Chemours(CC) - 2021 Q2 - Quarterly Report

Part I Interim Consolidated Financial Statements This section presents Chemours' unaudited interim consolidated financial statements, detailing operations, balance sheets, cash flows, and notes on segments, debt, and PFAS liabilities Financial Statements (Unaudited) The company reported significant year-over-year growth in Q2 2021, with net sales reaching $1.66 billion and net income $66 million, alongside increased assets and operating cash flow Consolidated Statements of Operations Highlights (Unaudited) | Indicator (in millions) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,655 | $1,093 | $3,091 | $2,398 | | Gross Profit | $264 | $199 | $561 | $497 | | Income Before Income Taxes | $44 | $20 | $144 | $96 | | Net Income | $66 | $24 | $161 | $124 | | Diluted EPS | $0.39 | $0.15 | $0.95 | $0.75 | Consolidated Balance Sheets Highlights (Unaudited) | Indicator (in millions) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $3,047 | $2,633 | | Total Assets | $7,479 | $7,082 | | Total Current Liabilities | $1,674 | $1,442 | | Total Liabilities | $6,579 | $6,267 | | Total Equity | $900 | $815 | Consolidated Statements of Cash Flows Highlights (Unaudited) | Indicator (in millions) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Cash provided by operating activities | $295 | $155 | | Cash used for investing activities | $(134) | $(163) | | Cash (used for) provided by financing activities | $(118) | $92 | | Increase in cash and cash equivalents | $34 | $88 | Notes to the Interim Consolidated Financial Statements (Unaudited) Notes detail segment reporting changes, significant PFAS-related liabilities including a $1 billion escrow fund, increased environmental remediation costs, and the sale of the Mining Solutions business - In Q4 2020, the company bifurcated its Fluoroproducts segment into two new reportable segments: Thermal & Specialized Solutions and Advanced Performance Materials, to enhance customer focus and transparency. Historical segment data has been recast[28] - In January 2021, Chemours, DuPont, and Corteva entered a binding MOU to share potential future legacy PFAS liabilities arising from pre-July 1, 2015 conduct. Chemours will bear 50% of the costs, and DuPont/Corteva will bear the other 50%, up to a $4 billion aggregate spend or until 2040[113][116] - The parties agreed to establish an escrow account to manage PFAS liability payments. Chemours is required to deposit $100 million by September 30, 2021, another $100 million by September 30, 2022, and $50 million annually from 2023 through 2028[118] - Total environmental remediation liabilities increased to $556 million as of June 30, 2021, up from $390 million at year-end 2020. The increase was primarily driven by a $175 million charge in Q2 2021 for on-site surface water and groundwater remediation at the Fayetteville, NC site[201][202][203] - On July 26, 2021, the company entered into a definitive agreement to sell its Mining Solutions business for approximately $520 million in cash. The transaction is expected to close in Q4 2021 and result in a pre-tax gain of approximately $80 to $130 million[307] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q2 2021 business recovery with 51% net sales growth, strategic asset sale, robust liquidity, and significant environmental and legal obligations Results of Operations Q2 2021 net sales increased 51% to $1.7 billion due to volume and price gains, with gross profit rising and net income reaching $66 million Change in Net Sales from Prior Year Period | Change Driver | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Price | 2% | —% | | Volume | 46% | 27% | | Currency | 4% | 3% | | Portfolio | (1)% | (1)% | | Total change in net sales | 51% | 29% | - Cost of Goods Sold (COGS) increased by 56% for the three months ended June 30, 2021, primarily due to higher sales volume, increased distribution and freight expenses, and higher environmental remediation costs at the Fayetteville site[334] - Selling, General, and Administrative (SG&A) expense increased by 56% for the three months ended June 30, 2021, mainly due to higher performance-related compensation, a $25 million settlement with the State of Delaware, and cost deferral activities in the prior year related to COVID-19[335] Segment Reviews All segments showed strong Q2 2021 demand recovery, with significant sales and Adjusted EBITDA growth across Titanium Technologies, Thermal & Specialized Solutions, and Advanced Performance Materials Segment Net Sales (in millions) | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | % Change | | :--- | :--- | :--- | :--- | | Titanium Technologies | $859 | $488 | 76% | | Thermal & Specialized Solutions | $340 | $231 | 47% | | Advanced Performance Materials | $362 | $292 | 24% | | Chemical Solutions | $94 | $82 | 15% | Segment Adjusted EBITDA (in millions) | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | % Change | | :--- | :--- | :--- | :--- | | Titanium Technologies | $219 | $94 | 133% | | Thermal & Specialized Solutions | $117 | $55 | 113% | | Advanced Performance Materials | $74 | $42 | 76% | | Chemical Solutions | $19 | $19 | 0% | Liquidity and Capital Resources The company maintains strong liquidity with $1.1 billion in cash, facing future obligations including debt service, environmental liabilities, and capital expenditures - As of June 30, 2021, the company had total cash and cash equivalents of $1.1 billion[394] - Significant future cash payments include environmental remediation liabilities of $556 million and a required PFAS escrow deposit of $100 million by September 30, 2021[400][401] - The company expects capital expenditures for 2021 to be approximately $350 million[388] - The company maintains supply chain finance programs, with $218 million outstanding as of June 30, 2021, allowing suppliers to sell their receivables to financial institutions[439] Non-GAAP Financial Measures The company utilizes non-GAAP measures like Adjusted EBITDA and Free Cash Flow