The Chemours Company Reports First Quarter 2019 Results

The Chemours Company

Consolidated Statements of Operations (Unaudited)

(Dollars in millions, except per share amounts)

2018

Net sales

$

1,376

$

1,730

Cost of goods sold

1,080

1,193

Gross profit

296

537

Selling, general, and administrative expense

156

143

Research and development expense

22

20

Restructuring, asset-related, and other charges

8

10

Total other operating expenses

186

173

Equity in earnings of affiliates

8

12

Interest expense, net

(51)

(52)

Other income, net

40

57

Income before income taxes

107

381

Provision for income taxes

13

84

Net income

94

297

Net income attributable to Chemours

$

94

$

297

Per share data

Basic earnings per share of common stock

$

0.56

$

1.63

Diluted earnings per share of common stock

0.55

1.58

The Chemours Company

Consolidated Balance Sheets

(Dollars in millions, except per share amounts)

(Unaudited)

December 31, 2018

Assets

Current assets:

Cash and cash equivalents

$

697

$

1,201

Accounts and notes receivable, net

847

861

Inventories

1,218

1,147

Prepaid expenses and other

85

84

Total current assets

2,847

3,293

Property, plant, and equipment

9,089

8,992

Less: Accumulated depreciation

(5,701)

Property, plant, and equipment, net

3,379

3,291

Operating lease right-of-use assets

323

—

Goodwill and other intangible assets, net

180

181

Investments in affiliates

166

160

Other assets

430

437

Total assets

$

7,325

$

7,362

Liabilities

Current liabilities:

Accounts payable

$

1,042

$

1,137

Current maturities of long-term debt

13

13

Other accrued liabilities

517

559

Total current liabilities

1,572

1,709

Long-term debt, net

3,965

3,959

Operating lease liabilities

265

—

Deferred income taxes

212

217

Other liabilities

495

457

Total liabilities

6,509

6,342

Commitments and contingent liabilities

Equity

Common stock (par value $0.01 per share; 810,000,000 shares authorized;
188,693,084 shares issued and 164,990,989 shares outstanding at March 31,
2019; 187,204,567 shares issued and 170,780,474 shares outstanding at
December 31, 2018)

2

2

Treasury stock, at cost (23,702,095 shares at March 31, 2019;

16,424,093 shares at December 31, 2018)

(1,011)

(750)

Additional paid-in capital

845

860

Retained earnings

1,517

1,466

Accumulated other comprehensive loss

(543)

(564)

Total Chemours stockholders' equity

810

1,014

Non-controlling interests

6

6

Total equity

816

1,020

Total liabilities and equity

$

7,325

$

7,362

The Chemours Company

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in millions)

Three Months Ended March 31,

2019

2018

Cash flows from operating activities

Net income

$

94

$

297

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization

76

70

Gain on sales of assets and businesses

—

(42)

Equity in earnings of affiliates, net

(7)

17

Amortization of debt issuance costs and issue discounts

3

3

Deferred tax (benefit) provision

(7)

35

Stock-based compensation expense

8

9

Net periodic pension cost (income)

1

(3)

Defined benefit plan contributions

(6)

(4)

Other operating charges and credits, net

4

(1)

Decrease (increase) in operating assets:

Accounts and notes receivable, net

16

(150)

Inventories and other operating assets

(49)

(18)

(Decrease) increase in operating liabilities:

Accounts payable and other operating liabilities

(177)

(17)

Cash (used for) provided by operating activities

(44)

196

Cash flows from investing activities

Purchases of property, plant, and equipment

(133)

(102)

Proceeds from sales of assets and businesses, net

—

39

Foreign exchange contract settlements, net

(1)

5

Cash used for investing activities

(134)

(58)

Cash flows from financing activities

Debt repayments

(3)

(4)

Purchases of treasury stock, at cost

(255)

(240)

Proceeds from exercised stock options, net

6

5

Payments related to tax withholdings on vested stock awards

(30)

(1)

Payments of dividends

(42)

(31)

Cash used for financing activities

(324)

(271)

Effect of exchange rate changes on cash and cash equivalents

(2)

11

Decrease in cash and cash equivalents

(504)

(122)

Cash and cash equivalents at January 1,

1,201

1,556

Cash and cash equivalents at March 31,

$

697

$

1,434

Supplemental cash flows information

Non-cash investing and financing activities:

Changes in property, plant, and equipment included in accounts payable

$

(11)

$

(1)

Obligations incurred under build-to-suit lease arrangement

17

11

Purchases of treasury stock not settled by quarter-end

6

15

Tax payments accrued for withholdings on vested restricted stock units

—

4

The Chemours Company

Segment Financial and Operating Data (Unaudited)

(Dollars in millions)

Segment Net Sales

Three Months

Three Months Ended

Ended

Sequential

March 31,

Increase /

December 31,

Increase /

2019

2018

(Decrease)

