million for the same period in 2021. The decrease in segment net sales for the three months ended September 30, 2022 was primarily attributable to a decrease in volume of 16% and headwinds from unfavorable currency movements of 3%, partially offset by an increase in price of 16%. Volume decreases were driven by weakening market demand, particularly in Europe and Asia. Price increases were primarily due to contractual price changes.
Our Titanium Technologies segment's net sales increased by $284 million (or 11%) to $2.8 billion for the nine months ended September 30, 2022 compared with segment net sales of $2.5 billion for the same period in 2021. The increase in segment net sales for the nine months ended September 30, 2022 was primarily attributable to an increase in price of 20%, partially offset by a decrease in volume of 7%. Price increases were due to contractual price changes, as well as price increases with our Flex customers and Distribution partners. Volume decreases were driven by constraints in output due to ore shortages in the first half of the year, as well as weakening market demand in Europe and Asia during the third quarter of 2022. Unfavorable currency movements added a 2% headwind to the segment's net sales during the nine months ended September 30, 2022.
Adjusted EBITDA and Adjusted EBITDA Margin
For the three months ended September 30, 2022 segment Adjusted EBITDA decreased by $84 million (or 38%) to $137 million and Adjusted EBITDA margin decreased by approximately 800 basis points to 16%, compared with segment Adjusted EBITDA of $221 million and Adjusted EBITDA margin of 24% for the same period in 2021. For the nine months ended September 30, 2022, segment Adjusted EBITDA decreased by $45 million (or 7%) to $559 million and Adjusted EBITDA margin decreased by approximately 400 basis points to 20%, compared with segment Adjusted EBITDA of $604 million and Adjusted EBITDA margin of 24% for the same period in 2021. The decreases in segment Adjusted EBITDA and EBITDA margin during the three and nine months ended September 30, 2022 were primarily attributable to the aforementioned decrease in sales volumes and higher raw material, energy, and logistics costs.
55
The Chemours Company
Thermal & Specialized Solutions
The following table sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Thermal & Specialized Solutions segment for the three and nine months ended September 30, 2022 and 2021.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Segment net sales |
|
$ |
417 |
|
|
$ |
318 |
|
|
$ |
1,360 |
|
|
$ |
962 |
|
Adjusted EBITDA |
|
|
162 |
|
|
|
103 |
|
|
|
549 |
|
|
|
307 |
|
Adjusted EBITDA margin |
|
|
39 |
% |
|
|
32 |
% |
|
|
40 |
% |
|
|
32 |
% |
The following table sets forth the impacts of price, volume, currency, and portfolio changes on our Thermal & Specialized Solutions segment’s net sales for the three and nine months ended September 30, 2022, compared with the same periods in 2021.
Change in segment net sales from prior period |
|
Three Months Ended September 30, 2022 |
|
|
Nine Months Ended September 30, 2022 |
|
||
Price |
|
|
25 |
% |
|
|
35 |
% |
Volume |
|
|
8 |
% |
|
|
8 |
% |
Currency |
|
|
(2 |
)% |
|
|
(2 |
)% |
Portfolio |
|
|
— |
% |
|
|
— |
% |
Total change in segment net sales |
|
|
31 |
% |
|
|
41 |
% |
Segment Net Sales
Our Thermal & Specialized Solutions segment’s net sales increased by $99 million (or 31%) and $398 million (or 41%) to $417 million and $1.4 billion for the three and nine months ended September 30, 2022, respectively, compared with segment net sales of $318 million and $962 million for the same period in 2021. The increases in segment net sales for the three and nine months ended September 30, 2022 were primarily attributable to increases in price of 25% and 35%, respectively, and an increase in volume of 8% in both periods. Prices increased in most markets across the business due to changing market and regulatory dynamics and steady value-based pricing growth within our refrigerants portfolio. Volumes increased due to continued adoption of OpteonTM and other specialized solutions. Unfavorable currency movements added a 2% headwind to the segment’s net sales during the three and nine months ended September 30, 2022.
Adjusted EBITDA and Adjusted EBITDA Margin
For the three months ended September 30, 2022, segment Adjusted EBITDA increased by $59 million (or 57%) to $162 million and Adjusted EBITDA margin increased by approximately 700 basis points to 39%, compared with segment Adjusted EBITDA of $103 million and Adjusted EBITDA margin of 32% for the same period in 2021. For the nine months ended September 30, 2022, segment Adjusted EBITDA increased by $242 million (or 79%) to $549 million and Adjusted EBITDA margin increased by approximately 800 basis points to 40%, compared with segment Adjusted EBITDA of $307 million and Adjusted EBITDA margin of 32% for the same period in 2021. The increases in segment Adjusted EBITDA and Adjusted EBITDA margin for the three and nine months ended September 30, 2022 were primarily attributable to the aforementioned increase in price, including favorable product mix, and sales volumes, partially offset by higher raw material costs.
56
The Chemours Company
Advanced Performance Materials
The following table sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Advanced Performance Materials segment for the three and nine months ended September 30, 2022 and 2021.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Segment net sales |
|
$ |
450 |
|
|
$ |
356 |
|
|
$ |
1,236 |
|
|
$ |
1,051 |
|
Adjusted EBITDA |
|
|
112 |
|
|
|
76 |
|
|
|
306 |
|
|
|
212 |
|
Adjusted EBITDA margin |
|
|
25 |
% |
|
|
21 |
% |
|
|
25 |
% |
|
|
20 |
% |
The following table sets forth the impacts of price, volume, currency, and portfolio changes on our Advanced Performance Materials segment’s net sales for the three and nine months ended September 30, 2022, compared with the same periods in 2021.
Change in segment net sales from prior period |
|
Three Months Ended September 30, 2022 |
|
|
Nine Months Ended September 30, 2022 |
|
||
Price |
|
|
23 |
% |
|
|
18 |
% |
Volume |
|
|
9 |
% |
|
|
4 |
% |
Currency |
|
|
(6 |
)% |
|
|
(4 |
)% |
Portfolio |
|
|
— |
% |
|
|
— |
% |
Total change in segment net sales |
|
|
26 |
% |
|
|
18 |
% |
Segment Net Sales
Our Advanced Performance Materials segment’s net sales increased by $94 million (or 26%) and $185 million (or 18%) to $450 million and $1.2 billion for the three and nine months ended September 30, 2022, respectively, compared with segment net sales of $356 million and $1.1 billion for the same period in 2021. The increases in segment net sales for the three and nine months ended September 30, 2022 were primarily attributable to increases in price of 23% and 18%, respectively, and in volume of 9% and 4%, respectively. Global average selling price increased due to increasing sales in high-value end-markets, including advanced electronics, semiconductors, and clean energy, as well as customer level pricing actions to offset increased raw material and energy costs. Volume increased due to higher global customer demand across key markets, partially offset by supply chain challenges and lower demand in non-strategic end-markets where fade has been anticipated given our strategy to drive higher value, differentiated product offerings. Unfavorable currency movements added a 6% and 4% headwind to the segment’s net sales during the three and nine months ended September 30, 2022, respectively.
Adjusted EBITDA and Adjusted EBITDA Margin
For the three months ended September 30, 2022, segment Adjusted EBITDA increased by $36 million (or 47%) to $112 million and Adjusted EBITDA margin increased by approximately 400 basis points to 25%, compared with segment Adjusted EBITDA of $76 million and Adjusted EBITDA margin of 21% for the same period in 2021. For the nine months ended September 30, 2022, segment Adjusted EBITDA increased by $94 million (or 44%) to $306 million and Adjusted EBITDA margin increased by approximately 500 basis points to 25%, compared with segment Adjusted EBITDA of $212 million and Adjusted EBITDA margin of 20% for the same period in 2021. The increases in segment Adjusted EBITDA and Adjusted EBITDA margin for the three and nine months ended September 30, 2022 were primarily attributable to the aforementioned increase in sales volume, favorable product mix and pricing actions, partially offset by higher raw material, energy costs, particularly in Europe, and logistics costs and growth investments.
57
The Chemours Company
Corporate and Other
Corporate and Other costs increased by $9 million (or 21%) and $15 million (or 9%) to $51 million and $174 million for the three and nine months ended September 30, 2022, respectively, compared with Corporate and Other costs of $42 million and $159 million for the same periods in 2021. The increase in Corporate and Other costs for the three months ended September 30, 2022 was primarily attributable to higher legacy legal costs and higher long-term performance-related compensation expenses relative to the prior year third quarter. The increase in Corporate and Other costs for the nine months ended September 30, 2022 includes higher legacy environmental costs and other corporate initiatives, partially offset by Qualified Spend recovery from DuPont and Corteva.
2022 Outlook
Our 2022 results will be driven by the following expectations in each of our reportable segments:
We expect that our capital expenditures will be approximately $350 million.
Our outlook for 2022 reflects our current visibility and expectations based on market factors, such as currency movements, macro-economic factors, and end-market demand. In particular, macro-economic factors may be impacted by factors beyond our control, including the ongoing Russia-Ukraine conflict. Our ability to meet our expectations are subject to numerous risks, including, but not limited to, those described in Item 1A – Risk Factors within our Annual Report on Form 10-K for the year ended December 31, 2021.
Liquidity and Capital Resources
Our primary sources of liquidity are cash generated from operations and available cash, along with our receivables securitization and borrowings under our debt financing arrangements, both of 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 December 31, 2021. Our operating cash flow generation is driven by, among other things, the general global economic conditions at any point in time and their resulting impacts on demand for our products, raw materials and energy prices, and industry-specific issues, such as production capacity and utilization. We have generated strong operating cash flows through various past industry and economic cycles, evidencing the underlying operating strength of our businesses.
