Chemours(CC) - 2020 Q4 - Annual Report

Part I Business Chemours is a global performance chemicals provider operating through four segments, serving 3,300 customers in 120 countries, and guided by a 2030 Corporate Responsibility Commitment - Chemours is a global provider of performance chemicals with four reportable segments: Titanium Technologies, Thermal & Specialized Solutions, Advanced Performance Materials, and Chemical Solutions[16] - The company operates 30 major production facilities in nine countries, serving about 3,300 customers across 120 countries. No single customer represents more than 10% of consolidated net sales as of December 31, 2020[17] - In Q4 2020, the former Fluoroproducts segment was split into two new reportable segments: Thermal & Specialized Solutions and Advanced Performance Materials, to better align with business drivers and increase transparency[23] - The company has established a Corporate Responsibility Commitment with 10 goals targeted for 2030, focusing on Inspired People, Shared Planet, and an Evolved Portfolio[19] Titanium Technologies Segment - This segment is a leading global manufacturer of high-quality titanium dioxide (TiO2) pigment under the Ti-Pure™ brand, used in coatings, plastics, and paper. It operates four production facilities with a total nameplate capacity of approximately 1.25 million metric tons per year[29] - The segment utilizes a proprietary chloride process technology, which allows for the use of a broad spectrum of ore feedstocks, providing a low manufacturing cost position[30] - The Ti-Pure™ Value Stabilization (TVS) strategy offers customers different purchasing channels, including Chemours Assured Value Agreements (AVA) and the web-based Ti-Pure™ Flex portal[24][43] - Demand for TiO2 is seasonal, typically lowest in the first quarter and highest in the second and third quarters, influenced by weather conditions on applications like decorative coatings[47] Thermal & Specialized Solutions Segment - This segment is a leading global provider of refrigerants, propellants, blowing agents, and specialty solvents, with well-known brands like Freon™ and Opteon™[50] - The segment is a leader in developing sustainable, low Global Warming Potential (GWP) HFO refrigerants like Opteon™, driven by global regulations such as the EU's Mobile Air Conditioning Directive[51] - Key raw materials include fluorspar, sulfur, ethylene, and chlorinated organics, sourced globally under contracts typically spanning two to 10 years[55] - Refrigerant sales are seasonal, with higher demand in the first half of the year due to increased use of air conditioning in the spring and summer months in the northern hemisphere[61] Advanced Performance Materials Segment - This segment provides high-end polymers and advanced materials with unique properties like chemical inertness, thermal stability, and low friction. Key brands include Teflon™, Viton™, Krytox™, and Nafion™[62][64] - Products are critical for emerging technologies such as energy storage, hydrogen production, 5G data delivery, and advanced semiconductors[63] - The segment's growth is expected to benefit from long-term megatrends like digital connectivity, urbanization, and climate change[66] - Demand for this segment's products is relatively consistent throughout the year, with no significant seasonality[75] Chemical Solutions Segment - This segment produces a portfolio of industrial chemicals, primarily in the Americas, serving industries like gold production, oil and gas, and water treatment[78] - The segment is a market leader in solid sodium cyanide production in the Americas, used for gold and silver mining[79] - The Performance Chemicals and Intermediates product group has been streamlined, following the exit of the Methylamines and Methylamides business in 2019 and the Aniline business in 2020[79] - The segment's sales are subject to minimal seasonality[87] Human Capital - As of December 31, 2020, Chemours had approximately 6,500 employees globally. The workforce was 78% male and 22% female, with 19% of U.S. employees being ethnically diverse[106] - The company has set 2030 Corporate Responsibility Commitment goals, including filling 50% of all global positions with women and 20% of all U.S. positions with ethnically diverse employees[109] - The company's 'Safety Obsession' value encompasses physical, emotional, and psychological safety. In 2020, actions were taken to promote employee health and safety in response to the COVID-19 pandemic[116][118][119] - For the year ended December 31, 2020, the company's voluntary attrition rate was approximately 6%[124] Risk Factors The company faces material risks from legal and environmental matters, including PFOA/PFAS litigation, COVID-19 impacts, economic downturns, operational hazards, and substantial indebtedness Risks Related to Legal Matters, Environmental Sustainability, and Regulations - The company faces significant risks from litigation, particularly regarding PFOA, GenX, AFFF, and PFAS, which could result in material costs, fines, and operational restrictions[131][132] - Extensive and evolving environmental laws (e.g., CERCLA, RCRA, REACH) could lead to substantial compliance costs, fines, and operational interruptions. The