cc-10k_20211231.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
For the fiscal year ended December 31, 2021
OR
Commission File Number 001-36794
The Chemours Company
(Exact Name of Registrant as Specified in Its Charter)
1007 Market Street, Wilmington, Delaware19801
(Address of Principal Executive Offices)
Registrant’s Telephone Number:(302) 773-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s) Name of Exchange on Which Registered
Common Stock ($0.01 par value) CC New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐
Smaller reporting company ☐ Emerging growth company ☐
The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $5.7 billion. As of February 7, 2022, 160,018,312 shares of the company’s common stock, $0.01 par value, were outstanding.
Documents Incorporated by Reference
Portions of the registrant’s definitive proxy statement relating to its 2022 annual meeting of shareholders (the “2022 Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 2022 Proxy Statement will be filed with the U. S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
TheChemoursCompany
TABLE OF CONTENTS
Page
Part I
Item 1. Business 3
Item 1A. Risk Factors 16
Item 1B. Unresolved Staff Comments 31
Item 2. Properties 31
Item 3. Legal Proceedings 32
Item 4. Mine Safety Disclosures 33
Information About Our Executive Officers 34
Part II
Item 6. [Reserved] 37
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 70
Item 8. Financial Statements and Supplementary Data 71
Item 9A. Controls and Procedures 71
Item 9B. Other Information 72
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 72
Part III
Item 10. Directors, Executive Officers, and Corporate Governance 73
Item 11. Executive Compensation 73
Item 14. Principal Accounting Fees and Services 73
Part IV
Item 15. Exhibits, Financial Statement Schedules 74
Signatures 78
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The Chemours Company
Forward-lookingStatements
This section and other parts of this Annual Report on Form 10-K 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. Factors that could cause or contribute to these differences include, but are not limited to, the risks, uncertainties, and other factors discussed below and within Item 1A – Risk Factors in this Annual Report on Form 10-K.
Forward-looking statements are based on certain assumptions and expectations of future events that may not be accurate or realized. Forward-looking statements also involve risks and uncertainties, many of which are beyond our control. Important factors that may materially affect such forward-looking statements and projections include:
• fluctuations in energy and raw materials pricing;
• increased competition, and increasing consolidation of our core customers;
• changes in relationships with our significant customers and suppliers;
• failure to manage process safety and product stewardship issues appropriately;
• currency-related risks;
• negative rating agency actions;
• changes in laws and regulations or political conditions;
• our ability to protect, defend, and enforce our intellectual property rights;
• our ability to meet our growth expectations and outlook;
• disruptions in our information technology networks and systems.
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. We assume no obligation to revise or update any forward-looking statement for any reason, except as required by law.
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 “EID” refer to E. I. du Pont de Nemours and Company, which is our former parent company and is now a subsidiary of Corteva, Inc. (“Corteva”), a Delaware corporation, unless the context otherwise requires. References herein to “DuPont” refer to DuPont de Nemours, Inc., a Delaware Corporation.
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The Chemours Company
PART I
Item 1. BUSINESS
Overview
The Chemours Company (herein referred to as “we”, “us”, or “our”) is 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 coatings, plastics, refrigeration and air conditioning, transportation, semiconductor and consumer electronics, general industrial, and oil and gas. Our principal products include titanium dioxide (“TiO2”) pigment, refrigerants, industrial fluoropolymer resins, sodium cyanide (prior to the Mining Solutions business sale), and performance chemicals and intermediates. We manage and report our operating results through four reportable segments: Titanium Technologies, Thermal & Specialized Solutions, Advanced Performance Materials, and Chemical Solutions. Our Titanium Technologies segment is a leading, global provider of TiO2 pigment, a premium white pigment used to deliver whiteness, brightness, opacity, and protection in a variety of applications. Our Thermal & Specialized Solutions segment is a leading, global provider of refrigerants, thermal management solutions, propellants, blowing agents, and specialty solvents. Our Advanced Performance Materials segment is a leading, global provider of high-end polymers and advanced materials that deliver unique attributes, including low friction coefficients, extreme temperature resistance, weather resistance, ultraviolet and chemical resistance, and electrical insulation. Our Chemical Solutions segment was a leading provider of industrial chemicals used in gold production prior to the Mining Solutions business sale and continues to be a leading provider of chemicals used in industrial, and consumer applications in the Americas.
We operate 29 major production facilities located in nine countries and serve approximately 3,200 customers across a wide range of end-markets in approximately 120 countries. Many of our commercial and industrial relationships span decades. Our customer base includes a diverse set of companies, many of which are leaders in their respective industries. Our sales are not materially dependent on any single customer. As of December 31, 2021, no one individual customer represented more than 10% of our consolidated net sales, and one customer represented approximately 6% of our total outstanding accounts and notes receivables balance.
We are a different kind of chemistry company, driven by our vision to create a better world through the power of our chemistry. Our world-class product portfolio brings everyday convenience to virtually everything people touch in their daily lives, making our products and the solutions they enable both vital and essential. We are committed to creating value for our customers and stakeholders around the world through innovative and sustainable solutions, environmental leadership, community impact and making Chemours the greatest place to work for every employee. Our global workforce, renowned for its deep and unmatched expertise, bring our chemistry to life, guided by five core values that form the bedrock foundation for how we operate: (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.
Our core values, together with our company purpose and vision, underpin our commitment to our stakeholders to make chemistry as responsible as it is essential. Our Corporate Responsibility Commitment (“CRC”) is embedded within our growth strategy as a company. In 2018, we issued our inaugural CRC Report, which included 10 ambitious goals targeted for completion by 2030, built on the pillars of Inspired People, Shared Planet, and an Evolved Portfolio. In April 2021, we announced an update to our climate goals to better align our climate commitment with the Paris Accord and set us on a path to achieve net zero greenhouse gas emissions from our operations by 2050. These goals are designed to promote accountability to our commitment and position us for sustainable, long-term earnings growth. We understand that maintaining safe, sustainable operations has an impact on us, our communities, the environment, and our collective future. With this focus, we invest in research and development (“R&D”) in order to develop safer, cleaner, and more efficient products and processes that enable our operations, customers, and consumers to reduce both their greenhouse gas (“GHG”) emissions, carbon footprint, and overall environmental footprint. We value collaboration to drive change and commit to working with policymakers, our value chain, and other organizations to encourage collective action to reduce GHG emissions and encourage lower-carbon forms of energy.
Corporate History
We began operating as an independent company on July 1, 2015 (the “Separation Date”) after separating from EID (the “Separation”). The Separation was completed pursuant to a separation agreement and other agreements with EID, including an employee matters agreement, a tax matters agreement, a transition services agreement, and an intellectual property cross-license agreement. These agreements govern the relationship between us and EID following the Separation and provided for the allocation of various assets, liabilities, rights, and obligations at the Separation Date. On August 31, 2017, EID completed a merger with The Dow Chemical Company (“Dow”). Following their merger, EID and Dow engaged in a series of reorganization steps and, in 2019, separated into three publicly-traded companies named Dow Inc., DuPont, and Corteva. EID is now a subsidiary of Corteva, and, at this time, any agreements related to our Separation are between us and EID, Corteva, and DuPont.
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The Chemours Company
Segments
In our Titanium Technologies segment, we have a long-standing history of delivering high-quality TiO2 pigment using our proprietary chloride technology. We are one of the largest global producers of TiO2pigment, and our low-cost network of manufacturing facilities allows us to efficiently and cost-effectively serve our global customer base. We believe we are well-positioned to remain one of the lowest-cost, high-quality TiO2 pigment producers. At the same time, our unique go-to-market strategy, Ti-PureTM Value Stabilization (“TVS”), provides our customers with three differentiated channels to buy Ti-PureTM. This combination of technology, strength, and commercial innovation allows us to continue to meet our customers’ needs around the world.
In our Thermal & Specialized Solutions segment, we are a leading, global provider of refrigerants, thermal management solutions, propellants, foam blowing agents, and specialty solvents. Our Thermal & Specialized Solutions segment has held a leading position in the refrigerants market since the commercial introduction of FreonTM in 1930. We are currently a leader in the development of sustainable technologies like OpteonTM, one of the world’s lowest global warming potential (“GWP”) refrigerant brands, as governments around the world pass laws and regulations that make the use of low GWP refrigerants a requirement.
In our Advanced Performance Materials segment, we are a leading, global provider of high-end polymers and advanced materials that deliver unique attributes, including chemical inertness, thermal stability, low friction, weather and corrosion resistance, extreme temperature stability, and unique di-electric properties. Our Advanced Performance Materials segment has a diversified offering of products that includes various industrial resins, specialty products, and coatings. These product offerings position the business to serve a breadth of markets, segments, and applications, including electronics, communications, transportation, wire and cable, energy, oil and gas, and medical, among others, and our product offerings are fundamental to the future of clean energy and advanced electronics.
In our Chemical Solutions segment, we completed the sale of our Mining Solutions business during 2021. Our Performance Chemicals and Intermediates business produces industrial chemicals used in various applications by our customers, which are primarily located in the Americas.
Additional information on our segments can be found in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Note 29 – Geographic and Segment Information” to the Consolidated Financial Statements.
Titanium Technologies Segment
Segment Overview
Our Titanium Technologies segment is a leading, global manufacturer of high-quality TiO2 pigment. TiO2 pigment is used to deliver whiteness, brightness, opacity, and ultra-violet light protection in applications such as architectural and industrial coatings, flexible and rigid plastic packaging, polyvinylchloride (“PVC”), laminate papers used for furniture and building materials, coated paper, and coated paperboard used for packaging. We sell our TiO2 pigment under the Ti-PureTM brand name. We also sell a chloride-based TiO2 pigment under the BaiMaxTM brand name, which is exclusively produced for customers in Greater China. We operate four TiO2 pigment production facilities: two in the U.S., one in Mexico, and one in Taiwan. In total, we have a TiO2 pigment nameplate capacity of approximately 1.25 million metric tons per year. In addition, we have a large-scale repackaging and distribution facility in Belgium. We also operate mineral sands mining and/or separation operations in Starke, Florida, Nahunta, Georgia, Jesup, Georgia and Offerman, Georgia.
