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Nov. 5, 2019, 5:16 p.m. EST

10-Q: CHEMOURS CO

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(EDGAR Online via COMTEX) -- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") supplements the unaudited Interim Consolidated Financial Statements and the related notes thereto included elsewhere herein to help provide an understanding of our financial condition, changes in our financial condition, and the results of our operations for the periods presented. Unless the context otherwise requires, references herein to "The Chemours Company," "Chemours," "the Company," "our Company," "we," "us," and "our" refer to The Chemours Company and its consolidated subsidiaries. References herein to "DuPont" refer to E. I. du Pont de Nemours and Company, a Delaware corporation.

This MD&A should be read in conjunction with the unaudited Interim Consolidated Financial Statements and the related notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, as well as our audited Consolidated Financial Statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018.

This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, within the meaning of the federal securities laws, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. The words "believe," "expect," "anticipate," "plan," "estimate," "target," "project," and similar expressions, among others, generally identify "forward-looking statements," which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those set forth in the forward-looking statements.

Our forward-looking statements are based on certain assumptions and expectations of future events that may not be accurate or realized. These statements, as well as our historical performance, are not guarantees of future performance. Forward-looking statements also involve risks and uncertainties that are beyond our control. Additionally, there may be other risks and uncertainties that we are unable to identify at this time or that we do not currently expect to have a material impact on our business. Factors that could cause or contribute to these differences include, but are not limited to, the risks, uncertainties, and other factors discussed in the Forward-looking Statements and the Risk Factors sections in our Annual Report on Form 10-K for the year ended December 31, 2018, and otherwise as discussed in this report and our Annual Report on Form 10-K. We assume no obligation to revise or update any forward-looking statement for any reason, except as required by law.

Overview

We are a leading, global provider of performance chemicals that are key inputs in end-products and processes in a variety of industries. We deliver customized solutions with a wide range of industrial and specialty chemicals products for markets, including plastics and coatings, refrigeration and air conditioning, general industrial, electronics, mining, and oil refining. Our principal products include refrigerants, industrial fluoropolymer resins, sodium cyanide, performance chemicals and intermediates, and titanium dioxide ("TiO2") pigment. We manage and report our operating results through three reportable segments:

We are committed to creating value for our customers and stakeholders through the reliable delivery of high-quality products and services around the world. To achieve this goal, we have a global team dedicated to upholding our five core values: (i) customer centricity - driving customer growth, and our own, by understanding our customers' needs and building long-lasting relationships with them; (ii) refreshing simplicity - cutting complexity by investing in what matters, and getting results faster; (iii) collective entrepreneurship - empowering our employees to act like they own our business, while embracing the power of inclusion and teamwork; (iv) safety obsession - living our steadfast belief that a safe workplace is a profitable workplace; and, (v) unshakable integrity - doing what's right for our customers, colleagues, and communities - always.

Additionally, our Corporate Responsibility commitment focuses on three key principles - inspired people, a shared planet, and an evolved portfolio - in an effort to achieve, among other goals, increased diversity and inclusion in our global workforce, increased sustainability of our products, and becoming carbon positive. We call this responsible chemistry - it is rooted in who we are, and we expect that our Corporate Responsibility commitment will drive sustainable, long-term earnings growth.

The Chemours Company

Recent Developments

Accounts Receivable Securitization Facility

In July 2019, we, through a wholly-owned special purpose entity, entered into an accounts receivable securitization facility ("Securitization Facility") to enhance our liquidity. The net borrowings under the Securitization Facility since July 2019 amounted to $122 million, which remained outstanding as of September 30, 2019. The proceeds were used to pay down our outstanding revolving loan balance.

2019 Restructuring Program

In an effort to better align our cost structure with market opportunities we recorded severance charges of $17 million during the three months ended September 30, 2019. This charge includes $2 million related to our exit of the Methylamines and Methylamides business as discussed below. Impacted employees are subject to our customary involuntary termination benefits. The majority of the employees will separate from the Company during the fourth quarter of 2019.

Also in the third quarter of 2019, we announced plans to exit the Methylamines and Methylamides business at our Belle, West Virginia manufacturing plant. As a result, for the three and nine months ended September 30, 2019 we recorded charges of approximately $10 million for property, plant, and equipment and $2 million for other asset impairment charges. As of September 30, 2019, we incurred, in the aggregate, $14 million in restructuring charges related to these activities, including asset-related charges. We expect to incur additional charges of $22 million for property, plant, and equipment and other assets through the remainder of 2019, and additional restructuring charges, including decommissioning and dismantling, of approximately $11 million through 2020, all of which relates to Chemical Solutions.