classification of TiO2 as a Category 2 Carcinogen by inhalation in the EU could increase manufacturing and handling costs[137][143] - Under the separation agreement with its former parent EID, Chemours assumed certain liabilities and indemnification obligations. In January 2021, a Memorandum of Understanding (MOU) was signed with DuPont, Corteva, and EID to share costs for certain legacy PFAS matters[133][146] - If the 2015 spin-off from EID fails to qualify for tax-free treatment, Chemours could be subject to significant tax and indemnification liabilities under the tax matters agreement[153][156] Risks Related to COVID-19 - The COVID-19 pandemic has negatively impacted the global economy and disrupted supply chains, leading to reduced consumer demand for certain end-products and adversely affecting the company's results of operations[161][162] - The extent of the pandemic's future impact is uncertain and depends on factors like its duration and intensity, the health of employees and third-party workforces, governmental restrictions, and financial market volatility[163] Risks Related to Our Business Performance - The business is exposed to global and regional economic downturns, which can decrease demand for products like TiO2 and fluorochemicals, as demand is linked to GDP and discretionary spending[168][171] - The company operates in highly competitive industries. Failure to protect intellectual property or the development of superior technology by competitors could negatively affect results[172][176] - Fluctuations in energy and raw material prices can significantly impact earnings. The company may not be able to fully offset higher costs through price increases or productivity improvements[179][182] - As a multinational corporation, the company is subject to currency exchange rate risks. A strengthening U.S. dollar reduces reported net sales and operating income from international operations[183][184] Risks Related to Our Operations - Hazards associated with chemical manufacturing, storage, and transportation could lead to operational interruptions, personal injury, environmental contamination, and significant financial penalties[208][209] - Business disruptions, including cybersecurity incidents, could harm operations. The company has been a target of industrial espionage, which could result in the loss of trade secrets and confidential information[212][214] - The company's information technology infrastructure, including an ERP software platform that is no longer supported, is critical. System failures or unsuccessful upgrades could disrupt operations and damage its reputation[217] Risks Related to Our Indebtedness - As of December 31, 2020, the company had approximately $4.1 billion of indebtedness, which increases financial risk and could make it difficult to satisfy obligations, fund operations, and respond to market changes[221] - Debt agreements contain restrictive covenants that limit the company's ability to incur additional debt, pay dividends, make acquisitions, and sell assets, among other actions[233] - A significant portion of the company's debt is at variable interest rates, exposing it to interest rate risk. An increase in rates would increase debt service obligations and decrease net income and cash flows[237][238] Properties The company's global network includes its Delaware headquarters and production facilities across North America, Europe, Latin America, and Asia Pacific, with sufficient capacity for 2021 demand Production Facilities by Region and Segment (as of Dec 31, 2020) | Region | Titanium Technologies | Thermal & Specialized Solutions | Advanced Performance Materials | Chemical Solutions | Shared Locations | | :--- | :--- | :--- | :--- | :--- | :--- | | North America | DeLisle, MS; New Johnsonville, TN; Jesup, GA (Mine); Nahunta, GA (Mine); Offerman, GA (Mineral Separation); Starke, FL (Mine & Mineral Separation) | Corpus Christi, TX; El Dorado, AR; LaPorte, TX; Louisville, KY | Deepwater, NJ; Elkton, MD; Fayetteville, NC; Louisville, KY; Parlin, NJ; Washington, WV | Memphis, TN | Belle, WV | | Europe, Middle East, Africa | | | Mechelen, Belgium; Villers St. Paul, France | | Dordrecht, Netherlands | | Latin America | Altamira, Mexico | Barueri, Brazil; Manaus, Brazil; Monterrey, Mexico | | | | | Asia Pacific | Kuan Yin, Taiwan | Chiba, Japan | Shimizu, Japan; Sichuan, China | | Changshu, China | Legal Proceedings The company faces various legal proceedings, notably significant PFOA and PFAS litigation concerning its Fayetteville, NC site, and environmental investigations in the Netherlands - The company is involved in numerous legal proceedings concerning product liability, environmental issues, and other matters arising in the ordinary course of business[271] - Significant litigation is related to PFOA and PFAS, with multiple lawsuits filed concerning the Fayetteville, North Carolina site in both federal and state courts[272][273][274][275] - In the Netherlands, the company has faced fines from the local environmental agency (DCMR) related to legacy PFOA in waste water and is also under investigation for an alleged criminal offense related to the Environmental Management Act for the period of June 2008 to December 