58
The Chemours Company
At September 30, 2022, we had total cash and cash equivalents of $1.2 billion, of which $689 million was held by our foreign subsidiaries. All cash and cash equivalents held by our foreign subsidiaries is readily convertible into currencies used in our operations, including the U.S. dollar. During the nine months ended September 30, 2022, we received approximately $381 million of net cash in the U.S. through dividends. Management believes that sufficient liquidity is available in the U.S. through at least November 2023, which includes borrowing capacity under our revolving credit facility. For further information related to our income tax positions, refer to “Note 9 – Income Taxes” to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021.
Over the course of the next 12 months and beyond, we anticipate making significant cash payments for known contractual and other obligations, which we expect to fund through cash generated from operations, available cash, receivables securitization, and our existing debt financing arrangements. Such obligations include principal and interest obligations on long-term debt, contractual obligations for operating and finance leases, purchase obligations, and our expectations for capital expenditures, which did not significantly change from what was previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. Our contractual and other obligations also include:
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 November 2023. Our financial policy seeks to: (i) selectively invest in organic and inorganic growth to enhance our portfolio, including certain strategic capital investments; (ii) maintain appropriate leverage by using free cash flows to repay outstanding borrowings; and, (iii) return cash to shareholders through dividends and share repurchases. Specific to our objective to return cash to shareholders, in recent quarters, we have previously announced dividends of $0.25 per share, amounting to approximately $160 million per year, and, on October 25, 2022, we announced our quarterly cash dividend of $0.25 per share for the fourth quarter of 2022. Under our share repurchase program, as further discussed in Item 2 –Unregistered Sales of Equity Securities and Use of Proceeds in this Quarterly Report on Form 10-Q, we also have remaining authority to repurchase $644 million of our outstanding common stock. Subject to approval by our board of directors, we may raise additional capital or borrowings from time to time, or seek to refinance our existing debt. There can be no assurances that future capital or borrowings will be available to us, and the cost and availability of new capital or borrowings could be materially impacted by market conditions. Further, the decision to refinance our existing debt is based on a number of factors, including general market conditions and our ability to refinance on attractive terms at any given point in time. Any attempts to raise additional capital or borrowings or refinance our existing debt could cause us to incur significant charges. Such charges could have a material impact on our financial position, results of operations, or cash flows.
59
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 nine months ended September 30, 2022 and 2021.
|
|
Nine Months Ended September 30, |
|
|||||
(Dollars in millions) |
|
2022 |
|
|
2021 |
|
||
Cash provided by operating activities |
|
$ |
594 |
|
|
$ |
606 |
|
Cash used for investing activities |
|
|
(219 |
) |
|
|
(202 |
) |
Cash used for financing activities |
|
|
(495 |
) |
|
|
(359 |
) |
Operating Activities
We generated $594 million and $606 million in cash flows from our operating activities during the nine months ended September 30, 2022 and 2021, respectively. The $12 million decrease in our operating cash inflows was primarily attributable to increase in working capital, primarily related to changes in inventory due to higher unit costs, impact of timing of payment on accounts payable and accounts receivable, higher income tax payments, and payment of the $25 million settlement with the State of Delaware, partially offset by an increase in our net earnings from operations.
Investing Activities
We used $219 million and $202 million in cash flows for our investing activities during the nine months ended September 30, 2022 and 2021, respectively which were primarily attributable to purchases of property, plant, and equipment amounting to $240 million and $194 million, respectively, partially offset by $17 million of cash proceeds related to the Beaumont Transaction and $16 million of cash proceeds related to the Pascagoula Transaction during the nine months ended September 30, 2022. Purchases of property, plant, and equipment for the nine months ended September 30, 2021 included $22 million of assets acquired in exchange for the termination of a contract with a third-party service provider at our previously owned Mining Solutions facility in Gomez Palacio, Durango, Mexico.
Financing Activities
We used $495 million in cash flows for our financing activities during the nine months ended September 30, 2022 which were primarily attributable to our capital allocation activities, resulting in $351 million in purchases of our issued and outstanding common stock under our 2022 Share Repurchase Program and our 2018 Share Repurchase Program, $117 million of cash dividends, $64 million in debt repayments including open market repurchases, partially offset by $51 million in stock option exercises.
We used $359 million in cash flows for our financing activities during the nine months ended September 30, 2021. Our financing cash outflows for the nine months ended September 30, 2021 were primarily attributable to $784 million in debt repayments, $80 million purchases of our issued and outstanding common stock under our 2018 Share Repurchase Program, $123 million returned to our shareholders in the form of cash dividends paid, and $18 million in premium payments to purchase and redeem the 7.000% senior unsecured notes due May 2025. Our debt refinancing cash outflows were partially offset by $650 million of proceeds received in connection with the issuance of our 4.625% senior unsecured notes due November 2029.
60
The Chemours Company
Current Assets
The following table sets forth the components of our current assets at September 30, 2022 and December 31, 2021.
(Dollars in millions) |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Cash and cash equivalents |
|
$ |
1,167 |
|
|
$ |
1,451 |
|
Accounts and notes receivable, net |
|
|
980 |
|
|
|
720 |
|
Inventories |
|
|
1,321 |
|
|
|
1,099 |
|
Prepaid expenses and other |
|
|
75 |
|
|
|
75 |
|
Total current assets |
|
$ |
3,543 |
|
|
$ |
3,345 |
|
Our accounts and notes receivable, net increased by $260 million (or 36%) to $980 million at September 30, 2022, compared with accounts and notes receivable, net of $720 million at December 31, 2021. This increase in our accounts and notes receivable, net at September 30, 2022 was primarily attributable to higher net sales and the timing of collections from our customers.
Our inventories increased by $222 million (or 20%) to $1.3 billion at September 30, 2022, compared with inventories of $1.1 billion at December 31, 2021. The increase in our inventories at September 30, 2022 was primarily attributable to build-up of our finished product inventories, along with an increase in the value of our raw material inventories due to higher raw material costs.
61
The Chemours Company
Current Liabilities
The following table sets forth the components of our current liabilities at September 30, 2022 and December 31, 2021.
(Dollars in millions) |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Accounts payable |
|
$ |
1,270 |
|
|
$ |
1,162 |
|
Compensation and other employee-related costs |
|
|
130 |
|
|
|
173 |
|
Short-term and current maturities of long-term debt |
|
|
24 |
|
|
|
25 |
|
Current environmental remediation |
|
|
210 |
|
|
|
173 |
|
Other accrued liabilities |
|
|
317 |
|
|
|
325 |
|
Total current liabilities |
|
$ |
1,951 |
|
|
$ |
1,858 |
|
Our accounts payable increased by $108 million (or 9%) to $1.3 billion at September 30, 2022 compared with accounts payable of $1.2 billion at December 31, 2021. The increase in our accounts payable at September 30, 2022 was primarily attributable to higher raw material purchases in connection with higher sales volumes, increased capital expenditures, increased environmental remediation expenditures, and the timing of payments to our vendors.
Our compensation and other employee-related costs decreased by $43 million (or 25%) to $130 million at September 30, 2022 compared with compensation and other employee-related costs of $173 million at December 31, 2021. The decrease in our compensation and other employee-related costs at September 30, 2022 was primarily attributable to decreased accruals for employee performance-based compensation following payout of 2021 employee performance-based compensation during the first quarter of 2022 and lower accrual of 2022 employee performance-based compensation relative to prior year.
Our current environmental remediation increased by $37 million (or 21%) to $210 million at September 30, 2022 compared with current environmental remediation of $173 million at December 31, 2021. The increase in our current environmental remediation at September 30, 2022 was primarily attributable to increased accruals for construction of the barrier wall at Fayetteville, as well as off-site groundwater testing and water treatment system installations at qualifying third-party properties primarily in Bladen and Cumberland counties surrounding Fayetteville and for the assessment and for sampling related to potential PFAS contamination of groundwater and supply, alternative drinking water, and mitigation in New Hanover and three other counties downstream from Fayetteville.
Our other accrued liabilities decreased by $8 million (or 2%) to $317 million at September 30, 2022, compared with other accrued liabilities of $325 million at December 31, 2021. The decrease in our other accrued liabilities at September 30, 2022 was primarily attributable to a decrease in accrued current litigation following the payment of $25 million associated with our portion of the costs to enter into the Settlement Agreement, Limited Release, Waiver and Covenant Not to Sue reflecting Chemours, DuPont, Corteva, EID and State of Delaware’s agreement to settle and fully resolve claims alleged against the companies. The decrease in our other accrued liabilities was largely offset by an increase in our accrued interest due to the timing of payment under our senior unsecured notes.
62
The Chemours Company
Credit Facilities and Notes
Refer to “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 December 31, 2021 for a discussion of our credit facilities and notes.
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 4.000% senior unsecured notes due May 2026, which are denominated in euros and the 5.375% senior unsecured notes due May 2027 (collectively, the “Registered Notes”), which are registered under the Securities Act of 1933, as amended. Each series of the Registered Notes was issued by The Chemours Company (the “Parent Issuer”), and was fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the existing and future domestic subsidiaries of the Parent Issuer (together, the “Guarantor Subsidiaries”), subject to certain conditions, which are further discussed in “Note 20 – Debt” to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021. The assets, liabilities, and operations of the Guarantor Subsidiaries primarily consist of those attributable to The Chemours Company FC, LLC, our primary operating subsidiary in the United States, as well as certain U.S.-based subsidiaries included in Exhibit 22 to this Quarterly Report on Form 10-Q. Each of the Guarantor Subsidiaries is 100% owned by the Company. None of our other subsidiaries, either direct or indirect, guarantee the Registered Notes (together, the “Non-Guarantor Subsidiaries”). Pursuant to the indentures governing the Registered Notes, the Guarantor Subsidiaries will be automatically released from those guarantees upon the occurrence of certain customary release provisions.
Our summarized financial information is presented on a combined basis, consisting of the Parent Issuer and Guarantor Subsidiaries (collectively, the “Obligor Group”), in accordance with the requirements under Rule 13-01, and is presented after the elimination of: (i) intercompany transactions and balances among the Parent Issuer and Guarantor Subsidiaries, and (ii) equity in earnings from and investments in the Non-Guarantor Subsidiaries.
