The Chemours Company — 2018 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2018; it is not a standalone fourth-quarter filing. Chemours is a global performance-chemicals producer with three segments: Fluoroproducts, Chemical Solutions, and Titanium Technologies. All figures are in U.S. dollars unless noted.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Net sales | $6.638 billion | $6.183 billion |
| Gross profit / gross margin | $1.971 billion / 29.7% | $1.745 billion / 28.2% |
| Net income attributable to Chemours | $995 million | $746 million |
| Diluted EPS | $5.45 | $3.91 |
| Adjusted EBITDA | $1.740 billion | $1.422 billion |
| Operating cash flow | $1.140 billion | $640 million |
| Free cash flow (company-defined) | $642 million | $229 million |
| Cash and cash equivalents at year-end | $1.201 billion | $1.556 billion |
| Debt, net of issuance costs and discounts | $3.972 billion | $4.112 billion |
| Working capital | $1.584 billion | $1.845 billion |
Adjusted EBITDA margin was approximately 26.2%, up from 23.0%. Capital expenditures were $498 million. Current assets were $3.293 billion and current liabilities $1.709 billion at year-end. The company had an $800 million revolving facility with no borrowings outstanding; $104 million of letters of credit were issued under it. The filing reports approximately $4.0 billion of total debt and identifies $1.3 billion as variable-rate debt.
Segment results
- Fluoroproducts: sales of $2.862 billion and Adjusted EBITDA of $783 million; EBITDA margin 27%. Opteon refrigerant adoption supported volumes, while legacy refrigerant phase-down and contractual Opteon price declines were offsets.
- Chemical Solutions: sales of $602 million and Adjusted EBITDA of $64 million; EBITDA margin 11%. Higher prices supported improvement.
- Titanium Technologies: sales of $3.174 billion and Adjusted EBITDA of $1.055 billion; EBITDA margin 33%. Price increases outweighed a 6% decline in volume.
Material changes versus comparable periods
- Annual sales rose 7%, mainly from a 7% price increase; volume declined 1%, principally because TiO2 demand weakened. In 2017, sales had increased 15%, supported by both price and volume.
- Net income attributable to Chemours increased 33%, and Adjusted EBITDA rose 22%. Higher selling prices and segment performance drove improvement, partly offset by raw-material, freight, logistics, and wastewater-treatment costs.
- Operating cash flow increased by $500 million year over year. The company cited improved earnings and the prior-year $335 million PFOA settlement payment as important factors.
- Cash decreased by $355 million, reflecting debt repayments, $644 million of share repurchases, dividends, and investment spending, partly offset by new debt proceeds.
- Fourth-quarter sales were $1.464 billion versus $1.575 billion a year earlier; net income attributable to Chemours was $142 million versus $228 million, and diluted EPS was $0.81 versus $1.19.
Outlook, risks, contingencies, and unusual items
- 2019 outlook: management expected Titanium Technologies volume below 2018 levels, continued Opteon transition and fluoropolymer demand, and continued Mining Solutions demand. Planned capital expenditures were approximately $500 million. The filing provides no specific 2019 earnings or revenue guidance.
- Fayetteville environmental matters: Chemours accrued $75 million at year-end for the proposed North Carolina Consent Order and related matters. The proposal includes $13 million for a civil penalty and investigative costs, plus actions involving water and air emissions; court approval and regulatory consent remained outstanding. Additional loss was considered reasonably possible but not estimable.
- Other environmental exposure: environmental remediation accruals totaled $226 million. The company said adverse changes could result in potential liability up to approximately $450 million above the recorded amount, although management characterized that possibility as remote.
- Legal and regulatory risks: outstanding matters include PFOA claims and indemnification obligations to DuPont, HFPO Dimer Acid/GenX inquiries and litigation, and a U.S. Department of Justice investigation concerning Fayetteville. The company stated outcomes and potential additional costs could not be predicted reliably.
- Project and pension items: construction of the planned Mining Solutions facility in Mexico was suspended following litigation over permitting. A Dutch pension-plan restructuring was expected to produce an approximately $415 million non-cash settlement charge in 2019, subject to regulatory and administrative steps.
- Debt and liquidity risks: the company’s substantial indebtedness, variable-rate exposure, restrictive covenants, and refinancing needs are material risks. The debt schedule shows $921 million of principal maturities in 2023.
- Other unusual items: 2018 included a $38 million loss on debt extinguishment, $67 million of EU fluorinated-gas quota authorization sales, and a $42 million gain on sale of the Linden site. Shareholders received $792 million through repurchases and dividends.
Key facts investors should verify
- Whether the Fayetteville Consent Order was approved and whether remediation, water-treatment, emissions-control, or litigation costs exceed the $75 million accrual.
- Developments in GenX/PFAS and PFOA investigations, lawsuits, and DuPont indemnification arrangements.
- TiO2 demand, pricing, and volume trends, given 2018’s 6% segment volume decline and management’s 2019 below-2018 volume outlook.
- Progress on the Mexico Mining Solutions project suspension and expected capital spending, including the approximately $500 million 2019 plan.
- Refinancing and covenant capacity ahead of the 2023 maturity concentration, including access to the revolving facility and variable-rate debt exposure.
- The timing and accounting effect of the expected approximately $415 million non-cash pension settlement charge.