We are one of a limited number of manufacturers operating a chloride process to produce TiO2 pigment. We believe that our proprietary chloride technology enables us to operate plants at a much higher capacity than other chloride technology-based TiO2 pigment producers, as we uniquely utilize a broad spectrum of titanium-bearing ore feedstocks to achieve one of the highest TiO2 pigment unit margins in our industry. This technology, which is in use at all of our production facilities, provides us with one of the industry’s lowest manufacturing cost positions. Our R&D efforts focus on improving production processes and developing TiO2 pigment grades that help our customers achieve optimal cost and product performance to enhance total end-user value.
We sell over 20 different grades of TiO2 pigment, with each grade tailored for targeted applications. Our portfolio of premium performance TiO2 pigment grades provides end-users with benefits beyond opacity, such as longer-lasting performance, brighter colors, and the brilliant whites achievable only through chloride-manufactured pigment.
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WehaveoperatedatitaniummineinStarke,Floridasince1949.Additionally,in2019,weacquiredatitaniummineinNahunta,Georgia,fromwhichwesourceorefeedstocktobeprocessedatitsassociatedmineralsandsseparationfacilityinOfferman,Georgia.Thetitaniummineandmineral sands separationfacility in Georgiawereacquiredinthethirdquarterof2019aspartofouracquisitionofSouthernIonicsMinerals,LLC(“SIM”).ThisacquisitionexpandedourflexibilityandscalabilitytointernallysourceoreandenabledthecommencementofminingoperationsatoursurfacemineinJesup,GeorgiainAugust2020.Ourminesprovideuswithlow-cost,high-qualitydomesticilmeniteorefeedstockandcurrentlysupplylessthan10%ofourorefeedstockneeds,withexpansionoptionsthatcouldfurtherincreaseourin-sourcedrawmaterialbase.Co-productsofourminingoperations,whichcomprisedlessthan5%ofourtotalnetsalesinTitaniumTechnologiesduring2021,includezircon(zirconiumsilicate)andstauroliteminerals.Weareamajorsupplierofhigh-qualitycalcinedzirconinNorthAmerica,primarilyfocusedontheprecisioninvestmentcastingindustry,foundry,specialtyapplications,andceramics.Ourstauroliteblastingabrasivesareusedinavarietyofsurfacepreparationapplications,includingsteelpreparationandmaintenanceandpaintremoval.
Industry Overview and Competitors
The overall demand for TiO2 pigment is highly correlated to growth in the global residential housing, commercial construction, and packaging markets. In the long-run, industry demand for TiO2 pigment is generally expected to grow proportionately with global GDP growth. We continue to experience customers’ preference for high-quality Ti-PureTM offerings. After above-GDP trend TiO2 demand growth in 2016 and 2017, the TiO2 pigment market contracted below the GDP trend in 2018 and 2019. In 2020, the TiO2 pigment market expanded, while global GDP contracted during the novel coronavirus disease (“COVID-19”) pandemic. In 2021, the TiO2 pigment market again grew at greater-than-global GDP growth rates. In the longer-term, we expect global TiO2 pigment demand to resume its historical correlation with global GDP growth rates.
We estimate that the worldwide demand for TiO2 pigment in 2021 was approximately 7.3 million metric tons, a second consecutive year above-GDP growth; of which approximately 60% was for premium performance pigments. Worldwide nameplate capacity in 2021 was estimated to be approximately 8.6 million metric tons. The products manufactured on this global capacity base are not fully substitutable due to pigment quality consistency and pigment product design. We believe that the utilization of the premium performance manufacturing base is considerably higher than that for general purpose, lower-performance production. As future customer demand grows, we have the ability to incrementally increase our production capacity by approximately 10% through technology-enabled de-bottlenecking processes. We believe that unlocking this additional 10% of capacity is in line with our stated intention to grow with our customers’ needs over the long-term. This new capacity is expected to provide the equivalent of a new production line, while requiring a fraction of the capital investment. Our increased pigment production capacity will be supported by investments to extend our ilmenite mines and through long-term ore feedstock contracts with our suppliers.
Competition in the TiO2 pigment market is based primarily on product performance (both product design and quality consistency), supply capability, technical service, and price. Our major competitors within higher-performance pigments include Tronox Holdings plc, LB Group Co.Ltd., Venator Materials plc, Kronos Worldwide, Inc., and INEOS AG.
Raw Materials
The primary raw materials used in the manufacture of TiO2 pigment are titanium-bearing ores, chlorine, calcined petroleum coke, and energy. We source titanium-bearing ores from a number of suppliers around the globe, who are primarily located in Australia and Africa. To ensure proper supply volume and to minimize pricing volatility, we generally enter into contracts in which volume is requirement-based and pricing is determined by a range of mechanisms structured to help us achieve competitive cost. We typically enter into a combination of long-term and medium-term supply contracts and source our raw materials from multiple suppliers across different regions and from multiple sites per supplier. Furthermore, we typically purchase multiple grades of ore from each supplier to limit our exposure to any single supplier for any single grade of ore in any given time period. Historically, we have not experienced any problems renewing such contracts for raw materials or securing our supply of titanium-bearing ores.
We play an active role in ore source development around the globe, especially for those ores which can only be used by us, given the capability of our unique process technology. Supply chain flexibility allows for ore purchase and use optimization to manage short-term demand fluctuations and provide a long-term competitive advantage. Our process technology and ability to use lower-grade ilmenite ore gives us the flexibility to alter our ore mix to low-cost configuration based on sales, demand, and projected ore pricing. Lastly, we have taken steps to optimize routes for distribution and increase storage capacity at our production facilities.
Transporting chlorine, one of our primary raw materials, can be costly. To reduce our need to transport chlorine, we have a chlor-alkali production facility run by a third party that is co-located at our New Johnsonville, Tennessee site. Calcined petroleum coke is an important raw material input to our process. We source calcined petroleum coke from well-established suppliers in North America and China, typically under contracts that run multiple years to facilitate materials and logistics planning through the supply chain. Raw materials distribution efficiency is enhanced through the use of bulk ocean, barge, and rail transportation modes. Energy is another key input cost in the TiO2 pigment manufacturing process, representing approximately 10% of the production cost. We have access to natural gas-based energy at our U.S. and Mexico TiO2 pigment production facilities and our Florida and Georgia minerals plants, supporting advantaged energy costs given the low cost of shale gas in the U.S.
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Sales,Marketing,andDistribution
We sell the majority of our products through a direct sales force. In 2018, we launched our TVS strategy, which we believe to be foundational to maintaining and growing our Titanium Technologies business. Our TVS strategy establishes a commercial framework that allows us to focus on enhancing durable, value-oriented customer relationships, while providing customers access to a predictable and reliable supply of high-quality TiO2. Customers can purchase Ti-PureTM TiO2either through long-term contracts or through Ti-PureTM Flex. Launched in 2019, Ti-PureTM Flex is a new, innovative channel that provides customers the unique ability to purchase Ti-PureTM TiO2 via our web-based portal, the first of its kind in the industry. To further expand our reach beyond these sales channels, we also utilize third-party sales agents and distributors.
TiO2 pigment represents a significant raw material cost for our direct customers, and as a result, purchasing decisions are often made by our customers’ senior management teams. TiO2 pigment, however, is only a small fraction of the cost when considering certain end-use applications, especially in segments with larger value chain players, such as specialty coatings, plastics, and laminates applications. Our sales organization works to develop and maintain close relationships with key decision makers in our value chain. In addition to close purchasing relationships, our sales and technical service teams work together to develop relationships with all layers of our customers’ organizations to ensure that we meet our customers’ commercial and technical requirements. When appropriate, we collaborate closely with customers to solve formulation or application problems by modifying product characteristics or developing new product grades.
To ensure efficient distribution, we have a large fleet of railcars, which are predominantly used for outbound distribution of products in the U.S. and Canada. A dedicated logistics team, along with external partners, continually optimizes the assignment of our transportation equipment for each product line and geographic region to maximize utilization and maintain an efficient supply chain.
Customers
Globally, we serve approximately 600 customers through our Titanium Technologies segment. In 2021, our 10 largest Titanium Technologies customers accounted for approximately 36% of the segment’s net sales, and one Titanium Technologies customer represented more than 10% of the segment’s net sales. Our larger customers are typically served through direct sales and tend to have medium-term to long-term contracts. We serve our small-size and mid-size customers through a combination of our direct sales and distribution network. Our direct customers in the Titanium Technologies segment are producers of decorative coatings, automotive and industrial coatings, polyolefin masterbatches, PVC, engineering polymers, laminate paper, coatings paper, and coated paperboard. We focus on developing long-term partnerships with key market participants in each of these sectors. We also deliver a high level of technical service to satisfy our customers’ specific needs, which helps us maintain strong customer relationships.
Seasonality
The demand for TiO2 pigment is subject to seasonality due to the influence of weather conditions and holiday seasons on some of our applications, such as decorative coatings. As a result, our TiO2 pigment sales volume is typically lowest in the first quarter, highest in the second and third quarters, and moderate in the fourth quarter. This pattern applies to the entire TiO2 pigment market, but may vary by region, country, or application. The impacts of seasonality on demand for TiO2pigment may also be altered by economic factors, such as changes in global GDP, and other factors, such as the COVID-19 pandemic.
Thermal & Specialized Solutions Segment
Segment Overview
Our Thermal & Specialized Solutions segment is a leading, global provider of refrigerants, thermal management solutions, propellants, foam blowing agents, and specialty solvents. We have an industry-leading safety culture and apply world-class R&D and technical expertise to ensure that our operations run safely and reliably, and to improve our process technology.
