The Chemours Company — 2017 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2017; it is not a standalone quarterly filing. Chemours is a global performance-chemicals producer, reporting through Titanium Technologies, Fluoroproducts, and Chemical Solutions. The company reported fourth-quarter results separately in its unaudited quarterly data.
Financial performance
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Net sales | $6.183 billion | $5.400 billion |
| Gross profit / gross margin | $1.754 billion / 28.4% | $1.110 billion / 20.6% |
| Income (loss) before taxes | $912 million | $(11) million |
| Net income attributable to Chemours | $746 million | $7 million |
| Diluted EPS | $3.91 | $0.04 |
| Adjusted EBITDA (non-GAAP) | $1.422 billion | $822 million |
| Cash from operations | $639 million | $594 million |
| Capital expenditures | $411 million | $338 million |
| Free cash flow (non-GAAP) | $228 million | $256 million |
Sales increased 15%, reflecting 8% price growth and 11% volume growth, partially offset by a 4% reduction from portfolio changes. Adjusted EBITDA margin was approximately 23.0% in 2017, versus 15.2% in 2016.
- Titanium Technologies: sales of $2.958 billion and Adjusted EBITDA of $862 million, up 25% and 85%, respectively. Higher TiO₂ prices and volumes drove improvement; segment EBITDA margin rose to 29% from 20%.
- Fluoroproducts: sales of $2.654 billion and Adjusted EBITDA of $669 million, up 17% and 50%. Opteon adoption and fluoropolymer demand supported volume growth; some product pricing and declining base-refrigerant volumes were offsets.
- Chemical Solutions: sales fell 26% to $571 million, mainly reflecting 2016 divestitures and the RMS shutdown. Adjusted EBITDA rose to $57 million from $39 million, supported by cost reductions.
Fourth-quarter 2017 sales were $1.575 billion and net income attributable to Chemours was $228 million, or diluted EPS of $1.19. In fourth-quarter 2016, sales were $1.322 billion and the company recorded a $230 million net loss.
Liquidity, debt, and capital allocation
At year-end, cash and cash equivalents were $1.556 billion, total current assets $3.493 billion, and current liabilities $1.648 billion; reported working capital was $1.845 billion. Total debt was $4.161 billion, while the balance-sheet net debt figure was $4.112 billion after unamortized debt costs and discounts. Subtracting cash from total debt implies approximate net debt of $2.605 billion. Management reported net debt to Adjusted EBITDA below 2.0 times. The $750 million revolving facility had no borrowings outstanding and $101 million of letters of credit issued; reported remaining capacity was approximately $649 million. Chemours was in compliance with debt covenants at year-end.
Operating cash flow less capital expenditures produced $228 million of free cash flow, down from $256 million. 2017 operating cash flow included the $335 million PFOA MDL settlement payment. The company repurchased $116 million of shares in 2017 and declared a $0.17-per-share dividend payable in March 2018. Debt maturities include approximately $1.4 billion in 2022 and $2.8 billion from 2023 onward.
Material changes and unusual items
- Net income and EBITDA rebounded substantially as pricing, volume, and cost initiatives improved. The 2016 comparison was burdened by a $335 million PFOA MDL settlement accrual.
- 2016 asset sales generated $254 million of gains in other income; 2017 other income included $22 million of net gains on asset sales. These items affect year-over-year comparability.
- Chemours completed its five-point transformation plan at year-end 2017. Management cited more than $800 million of incremental Adjusted EBITDA improvement versus 2015 and approximately $350 million in cumulative cost savings since separation, while continuing further cost initiatives.
- The 2017 income tax provision was $165 million, an 18% effective rate. Tax-reform accounting was provisional; the filing recorded a $3 million net benefit, while separately disclosing a provisional $322 million transition-tax obligation partly offset by $202 million of foreign tax credits.
- Environmental remediation reserves were $253 million, down from $278 million. The filing notes potential exposure of up to approximately $510 million above the recorded amount under adverse changes in circumstances.
Outlook, risks, and contingencies
For 2018, management expected earnings growth in line with its three-year targets, with average TiO₂ prices above 2017, continued Opteon transition, stronger fluoropolymer demand, and strong Mining Solutions demand. Planned 2018 capital expenditures were $475–$525 million, principally for the Opteon facility in Corpus Christi and the Mining Solutions facility in Mexico. The filing does not provide clear numerical values for the specific 2020 financial targets described at investor day.
Major risks include PFOA-related claims and indemnification obligations to DuPont; GenX and other compounds associated with Fayetteville, North Carolina; environmental compliance and remediation; chemical-process safety; raw-material, energy, currency, and market-price volatility; competition; and substantial indebtedness. The PFOA MDL settlement was paid in full, but other claims may remain. At Fayetteville, inquiries, lawsuits, and regulatory actions were ongoing; NC DEQ issued a February 2018 notice directing source-control measures. The company stated that outcomes and potential costs of several matters were not estimable.
Important facts for investors to verify
- Whether TiO₂ pricing and volumes, Opteon adoption, and segment margins sustain 2017 gains.
- Cash conversion and free cash flow after the settlement payment, higher planned capital spending, dividends, and repurchases.
- Debt repayment capacity, covenant headroom, refinancing needs, and the effect of variable interest rates.
- Potential cash exposure from PFOA, GenX/Fayetteville, environmental remediation, and DuPont indemnification arrangements.
- Final accounting and tax consequences of U.S. tax reform, including transition-tax and foreign-tax-credit estimates.
- Progress, cost, and timing of the Corpus Christi and Mexico projects and the 2018 earnings outlook.