(Dollars in millions) |
|
Nine Months Ended September 30, 2022 |
|
|
Net sales |
|
$ |
3,575 |
|
Gross profit |
|
|
771 |
|
Income before income taxes |
|
|
396 |
|
Net income |
|
|
331 |
|
Net income attributable to Chemours |
|
|
331 |
|
(Dollars in millions) |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Assets |
|
|
|
|
|
|
||
Current assets (1,2,3) |
|
$ |
1,779 |
|
|
$ |
1,554 |
|
Long-term assets (4,5) |
|
|
3,512 |
|
|
|
3,720 |
|
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Current liabilities (2) |
|
$ |
1,573 |
|
|
$ |
1,504 |
|
Long-term liabilities |
|
|
4,397 |
|
|
|
4,497 |
|
63
The Chemours Company
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 supply chain finance programs with several financial institutions. The programs allow our suppliers to sell their receivables to one of the participating financial institutions at the discretion of both parties on terms that are negotiated between the supplier and the respective financial institution. Our obligations to our suppliers, including the amounts due and scheduled payment dates, are not impacted by our suppliers’ decisions to sell their receivables under this program. At September 30, 2022 and December 31, 2021, the total amounts outstanding under these programs were $168 million and $153 million, respectively. Pursuant to their agreement with a financial institution, certain suppliers may elect to be paid early at their discretion. The available capacity under these programs can vary based on the number of investors and/or financial institutions participating in these programs at any point in time.
Off-Balance Sheet Arrangements
There have been no material changes to the off-balance sheet arrangement described in our MD&A and “Note 20 – Debt” to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021.
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 December 31, 2021. There have been no material changes to the critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, except as described in “Note 2 – Recent Accounting Pronouncements” to the Interim Consolidated Financial Statements.
Recent Accounting Pronouncements
See “Note 2 – Recent Accounting Pronouncements” to the Interim Consolidated Financial Statements for a discussion about recent accounting pronouncements.
64
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 EID and its subsidiaries that we may be required to indemnify pursuant to the Separation-related agreements executed prior to our separation from EID on July 1, 2015 (the “Separation”).
Our environmental liabilities include estimated costs, including certain accruable costs associated with on-site capital projects. The accruable costs relate 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 CERCLA, RCRA, and similar federal, state, local, and foreign laws. These laws may require certain investigative, remediation, and restoration activities at sites where we conduct or EID once conducted operations or at sites where our generated waste was disposed. At September 30, 2022 and December 31, 2021, our consolidated balance sheets include environmental remediation liabilities of $692 million and $562 million, respectively, relating to these matters, which, as discussed in further detail below, include $486 million and $359 million, respectively, for Fayetteville.
65
The Chemours Company
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 EID pursuant to the Separation-related agreements, we and EID 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, we currently estimate the potential liability may range up to approximately $720 million above the amount accrued at September 30, 2022. This estimate is not intended to reflect an assessment of our maximum potential liability. As noted above, the estimated liabilities are determined based on existing remediation laws and technologies and our planned remedial responses, which are derived from environmental studies, sampling, testing, and analyses. Inherent uncertainties exist in such evaluations, primarily due to unknown environmental conditions, changing governmental regulations regarding liability, and emerging remediation technologies. We will continue to evaluate as new or additional information becomes available in the determination of our environmental remediation liability.
In general, uncertainty is greatest and the range of potential liability is widest in the Investigation phase, narrowing over time as regulatory agencies approve site remedial plans. As a result, uncertainty is reduced, and sites ultimately move into OM&M, as needed. As more sites advance from Investigation to Active Remediation to OM&M or closure, the upper end of the range of potential liability is expected to decrease over time. Some remediation sites will achieve site closure and will require no further action to protect people and the environment and comply with laws and regulations. At certain sites, we expect that there will continue to be some level of remediation activity due to ongoing 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.
Significant Environmental Remediation Sites
While there are many remediation sites that contribute to our total accrued environmental remediation liabilities at September 30, 2022 and December 31, 2021, the following table sets forth the liabilities of the four sites that are deemed the most significant, together with the aggregate liabilities for all other sites.
(Dollars in millions) |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Chambers Works, Deepwater, New Jersey |
|
$ |
30 |
|
|
$ |
27 |
|
Fayetteville Works, Fayetteville, North Carolina |
|
|
486 |
|
|
|
359 |
|
Pompton Lakes, New Jersey |
|
|
41 |
|
|
|
42 |
|
USS Lead, East Chicago, Indiana |
|
|
17 |
|
|
|
24 |
|
All other sites |
|
|
118 |
|
|
|
110 |
|
Total environmental remediation |
|
$ |
692 |
|
|
$ |
562 |
|
The four sites listed above represent 83% of our total accrued environmental remediation liabilities at September 30, 2022 and December 31, 2021. For these four sites, we expect to spend, in the aggregate, $253 million over the next three years. For all other sites, we expect to spend $75 million over the next three years.
66
The Chemours Company
Chambers Works, Deepwater, New Jersey (“Chambers Works”)
The Chambers Works complex is located on the eastern shore of the Delaware River in Deepwater, Salem County, New Jersey. The site comprises the former Carneys Point Works in the northern area and the Chambers Works manufacturing area in the southern area. Site operations began in 1892 when the former Carneys Point smokeless gunpowder plant was constructed at the northern end of Carneys Point. Site operations began in the manufacturing area around 1914 and included the manufacture of dyes, aromatics, elastomers, chlorofluorocarbons, and tetraethyl lead. We continue to manufacture a variety of fluoropolymers and finished products at Chambers Works. In addition, two tenants operate processes at Chambers Works. As a result of over 100 years of continuous industrial activity, site soils and groundwater have been impacted by chemical releases.
In response to identified groundwater contamination, a groundwater interceptor well system (“IWS”) was installed in 1970, which was designed to contain contaminated groundwater and restrict off-site migration. Additional remediation is being completed under a 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 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. Discussions are ongoing with the U.S. Environmental Protection Agency (the “EPA”) and the New Jersey Department of Environmental Protection (the “NJ DEP”) relating to such remaining work as well as the scope of remedial programs and investigation relating to the Chambers Works site historic industrial activity as well as ongoing remedial programs.
Fayetteville Works, Fayetteville, North Carolina
Fayetteville is located southeast of the City of Fayetteville in Cumberland and Bladen counties, North Carolina. The facility encompasses approximately 2,200 acres, which were purchased by EID in 1970, and are bounded to the east by the Cape Fear River and to the west by North Carolina Highway 87. Currently, the Company manufactures fluorinated monomers, fluorinated vinyl ethers, NafionTM membranes and dispersions, and fluoropolymer processing aids at the site. A former manufacturing area, which was sold in 1992, produced nylon strapping and elastomeric tape. EID sold its Butacite® and SentryGlas® manufacturing units to Kuraray America, Inc. in September 2014. In July 2015, upon our Separation from EID, we became the owner of the Fayetteville land assets along with fluoromonomers, NafionTM membranes, and the related polymer processing aid manufacturing units. A polyvinyl fluoride resin manufacturing unit remained with EID.
Beginning in 1996, several stages of site investigation were conducted under oversight by the North Carolina Department of Environmental Quality (the “NC DEQ”), as required by the facility's hazardous waste permit. In addition, the site has voluntarily agreed to agency requests for additional investigations of the potential release of “PFAS” (perfluoroalkyl and polyfluoroalkyl substances) beginning with “PFOA” (collectively, perfluorooctanoic acids and its salts, including the ammonium salt) in 2006. As a result of detection of GenX in on-site groundwater wells during our investigations in 2017, the NC DEQ issued a Notice of Violation (“NOV”) in September 2017 alleging violations of North Carolina water quality statutes and requiring further response. Since that time, and in response to three additional NOVs issued by NC DEQ and pursuant to the Consent Order (as discussed below), we have worked cooperatively with the agency to investigate and address releases of PFAS to on-site and off-site groundwater and surface water.
67
The Chemours Company
As discussed in “Note 16 – Commitments and Contingent Liabilities” to the Interim Consolidated Financial Statements, we, along with NC DEQ and Cape Fear River Watch (“CFRW”), a non-profit organization, have filed a final Consent Order (“CO”) that comprehensively addressed various issues, NOVs, and court filings made by NC DEQ regarding Fayetteville and resolved litigations filed by NC DEQ and CFRW. In connection with the CO, a thermal oxidizer (“TO”) became fully operational at the site in December 2019 to reduce aerial PFAS emissions from Fayetteville. The CO requires us to provide permanent replacement drinking water supplies, via connection to public water supply, whole building filtration units and/or reverse osmosis units, to qualifying surrounding residents, businesses, schools, and public buildings with private drinking water wells.
In August 2020, we, along with NC DEQ and CFRW, reached agreement on the terms of an addendum to the CO (the “Addendum”). The Addendum establishes the procedure to implement specified remedial measures for reducing PFAS loadings from Fayetteville to the Cape Fear River, including construction of a barrier wall with groundwater extraction system to be completed by March 15, 2023. After a period of public comment, the Addendum was approved by the North Carolina Superior Court for Bladen County in October 2020 and establishes the procedure to implement specified remedial measures for reducing PFAS loadings from Fayetteville to the Cape Fear River, including construction of a barrier wall with a groundwater extraction system to be completed by March 15, 2023, or an extended date in accordance with the Addendum.
Further discussion related to Fayetteville is included under the heading “Fayetteville Works, Fayetteville, North Carolina” in “Note 16 – Commitments and Contingent Liabilities” to the Interim Consolidated Financial Statements.
