The Chemours Company — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This annual filing also reports fourth-quarter results. Unless noted otherwise, amounts are in U.S. dollars.
Business context and reporting period
Chemours is a global performance-chemicals producer with three reportable segments: Fluoroproducts, Chemical Solutions, and Titanium Technologies. Its products include refrigerants and fluoropolymers, sodium cyanide and other industrial chemicals, and titanium dioxide (TiO₂) pigment.
Financial performance
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $5.526 billion | $6.638 billion |
| Gross profit / gross margin | $1.063 billion / 19.2% | $1.971 billion / 29.7% |
| Net income (loss) attributable to Chemours | $(52) million | $995 million |
| Diluted GAAP EPS | $(0.32) | $5.45 |
| Adjusted EBITDA | $1.020 billion | $1.740 billion |
| Operating cash flow | $650 million | $1.140 billion |
| Capital expenditures | $481 million | $498 million |
| Free cash flow, as defined by Chemours | $169 million | $642 million |
| Cash and cash equivalents at year-end | $943 million | $1.201 billion |
| Total debt at year-end | $4.196 billion | $4.017 billion |
| Working capital | $1.236 billion | $1.584 billion |
2019 Adjusted EBITDA was approximately 18.5% of sales, compared with 26.2% in 2018. Year-end debt less cash was approximately $3.253 billion. Cash included $839 million held by foreign subsidiaries. The company reported an $800 million revolving credit facility with no balance outstanding at year-end; $103 million of letters of credit were issued under it.
Segment results were mixed: Fluoroproducts sales were $2.648 billion and Adjusted EBITDA was $578 million (down from $783 million); Chemical Solutions sales were $533 million and Adjusted EBITDA was $80 million (up from $64 million); Titanium Technologies sales were $2.345 billion and Adjusted EBITDA was $505 million (down from $1.055 billion).
For the fourth quarter of 2019, net sales were $1.353 billion versus $1.464 billion in fourth-quarter 2018. The company recorded a $454 million pretax loss, a $317 million net loss, and a diluted loss per share of $1.94; fourth-quarter 2018 net income was $142 million.
Material changes versus 2018
- Sales declined 17% year over year. The company attributed the decrease to lower volume (14%), lower price (2%), and unfavorable currency (1%).
- Titanium Technologies was the largest drag: sales fell 26%, primarily due to TiO₂ market destocking and share loss; lower production also reduced fixed-cost absorption. Its Adjusted EBITDA margin fell from 33% to 22%.
- Fluoroproducts sales decreased 7% and Adjusted EBITDA fell 26%, reflecting lower price and volume, illegal EU imports of legacy HFC refrigerants, market softness, Opteon facility start-up costs, unplanned outages, and lower F-gas quota authorization sales.
- Chemical Solutions sales declined 11%, including lower volume linked to operational issues at a key customer mine; Adjusted EBITDA nevertheless increased, mainly from higher license income and lower cost of goods sold.
- Operating cash flow fell $490 million and free cash flow declined $473 million, principally reflecting reduced earnings. The company returned $486 million to shareholders in 2019 through $322 million of share repurchases and $164 million of dividends.
Outlook, unusual items, and risks
Management’s 2020 outlook anticipated continued TiO₂ volume recovery as it executed its Ti-Pure Value Stabilization strategy, continued adoption of Opteon refrigerants partly offset by illegal legacy-HFC imports in Europe, and continued Mining Solutions demand. Planned 2020 capital expenditures were approximately $400 million. The filing gave no specific 2020 earnings or EBITDA forecast and noted uncertainty from currency, macroeconomic conditions, end-market demand, and the then-recent spread of novel coronavirus.
- Fayetteville environmental matters: Chemours accrued $201 million for Fayetteville PFAS remediation and related obligations at year-end, up from $75 million. A thermal oxidizer became operational in December 2019; testing was planned to assess its targeted destruction efficiency. The company cautioned that additional remediation or regulatory requirements could change the estimate. Total environmental remediation liabilities were $406 million; the filing stated potential liability could be up to approximately $530 million above the accrued amount under adverse changes in circumstances.
- Pension settlement: Transfer of inactive Netherlands pension obligations of $932 million eliminated the company’s exposure to those benefits, but generated a $380 million settlement expense and contributed to the reported annual loss. Obligations for active plan participants remained.
- Legal and indemnification exposure: PFAS/PFOA, AFFF, environmental and other litigation could produce losses exceeding accruals; management said additional PFOA/PFAS losses were reasonably possible but not estimable. Chemours was also in a dispute with DuPont over indemnification obligations and had filed a lawsuit seeking to limit them.
- Mining Solutions project: Construction of the planned Mexico facility was suspended following litigation and court orders. At year-end, $144 million of assets under construction, $7 million of related prepaid costs, and $51 million of goodwill were associated with the reporting unit. If suspension is upheld, the company said it could face $26 million in contract termination fees.
- Leverage and liquidity: The company had approximately $4.2 billion of debt, including about $1.3 billion under variable-rate secured term loans. Debt agreements include restrictive covenants and a springing maturity tied to 2023 notes; the company reported covenant compliance at year-end.
- Other items: The company exited and sold its Methylamines and Methylamides business, recording $34 million of accelerated depreciation and a $2 million loss on sale. It acquired Southern Ionics Minerals for estimated consideration of approximately $25 million to support internal ore sourcing.
Important facts for investors to verify
- Whether TiO₂ volumes and segment profitability recover as management expected, and whether destocking and share loss persist.
- Actual Fayetteville remediation costs, progress under the Consent Order, oxidizer test results, and any further regulatory or litigation developments.
- Cash generation, free cash flow, debt levels and refinancing needs, including the 2023 debt maturity and revolving-credit covenant headroom.
- Developments in PFAS/PFOA and AFFF litigation and the outcome of Chemours’ indemnification dispute with DuPont.
- Status and recoverability of the suspended Mexico Mining Solutions project assets and related goodwill.
- Effects of the Netherlands pension settlement and the remaining obligations for active plan participants.