2012[278][279] - The company received a Notice of Violation (NOV) from the EPA in February 2019 for alleged TSCA violations and NOVs from the NC DEQ in April 2020 and January 2021 for alleged permit violations at the Fayetteville site[280] Information About Our Executive Officers This section outlines the professional experience of the company's executive officers, including the President and CEO, COO, and CFO, along with segment and corporate function leadership - Mark P. Vergnano serves as President and CEO[285] - Mark E. Newman serves as Senior Vice President and COO, having previously been the CFO[286] - Sameer Ralhan serves as Senior Vice President and CFO, appointed in June 2019[287] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE under 'CC', with a completed $500 million 2017 share repurchase program and an ongoing $1.0 billion 2018 program with $428 million remaining - The company's common stock trades on the New York Stock Exchange (NYSE) under the symbol 'CC'. As of February 8, 2021, there were 43,248 record holders of common stock[299] - The 2017 Share Repurchase Program, authorizing $500 million in purchases, was completed on May 31, 2018[301] - The 2018 Share Repurchase Program, initially for $750 million and later increased to $1.0 billion, has been extended through December 31, 2022. As of year-end 2020, $428 million remained available for repurchase[302][303] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, net sales decreased 10% to $5.0 billion, while net income improved to $219 million, with the company managing COVID-19 impacts and entering a PFAS liability cost-sharing MOU Results of Operations Consolidated Results of Operations (2018-2020) | (In millions) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net sales | $4,969 | $5,526 | $6,638 | | Gross profit | $1,067 | $1,063 | $1,971 | | Income (loss) before income taxes | $179 | $(124) | $1,155 | | Net income (loss) attributable to Chemours | $219 | $(52) | $995 | | Diluted earnings (loss) per share | $1.32 | $(0.32) | $5.45 | Change in Net Sales from Prior Period | Driver | 2020 | 2019 | | :--- | :--- | :--- | | Price | (5)% | (2)% | | Volume | (3)% | (14)% | | Currency | —% | (1)% | | Portfolio | (2)% | —% | | Total change | (10)% | (17)% | - Net sales decreased by 10% in 2020 to $5.0 billion, driven by lower prices (-5%), volume (-3%), and portfolio changes (-2%)[337] - Cost of Goods Sold (COGS) decreased 13% in 2020 due to lower sales, cost-saving initiatives, and the absence of prior-year costs related to unplanned outages and environmental remediation at the Fayetteville site[342] - Other Income (Expense), Net improved by $314 million in 2020, primarily because 2019 included a $380 million expense for a pension plan settlement[362] Segment Reviews Adjusted EBITDA by Segment (2018-2020) | (In millions) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Titanium Technologies | $510 | $505 | $1,055 | | Thermal & Specialized Solutions | $354 | $398 | $542 | | Advanced Performance Materials | $126 | $180 | $241 | | Chemical Solutions | $73 | $80 | $64 | | Corporate and Other | $(184) | $(143) | $(162) | | Total Adjusted EBITDA | $879 | $1,020 | $1,740 | Liquidity and Capital Resources Summary of Cash Flows (2018-2020) | (In millions) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Cash provided by operating activities | $807 | $650 | $1,140 | | Cash used for investing activities | $(234) | $(483) | $(487) | | Cash used for financing activities | $(449) | $(419) | $(993) | - In response to COVID-19, the company implemented cost reduction actions delivering $160 million in savings and reduced capital spending by $125 million[425] - As a precautionary measure, the company drew $300 million from its revolving credit facility in April 2020, which was fully repaid in the third quarter of 2020[426] - As of December 31, 2020, the company had $1.1 billion in cash and cash equivalents. Management believes liquidity is sufficient through at least February 2022[427] - Pursuant to the January 2021 MOU, the company is required to make escrow deposits for potential future PFAS liabilities, starting with $100 million by September 30, 2021[434] Environmental Matters - At December 31, 2020, the company had environmental remediation liabilities of $390 million, down from $406 million at year-end 2019. This includes $194 million for the Fayetteville site[523][527] - The five most significant remediation sites (Chambers Works, East Chicago, Fayetteville, Pompton Lakes, USS Lead) account for 72% of the total accrued environmental liability[543] - The potential environmental liability may range up to approximately $580 million above the amount accrued at December 31, 2020, due to inherent uncertainties in remediation[537] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency, interest rates, and commodity prices using derivatives and contractual provisions, while credit risk is mitigated by a diverse customer base - The company uses foreign currency forward contracts to minimize earnings volatility from remeasuring monetary assets and liabilities in non-functional currencies and to hedge forecasted inventory purchases[595][596] - Euro-denominated debt is designated as a hedge of the company's net