Our Thermal & Specialized Solutions segment has held a leading position in the fluorochemicals market since the commercial introduction of FreonTM in 1930. Since the original chlorofluorocarbons (“CFC”)-based product was introduced, Thermal & Specialized Solutions has been at the forefront of new technology research for lower GWP and lesser ozone-depleting potential products, leading to the development of hydrochlorofluorocarbons (“HCFC”) and hydrofluorocarbons (“HFC”). We have a leading position in HFC refrigerants under the brand name FreonTM, and we are a leader in the development of sustainable technologies like OpteonTM, a line of low GWP hydrofluoroolefin (“HFO”) refrigerants, which also have a near-zero ozone-depletion footprint. OpteonTM was initially developed in response to the European Union’s (“EU”) Mobile Air Conditioning Directive. Today, our OpteonTM-branded portfolio of products is used in a broad range of applications, including automotive, air conditioning, commercial refrigeration, and foam blowing agents. This patented technology offers similar functionality to current HFC products, but meets or betters currently-mandated environmental standards and, in some cases, provides energy efficiency benefits.
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OurThermal & Specialized Solutions segmentledtheindustryintheMontrealProtocol-driventransitionin1987fromCFCstothelesserozone-depletingHCFCsandnon-ozone-depletingHFCsand,in1988,committedtoceaseproductionofCFCs.Startingintheearly1990s,Thermal & Specialized Solutions beganmanufacturingnon-ozone-depletingHFCs.Drivenby the emergingmegatrendsof Climate Change, Decarbonization,and Energy Efficiency,togetherwithenvironmentallegislationbeingenactedacrosstheU.S.,Europe,LatinAmerica,andJapan,wecommercializedOpteonTM in 2016. WewillcontinuetoinvestinR&Dto meet the increasing regulatory requirements of the industry andmeetourcustomers’needsasregulationschange.
Industry Overview and Competitors
Our Thermal & Specialized Solutions segment competes against a broad variety of global manufacturers, as well as regional manufacturers in Asia Pacific. We have a leadership position in fluorine chemistry and materials science, a broad scope and scale of operations, market-driven applications development capabilities, and deep customer knowledge. Key competitors for the Thermal & Specialized Solutions segment include Honeywell International, Inc., Arkema S.A., Orbia, and Daikin Industries, Ltd.
Thermal & Specialized Solutions’ demand growth has generally been in line with global GDP growth. Growth may be higher than GDP in situations where, for environmental reasons, regulatory drivers constrain the market or drive the market toward lower GWP alternatives. Developed markets represent the largest consumers of fluorochemicals today. Global middle class growth and the increasing demand for automobiles, refrigeration, and air conditioning are all key drivers of increased demand for various fluorochemicals.
Raw Materials
The primary raw materials required to support the Thermal & Specialized Solutions segment are fluorspar, sulfur, ethylene, chlorinated organics, chlorine, and hydrogen fluoride. These are available in many countries and are not concentrated in any particular region. We pursue maximum competitiveness in our global supply chains through competitive, flexible, and diversified sourcing of key raw materials. Our contracts typically include terms that span from two to ten years. Qualified fluorspar sources have fixed contract prices or freely-negotiated, market-based pricing. We diversify our sourcing through multiple geographic regions and suppliers to ensure a diversified and cost competitive supply.
Sales, Marketing, and Distribution
With approximately 90 years of innovation and development in fluorine science, our technical, marketing, and sales teams around the world have deep expertise in our products and their end-uses. We work with customers to select the appropriate solutions to meet their technical performance needs. We sell our products through direct channels and through resellers. Selling agreements vary by product line and markets served and include both spot-pricing arrangements and multi-year contracts with varying durations.
Our Thermal & Specialized Solutions segment maintains a large fleet of railcars, tank trucks, and containers to deliver our products and support our supply chain needs. For the portion of the fleet that is leased, the related lease terms are usually staggered, which provides us with a competitive cost position, as well as the ability to adjust the size of our fleet in response to changes in market conditions. A dedicated logistics team, along with external partners, works to optimize the assignment of our transportation equipment for each product line and geographic region to maximize utilization and flexibility of the supply chain.
Customers
Our Thermal & Specialized Solutions segment serves approximately 1,000 customers and distributors globally, and, in many instances, these commercial relationships have been in place for decades. No single Thermal & Specialized Solutions customer represented more than 10% of the segment’s net sales in 2021.
Seasonality
Thermal & Specialized Solutions’ refrigerant sales fluctuate by season, as sales in the first half of the year are generally higher than sales in the second half of the year due to increased demand for residential, commercial, and automotive air conditioning in the spring, which peaks in the summer months, and then declines in the fall and winter in the northern hemisphere. Mobile air conditioning demand is slightly higher in the first half of the year due to the timing of automotive production shutdowns in the second half of the year.
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Advanced Performance Materials Segment
Segment Overview
Our Advanced Performance Materials segment is a leading, global provider of high-end polymers and advanced materials that deliver unique performance capabilities and are present in applications that people around the world use every day. The segment has a diversified portfolio that includes various industrial resins, specialty products, membranes, and coatings. These product offerings position the business to serve a broad range of markets, including consumer electronics, semiconductors, digital communications, transportation, energy, oil and gas, and medical, among others.
Our products set the standard in a number of performance categories, including chemical inertness, thermal stability, low friction, weather and corrosion resistance, and di-electric properties. These performance advantages make our polymers a material of choice, especially in complex applications and extreme environmental conditions. Our products are therefore critical to many emerging technology areas, including energy storage, hydrogen production and fuel cells, 5G data delivery, advanced semi-conductor infrastructure, and connected devices.
Our Advanced Performance Materials products are sold under the brand names TeflonTM, VitonTM, KrytoxTM, and NafionTM. TeflonTM coatings, resins, additives, and films serve as the key underpinning for a variety of industrial and commercial applications, including semiconductor infrastructure. VitonTM fluoroelastomers are used in automotive, consumer electronics, chemical processing, oil and gas, petroleum refining and transportation, and aircraft and aerospace applications. Our KrytoxTM-branded lubricants are used in a broad range of industrial applications, including bearings, automotive friction management, and electric motors. NafionTM membranes are critical components in chlor-alkali processing and flow batteries, as well as the hydrogen electrolyzers and fuel cells which underpin the hydrogen economy.
Our Advanced Performance Materials segment uses a market-back approach to drive technology development. Our innovations are underpinned by deep technical knowledge and experience in fluoropolymer chemistry. We leverage our state-of-the-art R&D facilities at the Chemours Discovery Hub to drive faster development on a global scale. We also participate in a broad array of industry consortia and collaborate with leading academics across a variety of disciplines to drive fundamental R&D in the materials space.
The segment is well positioned to capture future growth through the combination of our unique product capabilities and market-driven product development process. Advanced Performance Materials will benefit long-term from the megatrends impacting our customers’ key end markets, including digital connectivity, urbanization, and climate change.
Industry Overview and Competitors
Our Advanced Performance Materials segment competes against a broad variety of global manufacturers, as well as regional manufacturers in Asia Pacific. We have a leadership position in fluorine chemistry and materials science, a broad scope and scale of operations, a strong applications development competency, and deep customer knowledge. Key competitors for this segment include Daikin Industries, Ltd., 3M Company, Solvay, S.A., Asahi Glass Co., Ltd., and Dongyue Group Co., Ltd.
Demand growth for Advanced Performance Materials has generally been in line with global GDP growth. However, demand for the segment’s products may grow at a rate faster than GDP, driven by global middle-class growth and alignment between our market-driven product technology development process and emerging market technologies, such as 5G, fuel cells and electrolyzers, electronics, communications, and transportation.
Raw Materials
The primary raw materials required for the Advanced Performance Materials segment are chlorinated organics, hydrogen fluoride, and vinylidene fluoride. These are available in many countries and are not concentrated in any particular region. We pursue maximum competitiveness in our global supply chains through competitive, flexible, and diversified sourcing of key raw materials. Our contracts typically include terms that span from two to ten years. We diversify our sourcing through multiple geographic regions and suppliers to ensure a diversified and cost competitive supply.
Sales, Marketing, and Distribution
With approximately 90 years of innovation and development in fluorine science, our technical, marketing, and sales teams around the world have deep expertise in our products and their end-uses. We work with customers to select the appropriate fluoropolymers or other advanced performance materials to meet their technical performance needs based on their intended performance-in-use requirements. We sell our products through direct and indirect channels, and the duration of our selling agreements vary by product line and markets served.
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OurAdvancedPerformanceMaterialssegmentmaintainsalimitedfleetofrailcars,tanktrucks, containers, and totestodeliverourproductsandsupportoursupplychainneeds.Fortheportionofthefleetthatisleased,therelatedleasetermsareusuallystaggered,whichprovidesuswithacompetitivecostposition,aswellastheabilitytoadjustthesizeofourfleetinresponsetochangesinmarketconditions.Wemanageourfleettoensure it is appropriately sized to meet marketdemandwhilemaintainingflexibility.Adedicatedlogisticsteam,alongwithexternalpartners,workstooptimizetheassignmentofourtransportationequipmentforeachproductlineandgeographicregiontomaximizeutilizationandflexibilityofthesupplychain.
Customers
Our Advanced Performance Materials segment serves approximately 1,400 customers and distributors globally and, in many instances, these commercial relationships have been in place for decades. No single Advanced Performance Materials customer represented more than 10% of the segment’s net sales in 2021.
Seasonality
There is no significant seasonality in our Advanced Performance Materials segment’s net sales, as demand is relatively consistent throughout the year.
Chemical Solutions Segment
Segment Overview
Our Chemical Solutions segment is comprised of a portfolio of industrial chemical businesses, primarily operating in the Americas. The segment’s products are used as important raw materials and catalysts for a diverse group of industries, including, among others, gold production (prior to the sale of our Mining Solutions business), clean and disinfect, oil and gas, water treatment, electronics, and automotive. Chemical Solutions generates value through the use of market-leading manufacturing technology, safety performance, product stewardship, and differentiated logistics capabilities.
