UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
OR
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-36794
The Chemours Company
(Exact Name of Registrant as Specified in Its Charter)
|
Delaware |
46-4845564 |
|
(State or other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
1007 Market Street, Wilmington, Delaware 19899
(Address of Principal Executive Offices)
(302) 773-1000
(Registrant’s Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large Accelerated Filer ☒ |
Accelerated Filer ☐ |
|
Non-Accelerated Filer ☐ |
Smaller reporting company ☐ |
|
|
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The Registrant had 185,163,064 shares of common stock, $0.01 par value, outstanding at October 31, 2017.
Table of Contents
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Page |
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Part I |
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Item 1. |
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2 |
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Interim Consolidated Statements of Comprehensive Income (Unaudited) |
3 |
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|
4 |
|
|
|
Interim Consolidated Statements of Stockholders’ Equity (Unaudited) |
5 |
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|
6 |
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|
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Notes to the Interim Consolidated Financial Statements (Unaudited) |
7 |
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
34 |
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Item 3. |
48 |
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Item 4. |
49 |
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Part II |
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Item 1. |
49 |
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Item 1A. |
50 |
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Item 2. |
53 |
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Item 3. |
53 |
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Item 4. |
53 |
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Item 5. |
53 |
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Item 6. |
53 |
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54 |
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55 |
1
|
Item 1. |
INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
The Chemours Company
Interim Consolidated Statements of Operations (Unaudited)
(Dollars in millions, except per share amounts)
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
||||
|
Net sales |
|
$ |
1,584 |
|
|
$ |
1,398 |
|
|
$ |
4,608 |
|
|
$ |
4,078 |
|
|
Cost of goods sold |
|
|
1,117 |
|
|
|
1,056 |
|
|
|
3,341 |
|
|
|
3,267 |
|
|
Gross profit |
|
|
467 |
|
|
|
342 |
|
|
|
1,267 |
|
|
|
811 |
|
|
Selling, general and administrative expense |
|
|
148 |
|
|
|
148 |
|
|
|
444 |
|
|
|
454 |
|
|
Research and development expense |
|
|
20 |
|
|
|
19 |
|
|
|
61 |
|
|
|
60 |
|
|
Restructuring and asset-related charges, net |
|
|
8 |
|
|
|
60 |
|
|
|
31 |
|
|
|
145 |
|
|
Total expenses |
|
|
176 |
|
|
|
227 |
|
|
|
536 |
|
|
|
659 |
|
|
Equity in earnings of affiliates |
|
|
9 |
|
|
|
9 |
|
|
|
26 |
|
|
|
17 |
|
|
Interest expense, net |
|
|
(55 |
) |
|
|
(51 |
) |
|
|
(161 |
) |
|
|
(157 |
) |
|
Other income, net |
|
|
5 |
|
|
|
161 |
|
|
|
53 |
|
|
|
250 |
|
|
Income before income taxes |
|
|
250 |
|
|
|
234 |
|
|
|
649 |
|
|
|
262 |
|
|
Provision for income taxes |
|
|
43 |
|
|
|
30 |
|
|
|
130 |
|
|
|
25 |
|
|
Net income |
|
|
207 |
|
|
|
204 |
|
|
|
519 |
|
|
|
237 |
|
|
Less: Net income attributable to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
Net income attributable to Chemours |
|
$ |
207 |
|
|
$ |
204 |
|
|
$ |
518 |
|
|
$ |
237 |
|
|
Per share data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock |
|
$ |
1.12 |
|
|
$ |
1.12 |
|
|
$ |
2.81 |
|
|
$ |
1.31 |
|
|
Diluted earnings per share of common stock |
|
$ |
1.08 |
|
|
$ |
1.11 |
|
|
$ |
2.72 |
|
|
$ |
1.30 |
|
|
Dividends per share of common stock |
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.09 |
|
|
$ |
0.09 |
|
See accompanying notes to the interim consolidated financial statements.