to illustrate underlying business performance, showing significant improvements in Q2 2021 Reconciliation of Net Income to Adjusted EBITDA (in millions) | Line Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net income attributable to Chemours | $66 | $24 | | Non-operating pension benefit | (2) | (1) | | Exchange (gains) losses, net | (3) | (6) | | Restructuring, asset-related, and other charges | 5 | 17 | | Gain on sales of assets and businesses | (2) | — | | Natural disasters and catastrophic events | 3 | — | | Legal and environmental charges | 195 | 1 | | Adjustments made to income taxes | (10) | (2) | | Benefit from income taxes relating to reconciling items | (47) | (3) | | Adjusted Net Income | $205 | $30 | | Interest expense, net | 47 | 53 | | Depreciation and amortization | 79 | 82 | | All remaining provision for income taxes | 35 | 1 | | Adjusted EBITDA | $366 | $166 | Free Cash Flow (in millions) | Line Item | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Cash provided by operating activities | $295 | $155 | | Less: Purchases of property, plant, and equipment | (127) | (167) | | Free Cash Flows | $168 | $(12) | Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency, interest rates, and commodity prices through derivative financial instruments for hedging purposes - The company uses foreign currency forward contracts to hedge against volatility from remeasuring monetary assets and liabilities in non-functional currencies. At June 30, 2021, 14 such contracts were outstanding with a notional value of $350 million[525] - To mitigate risk on forecasted U.S. dollar-denominated inventory purchases by its European subsidiaries, the company uses cash flow hedges. At June 30, 2021, 156 contracts were outstanding with a notional value of $119 million[526] - The company uses interest rate swaps to mitigate interest rate volatility on its U.S. dollar term loan. At June 30, 2021, three swaps were outstanding with a notional value of $400 million[530] - The company's euro-denominated debt is designated as a net investment hedge to reduce stockholders' equity volatility from currency fluctuations[527] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[532] - No changes occurred during the quarter ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[533] Part II Legal Proceedings The company faces significant legal proceedings, primarily environmental and product liability claims related to PFOA and PFAS, including ongoing litigation at the Fayetteville site and regulatory actions in the Netherlands - The company is subject to significant litigation concerning PFOA and PFAS, with multiple lawsuits pending in the U.S. District Court for the Eastern District of North Carolina related to the Fayetteville site[537][538] - In the Netherlands, the company is appealing fines related to wastewater tests detecting legacy PFOA and is also under investigation for an alleged criminal offense related to the Environmental Management Act for pre-spin period activities[542][543] - The EPA issued a Notice of Violation (NOV) in February 2019 alleging TSCA violations at the Fayetteville site, and the NC DEQ issued an NOV in April 2020 for an alleged air permit violation. The company contests these violations and does not believe a loss is probable[544] Risk Factors The company faces significant risks from evolving environmental regulations, including potential losses, compliance costs, and operational interruptions, particularly concerning PFAS and TiO2 classifications - The company faces significant risks from extensive environmental laws, which could result in substantial costs, fines, operational interruptions, and reputational harm[548][550] - The EU's classification of TiO2 powder as a Category 2 Carcinogen by inhalation will come into enforcement on October 1, 2021, leading to increased product labeling requirements and potentially higher costs[556] - A broad regulatory action in the EU is underway to restrict over 4,000 PFAS substances, including F-gases and fluoropolymers. A restriction dossier is expected to be submitted to ECHA in July 2022, with potential restrictions entering into force by 2025, which could adversely affect operations and financial results[560] - The final costs for remediation at the Fayetteville site, particularly the barrier wall and groundwater treatment system, are subject to significant uncertainty and could materially exceed current accruals depending on regulatory approvals and design finalization[554] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2021, Chemours repurchased shares for $15 million under its 2018 Share Repurchase Program, with $413 million remaining authorized through 2022 Issuer Purchases of Equity Securities (Q2 2021) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value Remaining Under Program | | :--- | :--- | :--- | :--- | | Month ended April 30, 2021 | - | - | $428 million | | Month ended May 31, 2021 | - | - | $428 million | | Month ended June 30, 2021 | 423,273 | $35.08 | $413 million | | Total | 423,273 | $35.08 | $413 million | - The 2018 Share Repurchase Program, with a total authorization of $1.0 billion, was extended through December 31, 2022[563] Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None Mine Safety Disclosures Information regarding mine safety for the company's surface mines and mineral sands separation facility is provided in Exhibit 95 - Information regarding mine safety and other regulatory actions is included in Exhibit 95 to this Quarterly Report on Form 10-Q[568] Other Information There is no other information to report for this item - None Exhibits This section lists the exhibits filed with the report, including the Mining Solutions sale agreement, Delaware settlement, and CEO/CFO certifications - Key exhibits filed include the Purchase and Sale Agreement for the Mining Solutions business (Exhibit 2.1), the Settlement Agreement with the State of Delaware (Exhibit 10.2), and CEO/CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2)[572]