In early 2021, we began a strategic review of our Mining Solutions business, which included our sodium cyanide and hydrogen cyanide product lines. On July 26, 2021, we entered into a definitive agreement with Manchester Acquisition Sub LLC, a Delaware limited liability company and a subsidiary of Draslovka Holding a.s., to sell our Mining Solutions business and completed the sale on December 1, 2021 for net cash proceeds of $508 million, net of $13 million cash divested. For the year ended December 31, 2021, the Mining Solutions business accounted for approximately 70% of the Chemical Solutions segment net sales.
Following the sale of our Mining Solutions business, our Chemical Solutions remaining operations include one production facility in North America that sells products and solutions through the Performance Chemicals and Intermediates product group. Our Performance Chemicals and Intermediates product group, is primarily comprised of our Glycolic Acid and VazoTM product lines, and we manufacture a variety of chemicals used in many different applications. Performance Chemicals and Intermediates business is expected to generally grow in line with growth in global GDP.
Industry Overview and Competitors
The industrial and specialty chemicals produced by our Chemical Solutions segment are important raw materials for a wide range of industries and end-markets. We hold a long-standing reputation for high quality and the safe-handling of hazardous products, such as sodium cyanide, dimethyl sulfate and VazoTM. Our positions in these products are the result of our process technology, manufacturing scale, efficient supply chain, and proximity to large customers. Prior to the sale of the Mining Solutions business, key competitors for the Chemical Solutions include Cyanco Corp., Hebei Chengxin Group Co. Ltd., CyPlus GmbH, Orica Ltd., and Tongsuh Petrochemical Corp., Ltd. Key competitors for the remaining business in our Chemicals Solutions segment include CABB GmbH and Nouryon.
Raw Materials
Key raw materials for the remaining business in our Chemical Solutions segment include aminonitrile, formaldehyde, natural gas, hydrogen, sodium trioxide, and caustic soda. We source raw materials from global and regional suppliers, where possible, and maintain multiple supplier relationships to protect against supply disruptions and potential price increases. To further mitigate the risk of raw materials availability and cost fluctuations, our Chemical Solutions segment has also taken steps to optimize routes for distribution, lock in long-term contracts with key suppliers, and increase the number of customer contracts with raw materials price pass-through terms. We do rely on one supplier for aminonitrile, which is a key raw material for the production of VazoTM. Any prolonged inability to obtain aminonitrile could have an adverse effect on our operating results and could unfavorably impact our customer relationships. We do not believe that the loss of any other particular suppliers would be material to our business.
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Sales,Marketing,andDistribution
Our technical, marketing, and sales teams around the world have deep expertise with our products and their end-markets. We predominantly sell directly to end-customers, although we also use a network of distributors for specific product lines and geographies. Sales may take place through either spot transactions or via long-term contracts.
Most of Chemical Solutions’ raw materials and products can be delivered by efficient bulk transportation. As such, we maintain a fleet of railcars, tank trucks, and containers to support our supply chain needs. For the portion of the fleet that is leased, the related lease terms are usually staggered, which provides us with a competitive cost position as well as the ability to adjust the size of our container fleet in response to changes in market conditions. A dedicated logistics team, along with external partners, continually optimizes the assignment of our transportation equipment to each product line and geographic regions to maximize utilization and flexibility of the supply chain. The strategic placement of our facilities in locations designed to serve our key customer base in the Americas gives us robust distribution capabilities.
Customers
Our Chemical Solutions segment focuses on developing long-term partnerships with key market participants. Many of our commercial and industrial relationships have been in place for decades and are based on our proven value proposition of safely and reliably supplying our customers with the materials needed for their operations. Our reputation and long-term track record are key competitive advantages, as several of the products’ end-users demand the highest level of excellence in safe manufacturing, distribution, handling, and storage. Our Chemical Solutions segment has U.S. Department of Transportation Special Permits and Approvals in place for the distribution of various materials associated with each of our business lines, as required. During the year, prior to the sale of our Mining Solutions business, our Chemical Solutions segment served approximately 300 customers globally. In 2021, one Chemical Solutions customer represented more than 10% of the segment’s net sales.
Seasonality
Our Chemical Solutions segment’s sales are subject to minimal seasonality.
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IntellectualProperty
Intellectual property, including trade secrets, certain patents, trademarks, copyrights, know-how, and other proprietary rights, is a critical part of maintaining our technology leadership and competitive edge. Our business strategy is to file patent and trademark applications globally for proprietary new product and application development technologies, and we work actively on a global basis to create, protect, and enforce our intellectual property rights.
Our Titanium Technologies segment relies upon unpatented proprietary knowledge, continuing technological innovation, and other trade secrets to develop and maintain our competitive position in this sector. Within this segment, we hold significant intellectual property in the form of trade secrets, and, while we believe that no single trade secret is material in relation to our combined business as a whole, we believe that our trade secrets are material in the aggregate.Our proprietary chloride production process is an important part of our technology, and our business could be harmed if our trade secrets are not maintained in confidence. Within our Titanium Technologies segment’s intellectual property portfolio, we consider our trademarks Ti-PureTM and BaiMaxTM to be valuable assets. We have registered the Ti-PureTM trademark in a number of countries and the BaiMaxTM trademark in China.
Our Thermal & Specialized Solutions segment is a technology leader in the markets in which it participates. We maintain a large fluorochemicals patent portfolio, inclusive of patents which will expire in varying years into the 2030s. We consider our OpteonTM and FreonTM trademarks used in the Thermal & Specialized Solutions segment to be valuable assets.
Our Advanced Performance Materials segment possesses extensive know-how and trade secrets related to manufacturing technologies for a broad range of specialized fluoropolymers, as well as application development technology for fluoropolymers based on comprehensive knowledge of customer applications. We hold patents relating to manufacturing for certain products with high quality, specifications and purity as required by the electronics, communications, automotive, wire and cable, and other industries. Additionally, our Advanced Performance Materials segment is a leader in and holds patents relating to non-fluorinated materials for use as durable water repellants for garments and other uses. In our Advanced Performance Materials segment’s intellectual property portfolio, we consider our TeflonTM, VitonTM, NafionTM, and KrytoxTM trademarks to be valuable assets.
Our Chemical Solutions segment is a manufacturing technology leader in a majority of the markets in which it participates. Trade secrets are one of the key elements of our intellectual property security in the Chemical Solutions segment, as most of the segment’s manufacturing and applications development technologies are no longer under patent coverage.
The protections afforded under our patents and trademarks vary based on country, scope of individual patent, and trademark coverage, as well as the availability of legal remedies in each country. Our patents, in the aggregate, are believed to be of material importance to our business. However, although certain proprietary intellectual property rights are important to our success, we do not believe that we are materially dependent on any single patent (or group of related patents) or trademark. We believe that securing our intellectual property is critical to maintaining our technology leadership and our competitive position, especially with respect to new technologies or the extensions of existing technologies. Our proprietary process technology can be a source of incremental income through licensing arrangements.
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EnvironmentalandRegulatoryMatters
Information related to environmental matters is included in several areas of this Annual Report on Form 10-K, including: (i) Item 1A – Risk Factors; (ii) Item 3 – Legal Proceedings, under the heading “Environmental Proceedings”; (iii) Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations; and, (iv) “Note 3 – Summary of Significant Accounting Policies” and “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements.
Central to our CRC are our ten goals that we aim to achieve by 2030. These goals fall into three pillars: Inspired People, Shared Planet, and Evolved Portfolio. In April 2021, we announced an update to our climate goals to better align our climate commitment with the Paris Accord and set us on a path to achieve net zero greenhouse gas emissions from our operations by 2050. The Shared Planet pillar of our CRC underlines our commitment to deliver essential solutions responsibly, without causing harm to the Earth. With a focus on the responsible treatment of climate, water, and waste, our shared planet 2030 goals are comprised of the following:
• Reduce absolute operations Scope 1 and Scope 2 GHG emissions by 60%;
• Reduce our landfill volume intensity by 70%.
As part of the Evolved Portfolio pillar of our CRC, we are reimagining our portfolio to offer solutions that are also safer, healthier, and more resilient for a world that demands more. We believe that climate change is an important global issue that presents both opportunities and challenges for our company, our partners, and our communities. Climate change matters for our company are likely to be driven by changes in physical climate parameters, regulations and/or public policy, and changes in technology and product demand. Our operations and business results are increasingly subject to evolving climate-related legislation and regulations, inclusive of restrictions on GHG emissions, cap and trade emissions trading systems, and taxes on GHG emissions, fuel, and energy, among other provisions. Such regulatory matters have led, and are expected to continue to lead, to subsequent developments in product technology and demand. This helps guide our investment decisions and drive growth in demand for low-carbon and energy-efficient products, manufacturing technologies, and services that facilitate adaptation to a changing climate. Our business segments conduct market trend impact assessments, continuously evaluate opportunities for existing and new products and are well-positioned to take advantage of opportunities that may arise from increased consumer demand for and/or legislation mandating or incentivizing the use of products and technologies necessary to achieve a low-carbon economy.
For example, global regulations driving the phase-down of HFCs, including the EU’s F-Gas Directive, the EU’s Mobile Air Conditioning Directive, and the recently enacted U.S. American Innovation and Manufacturing Act (“AIM”), promote the adoption and sale of our high performing OpteonTM products, which have lower GWP and zero ozone-depletion footprint. Our OpteonTM portfolio has been developed to meet global regulations while maintaining or improving performance compared to the products they replace in refrigeration and cooling applications, such as food transportation, food and pharmaceutical/medical storage, food manufacturing and retail, automotive air conditioning, and residential and commercial building air conditioning. By the year 2025, we estimate that our low GWP products will eliminate an estimated 325 million tons of carbon dioxide equivalents on a global basis.
We are a proponent of the recently passed bipartisan AIM Act, going into effect in 2022, that will begin the national phase-down of hydrofluorocarbons. Earlier this year, we announced the implementation of an improvement project to significantly reduce emissions of HFC-23 at our Louisville, Kentucky manufacturing site. The project includes the design, custom-build and installation of proprietary technology to capture at least 99% of HFC-23 process emissions from the site.