2
Interim Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in millions)
|
|
|
Three Months Ended September 30, |
|
|||||||||||||||||||||
|
|
|
2017 |
|
|
2016 |
|
||||||||||||||||||
|
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
||||||
|
Net income |
|
$ |
250 |
|
|
$ |
(43 |
) |
|
$ |
207 |
|
|
$ |
234 |
|
|
$ |
(30 |
) |
|
$ |
204 |
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on net investment hedge |
|
|
(26 |
) |
|
|
10 |
|
|
|
(16 |
) |
|
|
(6 |
) |
|
|
— |
|
|
|
(6 |
) |
|
Cumulative translation adjustments |
|
|
35 |
|
|
|
— |
|
|
|
35 |
|
|
|
10 |
|
|
|
— |
|
|
|
10 |
|
|
Defined benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain |
|
|
5 |
|
|
|
— |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Effect of foreign exchange rates |
|
|
(9 |
) |
|
|
2 |
|
|
|
(7 |
) |
|
|
(3 |
) |
|
|
1 |
|
|
|
(2 |
) |
|
Reclassifications to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service gain |
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Amortization of actuarial loss |
|
|
5 |
|
|
|
(1 |
) |
|
|
4 |
|
|
|
6 |
|
|
|
(2 |
) |
|
|
4 |
|
|
Settlement loss |
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Defined benefit plans, net |
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
3 |
|
|
|
(1 |
) |
|
|
2 |
|
|
Other comprehensive income |
|
|
10 |
|
|
|
11 |
|
|
|
21 |
|
|
|
7 |
|
|
|
(1 |
) |
|
|
6 |
|
|
Comprehensive income |
|
|
260 |
|
|
|
(32 |
) |
|
|
228 |
|
|
|
241 |
|
|
|
(31 |
) |
|
|
210 |
|
|
Less: Comprehensive income attributable to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Comprehensive income attributable to Chemours |
|
$ |
260 |
|
|
$ |
(32 |
) |
|
$ |
228 |
|
|
$ |
241 |
|
|
$ |
(31 |
) |
|
$ |
210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||
|
|
|
2017 |
|
|
2016 |
|
||||||||||||||||||
|
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
||||||
|
Net income |
|
$ |
649 |
|
|
$ |
(130 |
) |
|
$ |
519 |
|
|
$ |
262 |
|
|
$ |
(25 |
) |
|
$ |
237 |
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on net investment hedge |
|
|
(76 |
) |
|
|
20 |
|
|
|
(56 |
) |
|
|
(9 |
) |
|
|
— |
|
|
|
(9 |
) |
|
Cumulative translation adjustments |
|
|
224 |
|
|
|
— |
|
|
|
224 |
|
|
|
20 |
|
|
|
— |
|
|
|
20 |
|
|
Defined benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) |
|
|
5 |
|
|
|
— |
|
|
|
5 |
|
|
|
(7 |
) |
|
1 |
|
|
|
(6 |
) |
|
|
Effect of foreign exchange rates |
|
|
(36 |
) |
|
|
8 |
|
|
|
(28 |
) |
|
|
(5 |
) |
|
|
2 |
|
|
|
(3 |
) |
|
Reclassifications to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service gain |
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
|
Amortization of actuarial loss |
|
|
15 |
|
|
|
(3 |
) |
|
|
12 |
|
|
|
18 |
|
|
|
(5 |
) |
|
|
13 |
|
|
Settlement loss |
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
|
(2 |
) |
|
|
1 |
|
|
|
(1 |
) |
|
Defined benefit plans, net |
|
|
(16 |
) |
|
|
5 |
|
|
|
(11 |
) |
|
|
3 |
|
|
|
(1 |
) |
|
|
2 |
|
|
Other comprehensive income |
|
|
132 |
|
|
|
25 |
|
|
|
157 |
|
|
|
14 |
|
|
|
(1 |
) |
|
|
13 |
|
|
Comprehensive income |
|
|
781 |
|
|
|
(105 |
) |
|
|
676 |
|
|
|
276 |
|
|
|
(26 |
) |
|
|
250 |
|
|
Less: Comprehensive income attributable to non-controlling interests |
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Comprehensive income attributable to Chemours |
|
$ |
780 |
|
|
$ |
(105 |
) |
|
$ |
675 |
|
|
$ |
276 |
|
|
$ |
(26 |
) |
|
$ |
250 |
|
See accompanying notes to the interim consolidated financial statements.