2018

(Decrease)

Fluoroproducts

$

687

$

732

$

$

649

$

38

Chemical Solutions

134

144

(10)

149

(15)

Titanium Technologies

555

854

(299)

666

(111)

Total Net Sales

$

1,376

$

1,730

$

$

1,464

$

(88)

Segment Adjusted
EBITDA

Three Months

Three Months Ended

Ended

Sequential

March 31,

Increase /

December 31,

Increase /

2019

(Decrease)

2018

(Decrease)

Fluoroproducts

$

159

$

206

$

$

164

$

(5)

Chemical Solutions

15

11

4

14

1

Titanium Technologies

126

294

199

(73)

Corporate and Other

(43)

5

(36)

(2)

Total Adjusted EBITDA

$

262

$

468

$

(206)

$

341

$

(79)

Adjusted EBITDA
Margin

19%

27%

23%

Quarterly Change in Net Sales from March 31, 2018

Percentage

Percentage Change Due To

March 31, 2019

Net Sales

Change vs.

March 31, 2018

Local Price

Volume

Currency
Effect

Total Company

$

1,376

(20)

%

1

%

(20)

%

(1)

%

Fluoroproducts

$

687

(6)

%

—

%

(4)

%

(2)

%

Chemical Solutions

134

(7)

%

3

%

(9)

%

(1)

%

Titanium Technologies

555

(35)

%

1

%

(35)

%

(1)

%

Quarterly Change in Net Sales from December 31, 2018

Percentage

Percentage Change Due To

March 31, 2019

Net Sales

Change vs.

December 31, 2018

Local Price

Volume

Currency
Effect

Total Company

$

1,376

(6)

%

(1)

%

(5)

%

—

%

Fluoroproducts

$

687

6

%

(2)

%

8

%

—

%

Chemical Solutions

134

(11)

%

—

%

(11)

%

—

%

Titanium Technologies

555

(17)

%

—

%

(17)

%

—

%

The Chemours Company

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures (Unaudited)

(Dollars in millions)

Adjusted EBITDA and Adjusted Net Income to GAAP Net Income Reconciliation

Adjusted earnings before interest, taxes, depreciation, and amortization ("Adjusted EBITDA") is defined as income (loss) before income taxes, excluding the following items: interest expense, depreciation, and amortization; non-operating pension and other post-retirement employee benefit costs, which represent the components of net periodic pension (income) costs excluding the service cost component; exchange (gains) losses included in other income (expense), net; restructuring, asset-related, and other charges; asset impairments; (gains) losses on sale of business or assets; and, other items not considered indicative of the Company's ongoing operational performance and expected to occur infrequently. Adjusted Net Income is defined as net income (loss) attributable to Chemours, adjusted for items excluded from Adjusted EBITDA, except interest expense, depreciation, amortization, and certain provision for (benefit from) income tax amounts.

Three Months Ended

March 31,

December 31,

2019

2018

2018

Net income attributable to Chemours

$

94

$

297

$

142

Non-operating pension and other post-retirement employee benefit
income

(3)

(7)

(9)

Exchange gains, net

(6)

—

(5)

Restructuring, asset-related, and other charges

8

10

18

Gain on sales of assets and businesses (1)

—

(42)

—

Legal charges (2)

29

4

36

Other charges

—

—

1

Adjustments made to income taxes (3)

(5)

(5)

13

(Benefit from) provision for income taxes relating to reconciling items (4)

(8)

9

(11)

Adjusted Net Income

109

266

185

Interest expense, net

51

52

47

Depreciation and amortization

76

70

71

All remaining provision for income taxes

26

80

38

Adjusted EBITDA

$

262

$

468

$

341

(1) For the three months ended March 31, 2018, the Company recognized a gain of $42 on the sale of its Linden, New Jersey site.

(2) Includes litigation settlements, PFOA drinking water treatment accruals, and other legal charges. For the three months ended March 31, 2019, legal charges included $27 in additional charges for the approved final Consent Order associated with certain matters at its Fayetteville, North Carolina facility.

(3) Includes the removal of certain discrete income tax impacts within the Company's provision for income taxes. For the three months ended March 31, 2019 and 2018, these amounts were primarily attributable to income tax benefits for windfalls on share-based payments.

(4) The income tax impacts included in this caption are determined using the applicable rates in the taxing jurisdictions in which income or expense occurred and represents both current and deferred income tax expense or benefit based on the nature of the non-GAAP financial measure.

The Chemours Company

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures (Unaudited)

(Dollars in millions, except per share amounts)

Adjusted Earnings per Share to GAAP Earnings per Share Reconciliation

Adjusted earnings per share ("EPS") is calculated by dividing Adjusted Net Income by the weighted-average number of common shares outstanding. Diluted Adjusted EPS accounts for the dilutive impact of stock-based compensation awards, which includes unvested restricted shares. Diluted Adjusted EPS considers the impact of potentially-dilutive securities, except in periods in which there is a loss because the inclusion of the potentially-dilutive securities would have an anti-dilutive effect.