Our growth prospects in fluoropolymers are also enhanced by regulation driving the increasing demand for electric vehicles and high-performance, low-emission vehicles. Our fluoropolymers are critical to delivering high performance over a wide range of harsh operating conditions, enhancing passenger safety, improving emission controls, and better fuel economy, and enable vehicle electrification and the shift to hydrogen-powered vehicles. We expect the use of our fluoropolymers in vehicles to increase, driven by the automotive industry’s trends toward energy efficiency and clean energy due to evolving emissions performance regulations and increasing adoption of electric vehicles.
As an energy and emissions intensive company, our costs of complying with complex environmental laws, regulations, and enforcements, as well as internal and external voluntary programs, are significant and will continue to be significant for the foreseeable future. These laws, regulations, and enforcements may change and could become more stringent over time, which could result in significant additional compliance costs, increased costs of purchased energy or other raw materials, increased transportation costs, investments in, or restrictions on, our operations, installation or modification of GHG-emitting equipment, or additional costs associated with GHG emissions. Additionally, significant regional or national differences in approaches to the imposition of such regulations and restrictions could present competitive challenges in a global marketplace. Currently, most of our global operating facilities are required to monitor and report their GHG emissions but may or may not be subject to programs requiring trading or emission controls. The EU Emission Trading System and the cap and trade pilot program in Mexico apply to our operating sites in those regions. Furthermore, U.S. political administration could lead to additional federal regulation with respect to GHG emissions limits and/or other legislation that could impact our operations. By tracking and taking action to reduce our GHG emissions footprint through energy efficiency programs and focused GHG management efforts, we can decrease the potential future impact of these regulatory matters.
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HumanCapital
Meeting our commitment to responsible chemistry depends on our ability to create a vibrant workplace culture that attracts and retains the best and brightest in their fields to come work at Chemours. Our success depends on our ability to attract and retain key employees, and to identify and develop talented personnel to succeed our senior management and other key employees. This success depends on creating a diverse, inclusive, and empowered workforce – one that holds a multiplicity of viewpoints, stems from a variety of backgrounds, and brings an abundance of different life experiences to work. We believe our global workforce should reflect the viewpoints and diversity of the communities in which we operate. That combination of excellence and diversity is essential to continuing our strong track record of uncovering and delivering the innovative solutions society needs.
Diverse and Inclusive Leadership and Workforce
Our board of directors is comprised of eleven individuals with diverse experience and credentials, selected for their acumen and ability to challenge and add value to management. Our directors have held significant leadership positions and bring a depth of experience across a wide variety of industries, providing the company with unique insights and fresh perspectives. The demographics of our board of directors include 36% women and 27% ethnically diverse individuals. Refer to Item 10 – Directors, Executive Officers, and Corporate Governance for further information related to our board of directors. Management of the Company is led by our President and Chief Executive Officer (“CEO”) and his 8 direct reports, which comprise our Chemours Executive Team (“CET”). The demographics of our CET include 44% women and 44% ethnically diverse individuals. Further information related to our CET is included under the caption “Information About Our Executive Officers” within this Part I of our Annual Report on Form 10-K.
At December 31, 2021, we had approximately 6,400 employees globally, nearly all of which were full-time employees. Our employees’ global demographics consisted of approximately 77% male employees and approximately 23% female employees, and, in the U.S., approximately 21% of our employees were considered to be ethnically diverse. At December 31, 2021, we had approximately 74% of our employees in the Americas (65% of whom are in the United States), 14% in Europe, and 12% in Asia Pacific (4% of whom are in China). Approximately 19% of our employees are represented by unions or works councils. Management believes that its relations with employees and labor organizations are good.
In addition to Chemours employees, our total global workforce also includes contract workers that are available to support our manufacturing sites. Our number of contract workers varies throughout the year due to business needs and seasonal plant activities. These on-site contract workers provide services for facility maintenance, engineering services and construction support, operations, research and logistics support, equipment service and maintenance, custodial services, and site security services. Management believes that its relations with contract workers are good.
Corporate Responsibility Commitment
In 2018, we issued our inaugural CRC Report, which expresses our commitment to our stakeholders to make chemistry as responsible as it is essential. This commitment is embedded within our growth strategy as a company. Our inaugural report included 10 ambitious goals targeted for completion by 2030, built on the pillars of Inspired People, Shared Planet, and an Evolved Portfolio. These goals are designed to promote accountability to our commitment and position us for long-term success. Our Inspired People pillar underlines our commitment to creating and sustaining a diverse, inclusive, and safe workplace. With a focus on creating a vibrant workplace culture that attracts, retains, and empowers the best and brightest in their fields, the following table sets forth our Inspired People goals and our relative progress at December 31, 2021.
Inspired People Goal (1) At December 31, 2021
(1) Inspired People goals are targeted for completion by December 31, 2030.
(2) Rate is defined as number of events per 100 workers per year.
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In support of our goals and commitment to foster a diverse and inclusive environment where all employees can contribute, thrive and grow, we have several Employee Resource Groups (“ERGs”): Chemours Asian Group, Chemours Black Employee Network, Chemours Latin American Resource Organization, Chemours Pride Network, Chemours Women’s Network, Early Career Network, and VetNet. The objectives of these ERGs are to help foster a diverse, inclusive workplace by educating and building awareness across the Company on challenges underrepresented groups often face, how to be more inclusive, supporting career development efforts, and leading community outreach efforts. We also facilitate additional educational programs, workshops and discussions on a variety of diversity and inclusion topics for global, regional, and local employee groups. In 2020, we introduced a new compensations metric focused on increasing the total proportion of women in the global workforce. The annual bonus structure for all Chemours executives and senior leaders now includes this metric, which we believe is important to drive interim progress toward our 2030 gender diversity goal.
Ultimately, we believe that our efforts towards achieving each of these goals result in a company culture that views our individual differences, safety-focused mentality, and talent development initiatives as sources of competitive strength.
Safety Obsession
Responsible chemistry begins with our focus on the safety and health of people all along our value chain, including our own workforce. Our Safety Obsession is deeply rooted in our responsible chemistry ethos and is one of our five core values, emphasizing our steadfast belief that a safe workplace is a profitable workplace. Our safety commitment extends beyond ourselves and our manufacturing sites, and we make ongoing, upfront investments in our people, our facilities, and our processes to protect the safety and well-being of our workforce, our business partners, and the communities in which we operate.
Our Safety Obsession culture requires and encourages our global workforce to seek out training opportunities to increase safety literacy and capability at our sites. We offer computer-based learning, classroom-style learning, hands-on training and demonstration for proficiency, and mentoring and apprenticeship training for skill development. Our course content ranges from general safety awareness trainings to specialized trainings, covering topics such as hazardous materials, electrical safety, and so forth. Our training programs are tailored to individual employee roles, promoting the safety of our workforce while simultaneously providing the knowledge and skills necessary to maintain operational performance at our complex manufacturing facilities. In measuring the safety performance of our workforce, we monitor several metrics, including those set forth in our Inspired People goals above.
Beyond the physical safety aspects of our workplace, we also consider the emotional and psychological aspects of employee safety – an idea we refer to as holistic safety. Emotional and psychological safety exists when team members feel accepted and respected, allowing them to bring their authentic selves to work without fear of negative consequences to self-image, workplace status, or career opportunities. Holistic safety and business performance are interconnected, as an environment lacking emotional and psychological safety creates distraction, which may lead to workplace missteps and can result in physical accidents. At Chemours, the way in which we work is grounded in our Safety Obsession, which encompasses the physical, emotional, and psychological dimensions of safety. Holistic safety also acknowledges our aspiration to be a diverse, equitable, and inclusive company, where every employee is fully engaged and actively contributing to business results.
Consistent with our Safety Obsession, we have taken several actions during 2021 to promote the health, safety, and well-being of our workforce in response to the COVID-19 pandemic. Such actions have included requiring remote working arrangements where practicable, the imposition of travel restrictions, limiting non-essential visits to plant sites, performing health checks before every shift, providing personal protective equipment for our “essential” operations employees at our sites and labs, and enhanced industrial hygiene and sanitization practices. We have also provided our employees with opportunities to participate in webinar sessions focused on challenges that may be experienced during trying times, such as mental and financial health. We will continue to make decisions that promote the health and safety of our employees and contractors throughout the duration of the COVID-19 pandemic.
Professional Development
We encourage our employees to own their careers by taking the lead in their respective professional development journeys. We actively support our employees in their professional development, providing multiple learning opportunities and trainings. We also provide our employees with the necessary tools and resources to develop and produce the next generation of innovative chemistry products, most notably, our 312,000-square-foot R&D facility on the Science, Technology, and Advanced Research campus of the University of Delaware in Newark, Delaware (“Chemours Discovery Hub”). Given our focus on experiential learning, we leverage special projects, short-term assignments, and cross-functional job rotations to further develop talent and support employees in meeting their professional aspirations. Semi-annual performance reviews, combined with annual career development planning and ongoing feedback, provide support in performance and development and help our people know where they excel and how they can improve.
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EquitableEmployeeCompensation
We provide a total compensation package that is targeted to be competitive with the markets in which we compete for talent, while allowing individual employee pay to vary equitably based on performance, skills, and experience. Our compensation programs are globally aligned, and, where possible, our total rewards plans include base salary, incentives (short- and long-term), financial, physical, and mental well-being programs, and monetary and social recognition. We routinely review our total rewards practices in the markets in which we compete to ensure our plans allow us to recruit and retain the diverse talent we need to be successful. We are firmly committed to paying our employees in a fair and equitable manner, regardless of race or gender, and we have implemented global total rewards tools to promote equitable remuneration. To ensure we deliver on this commitment, we periodically engage with independent third-party consultants to review our compensation practices and recommend pay actions.
Employee Attraction and Retention
We believe that our workplace culture, as reinforced by our CRC, corporate values, professional development opportunities, and competitive employee compensation, is critical in attaining a high offer acceptance rate and maintaining low levels of attrition, thereby enabling us to attract talented employees and retain and recognize the benefits of our investments in our employees’ technical manufacturing capabilities, safety acumen, and professional development. For the year ended December 31, 2021, our voluntary attrition percentage was approximately 9%.
