The Chemours Company Reports Second Quarter 2019 Results

The Chemours Company

Consolidated Statements of Operations (Unaudited)  

(Dollars in millions, except per share amounts)  

Six Months Ended June 30,

2019

2018

2019

2018

Net sales

$

1,408

$

1,816

$

2,784

$

3,546

Cost of goods sold

1,085

1,259

2,165

2,452

Gross profit

323

557

619

1,094

Selling, general, and administrative expense

136

161

292

304

Research and development expense

19

20

41

40

Restructuring, asset-related, and other charges

7

10

15

20

Total other operating expenses

162

191

348

364

Equity in earnings of affiliates

8

10

16

22

Interest expense, net

(52)

(48)

(103)

(100)

Loss on extinguishment of debt

—

(38)

—

(38)

Other income, net

16

33

55

90

Income before income taxes

133

323

239

704

Provision for income taxes

37

41

50

125

Net income

96

282

189

579

Less: Net income attributable to non-controlling interests

—

1

—

1

Net income attributable to Chemours

$

96

$

281

$

189

$

578

Per share data

Basic earnings per share of common stock

$

0.58

$

1.58

$

1.14

$

3.21

Diluted earnings per share of common stock

0.57

1.53

1.12

3.11

The Chemours Company

Consolidated Balance Sheets  

(Dollars in millions, except per share amounts)  

(Unaudited)

June 30, 2019

December 31, 2018

Assets

Current assets:

Cash and cash equivalents

$

630

$

1,201

Accounts and notes receivable, net

879

861

Inventories

1,250

1,147

Prepaid expenses and other

73

84

Total current assets

2,832

3,293

Property, plant, and equipment

9,259

8,992

Less: Accumulated depreciation

(5,768)

(5,701)

Property, plant, and equipment, net

3,491

3,291

Operating lease right-of-use assets

322

—

Goodwill and other intangible assets, net

178

181

Investments in affiliates

177

160

Other assets

433

437

Total assets

$

7,433

$

7,362

Liabilities

Current liabilities:

Accounts payable

$

956

$

1,137

Current maturities of long-term debt

18

13

Other accrued liabilities

474

559

Total current liabilities

1,448

1,709

Long-term debt, net

4,190

3,959

Operating lease liabilities

265

—

Deferred income taxes

214

217

Other liabilities

487

457

Total liabilities

6,604

6,342

Commitments and contingent liabilities

Equity

Common stock (par value $0.01 per share; 810,000,000 shares authorized; 188,801,201 shares issued and 163,481,966 shares outstanding at June 30, 2019;

187,204,567 shares issued and 170,780,474 shares outstanding at December 31, 2018)

2

2

Treasury stock, at cost (25,319,235 shares at June 30, 2019;

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

(1,072)

(750)

Additional paid-in capital

853

860

Retained earnings

1,571

1,466

Accumulated other comprehensive loss

(531)

(564)

Total Chemours stockholders' equity

823

1,014

Non-controlling interests

6

6

Total equity

829

1,020

Total liabilities and equity

$

7,433

$

7,362

The Chemours Company  

Consolidated Statements of Cash Flows (Unaudited)  

(Dollars in millions)  

Six Months Ended June 30,

2019

2018

Cash flows from operating activities

Net income

$

189

$

579

Adjustments to reconcile net income to cash (used for) provided by operating activities:

Depreciation and amortization

154

142

Gain on sales of assets and businesses

(3)

(45)

Equity in earnings of affiliates, net

(15)

6

Loss on extinguishment of debt

—

38

Amortization of debt issuance costs and issue discounts

5

7

Deferred tax provision

2

38

Stock-based compensation expense

14

15

Net periodic pension cost (income)

1

(7)

Defined benefit plan contributions

(13)

(8)

Other operating charges and credits, net

1

(5)

Decrease (increase) in operating assets:

Accounts and notes receivable, net

(16)

(175)

Inventories and other operating assets

(70)

(74)

(Decrease) increase in operating liabilities:

Accounts payable and other operating liabilities

(287)

28

Cash (used for) provided by operating activities

(38)