Pompton Lakes, New Jersey
During the 20th century, blasting caps, fuses, and related materials were manufactured at Pompton Lakes, Passaic County, New Jersey. Operating activities at the site were ceased in the mid-1990s. The primary contaminants in the soil and sediments are lead and mercury. Groundwater contaminants include volatile organic compounds. Under the authority of EPA and NJ DEP, remedial actions at the site are focused on investigating and cleaning-up the area. Groundwater monitoring at the site is ongoing, and we have installed and continue to install vapor mitigation systems at residences within the groundwater plume. In addition, we are further assessing groundwater conditions. In September 2015, EPA issued a modification to the site’s RCRA permit that requires us to dredge mercury contamination from a 36-acre area of the lake and remove sediment from two other areas of the lake near the shoreline. The remediation activities commenced when permits and implementation plans were approved in May 2016, and work on the lake dredging project is now complete. In April 2019, we submitted a revised Corrective Measures Study (“CMS”) proposing actions to address on-site soils impacted from past operations that exceed applicable clean-up criteria. We received comments on the CMS from EPA and NJ DEP in March 2020, and we responded to their comments in June 2020 and continue to seek resolution with EPA.
U.S. Smelter and Lead Refinery, Inc., East Chicago, Indiana
The U.S. Smelter and Lead Refinery, Inc. (“USS Lead”) Superfund site is located in the Calumet neighborhood of East Chicago, Lake County, Indiana. The site includes the former USS Lead facility along with nearby commercial, municipal, and residential areas. The primary compounds of interest are lead and arsenic which may be found in soils within the impacted area. The EPA is directing and organizing remediation on this site, and we are one of a number of parties working cooperatively with EPA on the safe and timely completion of this work. EID’s former East Chicago manufacturing facility was located adjacent to the site, and EID assigned responsibility for the site to us in the Separation Agreement.
The USS Lead Superfund site was listed on the National Priorities List in 2009. To facilitate negotiations PRPs, EPA divided the residential part of the USS Lead Superfund site into three zones, referred to as Zone 1, Zone 2, and Zone 3. The division into three zones resulted in Atlantic Richfield Co. (“Atlantic Richfield”) and EID entering into an agreement in 2014 with EPA and the State of Indiana to reimburse EPA’s costs to implement clean-up in Zone 1 and Zone 3. In March 2017, we and three other parties – Atlantic Richfield, EID, and the U.S. Metals Refining Co. (“U.S. Metals”) – entered into an administrative order on consent to reimburse EPA’s costs to clean-up a portion of Zone 2. In March 2018, EPA issued a Unilateral Administrative Order for the remainder of the Zone 2 work to five parties, including us, Atlantic Richfield, EID, U.S. Metals, and USS Lead Muller Group, and these parties entered into an interim allocation agreement to perform that work. As of the end of 2019, the required work in Zone 3 had been completed, and Zone 2 was nearly complete by the end of 2020. The determination of a final allocation for Zone 2 and/or the other Zones is ongoing, and additional PRPs may be identified.
68
The Chemours Company
The environmental accrual for USS Lead includes completion of the remaining obligations under the 2012 Record of Decision (“ROD”) and Statement of Work, which principally encompasses completion of Zone 1. The EPA released a proposed amendment to the 2012 ROD (the “ROD Amendment”) for a portion of Zone 1 in December 2018 (following its August 2018 Feasibility Study Addendum), with its recommended option based on future residential use. The EPA’s ROD Amendment for modified Zone 1 was released in March 2020, and selects as the preferred remedy one which requires a clean-up to residential standards based on the current applicable residential zoning. The ROD Amendment for modified Zone 1 also sets forth a selected contingent remedy which requires clean-up to commercial/industrial standards if the future land use becomes commercial/industrial. In November 2019, a Letter of Intent was executed by the City of East Chicago, Indiana and Industrial Development Advantage, LLC ("IDA"), relating to modified Zone 1 development, and EPA has indicated that it is “more likely” that future land use in this area will be commercial/industrial and not residential.
In 2021, we resolved the claims asserted by EPA related to past indirect costs associated with the 2012 ROD as amended, and the 2014 agreement entered into with EPA and the State of Indiana. In September 2022, EPA confirmed the selection of remedial actions for modified Zone 1 and provided notice to all relevant parties, including IDA, to cause the agreements between EPA, DOJ, the State of Indiana, Chemours and other PRPs to become effective. We expect that our future costs relating to the USS Lead site will be contingent on implementation of these agreements, resolution of EPA’s costs as well as any final allocation between PRPs.
New Jersey Department of Environmental Protection Directives and Litigation
In March 2019, NJ DEP issued two Directives, one being a state-wide PFAS Directive, and filed four lawsuits against us and other defendants, including allegations relating to clean-up and removal costs at four sites including Chambers Works. In December 2021, a consolidated order was entered in the lawsuits granting, in part, and denying, in part a motion to dismiss or strike parts of the Second Amended Complaints. In January 2022, NJ DEP filed a motion for a preliminary injunction requiring EID and us to establish a remediation funding source (“RFS”) in the amount of $943 million for Chambers Works, the majority of which is for non-PFAS remediation items. Further discussion related to these matters is included in “Note 16 – Commitments and Contingent Liabilities” to the Interim Consolidated Financial Statements.
Climate Change
Central to our Corporate Responsibility Commitment (“CRC”) are our ten goals that we aim to achieve by 2030. These goals fall into three pillars: Inspired People, Shared Planet, and Evolved Portfolio. In April 2021, we announced an update to our climate goals to better align our climate commitment with the Paris Accord and set us on a path to achieve net zero greenhouse gas emissions from our operations by 2050. In August 2022, we announced our signed commitment with the Science Based Targets initiative (“SBTi”) to establish science-based targets for scopes 1, 2, and 3 greenhouse gas ("GHG") emissions.
The Shared Planet pillar of our CRC 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 2030 goals are comprised of the following:
69
The Chemours Company
As part of the Evolved Portfolio pillar of our CRC, we are reimagining our portfolio to offer solutions that are also safer, healthier, and more resilient for a world that demands more. We believe that climate change is an important global issue that presents both opportunities and challenges for our company, our partners, and our communities. Climate change matters for our company are likely to be driven by changes in physical climate parameters, regulations and/or public policy, and changes in technology and product demand. Our operations and business results are increasingly subject to evolving climate-related legislation and regulations, inclusive of restrictions on GHG emissions, cap and trade emissions trading systems, and taxes on GHG emissions, fuel, and energy, among other provisions. Such regulatory matters have led, and are expected to continue to lead, to subsequent developments in product technology and demand. This helps guide our investment decisions and drive growth in demand for low-carbon and energy-efficient products, manufacturing technologies, and services that facilitate adaptation to a changing climate. Our business segments conduct market trend impact assessments, continuously evaluate opportunities for existing and new products and are well-positioned to take advantage of opportunities that may arise from increased consumer demand for and/or legislation mandating or incentivizing the use of products and technologies necessary to achieve a low-carbon economy.
For example, global regulations driving the phase-down of HFCs, including the EU’s F-Gas Directive, the EU’s Mobile Air Conditioning Directive, and the recently enacted U.S. American Innovation and Manufacturing Act (“AIM”), promote the adoption and sale of our high performing Opteon products, which have lower global warming potential (“GWP”) and zero ozone-depletion footprint. Our Opteon portfolio has been developed to meet global regulations while maintaining or improving performance compared to the products they replace in refrigeration and cooling applications, such as food transportation, food and pharmaceutical/medical storage, food manufacturing and retail, automotive air conditioning, and residential and commercial building air conditioning. By the year 2025, we estimate that our low GWP products will eliminate an estimated 325 million tons of carbon dioxide equivalents on a global basis.
We are a proponent of the recently passed bipartisan AIM Act, that went into effect in 2022, and will begin the national phase-down of hydrofluorocarbons. In 2021, we announced the implementation of an improvement project to significantly reduce emissions of HFC-23 at our Louisville, Kentucky manufacturing site. The project includes the design, custom-build and installation of proprietary technology to capture at least 99% of HFC-23 process emissions from the site.
Our growth prospects in fluoropolymers are also enhanced by regulation driving the increasing demand for electric vehicles and high-performance, low-emission vehicles. Our fluoropolymers are critical to delivering high performance over a wide range of harsh operating conditions, enhancing passenger safety, improving emission controls, and better fuel economy, and enable vehicle electrification and the shift to hydrogen-powered vehicles. We expect the use of our fluoropolymers in vehicles to increase, driven by the automotive industry’s trends toward energy efficiency and clean energy due to evolving emissions performance regulations and increasing adoption of electric vehicles.
As an energy and emissions intensive company, our costs of complying with complex environmental laws, regulations, and enforcements, as well as internal and external voluntary programs, are significant and will continue to be significant for the foreseeable future. These laws, regulations, and enforcements may change and could become more stringent over time, which could result in significant additional compliance costs, increased costs of purchased energy or other raw materials, increased transportation costs, investments in, or restrictions on, our operations, installation or modification of GHG-emitting equipment, or additional costs associated with GHG emissions. Additionally, significant regional or national differences in approaches to the imposition of such regulations and restrictions could present competitive challenges or opportunities in a global marketplace. Currently, most of our global operating facilities are required to monitor and report their GHG emissions but may or may not be subject to programs requiring trading or emission controls. The EU Emission Trading System applies to our operating sites in that region. Furthermore, U.S. political administration could lead to additional federal regulation with respect to GHG emissions limits and/or other legislation that could impact our operations. By tracking and taking action to reduce our GHG emissions footprint through energy efficiency programs and focused GHG management efforts, we can decrease the potential future impact of these regulatory matters.
70
The Chemours Company
PFOA
See our discussion under the heading “PFOA” in “Note 16 – Commitments and Contingent Liabilities” to the Interim Consolidated Financial Statements.