Available Information
We are subject to the reporting requirements under the Securities Exchange Act of 1934 (the “Exchange Act”). Consequently, we are required to file reports and information with the U.S. Securities and Exchange Commission (“SEC”), including reports on the following forms: Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports are also accessible on our website at http://www.chemours.com by clicking on the section labeled “Investor Relations”, then on “Financials” and “SEC Filings”. These reports are made available, without charge, as soon as it is reasonably practicable after we file or furnish them electronically with the SEC at http://www.sec.gov.
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Item 1A. RISK FACTORS
Our operations could be affected by various risks, many of which are beyond our control. Based on current information, we believe that the following identifies the material risk factors that could affect our business, results of operations, or financial condition. Past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. Refer to our “Forward-looking Statements” for more details.
Risks Related to Legal Matters, Environmental Sustainability, and Regulations
Our results of operations could be adversely affected by litigation and other commitments and contingencies.
We face risks arising from various unasserted and asserted legal claims, investigations, and litigation matters, such as product liability claims, patent infringement claims, anti-trust claims, and claims for third-party property damage or personal injury stemming from alleged environmental actions (which may concern regulated or unregulated substances) or other torts. We have noted a nationwide trend in purported mass tort and class actions against chemical manufacturers generally seeking relief, such as medical monitoring, property damages, off-site remediation, and punitive damages arising from alleged environmental actions (which may concern regulated or unregulated substances) or other torts without claiming present personal injuries. We also have noted a trend in public and private nuisance suits being filed on behalf of states, counties, cities, and utilities alleging harm to the general public and damages to natural resources. Various factors or developments in these nationwide trends or in the actions could result in future charges that could have a material adverse effect on us. An adverse outcome in any one or more of these matters could be material to our financial results and/or stock price, and could adversely impact the value of any of our brands that are associated with any such matters. As discussed below, we are a named defendant and/or cost-sharing and defending DuPont, Corteva, and EID (together, the “DuPont Indemnitees”) in litigation related to the production and use of perfluorooctanoic acids and its salts, including the ammonium salt (“PFOA”); hexafluoropropylene oxide dimer acid (“HFPO Dimer Acid”, sometimes referred to as “GenX” or “C3 Dimer Acid”); Aqueous Film Forming Foam (“AFFF”); per- and polyfluoroalkyl substances (“PFAS”); and other compounds.
We have received inquiries, government investigations, directives, multiple lawsuits, and other actions related to PFOA, HFPO Dimer Acid, AFFF, and PFAS as discussed in more detail in “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements. These or other governmental inquiries or lawsuits could lead to us incurring liability for damages or other costs, a criminal or civil proceeding, the imposition of fines and penalties, and/or other remedies, as well as restrictions on or added costs for our business operations going forward, including in the form of restrictions on discharges at our Fayetteville Works site in Fayetteville, North Carolina (“Fayetteville”) or otherwise. Additional lawsuits or inquiries also could be instituted related to these or other compounds in the future. Accordingly, the existing lawsuits and inquiries, and any such additional litigation, relating to our existing operations, PFOA, HFPO Dimer Acid, AFFF, PFAS, or other compounds associated with our products or operations could result in us incurring additional costs and liabilities, which may be material to our financial position and results of operations.
In the ordinary course of business, we may make certain commitments, including representations, warranties, and indemnities relating to current and past operations, including those related to divested businesses, and issue guarantees of third-party obligations. Additionally, we may be required to indemnify EID with regard to liabilities allocated to, or assumed by, us under each of the separation agreement, the employee matters agreement, the tax matters agreement, and the intellectual property cross-license agreement that were executed prior to the Separation. These indemnification obligations to date have included defense costs associated with certain litigation matters, as well as certain damages awards, settlements, and penalties. In January 2021, we and the DuPont Indemnitees entered into a binding Memorandum of Understanding (the “MOU”) addressing certain PFAS matters and costs as detailed in “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements. Disputes with the DuPont Indemnitees and others which may arise with respect to the MOU and PFAS matters, including disputes based on matters of law or contract interpretation, could materially adversely affect our results of operations, financial condition, and cash flows.
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Wearesubjecttoextensiveenvironmentalandhealthandsafetylawsandregulationsthatmayresultinunanticipatedlossorliabilityrelatedtoourcurrentandpastoperations,andthatmayresultinsignificantadditionalcompliancecostsorobligations,whichineithercase,couldreduceourprofitability.
Our operations and production facilities are dependent upon attainment and renewal of requisite operating permits and are subject to extensive environmental and health and safety laws, regulations, and enforcements at national, international, and local levels in numerous jurisdictions, relating to pollution, protection of the environment, climate change, transporting and storing raw materials and finished products, storing and disposing of hazardous wastes, and product content and other safety concerns. Such laws include, but are not limited to:
If we are found to be in violation of these laws, regulations, or enforcements, which may be subject to change based on legislative, scientific, or other factors, we may incur substantial costs, including fines, damages, criminal or civil sanctions, remediation costs, reputational harm, loss of sales or market access, or experience interruptions in our operations. Our operations and production may also be subject to changes based on increased regulation or other changes to, or restrictions imposed by, any such additional regulations. Any operational interruptions or plant shutdowns may result in delays in production or may cause us to incur additional costs to develop redundancies in order to avoid interruptions in our production cycles. In addition, the manner in which adopted regulations (including environmental and safety regulations) are ultimately implemented may affect our products, the demand for and public perception of our products, the reputation of our brands, our market access, and our results of operations. In the event of a catastrophic incident involving any of the raw materials we use or chemicals we produce, we could incur material costs as a result of addressing the consequences of such event and future reputational costs associated with any such event.
Our costs of complying with complex environmental laws, regulations, and enforcements, as well as internal and external voluntary programs, are significant and will continue to be significant for the foreseeable future. These laws, regulations, and enforcements may change and could become more stringent over time, which could result in significant additional compliance costs, increased costs of purchased energy or other raw materials, increased transportation costs, investments in, or restrictions on, our operations, installation or modification of GHG-emitting equipment, or additional costs associated with GHG emissions. As a result of our current and historic operations, including the operations of divested businesses and certain discontinued operations, we also expect to continue to incur costs for environmental investigation and remediation activities at a number of our current or former sites and third-party disposal locations. However, the ultimate costs under environmental laws and the timing of these costs are difficult to accurately predict. While we establish accruals in accordance with U.S. generally accepted accounting principles (“GAAP”), the ultimate actual costs and liabilities may vary from the accruals because the estimates on which the accruals are based depend on a number of factors (many of which are outside of our control), including the nature of the matter and any associated third-party claims, the complexity of the site, site geology, the nature and extent of contamination, the type of remedy, the outcome of discussions with regulatory agencies and other Potentially Responsible Parties (“PRPs”) at multi-party sites, and the number and financial viability of other PRPs. Refer to “Environmental Matters” within Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements for further information. We also could incur significant additional costs as a result of additional contamination that is discovered or remedial obligations imposed in the future.
As discussed in “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements, we continue to have active dialogue with the North Carolina Department of Environmental Quality (“NC DEQ”) and other stakeholders regarding potential remedies that are both economically and technologically feasible to achieve the objectives of the Consent Order (“CO”) and Addendum (“Addendum”) related to the discharge of HFPO Dimer Acid and PFAS from Fayetteville into the Cape Fear River, site surface water, groundwater, and air emissions. The Addendum establishes the procedure to implement specified remedial measures for reducing PFAS loadings from Fayetteville to the Cape Fear River, including construction of a barrier wall with a groundwater extraction system. The estimated liabilities of achieving the CO and Addendum objectives consist of several components, each of which may vary significantly and may exceed the recorded reserve estimates. The final cost of the on-site barrier wall and groundwater treatment system depends on receiving timely NC DEQ design and permit approvals and thus the timely finalization of certain significant design details, notably the actual barrier wall location, depth, and length, number and configuration of extraction wells, water extraction rates and estimated carbon usage. Unanticipated schedule delays or other factors beyond our control could lead to further increases in the cost of the barrier wall, which could be material. Changes in estimates are recorded in results of operations in the period that the events and circumstances giving rise to such changes occur.
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Thereisalsoariskthatoneormoreofourmanufacturingprocesses,keyrawmaterials,orproductsmaybefoundtohave,orbecharacterizedorperceivedashaving,atoxicologicalorhealth-relatedimpactontheenvironmentoronourcustomersoremployeesorunregulatedemissions,whichcouldpotentiallyresultinusincurringliabilityinconnectionwithsuchcharacterizationandtheassociatedeffectsofanytoxicologicalorhealth-relatedimpact.Ifsuchadiscoveryorcharacterizationoccurs,wemayincurincreasedcostsinordertocomplywithnewregulatoryrequirementsorasaresultoflitigation.Inaddition,therelevantmaterialsorproducts,includingproductsofourcustomersincorporatingourmaterialsorproducts,mayberecalled,phased-out,orbanned.Changesinlaws,science,orregulations,ortheirinterpretations,andourcustomers’perceptionofsuchchangesorinterpretationsmayalsoaffectthemarketabilityofcertainofourproducts.
For example, in May 2016, the European Chemicals Agency (“ECHA”) accepted a proposal from France’s competent authority under REACH to change the classification of TiO2. ECHA’s Risk Assessment Committee (“RAC”) provided the opinion that the evidence meets the criteria under the EU’s Classification, Labeling and Packaging (“CLP”) Regulation to classify TiO2 as a Category 2 Carcinogen (suspected human carcinogen) by inhalation. To implement this opinion, the EU Commission (“EC”) presented a draft of the full 14th Adaptation to Technical Progress (“ATP”), including a proposed classification (with notes) for the powder form of TiO2 as a Category 2 Carcinogen by inhalation, as a delegated act for scrutiny by EU Council and Parliament. The act came into enforcement on October 1, 2021. The impacts of the additional regulatory measures will include increased requirements for TiO2 product labeling and importing operations, which could increase the costs associated with our TiO2 manufacturing and handling processes.
