Chemours Co. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. Chemours became a standalone public company on July 1, 2015, following its separation from DuPont. Results before separation are presented on a standalone basis using historical DuPont records and allocations, and may not reflect costs or results as an independent company.
Business context and financial performance
Chemours operates three segments: Titanium Technologies, Fluoroproducts and Chemical Solutions. Its principal products include titanium dioxide (TiO₂), refrigerants, fluoropolymer resins, sodium cyanide and sulfur products.
| Metric | 2015 | 2014 |
|---|---|---|
| Net sales | $5.717 billion | $6.432 billion |
| Gross profit / gross margin | $955 million / 16.7% | $1.360 billion / 21.1% |
| Net income (loss) attributable to Chemours | ($90) million | $400 million |
| Diluted EPS | ($0.50) | $2.21 |
| Adjusted EBITDA, non-GAAP | $573 million | $876 million |
| Cash from operating activities | $182 million | $505 million |
| Capital expenditures | $519 million | $604 million |
| Cash and working capital at year-end | $366 million / $835 million | $0 / $543 million |
| Borrowings and capital lease obligations, net | $3.954 billion | $1 million |
Gross margin fell to 16.7% from 21.1%; net margin was approximately negative 1.6%, compared with 6.2% in 2014. Operating cash flow less capital expenditures was negative $337 million. The company reported approximately $4.0 billion of indebtedness and $1.5 billion of variable-rate debt at year-end. The revolving facility was undrawn; reported availability was approximately $625 million, including the effect of outstanding letters of credit. Current assets were $2.301 billion and current liabilities were $1.466 billion.
Segment results
| Segment | 2015 sales | 2015 Adjusted EBITDA | Change versus 2014 |
|---|---|---|---|
| Titanium Technologies | $2.392 billion | $326 million | Sales down 19%; EBITDA down from $723 million |
| Fluoroproducts | $2.230 billion | $300 million | Sales down 4%; EBITDA up from $282 million |
| Chemical Solutions | $1.095 billion | $29 million | Sales down 6%; EBITDA up from $17 million |
Material changes versus prior period
- Sales declined 11% year over year, with lower TiO₂ pricing, unfavorable foreign exchange, and weaker demand for certain fluoropolymer products identified as key factors. Management’s sales bridge attributed the decline to local price (-5%), currency (-4%), volume (-1%) and portfolio/other (-1%).
- Adjusted EBITDA fell from $876 million to $573 million. Titanium Technologies was the principal source of the decline, amid industry oversupply, weak demand and pricing pressure. Fluoroproducts benefited from mix, Opteon adoption and cost reductions.
- Net loss included $333 million of employee separation and asset-related charges, $25 million of goodwill impairment and $132 million of net interest expense; the prior-year comparison had no interest expense and $21 million of separation and asset-related charges.
- Operating cash flow declined by $323 million, reflecting lower earnings, restructuring payments and interest payments. Capital spending remained high at $519 million, including investment in the Altamira TiO₂ expansion.
- Fourth-quarter 2015 sales were $1.360 billion and net loss was $86 million, versus sales of $1.549 billion and net income of $79 million in fourth-quarter 2014.
Outlook, management commentary and key risks
- Management targeted $500 million of incremental Adjusted EBITDA improvement over 2015–2017 from its transformation plan, and expected net debt to Adjusted EBITDA of approximately 3x by year-end 2017.
- For 2016, management expected an additional $200 million of structural cost reductions, full-year Adjusted EBITDA above 2015, and modestly positive free cash flow. It expected lower capital spending and cited Opteon growth and the Altamira startup as supports. These expectations depended on market conditions, including TiO₂ pricing, currency and end-market demand.
- Plan actions included workforce reductions, plant and production-line closures, and portfolio changes. The company announced a sale of its Beaumont aniline facility for approximately $140 million, expected to close in the first quarter of 2016; it planned to stop production at the Niagara Falls Reactive Metals site by the end of 2016. It also decided to retain and improve the cost position of Methylamines while continuing a broader Chemical Solutions portfolio review.
- Environmental remediation liabilities were accrued at $290 million. The filing says potential costs could be up to approximately $611 million above the accrued amount under adverse changes in circumstances. Pompton Lakes had an $87 million accrual; potential total remediation liability was estimated at up to $119 million, including amounts already accrued.
- PFOA litigation and related obligations remain significant uncertainties. The company reported a $20 million accrual for PFOA matters, approximately 3,500 personal-injury lawsuits in consolidated proceedings, and a first trial verdict awarding $1.6 million. Management said potential litigation losses could not be reasonably estimated; multiple unfavorable outcomes could materially affect financial position, results or liquidity.
- Other principal risks include substantial debt and refinancing needs, covenant and interest-rate exposure, foreign currency and raw-material volatility, chemical process-safety incidents, environmental and product-liability claims, and uncapped indemnification obligations to DuPont. The company disclosed that a February 2016 credit-facility amendment reduced revolver capacity to $750 million and changed covenant terms.
Important facts for investors to verify
- Whether the 2016 cost-reduction targets, Altamira ramp-up and Opteon growth translate into the projected EBITDA and free-cash-flow improvement.
- Liquidity, revolver availability and covenant headroom after the February 2016 facility amendment, alongside near-term interest, restructuring and capital-spending requirements.
- The extent and timing of PFOA litigation, environmental remediation and DuPont indemnification payments, including risks beyond recorded accruals.
- Whether TiO₂ pricing and demand stabilize, and whether continued currency movements or raw-material costs pressure margins.
- Progress and proceeds from the Beaumont sale and other portfolio actions, and the costs and timing of planned closures.