        Results of Operations and Business Highlights
        Results of Operations
        The following table sets forth our results of operations for the three and nine
        months ended September 30, 2019 and 2018.
                                               Three Months Ended September 30,               Nine Months Ended September 30,
        (Dollars in millions, except per
        share amounts)                           2019                     2018                 2019                     2018
        Net sales                          $          1,390         $          1,628     $          4,173         $          5,174
        Cost of goods sold                            1,096                    1,151                3,260                    3,603
        Gross profit                                    294                      477                  913                    1,571
        Selling, general, and
        administrative expense                          130                      163                  423                      466
        Research and development expense                 20                       20                   61                       61
        Restructuring, asset-related,
        and other charges                                34                       12                   49                       32
        Total other operating expenses                  184                      195                  533                      559
        Equity in earnings of affiliates                  9                       10                   25                       32
        Interest expense, net                           (53 )                    (47 )               (156 )                   (148 )
        Loss on extinguishment of debt                    -                        -                    -                      (38 )
        Other income, net                                25                       24                   81                      115
        Income before income taxes                       91                      269                  330                      973
        Provision for (benefit from)
        income taxes                                     15                       (6 )                 65                      119
        Net income                                       76                      275                  265                      854
        Less: Net income attributable to
        non-controlling interests                         -                        -                    -                        1
        Net income attributable to
        Chemours                           $             76         $            275     $            265         $            853
        Per share data
        Basic earnings per share of
        common stock                       $           0.46         $           1.56     $           1.60         $           4.77
        Diluted earnings per share of
        common stock                                   0.46                     1.51                 1.58                     4.62
        








                                      The Chemours Company
        Net Sales
        The following table sets forth the impact of price, volume, and currency on our
        net sales for the three and nine months ended September 30, 2019, compared with
        the same periods in 2018.
                                                          Three Months Ended        Nine Months Ended
        Change in net sales from prior period             September 30, 2019        September 30, 2019
        Price                                                              (3 )%                     (1 )%
        Volume                                                            (11 )%                    (17 )%
        Currency                                                           (1 )%                     (1 )%
        Total change in net sales                                         (15 )%                    (19 )%
        


Our net sales decreased by $238 million (or 15%) to $1.4 billion for the three months ended September 30, 2019, compared with net sales of $1.6 billion for the same period in 2018. The components of the decrease in our net sales by segment for the three months ended September 30, 2019 were as follows: in our Fluoroproducts segment, volume was down 2%, price declined 4%, and unfavorable currency movements added a 1% headwind to segment net sales; in our Chemical Solutions segment, volume was up 1% and price declined 11%; and, in our Titanium Technologies segment, volume and price were down 20% and 2%, respectively.

Our net sales decreased by $1.0 billion (or 19%) to $4.2 billion for the nine months ended September 30, 2019, compared with net sales of $5.2 billion for the same period in 2018. The components of the decrease in our net sales by segment for the nine months ended September 30, 2019 were as follows: in our Fluoroproducts segment, volume was down 5%, price declined 2%, and unfavorable currency movements added a 1% headwind to segment net sales; in our Chemical Solutions segment, volume and price decline by 8% and 3%, respectively; and, in our Titanium Technologies segment, volume was down 30%, while unfavorable currency movements added a 1% headwind to segment net sales.

The drivers of these changes for each of our segments are discussed further under the heading "Segment Reviews," which follows our "Results of Operations and Business Highlights" in this MD&A.

Cost of Goods Sold

Our cost of goods sold ("COGS") decreased by $55 million (or 5%) and $343 million (or 10%) to $1.1 billion and $3.3 billion for the three and nine months ended September 30, 2019, respectively, compared with COGS of $1.2 billion and $3.6 billion for the same periods in 2018. The decreases in our COGS for the three and nine months ended September 30, 2019 were primarily attributable to lower net sales volumes, which were partially offset by the impacts of operational headwinds.

Selling, General, and Administrative Expense

Our selling, general, and administrative ("SG&A") expense decreased by $33 million (or 20%) to $130 million for the three months ended September 30, 2019, compared with SG&A expense of $163 million for the same period in 2018. The decrease in our SG&A expense for the three months ended September 30, 2019 was primarily attributable to lower costs for certain legal matters.

Our SG&A expense decreased by $43 million (or 9%) to $423 million for the nine months ended September 30, 2019, compared with SG&A expense of $466 million for the same period in 2018. The decrease in our SG&A expense for the nine months ended September 30, 2019 was primarily attributable to lower performance-related compensation and costs incurred for our 2018 debt transactions that were not repeated in 2019, and lower costs for certain legal matters. These decreases were partially offset by increased legal costs accrued during the first quarter of 2019 in connection with the approved final Consent Order to settle certain litigation and other matters at our Fayetteville, North Carolina facility.

Research and Development Expense

Our research and development expense was unchanged at $20 million and $61 million, and $20 million and $61 million for the three and nine months ended September 30, 2019 and 2018, respectively.