investment in certain European subsidiaries to reduce volatility in stockholders' equity[597] - Beginning in Q2 2020, the company entered into interest rate swaps to mitigate volatility in interest payments on its U.S. dollar-denominated senior secured term loan facility[598] - Commodity price risk is managed through business strategies like pass-through provisions in sales contracts and formula pricing, rather than derivative instruments[603] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes during the year - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[609] - No changes in internal control over financial reporting occurred during the year ended December 31, 2020, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[610] Part III Directors, Executive Officers, Corporate Governance, and Other Matters Information for Items 10-14, including directors, executive compensation, and security ownership, is incorporated by reference from the company's 2021 proxy statement - Information regarding Directors, Executive Officers, and Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accounting Fees and Services (Item 14) is incorporated by reference from the 2021 Proxy Statement[614][616][618][619] Part IV Exhibits, Financial Statement Schedules This section provides an index to the consolidated financial statements and lists all exhibits filed with the Form 10-K, including key agreements and certifications - This section contains the index to the Consolidated Financial Statements and the Exhibit Index[622][624] Financial Statements Consolidated Financial Statements For 2020, Chemours reported net sales of $4.97 billion and net income of $219 million, a significant improvement from 2019, with total assets at $7.08 billion and equity at $815 million Consolidated Statement of Operations Highlights (2020) | Metric | Amount (in millions) | | :--- | :--- | | Net sales | $4,969 | | Gross profit | $1,067 | | Income before income taxes | $179 | | Net income attributable to Chemours | $219 | Consolidated Balance Sheet Highlights (as of Dec 31, 2020) | Metric | Amount (in millions) | | :--- | :--- | | Total current assets | $2,633 | | Total assets | $7,082 | | Total current liabilities | $1,442 | | Total liabilities | $6,267 | | Total equity | $815 | Consolidated Statement of Cash Flows Highlights (2020) | Metric | Amount (in millions) | | :--- | :--- | | Cash provided by operating activities | $807 | | Cash used for investing activities | $(234) | | Cash used for financing activities | $(449) | Notes to the Consolidated Financial Statements These notes provide detailed information on accounting policies, segment reporting, debt, leases, legal contingencies including PFAS, and other financial instruments supporting the consolidated financial statements Note 20. Debt Debt Principal at Year-End | (In millions) | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Senior secured term loans | $1,292 | $1,267 | | Senior unsecured notes | $2,601 | $2,659 | | Securitization Facility | $0 | $110 | | Other (Finance leases, etc.) | $168 | $160 | | Total debt principal | $4,061 | $4,196 | - In November 2020, the company issued $800 million of 5.750% senior unsecured notes due 2028 and used the proceeds to redeem the remaining $908 million of its 6.625% notes due 2023, resulting in a $22 million loss on extinguishment of debt[920] - In March 2020, the company amended its Accounts Receivable Securitization Facility, which now qualifies for sale accounting. This led to the derecognition of $125 million of receivables from the balance sheet[929][930] Note 22. Commitments and Contingent Liabilities - In January 2021, Chemours entered a binding MOU with DuPont, Corteva, and EID to share potential future legacy PFAS liabilities. Chemours will bear 50% of costs, and DuPont/Corteva will bear 50%, up to a $4 billion cap or until 2040. An escrow account will be established, with Chemours contributing $100 million in 2021 and 2022, and $50 million annually thereafter through 2028[947][948][951] - In January 2021, the company agreed to a settlement (the "Second MDL Settlement") for approximately 95 PFOA personal injury cases for a total of $83 million, with Chemours contributing approximately $29 million[972] - As of December 31, 2020, the company has accrued $194 million for on-site and off-site remediation related to its Fayetteville, NC site, as required by a Consent Order with the NC DEQ[1039] - The company is a defendant in approximately 900 matters related to Aqueous Film Forming Foam (AFFF), most of which are consolidated in a multi-district litigation (MDL) in South Carolina[978] Note 28. Geographic and Segment Information Net Sales by Geographic Region (2020) | Region | Net Sales (in millions) | | :--- | :--- | | North America | $1,914 | | Asia Pacific | $1,384 | | Europe, the Middle East, and Africa | $1,086 | | Latin America | $585 | | Total | $4,969 | Segment Financial Summary (2020) | (In millions) | Net Sales | Adjusted EBITDA | Total Assets | | :--- | :--- | :--- | :--- | | Titanium Technologies | $2,402 | $510 | $2,130 | | Thermal & Specialized Solutions | $1,105 | $354 | $1,041 | | Advanced Performance Materials | $1,104 | $126 | $1,520 | | Chemical Solutions | $358 | $73 | $531 |