GenX
In June 2019, the Member States Committee of the European Chemicals Agency (“ECHA”) voted to list Hexafluoropropylene oxide dimer acid (“HFPO Dimer Acid”) as a Substance of Very High Concern. The vote was based on Article 57(f) – equivalent level of concern having probable serious effects to the environment. This identification does not impose immediate regulatory restriction or obligations, but may lead to a future authorization or restriction of the substance. On September 24, 2019, we filed an application with the EU Court of Justice for the annulment of the decision of ECHA to list HFPO Dimer Acid as a Substance of Very High Concern. In February 2022, the General Court dismissed the annulment action and we have appealed such decision.
PFAS
Refer to our discussion under the heading “PFAS” in “Note 16 – Commitments and Contingent Liabilities” to the Interim Consolidated Financial Statements.
In May 2020, ECHA announced that five Member States (Germany, the Netherlands, Norway, Sweden, and Denmark) launched a call for evidence to inform a PFAS restriction proposal. Companies producing or using PFAS, as well as selling mixture or products containing PFAS, were invited to provide input. This call for evidence closed July 31, 2020. Thousands of substances meet the definition of PFAS as outlined in the call for evidence. This very broad definition covers substances with a variety of physical and chemical properties, health and environmental profiles, uses, and benefits. We submitted information on the substances covered by the call for evidence to the Member State competent authority for Germany, which is the Federal Institute for Occupational Safety and Health (“BAuA”).
In May 2020, five European countries began an initiative to restrict the manufacture, placing on the market and use of PFAS in the EU. In this regulatory process, more than 4,000 substances, including F-gases and fluoropolymers are being considered as part of this broad regulatory action. On July 15, 2021, the countries submitted their restriction proposal, which informs ECHA of the intent to prepare a PFAS restriction dossier for fluorinated substances within a defined structural formula scope, including branched fluoroalkyl groups and substances containing ether linkages, fluoropolymers and side chain fluorinated polymers. The restriction dossier will include information on hazards and risks, available information on alternatives and an analysis of the risk management instrument for addressing the identified risks. The submitting countries indicate that they expect to submit the restriction dossier to ECHA in January 2023. As part of the preparation of the restriction dossier, stakeholders were requested to provide relevant information and, based on risk and socio-economic information, derogations from the proposed restriction may be proposed by the submitting countries. If a derogation is not proposed by the submitting countries, the relevant stakeholders may do so during a consultation process. The draft dossier will be reviewed by the ECHA committees Risk Assessment Committee (“RAC”) and Socio-economic Analysis Committees (“SEAC”) and proposals submitted to the EU Commission in 2023. The estimated entry into force of restrictions is 2025. The impacts of restrictions and regulatory measures could lead to material adverse effects on our results of operations, financial condition, and cash flows.
In October 2021, EPA released its PFAS Strategic Roadmap, identifying a comprehensive approach to addressing PFAS. The PFAS Strategic Roadmap sets timelines by which EPA plans to take specific actions through 2024, including establishing a national primary drinking water regulation for PFOA and perfluorooctanesulfonic acid (“PFOS”) and taking Effluent Limitations Guidelines actions to regulate PFAS discharges from industrial categories among other actions. As provided under its roadmap, EPA also released on the same day its National PFAS Testing Strategy, under which the agency will identify and select certain PFAS compounds for which it will require PFAS manufacturers to conduct testing pursuant to the Toxic Substances Control Act (“TSCA”) orders. EPA has indicated that we will receive orders for certain of such compounds, including seven of the testing orders that will be issued for PFAS compounds alleged to be associated with Fayetteville. In June 2022, EPA issued the first TSCA Section 4(a)(2) order under this program to five recipients, including us and EID, and we have met with the agency in July 2022 to discuss the order and responded to it.
71
The Chemours Company
Also in October 2021, EPA published a final toxicity assessment for GenX compounds that decreased the draft reference dose for GenX compounds based on EPA’s review of new studies and analyses. On March 18, 2022, we filed a petition to EPA requesting to withdraw and correct its toxicity assessment for GenX compounds, which was denied by EPA on June 14, 2022. The next day, on June 15, 2022, EPA released health advisories for four PFAS, including interim updated lifetime drinking water health advisories for PFOA and PFOS, and final health advisories for GenX compounds, including HFPO Dimer Acid, and another PFAS compound (PFBS). On July 13, 2022, we filed a Petition for Review of the GenX compounds health advisory. The environmental remediation liabilities and accrued litigation, as applicable, recorded for Fayetteville, Washington Works, Parkersburg, West Virginia and Chambers Works, Deepwater, New Jersey as of September 30, 2022 are based upon the existing Consent Orders, agreements and/or voluntary commitments with EPA, state and other local regulators and depending on the ultimate outcome of EPA’s actions, could require adjustment to meet any new drinking water standards. We continue to evaluate the impact of EPA’s June 15th health advisories and the PFAS Strategic Roadmap. It is reasonably possible that additional costs could be incurred in connection with EPA’s actions, however, we cannot estimate the potential impact or additional cost at this time, due in part to the uncertainties on EPA’s development of maximum contaminant levels for PFOA and PFOS and the implementation of the June 15th health advisories. Refer to our discussion under the heading “Fayetteville Works, Fayetteville, North Carolina” in “Note 16 – Commitments and Contingent Liabilities” to the Interim Consolidated Financial Statements.
72
The Chemours Company
Non-GAAP Financial Measures
We prepare our interim consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”). To supplement our financial information presented in accordance with GAAP, we provide the following non-GAAP financial measures – Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings per Share (“EPS”), Free Cash Flows (“FCF”), Return on Invested Capital (“ROIC”), and Net Leverage Ratio – in order to clarify and provide investors with a better understanding of our performance when analyzing changes in our underlying business between reporting periods and provide for greater transparency with respect to supplemental information used by management in its financial and operational decision-making. We utilize Adjusted EBITDA as the primary measure of segment profitability used by our CODM.
Adjusted EBITDA is defined as income (loss) before income taxes, excluding the following:
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. Net Leverage Ratio is defined as our total debt principal, net, or our total debt principal outstanding less cash and cash equivalents, divided by Adjusted EBITDA.
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, ROIC, and Net Leverage Ratio 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 December 31, 2021.
73
The Chemours Company
The following table sets forth a reconciliation of our net income (loss) attributable to Chemours to Adjusted Net Income, Adjusted EBITDA, and Adjusted EPS for the three and nine months ended September 30, 2022 and 2021.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions, except per share amounts) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income attributable to Chemours |
|
$ |
240 |
|
|
$ |
214 |
|
|
$ |
675 |
|
|
$ |
375 |
|
Non-operating pension and other post-retirement employee benefit income |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(4 |
) |
|
|
(7 |
) |
Exchange (gains) losses, net |
|
|
(13 |
) |
|
|
(3 |
) |
|
|
(11 |
) |
|
|
2 |
|
Restructuring, asset-related, and other charges (1) |
|
|
(2 |
) |
|
|
3 |
|
|
|
14 |
|
|
|
2 |
|
(Gain) loss on extinguishment of debt |
|
|
(7 |
) |
|
|
20 |
|
|
|
(7 |
) |
|
|
20 |
|
Gain on sales of assets and businesses, net (2) |
|
|
— |
|
|
|
(1 |
) |
|
|
(27 |
) |
|
|
(2 |
) |
Natural disasters and catastrophic events (3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19 |
|
Transaction costs (4) |
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
7 |
|
Qualified spend recovery (5) |
|
|
(14 |
) |
|
|
(12 |
) |
|
|
(41 |
) |
|
|
(12 |
) |
Legal and environmental charges (6,7) |
|
|
(12 |
) |
|
|
11 |
|
|
|
167 |
|
|
|
219 |
|
Adjustments made to income taxes (8) |
|
|
(3 |
) |
|
|
(14 |
) |
|
|
(9 |
) |
|
|
(23 |
) |
Provision for (benefit from) income taxes relating to reconciling items (9) |
|
|
8 |
|
|
|
(4 |
) |
|
|
(20 |
) |
|
|
(62 |
) |
Adjusted Net Income |
|
|
196 |
|
|
|
214 |
|
|
|
737 |
|
|
|
538 |
|
Interest expense, net |
|
|
41 |
|
|
|
45 |
|
|
|
123 |
|
|
|
142 |
|
Depreciation and amortization |
|
|
72 |
|
|
|
78 |
|
|
|
217 |
|
|
|
242 |
|
All remaining provision for income taxes |
|
|
54 |
|
|
|
35 |
|
|
|
164 |
|
|
|
84 |
|
Adjusted EBITDA |
|
$ |
363 |
|
|
$ |
372 |
|
|
$ |
1,241 |
|
|
$ |
1,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average number of common shares outstanding - basic |
|
|
155,376,422 |
|
|
|
165,113,024 |
|
|
|
157,149,738 |
|
|
|
165,627,861 |
|
Dilutive effect of our employee compensation plans |
|
|
2,473,700 |
|
|
|
3,841,670 |
|
|
|
3,199,339 |
|
|
|
3,742,889 |
|
Weighted-average number of common shares outstanding - diluted |
|
|
157,850,122 |
|
|
|
168,954,694 |
|
|
|
160,349,077 |
|
|
|
169,370,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Per share data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per share of common stock |
|
$ |
1.54 |
|
|
$ |
1.30 |
|
|
$ |
4.30 |
|
|
$ |
2.26 |
|
Diluted earnings per share of common stock |
|
|
1.52 |
|
|
|
1.27 |
|
|
|
4.21 |
|
|
|
2.21 |
|
Adjusted basic earnings per share of common stock |
|
|
1.26 |
|
|
|
1.30 |
|
|
|
4.69 |
|
|
|
3.25 |
|
Adjusted diluted earnings per share of common stock |
|
|
1.24 |
|
|
|
1.27 |
|
|
|
4.60 |
|
|
|
3.18 |
|
74
The Chemours Company
The following table sets forth a reconciliation of our cash flows provided by (used for) operating activities to FCF for the nine months ended September 30, 2022 and 2021.