539

Cash flows from investing activities

Purchases of property, plant, and equipment

(257)

(228)

Acquisition of business, net

—

(37)

Proceeds from sales of assets and businesses, net

1

41

Foreign exchange contract settlements, net

—

(6)

Cash used for investing activities

(256)

(230)

Cash flows from financing activities

Proceeds from issuance of debt, net

—

520

Proceeds from revolving loan

150

—

Debt repayments

(6)

(672)

Payments related to extinguishment of debt

—

(29)

Payments of debt issuance costs

—

(12)

Purchases of treasury stock, at cost

(322)

(394)

Proceeds from exercised stock options, net

8

13

Payments related to tax withholdings on vested stock awards

(30)

(6)

Payments of dividends

(83)

(61)

Cash used for financing activities

(283)

(641)

Effect of exchange rate changes on cash and cash equivalents

6

(7)

Decrease in cash and cash equivalents

(571)

(339)

Cash and cash equivalents at January 1,

1,201

1,556

Cash and cash equivalents at June 30,

$

630

$

1,217

Supplemental cash flows information

Non-cash investing and financing activities:

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

$

(25)

$

(1)

Obligations incurred under build-to-suit lease arrangement

30

26

The Chemours Company  

Segment Financial and Operating Data (Unaudited)  

(Dollars in millions)  

Segment Net Sales

Three Months

Three Months Ended

Ended

Sequential

June 30,

Increase /

March 31,

Increase /

2019

2018

(Decrease)

2019

(Decrease)

Fluoroproducts

$

711

$

801

$

(90)

$

687

$

24

Chemical Solutions

130

153

(23)

134

(4)

Titanium Technologies

567

862

(295)

555

12

Total Net Sales

$

1,408

$

1,816

$

$

1,376

$

32

Segment Adjusted EBITDA

Three Months

Three Months Ended

Ended

Sequential

June 30,

Increase /

March 31,

Increase /

2019

2018

(Decrease)

2019

(Decrease)

Fluoroproducts

$

180

$

230

$

$

159

$

21

Chemical Solutions

16

16

0

15

1

Titanium Technologies

127

295

(168)

126

1

Corporate and Other

(44)

4

(38)

(2)

Total Adjusted EBITDA

$

283

$

497

$

$

262

$

21

Adjusted EBITDA Margin

20%

27%

19%

Quarterly Change in Net Sales from June 30, 2018

Percentage

Percentage Change Due To

June 30, 2019

Net Sales

Change vs.

June 30, 2018

Local Price

Volume

Currency Effect

Total Company

$

1,408

(22)

%

(1)

%

(20)

%

(1)

%

Fluoroproducts

$

711

(11)

%

(2)

%

(7)

%

(2)

%

Chemical Solutions

130

(15)

%

4

%

(19)

%

—

%

Titanium Technologies

567

(34)

%

—

%

(33)

%

(1)

%

Quarterly Change in Net Sales from March 31, 2019

Percentage

Percentage Change Due To

June 30, 2019

Net Sales

Change vs.

March 31, 2019

Local Price

Volume

Currency Effect

Total Company

$

1,408

2

%

(1)

%

4

%

(1)

%

Fluoroproducts

$

711

4

%

—

%

5

%

(1)

%

Chemical Solutions

130

(3)

%

(1)

%

(2)

%

—

%

Titanium Technologies

567

2

%

(1)

%

3

%

—

%

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

Six Months Ended

June 30,

March 31,

June 30,

2019

2018

2019

2019

2018

Net income attributable to Chemours

$

96

$

281

$

94

$

189

$

578

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

(3)

(7)

(3)

(6)

(14)

Exchange losses (gains), net

9

(2)

(6)

3

(2)

Restructuring, asset-related, and other charges

7

10

8

15

20

Loss on extinguishment of debt

—

38

—

—

38

Gain on sales of assets and businesses (1)

(2)

(3)

—

(2)

(45)

Transaction costs

1

9

—

1

9

Legal charges (2)

8

10

29

38

14

Adjustments made to income taxes (3)

7

(8)

(5)

1

(13)

Benefit from income taxes relating to reconciling items (4)

(3)

(14)

(8)

(11)

(5)

Adjusted Net Income

120

314

109

228

580

Net income attributable to non-controlling interests

—

1

—

—

1

Interest expense, net

52

48

51

103

100

Depreciation and amortization

78

71

76

154

141

All remaining provision for income taxes

33

63

26

60

143

Adjusted EBITDA

$

283

$

497

$

262

$

545

$

965

(1)

For the six months ended June 30, 2018, gain on sales of assets and businesses included a $42 million gain associated with the sale of the Company's Linden, New Jersey site.