3
Interim Consolidated Balance Sheets
(Dollars in millions, except per share amounts)
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
2017 |
|
|
2016 |
|
||
|
Assets |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,535 |
|
|
$ |
902 |
|
|
Accounts and notes receivable - trade, net |
|
|
942 |
|
|
|
807 |
|
|
Inventories |
|
|
877 |
|
|
|
767 |
|
|
Prepaid expenses and other |
|
|
79 |
|
|
|
77 |
|
|
Total current assets |
|
|
3,433 |
|
|
|
2,553 |
|
|
Property, plant and equipment |
|
|
8,412 |
|
|
|
7,997 |
|
|
Less: Accumulated depreciation |
|
|
(5,462 |
) |
|
|
(5,213 |
) |
|
Property, plant and equipment, net |
|
|
2,950 |
|
|
|
2,784 |
|
|
Goodwill and other intangible assets, net |
|
|
167 |
|
|
|
170 |
|
|
Investments in affiliates |
|
|
166 |
|
|
|
136 |
|
|
Other assets |
|
|
404 |
|
|
|
417 |
|
|
Total assets |
|
$ |
7,120 |
|
|
$ |
6,060 |
|
|
Liabilities and equity |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,010 |
|
|
$ |
884 |
|
|
Current maturities of long-term debt |
|
|
14 |
|
|
|
15 |
|
|
Other accrued liabilities |
|
|
546 |
|
|
|
872 |
|
|
Total current liabilities |
|
|
1,570 |
|
|
|
1,771 |
|
|
Long-term debt, net |
|
|
4,081 |
|
|
|
3,529 |
|
|
Deferred income taxes |
|
|
175 |
|
|
|
132 |
|
|
Other liabilities |
|
|
489 |
|
|
|
524 |
|
|
Total liabilities |
|
|
6,315 |
|
|
|
5,956 |
|
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
Common stock (par value $0.01 per share; 810,000,000 shares authorized; 185,092,058 and 182,600,533 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively) |
|
|
2 |
|
|
|
2 |
|
|
Additional paid-in capital |
|
|
830 |
|
|
|
789 |
|
|
Retained earnings (accumulated deficit) |
|
|
388 |
|
|
|
(114 |
) |
|
Accumulated other comprehensive loss |
|
|
(420 |
) |
|
|
(577 |
) |
|
Total Chemours stockholders’ equity |
|
|
800 |
|
|
|
100 |
|
|
Non-controlling interests |
|
|
5 |
|
|
|
4 |
|
|
Total equity |
|
|
805 |
|
|
|
104 |
|
|
Total liabilities and equity |
|
$ |
7,120 |
|
|
$ |
6,060 |
|
See accompanying notes to the interim consolidated financial statements.
4
Interim Consolidated Statements of Stockholders’ Equity (Unaudited)
(Dollars in millions)
|
|
|
Common Stock |
|
|
Additional Paid-In |
|
|
(Accumulated Deficit) Retained |
|
|
Accumulated Other Comprehensive |
|
|
Non-controlling |
|
|
|
|
|
|||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
(Loss) Income |
|
|
Interests |
|
|
Total |
|
|||||||
|
Balance at January 1, 2016 |
|
|
181,069,751 |
|
|
$ |
2 |
|
|
$ |
775 |
|
|
$ |
(115 |
) |
|
$ |
(536 |
) |
|
$ |
4 |
|
|
$ |
130 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
237 |
|
|
|
— |
|
|
|
— |
|
|
|
237 |
|
|
Common stock issued - compensation plans |
|
|
650,971 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Dividends |
|
|
— |
|
|
|
— |
|
|
|
(11 |
) |
|
|
(5 |
) |
|
|
— |
|
|
|
— |
|
|
|
(16 |
) |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13 |
|
|
|
— |
|
|
|
13 |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
Balance at September 30, 2016 |
|
|
181,720,722 |
|
|
$ |
2 |
|
|
$ |
781 |
|
|
$ |
117 |
|
|
$ |
(523 |
) |
|
$ |
4 |
|
|
$ |
381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2017 |
|
|
182,600,533 |
|
|
$ |
2 |
|
|
$ |
789 |
|
|
$ |
(114 |
) |
|
$ |
(577 |
) |
|
$ |
4 |
|
|
$ |
104 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
518 |
|
|
|
— |
|
|
|
1 |
|
|
|
519 |
|
|
Common stock issued - compensation plans |
|
|
504,098 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16 |
) |
|
|
— |
|
|
|
— |
|
|
|
(16 |
) |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
157 |
|
|
|
— |
|
|
|
157 |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
Cancellation of unissued stock awards withheld to cover taxes |
|
|
— |
|
|
|
— |
|
|
|
(10 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10 |
) |
|
Exercise of stock options, net |
|
|
1,987,427 |
|
|
|
— |
|
|
|
30 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30 |
|
|
Balance at September 30, 2017 |
|
|
185,092,058 |
|
|
$ |
2 |
|
|
$ |
830 |
|
|
$ |
388 |
|
|
$ |
(420 |
) |
|
$ |
5 |
|
|
$ |
805 |
|
See accompanying notes to the interim consolidated financial statements.