|
|
Nine Months Ended September 30, |
|
|||||
(Dollars in millions) |
|
2022 |
|
|
2021 |
|
||
Cash provided by operating activities |
|
$ |
594 |
|
|
$ |
606 |
|
Less: Purchases of property, plant, and equipment (1) |
|
|
(240 |
) |
|
|
(194 |
) |
Free Cash Flows |
|
$ |
354 |
|
|
$ |
412 |
|
The following table sets forth a reconciliation of Adjusted EBIT and average invested capital, and their nearest respective GAAP measures, to ROIC for the periods presented.
|
|
Twelve Months Ended September 30, |
|
|||||
(Dollars in millions) |
|
2022 |
|
|
2021 |
|
||
Adjusted EBITDA (1) |
|
$ |
1,548 |
|
|
$ |
1,252 |
|
Less: Depreciation and amortization (1) |
|
|
(294 |
) |
|
|
(320 |
) |
Adjusted EBIT |
|
$ |
1,254 |
|
|
$ |
932 |
|
|
|
|
|
|
|
|
||
|
|
As of September 30, |
|
|||||
(Dollars in millions) |
|
2022 |
|
|
2021 |
|
||
Total debt, net (2) |
|
$ |
3,534 |
|
|
$ |
3,854 |
|
Total equity |
|
|
1,285 |
|
|
|
999 |
|
Less: Cash and cash equivalents |
|
|
(1,167 |
) |
|
|
(1,031 |
) |
Invested capital, net |
|
$ |
3,652 |
|
|
$ |
3,822 |
|
Average invested capital (3) |
|
$ |
3,648 |
|
|
$ |
3,804 |
|
|
|
|
|
|
|
|
||
Return on Invested Capital |
|
|
34 |
% |
|
|
25 |
% |
The following table sets forth a reconciliation of our total debt principal, cash and cash equivalents, and Adjusted EBITDA to Net Leverage Ratio.
|
|
As of September 30, |
|
|||||
(Dollars in millions) |
|
2022 |
|
|
2021 |
|
||
Total debt principal |
|
$ |
3,562 |
|
|
$ |
3,890 |
|
Less: Cash and cash equivalents |
|
|
(1,167 |
) |
|
|
(1,031 |
) |
Total debt principal, net |
|
$ |
2,395 |
|
|
$ |
2,859 |
|
|
|
|
|
|
|
|
||
|
|
Twelve Months Ended September 30, |
|
|||||
(Dollars in millions) |
|
2022 |
|
|
2021 |
|
||
Adjusted EBITDA (1) |
|
$ |
1,548 |
|
|
$ |
1,252 |
|
|
|
|
|
|
|
|
||
Net Leverage Ratio |
|
1.5x |
|
|
2.3x |
|
75
The Chemours Company
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to changes in foreign currency exchange rates because of our global operations. As a result, we have assets, liabilities, and cash flows denominated in a variety of foreign currencies. We also have variable rate indebtedness, which subjects us to interest rate risk. Additionally, we are also exposed to changes in the prices of certain commodities that we use in production. Changes in these rates and commodity prices may have an impact on our future cash flows and earnings. We manage these risks through our normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We do not enter into derivative financial instruments for trading or speculative purposes.
By using derivative financial instruments, we are subject to credit and market risk. The fair values of the derivative financial instruments are determined by using valuation models whose inputs are derived using market observable inputs, and reflect the asset or liability position as of the end of each reporting period. When the fair value of a derivative contract is positive, the counterparty owes us, thus creating a receivable risk for us. We are exposed to counterparty credit risk in the event of non-performance by counterparties to our derivative agreements. We minimize counterparty credit (or repayment) risk by entering into transactions with major financial institutions of investment grade credit ratings.
Our risk management programs and the underlying exposures are closely correlated, such that the potential loss in value for the risk management portfolio described above would be largely offset by the changes in the value of the underlying exposures. Refer to “Note 20 – Financial Instruments” to the Interim Consolidated Financial Statements for further information.
Foreign Currency Risks
We enter into foreign currency forward contracts to minimize the volatility in our earnings related to foreign exchange gains and losses resulting from remeasuring our monetary assets and liabilities that are denominated in non-functional currencies, and any gains and losses from the foreign currency forward contracts are intended to be offset by any gains or losses from the remeasurement of the underlying monetary assets and liabilities. These derivatives are stand-alone and, except as described below, have not been designated as a hedge. At September 30, 2022, we had 11 foreign currency forward contracts outstanding with an aggregate gross notional U.S. dollar equivalent of $198 million, the fair value of which amounted to less than $1 million. At December 31, 2021, we had 12 foreign currency forward contracts outstanding with an aggregate gross notional U.S. dollar equivalent of $254 million, the fair value of which amounted to less than negative $1 million. We recognized net gains of $3 million for the three and nine months ended September 30, 2022, and net losses of $1 million and $12 million for the three and nine months ended September 30, 2021, respectively, within other income (expense), net related to our non-designated foreign currency forward contracts.
We enter into certain qualifying foreign currency forward contracts under a cash flow hedge program to mitigate the risks associated with fluctuations in the euro against the U.S. dollar for forecasted U.S. dollar-denominated inventory purchases in certain of our international subsidiaries that use the euro as their functional currency. At September 30, 2022, we had 181 foreign currency forward contracts outstanding under our cash flow hedge program with an aggregate notional U.S. dollar equivalent of $186 million, the fair value of which amounted to $19 million. At December 31, 2021, we had 175 foreign currency forward contracts outstanding under our cash flow hedge program with an aggregate notional U.S. dollar equivalent of $195 million, the fair value of which amounted to $5 million. We recognized pre-tax gains of $18 million and $30 million for the three and nine months ended September 30, 2022, respectively, and pre-tax gains of $2 million and $5 million for the three and nine months ended September 30, 2021, respectively, within accumulated other comprehensive loss. For the three and nine months ended September 30, 2022, $5 million and $11 million of gain was reclassified to the cost of goods sold from accumulated other comprehensive loss, respectively. For the three and nine months ended September 30, 2021, $1 million and $4 million of loss was reclassified to the cost of goods sold from accumulated other comprehensive loss, respectively.
76
The Chemours Company
We designated our euro-denominated debt as a hedge of our net investment in certain of our international subsidiaries that use the euro as their functional currency in order to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates of the euro with respect to the U.S. dollar. We recognized pre-tax gains of $81 million and $139 million for the three and nine months ended September 30, 2022, respectively, and pre-tax gains of $21 million and $45 million for the three and nine months ended September 30, 2021, respectively, on our net investment hedge within accumulated other comprehensive loss.
Interest Rate Risk
We entered into interest rate swaps to mitigate the volatility in our cash payments for interest due to fluctuations in the London Interbank Offered Rate (“LIBOR”), as is applicable to the portion of our senior secured term loan facility denominated in U.S. dollars. In September 2022, we terminated all of our outstanding interest rate swaps, which resulted in cash settlement of $8 million. At December 31, 2021, we had three interest rate swaps outstanding under our cash flow hedge program with an aggregate notional U.S. dollar equivalent of $400 million, the fair value of which amounted to less than $1 million. We recognized pre-tax gains of $2 million and $8 million for the three and nine months ended September 30, 2022, respectively, and a pre-tax gain of less than $1 million and a pre-tax loss of less than $1 million for the three and nine months ended September 30, 2021, respectively, within accumulated other comprehensive loss. For the three and nine months ended September 30, 2022, $2 million of gain was reclassified to interest expense, net from accumulated other comprehensive losses. For the three and nine months ended September 30, 2021, less than $1 million and $1 million, respectively, of loss was reclassified to interest expense, net from accumulated other comprehensive loss.
Item 4. CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that the information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission (“SEC”). These controls and procedures also provide reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosures.
As of September 30, 2022, our CEO and CFO, together with management, conducted an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation, the CEO and CFO have concluded that these disclosure controls and procedures are effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
77
The Chemours Company
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS |
Legal Proceedings
We are subject to various legal proceedings, including, but not limited to, product liability, intellectual property, personal injury, commercial, contractual, employment, governmental, environmental and regulatory, anti-trust, and other such matters that arise in the ordinary course of business. In addition, we, by virtue of our status as a subsidiary of EID prior to the Separation, are subject to or required under the Separation-related agreements executed prior to the Separation to indemnify EID against various pending legal proceedings. Information regarding certain of these matters is set forth below and in “Note 16 – Commitments and Contingent Liabilities” to the Interim Consolidated Financial Statements. In the foregoing, we have excluded matters that we expect to result in sanctions of less than $1 million, if any.
Litigation
PFOA and PFAS: Environmental and Litigation Proceedings
For purposes of this report, the term “PFOA” means, collectively, perfluorooctanoic acid and its salts, including the ammonium salt, and does not distinguish between the two forms. The term “PFAS” means per- and polyfluoroalkyl substances. Information related to these and other litigation matters is included in “Note 16 – Commitments and Contingent Liabilities” to the Interim Consolidated Financial Statements.
Fayetteville, North Carolina
Actions related to Fayetteville, other than those by the State of North Carolina, as discussed in “Note 16 – Commitments and Contingent Liabilities” to the Interim Consolidated Financial Statements, are shown below.
In the U.S. District Court for the Eastern District of North Carolina:
In Bladen County, North Carolina:
78
The Chemours Company
Environmental Proceedings
Dordrecht, Netherlands
In May 2020, we were notified of an alleged criminal offense related to the Netherlands’ Environmental Management Act and the Working Conditions Decree, regarding the use of PFOA during the pre-spin time period of June 1, 2008 to December 31, 2012. The investigation was initiated in the first quarter of 2016 by a public prosecutor. We believe that the Company has complied with all relevant laws, and we are in contact with the prosecutor.