In June 2019, the Member States Committee of ECHA also voted to list HFPO Dimer Acid as a Substance of Very High Concern. The vote was based on Article 57(f) – equivalent level of concern having probable serious effects to the environment. This identification does not impose immediate regulatory restriction or obligations, but may lead to a future authorization or restriction of the substance, which could have an adverse effect on our results of operations, financial condition, and cash flows. In September 2019, we filed an application with the EU Court of Justice for the annulment of the decision of ECHA to list HFPO Dimer Acid as a Substance of Very High Concern.
In May 2020, five European countries began an initiative to restrict the manufacture, placing on the market and use of PFAS in the EU. In this regulatory process, more than 4,000 substances, including F-gases and fluoropolymers are being considered as part of this broad regulatory action. On July 15, 2021, the countries submitted their restriction proposal, which informs ECHA of the intent to prepare a PFAS restriction dossier for fluorinated substances within a defined structural formula scope, including branched fluoroalkyl groups and substances containing ether linkages, fluoropolymers and side chain fluorinated polymers. The restriction dossier will include information on hazards and risks, available information on alternatives and an analysis of the risk management instrument for addressing the identified risks. The submitting countries indicate that they expect to submit the restriction dossier to ECHA in July 2022. As part of the preparation of the restriction dossier, stakeholders were requested to provide relevant information and, based on risk and socio-economic information, derogations from the proposed restriction may be proposed by the submitting countries. If a derogation is not proposed by the submitting countries, the relevant stakeholders may do so during a consultation process. The draft dossier will be reviewed by the ECHA committees RAC and Socio-economic Analysis Committees (“SEAC”) and proposals submitted to the EU Commission in 2023. The estimated entry into force of restrictions is 2025. The impacts of restrictions and regulatory measures could lead to adverse effects on our results of operations, financial condition, and cash flows.
On October 18, 2021, the U.S. Environmental Protection Agency (the “EPA”) released its PFAS Strategic Roadmap, identifying a comprehensive approach to addressing PFAS. The PFAS Strategic Roadmap sets timelines by which EPA plans to take specific actions through 2024, including establishing a national primary drinking water regulation for PFOA and perfluorooctanesulfonic acid (“PFOS”) and taking Effluent Limitations Guidelines actions to regulate PFAS discharges from industrial categories among other actions. As provided under its roadmap, EPA also released on the same day its National PFAS Testing Strategy, under which the agency will identify and select certain PFAS compounds for which it will require PFAS manufacturers to conduct testing pursuant to TSCA orders. EPA has indicated that we will receive orders for certain of such compounds, including seven of the testing orders will be issued for PFAS compounds alleged to be associated with Fayetteville. On October 25, 2021, EPA published a final toxicity assessment for GenX compounds that decreased the draft reference dose for GenX compounds based on EPA’s review of new studies and analyses. Under the PFAS Strategic Roadmap, EPA indicated they plan to develop non-regulatory drinking water health advisories for certain PFAS compounds that have final EPA toxicity assessments, including GenX compounds in the Spring of 2022. We are currently evaluating the impact of EPA’s final toxicity assessment, including new data and analysis utilized by the agency, and have met with the agency to discuss process-related and technical concerns about the assessment. We cannot predict the final outcome of EPA’s actions for PFAS, including the implementation of the PFAS Strategic Roadmap, and the consequences of any such actions to our Company. However, the required TSCA order testing and GenX compounds toxicity assessment or future health advisories could increase the costs associated with our manufacturing processes and related remediations at certain of our sites. Additionally, further actions to be taken under or arising from EPA’s action under its PFAS Strategic Roadmap could lead to material adverse effects on our results of operations, financial condition, and cash flows.
18
The Chemours Company
InconnectionwithourSeparation,wewererequiredtoassume,andindemnifyEIDfor,certainliabilities.Aswemayberequiredtomakepaymentspursuanttotheseindemnitiesorunderthecost-sharingprovisionsoftheMOU,wemayneedtodivertcashtomeetthoseobligations,andourfinancialresultscouldbenegativelyaffected.Inaddition,theobligationsofEIDtoindemnifyusand/ortheobligationoftheDuPontIndemniteestosharecostsforcertainliabilitiesmaynotbesufficienttoinsureusagainstthefullamountoftheapplicableliabilitiesforwhichitwillbeallocatedresponsibility,andEIDand/ortheDuPontIndemniteesmaynotbeabletosatisfytheirobligationsinthefuture.
Pursuant to the separation agreement, the employee matters agreement, the tax matters agreement, and the intellectual property cross-license agreement we entered into with EID prior to the Separation, we were required to assume, and indemnify EID for, certain liabilities. These indemnification obligations to date have included, among other items, defense costs associated with certain litigation matters, as well as certain damages awards, settlement amounts, and penalties. In January 2021, we and the DuPont Indemnitees entered into a binding MOU addressing certain PFAS matters and costs as detailed in “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements.
Disputes with the DuPont Indemnitees and others, which may arise with respect to the MOU, PFAS matters, indemnification, and/or cost-sharing matters, including disputes based on matter of law or contract interpretation, could materially adversely affect our business, financial condition, results of operations, and cash flows. As described in “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements, multiple lawsuits have been filed by third parties containing allegations that EID’s separation of Chemours was a fraudulent transfer.
Third parties could also seek to hold us responsible for any of the liabilities of the EID businesses. EID has agreed to indemnify us for such liabilities, but such indemnity from EID may not be sufficient to protect us against the full amount of such liabilities, and EID may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from EID any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, financial condition, results of operations, and cash flows. Refer to “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements for further information.
In connection with our Separation, we were required to enter into numerous Separation-related and commercial agreements with our former parent company, EID, which may not reflect optimal or commercially beneficial terms to us.
Commercial agreements we entered into with EID prior to the Separation were formed in the context of the Separation while we were still a wholly-owned subsidiary of EID. Accordingly, during the period in which the terms of those agreements were formed, we did not have an independent board of directors or management independent of EID. Certain commercial agreements, having long terms and commercially-advantageous cancellation and assignment rights to EID, may not include adjustments for changes in industry and market conditions. There is a risk that the pricing and other terms under these agreements may not be commercially beneficial or able to be changed in the future. The terms relate to, among other things, the allocation of assets, liabilities, rights, and obligations, including the provision of products and services and the sharing and operation of property, manufacturing, office, and laboratory sites, and other commercial rights and obligations between us and EID.
If the distribution, in connection with the Separation, together with certain related transactions, were to fail to qualify for non-recognition treatment for U.S. federal income tax purposes, then we could be subject to significant tax and indemnification liability and stockholders receiving our common stock in the distribution could be subject to significant tax liability.
Generally, taxes resulting from the failure of the Separation and distribution or certain related transactions to qualify for non-recognition treatment under U.S. federal, state, and/or local tax law, and/or foreign tax law, would be imposed on EID or EID’s stockholders and, under the tax matters agreement that we entered into with EID prior to the Separation, EID is generally obligated to indemnify us against such taxes to the extent that we may be jointly, severally, or secondarily liable for such taxes. However, under the terms of the tax matters agreement, we are also generally responsible for any taxes imposed on EID that arise from the failure of the distribution to qualify as tax-free for U.S. federal income tax purposes within the meaning of Section 355 of the Internal Revenue Code (“IRC”) or the failure of such related transactions to qualify for tax-free treatment, to the extent such failure to qualify is attributable to actions, events, or transactions relating to our or our affiliates’ stock, assets, or business, or any breach of our or our affiliates’ representations, covenants, or obligations under the tax matters agreement (or any other agreement we enter into in connection with the Separation and distribution), the materials submitted to the U.S. Internal Revenue Service (“IRS”) or other governmental authorities in connection with the request for the IRS Ruling or other tax rulings or the representation letter provided to counsel in connection with the tax opinion. Events triggering an indemnification obligation under the agreement include events occurring after the distribution that cause EID to recognize a gain under Section 355(e) of the IRC. Such tax amounts could be significant. To the extent we are responsible for any liability under the tax matters agreement, there could be a material adverse impact on our financial condition, results of operations, and cash flows in future reporting periods.
19
The Chemours Company
Ourfailuretocomplywiththeanti-corruptionlawsoftheU.S.andvariousinternationaljurisdictionscouldnegativelyimpactourreputationandresultsofoperations.
Doing business on a global basis requires us to comply with the laws and regulations of the U.S. government and those of various international and sub-national jurisdictions, and our failure to successfully comply with these rules and regulations may expose us to liabilities. These laws and regulations apply to companies, individual directors, officers, employees, and agents, and may restrict our operations, trade practices, investment decisions, and partnering activities. In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act 2010 (“Bribery Act”), and other anti-corruption laws of the various jurisdictions in which we operate. The FCPA, the Bribery Act, and other laws prohibit us and our officers, directors, employees, and agents acting on our behalf from corruptly offering, promising, authorizing, or providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. Our global operations may expose us to the risk of violating, or being accused of violating, the foregoing or other anti-corruption laws. Such violations could be punishable by criminal fines, imprisonment, civil penalties, disgorgement of profits, injunctions, and exclusion from government contracts, as well as other remedial measures. Investigations of alleged violations can be very expensive, disruptive, and damaging to our reputation. Although we have implemented anti-corruption policies and procedures, there can be no guarantee that these policies, procedures, and training will effectively prevent violations by our employees or representatives in the future. Additionally, we face a risk that our distributors and other business partners may violate the FCPA, the Bribery Act, or similar laws or regulations. Such violations could expose us to FCPA and Bribery Act liability, and/or our reputation may potentially be harmed by their violations and resulting sanctions and fines.
Risks Related to COVID-19
A pandemic, epidemic, or other outbreak of infectious disease may have a material adverse effect on our business operations, results of operations, financial condition, and cash flows.
Our operational and financial condition may be negatively impacted by the widespread outbreak of any illnesses or communicable diseases, as well as any associated public health crises that may ensue. To minimize the transmissions, social and economic restrictions have been or may be imposed in the U.S. and abroad, including travel bans, quarantines, restrictions on public gatherings, shelter-in-place orders, and/or safer-at-home orders. These restrictions, while necessary and important for public health, can have negative business-related implications for our Company and the U.S. and global economies.