(2)

Includes litigation settlements, PFOA drinking water treatment accruals, and other legal charges. For the three and six months ended June 30, 2019, legal charges included $7 million and $34 million in additional charges for the approved final Consent Order associated with certain matters at the Company's Fayetteville, North Carolina facility.

(3)

Includes the removal of certain discrete income tax impacts within the Company's provision for income taxes, such as the benefit from windfalls on its share-based payments, historical valuation allowance adjustments, unrealized gains and losses on foreign exchange rate changes, and other discrete income tax items.

(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

Six Months Ended

June 30,

March 31,

June 30,

2019

2018

2019

2019

2018

Numerator:

Net income attributable to Chemours

$

96

$

281

$

94

$

189

$

578

Adjusted Net Income

120

314

109

228

580

Denominator:

Weighted-average number of common shares outstanding - basic

164,118,816

177,798,484

167,866,468

165,982,289

179,922,433

Dilutive effect of the Company's employee compensation plans

2,822,810

6,022,757

4,194,432

3,508,621

6,142,986

Weighted-average number of common shares outstanding - diluted

166,941,626

183,821,241

172,060,900

169,490,910

186,065,419

Earnings per share - basic

$

0.58

$

1.58

$

0.56

$

1.14

$

3.21

Earnings per share - diluted

0.57

1.53

0.55

1.12

3.11

Adjusted earnings per share - basic

0.73

1.77

0.65

1.38

3.22

Adjusted earnings per share - diluted

0.72

1.71

0.63

1.35

3.12

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

$

357

$

466

Restructuring, asset-related, and other charges

40

50

Adjusted Net Income

397

516

Interest expense, net

207

212

Depreciation and amortization

309

309

Provision for income taxes

87

113

Adjusted EBITDA

$

1,000

$

1,150

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

164.2

164.2

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

3.5

3.5

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

167.7

167.7

Basic earnings per share of common stock

$

2.17

$

2.84

Diluted earnings per share of common stock (2)

2.13

2.78

Adjusted basic earnings per share of common stock

2.42

3.14

Adjusted diluted earnings per share of common stock (2)

2.37

3.08

(1)

The Company's estimates for the weighted-average number of common shares outstanding - basic and diluted reflect actual results through June 30, 2019 which are carried forward for the projection period and updated for the estimated impacts of the Company's 2019 share repurchases.

(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

Six Months Ended

June 30,

March 31,

June 30,

2019

2018

2019

2019

2018

Cash flow (used for) provided by operating activities

$

7

$

343

$

(44)

$

(38)

$

539

Less: Purchases of property, plant, and
equipment

(124)

(126)

(133)

(257)

(228)

Free Cash Flows

$

(117)

$

217

$

(177)

$

(295)

$

311

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

$

~ 600

Less: Purchases of property, plant, and equipment

~ (500)

Free Cash Flows

$

~ 100

(*)  

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 June 30,

2019

2018

Adjusted EBITDA (1)

$

1,321

$

1,740

Less: Depreciation and amortization (1)

(296)

(273)

Adjusted EBIT

1,025

1,467

Total debt

4,208

3,973

Total equity

829

1,025

Less: Cash and cash equivalents

(630)

(1,217)

Invested capital, net

$

4,407

$

3,781

Average invested capital (2)

$

3,989

$

3,481

Return on Invested Capital

25.7

%

42.1

%

(1)

Based on amounts for the trailing 12 months ended June 30, 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 and six months ended June 30, 2019 and 2018.

(2)

Average invested capital is based on a five-quarter trailing average of invested capital, net.