In addition, in March 2022, the public prosecutor in The Netherlands has raised a matter related to an alleged infraction of Regulation (EU) 517/2014. Due to a reporting error, our Dordrecht Works facility exceeded its allocated or transferred quota of hydrofluorocarbons within the European market over several years. We implemented improvements to our reporting procedures and operated within the allocated quota in 2021. We are in contact with the prosecutor regarding this matter.
Fayetteville, North Carolina
In February 2019, we received a Notice of Violation (“NOV”) from EPA, alleging certain Toxic Substances Control Act (“TSCA”) violations at Fayetteville. Matters raised in the NOV could have the potential to affect operations at Fayetteville. For this NOV, we responded to EPA in March 2019 and at this time management does not believe that a loss is probable related to this NOV. We have also received NOVs from the North Carolina Department of Environmental Quality (“NC DEQ”) following entry of the Consent Order (“CO”), including in April 2020, January 2021, and August 2021, alleging violations relating to Fayetteville. We have responded to these matters and in April 2022 entered into a settlement agreement with NC DEQ with respect to the August 2021 NOV. We do not believe that a loss is probable related to the matters in the other NOVs. Further discussion related to these matters is included under the heading “Fayetteville Works, Fayetteville, North Carolina” in “Note 16 – Commitments and Contingent Liabilities” to the Interim Consolidated Financial Statements.
Item 1A. RISK FACTORS |
There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Issuer Purchases of Equity Securities
2018 Share Repurchase Program
In August 2018, our board of directors approved a share repurchase program authorizing the purchase of shares of our issued and outstanding common stock in an aggregate amount not to exceed $750 million, plus any associated fees or costs in connection with our share repurchase activity (the “2018 Share Repurchase Program”). In February 2019, our board of directors increased the authorization amount of the 2018 Share Repurchase Program from $750 million to $1.0 billion. Under the 2018 Share Repurchase Program, shares of our common stock can be purchased in the open market from time to time, subject to management’s discretion, as well as general business and market conditions. On May 19, 2022, we completed the aggregate $1.0 billion in authorized purchases of our issued and outstanding common stock under the 2018 Share Repurchase Program, which amounted to a cumulative 28,603,784 shares purchased at an average price of $34.96 per share.
79
The Chemours Company
2022 Share Repurchase Program
On April 27, 2022, our board of directors approved a share repurchase program authorizing the purchase of shares of our issued and outstanding common stock in an aggregate amount not to exceed $750 million, plus any associated fees or costs in connection with our share repurchase activity (the “2022 Share Repurchase Program”). Under the 2022 Share Repurchase Program, shares of our common stock can be purchased in the open market from time to time, subject to management’s discretion, as well as general business and market conditions. Our 2022 Share Repurchase Program became effective on April 27, 2022 and is scheduled to continue through the earlier of its expiration on December 31, 2025 or the completion of repurchases up to the approved amount. The program may be suspended or discontinued at any time.
The following table sets forth the purchases of our issued and outstanding common stock under the programs for the three months ended September 30, 2022.
(Dollars in millions, except per share amounts) |
|
|
|
|
|
Approximate |
|
|||||||||
|
|
|
|
|
|
|
|
Total Number |
|
|
Dollar Value of |
|
||||
|
|
|
|
|
|
|
|
of Shares |
|
|
Shares That May |
|
||||
|
|
Total Number |
|
|
|
|
|
Purchased as Part |
|
|
Yet be Purchased |
|
||||
|
|
of Shares |
|
|
Average Price |
|
|
of Publicly |
|
|
Under the Plans |
|
||||
|
|
Purchased |
|
|
Paid per Share |
|
|
Announced |
|
|
or Programs |
|
||||
Period |
|
(1) |
|
|
(2) |
|
|
Plans or Programs |
|
|
(2) |
|
||||
Month ended July 31, 2022 |
|
|
618,101 |
|
|
$ |
32.36 |
|
|
|
618,101 |
|
|
$ |
711 |
|
Month ended August 31, 2022 |
|
|
570,028 |
|
|
|
35.47 |
|
|
|
570,028 |
|
|
|
690 |
|
Month ended September 30, 2022 |
|
|
1,722,559 |
|
|
|
26.82 |
|
|
|
1,722,559 |
|
|
|
644 |
|
Total |
|
|
2,910,688 |
|
|
$ |
29.69 |
|
|
|
2,910,688 |
|
|
$ |
644 |
|
Through September 30, 2022, we purchased a cumulative 3,462,181 shares of our issued and outstanding common stock under the 2022 Share Repurchase Program, which amounted to $106 million at an average share price of $30.56 per share. The aggregate amount of our common stock that remained available for purchase under the 2022 Share Repurchase Program at September 30, 2022 was $644 million.
Item 3. DEFAULTS UPON SENIOR SECURITIES |
None.
Item 4. MINE SAFETY DISCLOSURES |
Information regarding mine safety and other regulatory actions at our surface mines and/or mineral sands separation facilities in Starke, Florida, Jesup, Georgia, Nahunta, Georgia, and Offerman, Georgia, are included in Exhibit 95 to this Quarterly Report on Form 10-Q.
Item 5. OTHER INFORMATION |
None.
80
The Chemours Company
Item 6. EXHIBITS |
Exhibit Number |
|
Description |
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
4.1 |
|
|
|
|
|
10.1 |
|
|
|
|
|
22 |
|
|
|
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of the Company’s Principal Executive Officer. |
|
|
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of the Company’s Principal Financial Officer. |
|
|
|
32.1 |
|
|
32.2 |
|
|
|
|
|
95 |
|
|
|
|
|
101 |
|
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2022 have been formatted in Inline XBRL: (i) the Interim Consolidated Statements of Operations (Unaudited); (ii) the Interim Consolidated Statements of Comprehensive Income (Unaudited); (iii) the Interim Consolidated Balance Sheets (Unaudited); (iv) the Interim Consolidated Statements of Stockholders’ Equity (Unaudited); (v) the Interim Consolidated Statements of Cash Flows (Unaudited); and, (vi) the Notes to the Interim Consolidated Financial Statements (Unaudited). These financial statements have been tagged as blocks of text and include detailed tags. |
|
|
|
104 |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2022, which has been formatted in Inline XBRL and included within Exhibit 101. |
|
|
|
81
The Chemours Company
SIGNATURE |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
THE CHEMOURS COMPANY |
|
|
(Registrant) |
|
|
|
|
|
Date: |
October 26, 2022 |
|
|
|
|
|
|
|
By: |
/s/ Sameer Ralhan |
|
|
|
|
|
Sameer Ralhan |
|
|
Senior Vice President, Chief Financial Officer |
|
|
(As Duly Authorized Officer and Principal Financial Officer) |
82
EXHIBIT 4.1
Execution Version
INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE
(the “Agreement”) entered into as of the 1st day of August 2022 among The Chemours Company, a Delaware corporation (the “Issuer”), U.S. Bank National Association ("the Retiring Trustee"), and Deutsche Bank Trust Company Americas, a New York banking corporation (“DBTCA"’).
W I T N E S S E T H
WHEREAS, the Issuer and Retiring Trustee entered into that certain Indenture dated as of November 27, 2020 (as amended and supplemented to the date hereof, the “Indenture”) with respect to the issuance of Senior Debt Securities (as defined in the Indenture), of which $800,000,000 aggregate principal amount of the Issuer’s 5.750% Senior Notes due 2028 (the “2028 Notes”) and $650,000,000 aggregate principal amount of the Issuer’s 4.625% Senior Notes due 2029 (the “2029 Notes” and, together with the 2028 Notes, the “Notes”) are outstanding as of the date hereof; and
WHEREAS, Retiring Trustee has been acting as Trustee (as defined in the Indenture) under the Indenture; and
WHEREAS, Section 7.10 of the Indenture provides that Retiring Trustee may resign at any time and be discharged of the trust created by the Indenture by giving written notice thereof to the Issuer which resignation shall become effective upon the appointment of and acceptance of such appointment by a successor trustee; and
WHEREAS, Retiring Trustee, pursuant to the provisions of Section 7.10 of the Indenture, has given such written notice to the Issuer on the 1st day of August 2022, a copy of which is attached hereto as Exhibit A, which resignation shall create a vacancy in the office of the Trustee; and
WHEREAS, Section 7.10 of the Indenture further provides that the Issuer shall promptly appoint a successor trustee to fill a vacancy in the office of Trustee under the Indenture; and
WHEREAS, the Issuer wishes to appoint DBTCA as successor trustee under the Indenture; and
WHEREAS, DBTCA is willing to accept such appointment as successor trustee on the terms and conditions set forth herein and under the Indenture; and
WHEREAS, DBTCA is eligible to act as successor trustee under the Indenture;
NOW, THEREFORE, pursuant to the provisions of the Indenture and in consideration of the covenants herein contained, it is agreed among the Issuer, Retiring Trustee and DBTCA as follows:
EXHIBIT 4.1
EXHIBIT 4.1
The Issuer agrees to indemnify and hold harmless the successor trustee and its directors, officers, employees and agents (the “Indemnified Parties”) from and against any expenses and liabilities (each an “Indemnifiable Loss”) that the Indemnified Parties may incur in connection with the following:
EXHIBIT 4.1
EXHIBIT 4.1
The parties hereto acknowledge that in order to help the United States government fight the funding of terrorism and money laundering activities, pursuant to Federal regulations that became effective on October 1, 2003 (Section 326 of the USA PATRIOT Act) all financial institutions are required to obtain, verify, record and update information that identifies each person establishing a relationship or opening an account. The parties to this Agreement agree that they will provide to DBTCA such information as it may request, from time to time, in order for DBTCA to satisfy the requirements of the USA PATRIOT Act, including but not limited to the name, address, tax identification number and other information that will allow it to identify the individual or entity who is establishing the relationship or opening the account and may also ask for
EXHIBIT 4.1
formation documents such as articles of incorporation or other identifying documents to be provided.