Three Months Ended

March 31,

December 31,

2019

2018

2018

Numerator:

Net income attributable to Chemours

$

94

$

297

$

142

Adjusted Net Income

109

266

185

Denominator:

Weighted-average number of common shares outstanding -
basic

167,866,468

182,069,982

171,641,788

Dilutive effect of the Company's employee compensation plans

4,194,432

6,263,215

4,740,652

Weighted-average number of common shares outstanding -
diluted

172,060,900

188,333,197

176,382,440

Earnings per share - basic

$

0.56

$

1.63

$

0.83

Earnings per share - diluted

0.55

1.58

0.81

Adjusted earnings per share - basic

0.65

1.46

1.08

Adjusted earnings per share - diluted

0.63

1.41

1.05

2019 Estimated Adjusted EBITDA and Estimated Adjusted EPS to Estimated GAAP Net Income Reconciliation (*)

Year Ended December 31, 2019

Low

High

Net income attributable to Chemours

$

655

$

830

Restructuring, asset-related, and other charges

35

45

Adjusted Net Income

690

875

Interest expense, net

205

220

Depreciation and amortization

305

305

Provision for income taxes

150

200

Adjusted EBITDA

$

1,350

$

1,600

Weighted-average number of common shares outstanding - basic (1)

167.4

167.4

Dilutive effect of the Company's employee compensation plans (1,2)

4.2

4.2

Weighted-average number of common shares outstanding - diluted (1,2)

171.6

171.6

Basic earnings per share of common stock

$

3.91

$

4.96

Diluted earnings per share of common stock (2)

3.82

4.84

Adjusted basic earnings per share of common stock

4.12

5.23

Adjusted diluted earnings per share of common stock (2)

4.02

5.10

(1) The Company's estimates for the weighted-average number of common shares outstanding - basic and diluted reflect actual results through March 31, 2019 which are carried forward for the projection period and updated for the estimated impacts of the Company's 2019 share repurchases, including those repurchased through April 2019.

(2) Diluted earnings per share is calculated using net income available to common shareholders divided by diluted weighted-average common shares outstanding during each period, which includes unvested restricted shares. Diluted earnings per share considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect.

(*) The Company's estimates reflect its current visibility and expectations based on market factors, such as currency movements, macro-economic factors, and end-market demand. Actual results could differ materially from these current estimates.

The Chemours Company

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures (Unaudited)

(Dollars in millions)

Free Cash Flows to GAAP Cash Flow Provided by Operating Activities Reconciliation

Free Cash Flows is defined as cash flow provided by (used for) operating activities, less purchases of property, plant, and equipment as shown in the consolidated statements of cash flows.

Three Months Ended

March 31,

December 31,

2019

2018

2018

Cash flow (used for) provided by operating activities

$

(44)

$

196

$

259

Less: Purchases of property, plant, and equipment

(133)

(102)

(154)

Free Cash Flows

$

(177)

$

94

$

105

2019 Estimated Free Cash Flow to GAAP Cash Flow Provided by Operating Activities Reconciliation (*)

(Estimated)

Year Ended December 31,

2019

Cash flow provided by operating activities

$

> 1,050

Less: Purchases of property, plant, and equipment

~ (500)

Free Cash Flows

$

(*) The Company's estimates reflect its current visibility and expectations based on market factors, such as currency movements, macro-economic factors, and end-market demand. Actual results could differ materially from these current estimates.

Return on Invested Capital Reconciliation

Return on Invested Capital ("ROIC") is defined as Adjusted EBITDA, less depreciation and amortization ("Adjusted EBIT"), divided by the average of invested capital, which amounts to net debt, or debt less cash and cash equivalents, plus equity.

Period Ended March 31,

2019

2018

Adjusted EBITDA (1)

$

1,535

$

1,605

Less: Depreciation and amortization (1)

(289)

(272)

Adjusted EBIT

1,246

1,333

Total debt

3,978

4,155

Total equity

816

1,002

Less: Cash and cash equivalents

(697)

(1,434)

Invested capital, net

$

4,097

$

3,723

Average invested capital (2)

$

3,853

$

3,327

Return on Invested Capital

32.3

%

40.1

%

(1) Based on amounts for the trailing 12 months ended March 31, 2019 and 2018. Reconciliations of Adjusted EBITDA to net income (loss) attributable to Chemours are provided on a quarterly basis. See the preceding table for the reconciliation of Adjusted EBITDA to net income attributable to Chemours for the three months ended March 31, 2019 and 2018.

(2) Average invested capital is based on a five-point trailing average of invested capital, net.