Restructuring, Asset-Related, and Other Charges

Our restructuring, asset-related, and other charges increased by $22 million (or greater than 100%) and $17 million (or 53%) to $34 million and $49 million for the three and nine months ended September 30, 2019, respectively, compared with restructuring, asset-related, and other charges of $12 million and $32 million for the same periods in 2018.

The Chemours Company

Our restructuring, asset-related, and other charges for the three months ended September 30, 2019 were primarily composed of charges related to our 2019 Restructuring Program, including our plans to exit the Methylamines and Methylamides business at the Belle, WV manufacturing plant, both announced in the third quarter of 2019.

Our restructuring, asset-related, and other charges for the nine months ended September 30, 2019 primarily consisted of the aforementioned three months ended September 30, 2019 charges plus continuing decommissioning and dismantling-related charges associated with the demolition and removal of certain unused buildings at our Chambers Works site in Deepwater, NJ and the Reactive Metals Solutions business in Niagara Falls, NY.

Our restructuring, asset-related, and other charges for the three and nine months ended September 30, 2018 were primarily attributable to continued progress on our business process and information technology outsourcing efforts, as well as additional severance accruals under our 2017 restructuring program.

Equity in Earnings of Affiliates

Our equity in earnings of affiliates decreased by $1 million (or 10%) and $7 million (or 22%) to $9 million and $25 million for the three and nine months ended September 30, 2019, respectively, compared with equity in earnings of affiliates of $10 million and $32 million for the same periods in 2018.

The decrease in our equity in earnings of affiliates for the three months ended September 30, 2019 was primarily attributable to global automotive market softness for our investees in the Fluoroproducts segment.

The decrease in our equity in earnings of affiliates for the nine months ended September 30, 2019 was primarily attributable to global semiconductor and automotive market softness for our investees in the Fluoroproducts segment.

Interest Expense, Net

Our interest expense, net increased by $6 million (or 13%) and $8 million (or 5%) to $53 million and $156 million for the three and nine months ended September 30, 2019, respectively, compared with interest expense, net of $47 million and $148 million for the same periods in 2018.

The increase in our interest expense, net for the three months ended September 30, 2019 was primarily attributable to lower amounts of interest income and capitalized interest due to lower cash and cash equivalents balances and the completion or stoppage of certain of our large-scale construction projects, respectively.

The increase in our interest expense, net for the nine months ended September 30, 2019 was primarily attributable to lower amounts of interest income and capitalized interest due to the aforementioned reasons, which more than offset the impact of any reduced interest costs resulting from our 2018 debt transactions.

Loss on Extinguishment of Debt

We incurred a loss on extinguishment of debt of $38 million for the nine months ended September 30, 2018 in connection with our 2018 debt transactions.

Other Income, Net

Our other income, net increased by $1 million (or 4%) and decreased $34 million (or 30%) to $25 million and $81 million for the three and nine months ended September 30, 2019, respectively, compared with other income, net of $24 million and $115 million for the same periods in 2018.

The increase in our other income, net for the three months ended September 30, 2019 was primarily attributable to recognition of the previously deferred non-cash gain of $9 million, associated with the sale of the Repauno site in Gibbstown, NJ. The gain had been deferred until certain environmental obligations had been fulfilled. This was offset by lower European Union ("EU") fluorinated greenhouse gas ("F-gas") quota authorization sales.

The decrease in our other income, net for the nine months ended September 30, 2019 was primarily attributable to a $42 million gain on our sale of land in Linden, New Jersey during the first quarter of 2018, which was not repeated in 2019. This decrease was partially offset by the recognition of the previously deferred non-cash gain of $9 million, associated with the sale of the Repauno site in Gibbstown, NJ.

The Chemours Company

Provision for Income Taxes

Our provisions for income taxes were $15 million and $65 million for the three and nine months ended September 30, 2019, which represented effective tax rates of 16% and 20%, respectively, compared with benefit from and provision for income taxes of $6 million and $119 million for the same periods in 2018, which represented effective tax rates of approximately negative 2% and 12%, respectively. The change in the Company's effective tax rate for the three months ended September 30, 2019 was primarily attributable to $5 million of additional income tax expense on the revaluation of certain deferred tax assets and liabilities as result of the increased corporate tax rate for a certain foreign subsidiary, $3 million of lower income tax benefits related to windfalls on its share-based payments, reduced profitability and the geographic mix of its earnings. The change in the Company's effective tax rate for the three months ended September 30, 2018 was primarily attributable to $17 million in income tax benefits related to the reversal of the valuation allowance on carryforward foreign tax credits, $14 million in income tax benefits related to the filing of the Company's 2017 U.S. tax return and the associated adjustments on the revaluation of certain deferred tax assets and liabilities as a result of the reduced corporate tax rate, and the Company's geographic mix of earnings.