EXHIBIT 4.1
any losses, costs or expenses arising directly or indirectly from its reliance upon and compliance with such Executed Documentation, notwithstanding that such Executed Documentation (a) may not be an authorized or authentic communication of the party involved or in the form such party sent or intended to send (whether due to fraud, distortion or otherwise) or (b) may conflict with, or be inconsistent with, a subsequent written instruction or communication; it being understood and agreed that such party shall conclusively presume that Executed Documentation that purports to have been sent by an authorized officer of a Person has been sent by an authorized officer of such Person. The party providing Executed Documentation through electronic transmission or otherwise with electronic signatures agrees to assume all risks arising out of such electronic methods, including, without limitation, the risk of any party acting on unauthorized instructions and the risk of interception and misuse by third parties.
[Remainder of page intentionally left blank]
EXHIBIT 4.1
IN WITNESS WHEREOF, The Chemours Company has caused this instrument to be executed by one of its duly authorized officers; US. Bank National Association has caused this instrument to be executed by one of its duly authorized officers; and Deutsche Bank Trust Company Americas has caused this instrument to be executed by two of its duly authorized officers, all as of the date first written above
The Chemours Company
By /s/ Sameer Ralhan
Name: Sameer Ralhan
Title: SVP and CFO
U.S. Bank National Association,
as Retiring Trustee
By /s/ Mark DiGiacomo Name: Mark DiGiacomo
Title: Vice President
Deutsche Bank Trust Company Americas, as successor trustee
By /s/ Rodney Gaughan Name: Rodney Gaughan
Title: Vice President
By /s/ Irina Golovashchuk Name: Irina Golovashchuk
Title: Vice President
EXHIBIT 4.1
EXHIBIT A
U.S. Bank National Association 333 Thornall St, 4th Floor Edison, New Jersey 08837
August 1, 2022
The Chemours Company 1007 Market Street
Wilmington, Delaware 19801
Re: Notice of Resignation of Trustee
Notice is hereby given to The Chemours Company (the “Issuer”), pursuant to Section
7.10 of the Indenture, dated November 27, 2020, by and between the Issuer and U.S. Bank National Association (as amended and supplemented to the date hereof, the “Indenture”) under which the Issuer’s 5.750% Senior Notes due 2028 (the “2028 Notes”) and 4.625% Senior Notes due 2029 (the “2029 Notes” and, together with the 2028 Notes, the “Notes”) were issued, that U.S. Bank National Association has resigned as Trustee, Security Registrar and paying agent under the Indenture, effective August 11, 2022. Capitalized terms used but not defined herein have the meanings given in the Indenture.
[Remainder of page intentionally left blank]
EXHIBIT 4.1
Sincerely,
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Mark DiGiacomo Name: Mark DiGiacomo
Title: Vice President
EXHIBIT 4.1
EXHIBIT B
THE CHEMOURS COMPANY
NOTICE OF RESIGNATION OF TRUSTEE
To the Holders of
5.750% Senior Notes due 2028, CUSIPs 163851AF5 and U16309AH6 (the “2028 Notes”) and 4.625% Senior Notes due 2029, CUSIPs 163851AH1 and U16309AJ2 (the “2029 Notes” and, together with the 2028 Notes, the “Notes”)
NOTICE IS HEREBY GIVEN, pursuant to Section 7.10 of the Indenture, dated November 27, 2020, by and between The Chemours Company and U.S. Bank National Association (as amended and supplemented to the date hereof, the “Indenture”) under which the above mentioned Notes were issued, that U.S. Bank National Association has resigned as Trustee, Security Registrar and paying agent under the Indenture, effective August 11, 2022.
The Chemours Company
Dated: August 1, 2022
EXHIBIT 4.1
EXHIBIT C
THE CHEMOURS COMPANY
NOTICE OF APPOINTMENT OF SUCCESSOR TRUSTEE
To the Holders of
5.750% Senior Notes due 2028, CUSIPs 163851AF5 and U16309AH6 (the “2028 Notes”) and 4.625% Senior Notes due 2029, CUSIPs 163851AH1 and U16309AJ2 (the “2029 Notes” and, together with the 2028 Notes, the “Notes”)
NOTICE IS HEREBY GIVEN that The Chemours Company (the “Company”) has received a notice of resignation from U.S. Bank National Association, as Trustee, Security Registrar and paying agent under the Indenture, dated as of November 27, 2020 (as amended and supplemented to the date hereof, the ”Indenture”), such resignation to be effective August 11, 2022.
NOTICE IS HEREBY FURTHER GIVEN that pursuant to Section 7.10 of the Indenture, the Company has appointed Deutsche Bank Trust Company Americas, a New York banking corporation, as successor Trustee, Security Registrar and paying agent under the Indenture. Deutsche Bank Trust Company Americas has, pursuant to Section 7.11 of the Indenture, accepted such appointment to be effective August 11, 2022. The address of the Corporate Trust Office of Deutsche Bank Trust Company Americas is I Columbus Circle, 17th Floor, Trust and Agency Services, New York, New York 10019, Attention: Corporates Team Deal Manager – The Chemours Company, Telecopy: +1(732) 578-4635. Said office has also been designated as the office or agency of the Company where said Notes may be presented for payment, registration of transfer or exchange as provided in the Indenture. Notes being sent to Deutsche Bank Trust Company Americas for payment, registration of transfer or exchange should be sent to one of the following addresses:
By Mail:
DB Services Americas, Inc. MS JCK01-0218
5022 Gate Parkway, Suite 200
Jacksonville, FL 32256
By Overnight Courier:
DB Services Americas, Inc. MS JCK01-0218
5022 Gate Parkway, Suite 200
Jacksonville, FL 32256
Dated: August 1, 2022
The Chemours Company
EXHIBIT 4.1
EXHIBIT D
BOARD RESOLUTIONS
The following is a true copy of resolutions adopted on July 26, 2022 by the Board of Directors of The Chemours Company, a Delaware corporation (the “Company”).
RESOLVED, that any officer of this Company is hereby authorized to accept the resignation of U.S. Bank National Association as Trustee, Security Registrar and paying agent under the Indenture, dated as of November 27, 2020, by and between the Company and U.S. Bank National Association (as amended and supplemented to the date hereof, the “Indenture”) and to appoint Deutsche Bank Trust Company Americas, a New York banking corporation, as successor Trustee, Security Registrar and paying agent under the Indenture and the office or agency of the Company where securities issued and outstanding under the Indenture may be presented for payment, registration of transfer or exchange as provided in the Indenture; and
FURTHER RESOLVED, that any officer of this Company is hereby authorized to enter into such agreements and other instruments as may be necessary or desirable to effectuate the appointment of said Deutsche Bank Trust Company Americas as successor Trustee, Security Registrar and paying agent under said Indenture.
[Signature page follows]
EXHIBIT 4.1
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of this 1st day of August, 2022.
/s/ David C. Shelton
David C. Shelton Corporate Secretary
[Signature Page to Secretary’s Certificate]
Exhibit 22
LIST OF GUARANTOR SUBSIDIARIES
As of September 30, 2022, the following subsidiaries of The Chemours Company (the “Company”) were guarantors of the Company’s 4.000% senior unsecured notes due May 2026, which are denominated in euros and the 5.375% senior unsecured notes due May 2027 (collectively, the “Registered Notes”), which are registered under the Securities Act of 1933, as amended.
Name |
|
Organized Under Laws Of |
First Chemical Holdings, LLC |
|
Mississippi |
First Chemical Texas, L.P. |
|
Delaware |
FT Chemical, Inc. |
|
Texas |
The Chemours Company FC, LLC |
|
Delaware |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Mark E. Newman, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of The Chemours Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and,
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and,
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: |
October 26, 2022 |
|
|
By: |
/s/ Mark E. Newman |
|
|
|
Mark E. Newman |
|
President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Sameer Ralhan, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of The Chemours Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and,
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and,
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: |
October 26, 2022 |
|
|
By: |
/s/ Sameer Ralhan |
|
|
|
Sameer Ralhan |
|
Senior Vice President, Chief Financial Officer |
Exhibit 32.1
Certification of CEO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of The Chemours Company (the “Company”) on Form 10-Q for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Mark E. Newman, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and,
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Mark E. Newman |
|
Mark E. Newman |
President and Chief Executive Officer |
October 26, 2022 |
Exhibit 32.2
Certification of CFO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of The Chemours Company (the “Company”) on Form 10-Q for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Sameer Ralhan, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and,
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Sameer Ralhan |
|
Sameer Ralhan |
Senior Vice President, Chief Financial Officer |
October 26, 2022 |
Exhibit 95
MINE SAFETY DISCLOSURES
The Company owns and operates a mineral sands mining and separation facility in Starke, Florida, mineral sands mining facilities in Jesup, Georgia and Nahunta, Georgia, and a mineral sands separation facility in Offerman, Georgia. The following table provides information about citations, orders and notices issued from the Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (“Mine Act”) for the quarter ended September 30, 2022.
Mine |
Section |
Section 104(b) |
Section 104(d) |
Section |
Section |
Total Dollar |
Total |
Received |
Received |
Legal |
Legal |
Legal |
|||||||||||
Starke, FL |
— |
|
— |
|
— |
|
— |
|
— |
|
$ |
— |
|
— |
|
No |
No |
— |
|
— |
|
— |
|
Jesup, GA (0901256) |
— |
|
— |
|
— |
|
— |
|
— |
|
$ |
266 |
|
— |
|
No |
No |
— |
|
— |
|
— |
|
Mission Mine (0901230) |
— |
|
— |
|
— |
|
— |
|
— |
|
$ |
— |
|
— |
|
No |
No |
— |
|
— |
|
— |
|
Offerman MSP (0901236) |
— |
|
— |
|
— |
|
— |
|
— |
|
$ |
— |
|
— |
|
No |
No |
— |
|
— |
|
— |
|