5
Interim Consolidated Statements of Cash Flows (Unaudited)
(Dollars in millions)
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Operating activities |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
519 |
|
|
$ |
237 |
|
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
204 |
|
|
|
212 |
|
|
Amortization of deferred financing costs and issuance discount |
|
|
10 |
|
|
|
15 |
|
|
Gain on sale of assets and businesses |
|
|
(14 |
) |
|
|
(258 |
) |
|
Equity in earnings of affiliates |
|
|
(26 |
) |
|
|
(17 |
) |
|
Deferred tax provision (benefit) |
|
|
53 |
|
|
|
(29 |
) |
|
Asset-related charges |
|
|
3 |
|
|
|
109 |
|
|
Other operating charges and credits, net |
|
|
26 |
|
|
|
33 |
|
|
(Increase) decrease in operating assets: |
|
|
|
|
|
|
|
|
|
Accounts and notes receivable - trade, net |
|
|
(110 |
) |
|
|
(63 |
) |
|
Inventories and other operating assets |
|
|
(91 |
) |
|
|
113 |
|
|
(Decrease) increase in operating liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable and other operating liabilities |
|
|
(238 |
) |
|
|
(28 |
) |
|
Cash provided by operating activities |
|
|
336 |
|
|
|
324 |
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(246 |
) |
|
|
(235 |
) |
|
Proceeds from sales of assets and businesses, net |
|
|
39 |
|
|
|
707 |
|
|
Foreign exchange contract settlements, net |
|
|
5 |
|
|
|
(1 |
) |
|
Investment in affiliates |
|
|
— |
|
|
|
(2 |
) |
|
Cash (used for) provided by investing activities |
|
|
(202 |
) |
|
|
469 |
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt, net |
|
|
494 |
|
|
|
— |
|
|
Debt repayments |
|
|
(24 |
) |
|
|
(212 |
) |
|
Dividends paid |
|
|
(16 |
) |
|
|
(16 |
) |
|
Deferred financing fees |
|
|
(6 |
) |
|
|
(2 |
) |
|
Tax payments related to withholdings on vested restricted stock units |
|
|
(10 |
) |
|
|
— |
|
|
Proceeds from exercised stock options, net |
|
|
30 |
|
|
|
— |
|
|
Cash provided by (used for) financing activities |
|
|
468 |
|
|
|
(230 |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
31 |
|
|
|
28 |
|
|
Increase in cash and cash equivalents |
|
|
633 |
|
|
|
591 |
|
|
Cash and cash equivalents at beginning of the period |
|
|
902 |
|
|
|
366 |
|
|
Cash and cash equivalents at end of the period |
|
$ |
1,535 |
|
|
$ |
957 |
|
|
Non-cash investing activities |
|
|
|
|
|
|
|
|
|
Change in property, plant and equipment included in accounts payable |
|
$ |
(16 |
) |
|
$ |
9 |
|
See accompanying notes to the interim consolidated financial statements.
6
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
The accompanying interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America (U.S.) for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. Results for interim periods should not be considered indicative of results for a full year and the year-end consolidated balance sheet does not include all disclosures required by U.S. GAAP. As such, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
Certain prior period amounts have been reclassified to conform to the current period presentation, the effect of which was not material to the interim consolidated financial statements.
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, and its consolidated subsidiaries, unless the context otherwise requires.
Note 2. Recent Accounting Pronouncements
Accounting Guidance Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The objective of this standard is to remove inconsistent practices with regard to revenue recognition between U.S. GAAP and International Financial Reporting Standards. The standard intends to improve the comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. Subsequent to the issuance of ASU No. 2014-09, the FASB issued multiple clarifying updates in connection with Topic 606. The provisions of ASU No. 2014-09 and its related updates will be effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted for annual periods beginning after December 15, 2016. The Company will adopt the standard on January 1, 2018 under the modified retrospective transition method.