The change in the Company's effective tax rate for the nine months ended September 30, 2019 were primarily attributable to $5 million of additional income tax expense on the revaluation of certain deferred tax assets and liabilities as result of the increased corporate tax rate for a certain foreign subsidiary, $8 million of additional income tax expense associated with the recognition of a valuation allowance on the deferred tax assets of a certain foreign subsidiary, $8 million of lower income tax benefits related to windfalls on its share-based payments, reduced profitability and the geographic mix of its earnings. The change in the Company's effective tax rate for the nine months ended September 30, 2018 was primarily attributable to $17 million in income tax benefits related to the reversal of the valuation allowance on carryforward foreign tax credits, $14 million in income tax benefits related to the filing of the Company's 2017 U.S. tax return and the associated adjustments on the revaluation of certain deferred tax assets and liabilities as a result of the reduced corporate tax rate, and the Company's geographic mix of earnings.

Segment Reviews

Adjusted earnings before interest, taxes, depreciation, and amortization ("Adjusted EBITDA") is the primary measure of segment performance used by our Chief Operating Decision Maker ("CODM") and is defined as income (loss) before income taxes, excluding the following:

interest expense, depreciation, and amortization;

non-operating pension and other post-retirement employee benefit costs, which represents the component 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 sales of assets and businesses; and,

other items not considered indicative of our ongoing operational performance and expected to occur infrequently.

A reconciliation of Adjusted EBITDA to net income attributable to Chemours for the three and nine months ended September 30, 2019 and 2018 is included in the "Non-GAAP Financial Measures" section of this MD&A.

The following table sets forth our Adjusted EBITDA by segment for the three and nine months ended September 30, 2019 and 2018.







                                               Three Months Ended September 30,              Nine Months Ended September 30,
        (Dollars in millions)                   2019                      2018                2019                    2018
        Fluoroproducts                     $           122           $           182     $          461         $            619
        Chemical Solutions                              23                        24                 55                       50
        Titanium Technologies                          137                       268                390                      856
        Corporate and Other                            (34 )                     (39 )             (113 )                   (126 )
        Total Adjusted EBITDA              $           248           $           435     $          793         $          1,399
        


The Chemours Company

Fluoroproducts

The following chart sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Fluoroproducts segment for the three and nine months ended September 30, 2019 and 2018.

[[Image Removed]]







                                               Three Months Ended September 30,               Nine Months Ended September 30,
        (Dollars in millions)                   2019                      2018                 2019                     2018
        Segment net sales                  $           636           $           682     $          2,034         $          2,213
        Adjusted EBITDA                                122                       182                  461                      619
        Adjusted EBITDA margin                          19 %                      27 %                 23 %                     28 %
        


The following table sets forth the impacts of price, volume, and currency on our Fluoroproducts segment's net sales for the three and nine months ended September 30, 2019, compared with the same periods in 2018.







                                                          Three Months Ended        Nine Months Ended
        Change in segment net sales from prior period     September 30, 2019        September 30, 2019
        Price                                                              (4 )%                     (2 )%
        Volume                                                             (2 )%                     (5 )%
        Currency                                                           (1 )%                     (1 )%
        Total change in segment net sales                                  (7 )%                     (8 )%
        


The Chemours Company

Segment Net Sales

Our Fluoroproducts segment's net sales decreased by $46 million (or 7%) to $636 million for the three months ended September 30, 2019, compared with segment net sales of $682 million for the same period in 2018. The decrease in segment net sales for the three months ended September 30, 2019 was driven by decreases in price and volumes of 4% and 2%, respectively. Illegal imports of legacy hydrofluorocarbon ("HFC") refrigerants into the EU in violation of the region's F-gas regulations, impacted both volume and price during the quarter; and, volumes also declined due to lower demand for our legacy base refrigerants and polymers due to softness in the global automotive and electronics markets. These decreases were partially offset by volume increases from the continued adoption of OpteonTM products in mobile applications and the positive impact of high-grade Fluoropolymer sales. Unfavorable currency movements added a 1% headwind to the segment's net sales during the quarter.

Our Fluoroproducts segment's net sales decreased by $179 million (or 8%) to $2.0 billion for the nine months ended September 30, 2019, compared with segment net sales of $2.2 billion for the same period in 2018. The decrease in segment net sales for the nine months ended September 30, 2019 was primarily attributable to decreases in price and volume of 2% and 5%, respectively. Illegal imports of legacy hydrofluorocarbon ("HFC") refrigerants into the EU in violation of the region's F-gas regulations impacted both volume and price during the quarter; and, volumes also declined due to lower demand for our legacy base refrigerants and polymers due to softness in the global automotive and electronics markets. These decreases were partially offset by volume increases from the . . .

Nov 05, 2019

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