Chemours Company — 2022 Form 10-K
Business context and reporting period. Annual report for the fiscal year ended December 31, 2022, filed February 10, 2023. Chemours is a global performance-chemicals company with three reportable segments: Titanium Technologies, Thermal & Specialized Solutions, and Advanced Performance Materials. The filing is an annual report; it does not provide a clear standalone fourth-quarter income statement or cash-flow set in the supplied text.
Financial and operating performance
| Metric | 2022 | 2021 |
|---|---|---|
| Net sales | $6.794 billion | $6.345 billion |
| Gross profit / gross margin | $1.616 billion / 23.8% | $1.381 billion / 21.8% |
| Income before taxes | $741 million | $676 million |
| Net income | $578 million | $608 million |
| Diluted EPS | $3.65 | $3.60 |
| Operating cash flow | $754 million | $820 million |
| Free cash flow (company-defined) | $447 million | $543 million |
| Cash and cash equivalents at year-end | $1.102 billion | $1.451 billion |
| Total debt principal at year-end | $3.641 billion | $3.782 billion |
| Net leverage ratio (company-defined) | 1.9x | 1.8x |
Sales rose 7%, primarily on 19% higher pricing, partly offset by 5% lower volume, 3% unfavorable currency, and a 4% portfolio impact from the 2021 Mining Solutions sale. Net income declined despite higher sales and gross profit, reflecting higher SG&A, taxes, and lower other income. The effective tax rate increased to 22% from 10%, including a $36 million charge for transfer-pricing uncertain tax positions. The company reported $163 million of net interest expense.
Segment results (net sales; Adjusted EBITDA; EBITDA margin): Titanium Technologies $3.380 billion; $601 million; 18% (versus $3.355 billion; $799 million; 24% in 2021). Thermal & Specialized Solutions $1.680 billion; $603 million; 36% (versus $1.257 billion; $401 million; 32%). Advanced Performance Materials $1.618 billion; $367 million; 23% (versus $1.397 billion; $284 million; 20%). Adjusted EBITDA is a non-GAAP measure.
Material changes and notable items
- Titanium Technologies’ 17% price increase was more than offset by a 14% volume decline. Ore shortages constrained first-half output; demand weakened in Europe and Asia in the second half.
- Thermal & Specialized Solutions grew sales 34%, on higher prices and 8% higher volume, supported by Opteon adoption. Advanced Performance Materials grew sales 16%, with higher pricing and modest volume growth.
- Operating cash flow fell $66 million year over year, with working-capital movements, Fayetteville remediation payments, and the Delaware settlement among the cited factors. Capital expenditures increased to $307 million from $277 million.
- Environmental remediation liabilities rose to $668 million from $562 million, including $465 million for Fayetteville. The company estimates that adverse changes in circumstances could add up to approximately $730 million above the recorded environmental accrual; this is not presented as a maximum-liability estimate.
- The company repurchased $495 million of shares and paid $154 million in dividends during 2022. Its $750 million 2022 repurchase authorization had $509 million remaining at year-end.
Liquidity, debt, outlook, and risks
Management said cash, operating cash generation, receivables securitization, and existing financing arrangements were expected to provide sufficient liquidity through at least February 2024. The $900 million revolving credit facility had no borrowings outstanding at year-end; $108 million of letters of credit were issued under it. Approximately $1.1 billion of debt was variable-rate senior secured borrowing. The earliest scheduled debt maturity was in 2025, with $1.095 billion of principal maturities that year. The company was in compliance with debt covenants at year-end.
For 2023, management expected gradual but uncertain improvement in Titanium Technologies demand; seasonal refrigerant demand and continued Opteon adoption, tempered by end-market uncertainty and raw-material inflation, in Thermal & Specialized Solutions; and stronger demand for differentiated performance-solutions products offset by weakness in economically sensitive advanced-materials markets. Planned 2023 capital expenditures were approximately $400 million, split roughly evenly between growth and maintenance/sustainability.
Key risks include PFAS-related litigation, regulatory action and remediation costs; uncertainty around the Fayetteville consent order and construction of its barrier wall and groundwater system; proposed broad EU PFAS restrictions and evolving U.S. drinking-water and discharge rules; raw-material, energy, freight and currency volatility; cyclical demand and competitive capacity; and leverage, variable interest rates, and refinancing needs. The company and its former-parent-related parties share certain legacy PFAS costs under a binding MOU: Chemours bears half and DuPont and Corteva collectively bear half during the arrangement, subject to its terms and limits. The filing states that potential losses in several PFAS matters cannot currently be reasonably estimated.
Other unusual items included $16 million of restructuring and asset-related charges, gains on 2022 asset sales, a patent-infringement settlement, and $58 million of qualified-spend recovery from DuPont and Corteva reflected in the company’s non-GAAP reconciliation. Management identified the Fayetteville remediation accrual as a critical audit matter. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Track the cost, timing, and regulatory milestones for Fayetteville remediation, replacement drinking water, and the barrier wall and treatment system; compare actual spending with the $465 million accrued liability and disclosed uncertainty range.
- Monitor new PFAS litigation, EPA actions, EU restriction proposals, and the scope and collectability of MOU cost-sharing and escrow funding obligations.
- Assess whether demand and volumes recover in Titanium Technologies and whether pricing and Opteon growth can offset inflation and weaker end markets.
- Review cash conversion and inventory levels: year-end inventory increased 28% to $1.404 billion while free cash flow declined to $447 million.
- Confirm liquidity, covenant headroom, and refinancing plans ahead of the 2025 debt maturities; consider the exposure to variable rates and restricted cash.
- Evaluate 2023 capital spending and growth-project execution against management’s approximately $400 million plan.