The Company’s project plan includes a three-phase approach to implementing the standard update. Phase one, the assessment phase, was completed in the first quarter of 2017. In this initial phase, the Company (a) conducted internal surveys of its businesses, (b) held revenue recognition workshops with sales and business unit finance leadership and (c) reviewed a representative sample of revenue arrangements across all businesses to initially identify a set of applicable qualitative revenue recognition changes related to the standard. The Company has also completed phase two of the project, which included (a) establishing and documenting key accounting positions, (b) assessing new disclosure requirements, business process and control impacts and (c) beginning to determine the initial quantitative impacts resulting from the standard. Phase three will include (a) finalizing any changes to accounting policies, (b) preparing new disclosures, (c) implementing new business processes and controls as needed and (d) quantifying the effect of adoption on opening retained earnings.
Based on the analysis conducted to date, the Company believes that the adoption of the standard will not have a material impact on its consolidated financial statements. Substantially all of the Company’s revenue consists of sales of products that represent a single performance obligation where control transfers at the point in time title and risk of loss pass to the customer. The Company continues to evaluate the impact of the standard update on its consolidated financial statements and related disclosures and additional differences may be identified as new or amended contracts with customers that will impact future periods are executed. The Company expects that disclosure in the notes to the consolidated financial statements related to revenue recognition will be expanded in line with the requirements of the standard to further describe the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which supersedes the leases requirements in Topic 840. The core principle of Topic 842 is that a lessee should recognize on the balance sheet the lease assets and lease liabilities that arise from all lease arrangements with terms greater than 12 months. Recognition of these lease assets and lease liabilities represents an improvement over previous U.S. GAAP, which did not require lease assets and lease liabilities to be recognized for operating leases. Qualitative disclosures along with specific quantitative disclosures will be required to provide enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities.
7
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply. The amendments in this update are effective for the Company’s fiscal year beginning January 1, 2019, including interim periods within that fiscal year. Early application of the amendments in this update is permitted for all entities. At adoption, the Company will recognize a right-of-use asset and a lease liability initially measured at the present value of its operating lease payments. The Company is currently evaluating the other impacts of adopting this guidance on its financial position, results of operations and cash flows.
In August 2016, the FASB issued various updates to ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”, which clarifies and amends the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied using a retrospective transition method (unless impractical to do so) for each period presented and earlier application is permitted. Chemours does not expect that the adoption will have a significant impact on its cash flows.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715)”, which requires that employers offering their employees defined benefit pension plans disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. The guidance is effective for public business entities for annual periods beginning after December 15, 2017, as well as interim periods within those annual periods. The amendments in this update should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic post-retirement benefit cost in the income statement, and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic post-retirement benefit in assets. Early adoption is permitted within the first interim period of an annual period for which financial statements have not been issued or made available for issuance. Chemours does not expect that the adoption will have a significant impact on its financial position, results of operations or cash flows.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815)”, which simplifies financial statement reporting for qualifying hedging relationships by eliminating the requirement to separately measure and report hedge ineffectiveness. For net investment hedges, the entire change in fair value of the hedging instruments is recorded in the currency translation adjustment section of other comprehensive income or loss. Pursuant to the amendments, these amounts are required to be subsequently reclassified to earnings in the same income statement line item in which the earnings effect of the hedged item is presented when the hedged item affects earnings. The guidance is effective for public business entities for fiscal years beginning after December 15, 2018, as well as interim periods within those fiscal years. Early adoption is permitted in any interim period. The amendments in this update should be applied to hedging relationships existing on the date of adoption, which includes a cumulative-effect adjustment to eliminate any ineffectiveness recorded to accumulated other comprehensive income or loss with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year in which adoption occurred. Presentation and disclosure amendments are required to be applied prospectively. Chemours is currently evaluating the impact of adopting this guidance on its financial position, results of operations and cash flows.
Recently Adopted Accounting Guidance
In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718).” The update sets forth areas for simplification within several aspects of the accounting for shared-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Chemours adopted this guidance effective January 1, 2017, and the adoption did not have a significant impact on the Company’s financial position, results of operations or cash flows except for the impact of windfall income tax benefits on share-based payments and the classification of employee withholding tax payments on vested restricted stock units (RSUs) as a financing activity on the statements of cash flows. Specific to the impact of windfall tax benefits, the Company expects the guidance will cause volatility in its income tax rates going forward. As of the adoption date, there were no windfall tax benefits from prior periods recognized; therefore, prior period adjustments were not required under a modified retrospective basis. For the three and nine months ended September 30, 2017, Chemours recognized $5 and $18 of windfall tax benefits, respectively, primarily from significant options exercised and RSUs vested, which were included in the provision for income taxes in the consolidated statements of operations.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which eliminates the requirement to determine the fair value of the individual assets and liabilities of a
8
The Chemours Company
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
reportin