Since 2020, the COVID-19 pandemic has negatively impacted the global economy, disrupting global supply chains and creating significant uncertainty and volatility in financial markets. While we experienced minimal disruption in our operations and business-related processes, we are continuously monitoring the effects of the COVID-19pandemic on all aspects of our business, including its adverse impacts on our employees, customers, suppliers, vendors, business partners, and supply and distribution channels, as well as our ability to execute our business strategies and objectives. As a multi-national corporation, we are also continuously monitoring the operational and financial impacts of evolving restrictive local and national laws and regulations, as well as recommendations set forth by public health organizations and governmental organizations to impede the spread of COVID-19.
The extent to which the COVID-19 pandemic could adversely impact our Company depends on evolving factors, as well as future developments that we are not able to predict with certainty. These factors include the duration and scope of the COVID-19 pandemic, including an increased spread of infections or new variants of the virus; the health of our employees and the workforce of certain third-party service providers or contractors; extended travel bans, quarantines, or shelter-in-place orders; changes in customer demand; increased operating costs to deal with the impacts of COVID-19; supply chain inefficiencies or ineffectiveness, including raw material shortages, driven by impacts of COVID-19 on our suppliers; prolonged weaker economic conditions; and consumer and business confidence and the resulting decreases in our customers’ demand and spending patterns, as well as their respective abilities to fulfill any existing purchase obligations.
The widespread outbreak of any illness or communicable disease could result in, and in the instance of the COVID-19 pandemic has resulted in, a significant health crisis that adversely affects local and global economies and financial markets, including the companies that operate within these conditions. Each of the above considerations related to the COVID-19 pandemic remain highly uncertain and subject to change, continue to evolve, and have the potential to have a material adverse impact on our business operations, results of operations, financial condition, and cash flows. However, we cannot predict with certainty the magnitude of such impacts at this time. The impact of COVID-19may also exacerbate our other risks, as described within this Item 1A – Risk Factors, any of which could have a material effect on us, including among other things, risks associated with our indebtedness, including available capacity, compliance with debt covenants; risks related to adequacy of our cash flow and earnings and other conditions which may affect our liquidity; and risks related to our ongoing ability to pay dividends and repurchase common stock. As the situation continues to evolve, additional impacts of which we are not currently aware may also arise.
20
The Chemours Company
RisksRelatedtoOurBusinessPerformance
Operating as a multi-national corporation presents risks associated with global and regional economic downturns and global capital market conditions, as well as risks resulting from changes to regional regulatory requirements (including environmental standards).
Our business and operating results may in the future be adversely affected by global and regional economic conditions, including instability in credit markets, declining consumer and business confidence, fluctuating commodity prices and interest rates, volatile exchange rates, and other challenges, such as tariffs on international trade, border adjustments for certain products, and a changing financial regulatory environment that could affect the global economy. Such global and regional economic conditions may be further affected by physical risks that stem from a number of root causes, including natural disasters, climate change, and/or travel-based restrictions that may be driven by geo-political activities, military actions, terrorism, and the spread of pandemics, such as the COVID-19 pandemic.
Our customers may experience deterioration of their businesses, shortages in cash flows, and difficulty obtaining financing. As a result, existing or potential customers may delay or cancel plans to purchase products and may not be able to fulfill their obligations to us in a timely fashion. Further, suppliers could experience similar conditions, which could impact their ability to supply materials or otherwise fulfill their obligations to us. Because we have significant international operations, there are a large number of currency transactions that result from our international sales, purchases, investments, and borrowings. Future weakness in the global economy and failure to manage these risks could adversely affect our results of operations, financial condition, and cash flows in future periods.
In addition to the general risks associated with operating in the global economy, our revenue and profitability are largely dependent on the TiO2 pigment industry and the industries that are the end-users of our refrigerants and fluoropolymers. TiO2 pigment, refrigerants, and fluoropolymers are used in many “quality of life” products for which demand historically has been linked to global, regional, and local GDP and discretionary spending, which can be negatively impacted by regional and world events or economic conditions. Such events, which may or may not impact all of our businesses at the same time or to the same degree, are likely to cause a decrease in the demand for our products and, as a result, may have an adverse effect on our results of operations and financial condition. The future profitability of our operations, and cash flows generated by those operations, will also be affected by the available supply of our products in the market. Further, our future demand growth may be below average global GDP growth rates if our sales into developed markets outpace our sales into emerging markets. In addition, because demand for certain of our products is driven in part by industry needs to comply with certain environmental regulations (such as markets for refrigerants and foams with low GWP), changes in, the elimination of, or lack of enforcement of such environmental regulations in the U.S., the EU, or other jurisdictions can also negatively impact demand for such products and, as a result, our results of operations and financial condition.
The businesses in which we compete are highly competitive. If our intellectual property were compromised or copied by competitors, or if our competitors were to develop similar or superior intellectual property or technology, our results of operations could be negatively affected.
Each of the businesses in which we operate is highly competitive. Competition in the performance chemicals industry is based on a number of factors, such as price, product quality, and service. We face significant competition from major international and regional competitors. Some of our competitors in the Titanium Technologies segment have announced plans to expand their chloride capacity. Additionally, our Titanium Technologies business competes with numerous regional producers, including producers in China, who have expanded their readily available production capacity during the previous five years. The risk of substitution of these Chinese producers by our customers could increase as these Chinese producers expand their use of chloride production technology. Similarly, we compete with various producers in our Thermal & Specialized Solutions and Advanced Performance Materials businesses, and the risk of substitution of these producers by our customers could increase if these producers develop better capabilities to manufacture products similar to our specialty products.
Intellectual property rights, including patents, trade secrets, confidential information, trademarks, and tradenames are important to our business. We endeavor to protect our intellectual property rights in key jurisdictions in which our products are produced or used and in jurisdictions into which our products are imported. Our success depends to a significant degree upon our ability to protect and preserve our intellectual property rights. However, we may be unable to obtain protection for our intellectual property in key jurisdictions. Although we own and have applied for numerous patents and trademarks throughout the world, we may have to rely on judicial enforcement of our patents and other proprietary rights. Our patents and other intellectual property rights may be challenged, invalidated, circumvented, and rendered unenforceable or otherwise compromised. A failure to protect, defend, or enforce our intellectual property could have an adverse effect on our financial condition and results of operations. Similarly, third parties may assert claims against us and our customers and distributors, alleging our products infringe upon third-party intellectual property rights.
21
The Chemours Company
Wealsorelyuponunpatentedproprietarytechnology,know-how,andothertradesecretstomaintainourcompetitiveposition.Whilewemaintainpoliciestoenterintoconfidentialityagreementswithouremployeesandthirdpartiestoprotectourproprietaryexpertiseandothertradesecrets,theseagreementsmaynotbeenforceableor,eveniflegallyenforceable,wemaynothaveadequateremediesforbreachesofsuchagreements.Wealsomaynotbeabletoreadilydetectbreachesofsuchagreements.Thefailureofourpatentsorconfidentialityagreementstoprotectourproprietarytechnology,know-how,ortradesecretscouldresultinsignificantlylowerrevenues,reducedprofitmargins,orlossofmarketshare.
If we must take legal action to protect, defend, or enforce our intellectual property rights, any suits or proceedings could result in significant costs and diversion of resources and management’s attention, and we may not prevail in any such suits or proceedings. A failure to protect, defend, or enforce our intellectual property rights could have an adverse effect on our financial condition and results of operations.
Effects of price fluctuations in energy and raw materials, our raw materials contracts, and our inability to renew such contracts, could have a significant impact on our earnings.
Our manufacturing processes consume significant amounts of energy and raw materials, the costs of which may be subject to worldwide supply and demand factors, global trade regulations and tariffs, GHG emissions-based regulations, and other factors beyond our control. Variations in the cost of energy, which primarily reflect market prices for oil and natural gas, and for raw materials may significantly affect our operating results from period to period. Additionally, to the extent climate change regulations and restrictions are not stringently imposed in the countries in which our competitors operate, our competitors could gain cost or other competitive advantages. Consolidation in the industries providing our raw materials may also have an impact on the cost and availability of such materials. To the extent we do not have fixed price contracts with respect to specific raw materials, we have no control over the costs of raw materials, and such costs may fluctuate widely for a variety of reasons, including changes in availability, major capacity additions or reductions, or significant facility operating problems.
When possible, we have purchased, and we plan to continue to purchase, raw materials, including titanium-bearing ores and fluorspar, through negotiated medium-term or long-term contracts to minimize the impact of price fluctuations. To the extent that we have been able to achieve favorable pricing in our existing negotiated long-term contracts, we may not be able to renew such contracts at the current prices, or at all, and this may adversely impact our profitability and cash flows from operations. However, to the extent that the prices of the raw materials that we utilize significantly decline, we may be bound by the terms of our existing long-term contracts and obligated to purchase such raw materials at higher prices as compared to other market participants.
We attempt to offset the effects of higher energy and raw materials costs through selling price increases, productivity improvements, and cost reduction programs. However, the outcome of these efforts is largely determined by existing competitive and economic conditions, and may be subject to a time delay between the increase in our raw materials costs and our ability to increase prices, which could vary significantly depending on the market served. If we are not able to fully offset the effects of higher energy or raw materials costs, there could be a material adverse effect on our financial results.
Our reported results and financial condition could be adversely affected by currency exchange rates and currency devaluation could impair our competitiveness.
Due to our international operations, we transact in many foreign currencies, including, but not limited to, the euro, the Mexican peso, the Chinese yuan, and the Japanese yen. As a result, we are subject to the effects of changes in foreign currency exchange rates. During times of a strengthening U.S. dollar, our reported net sales and operating income will be reduced because the local currency will be translated into fewer U.S. dollars. During periods of local economic crisis, local currencies may be devalued significantly against the U.S. dollar, potentially reducing our margin. For example, depreciation of the euro against the U.S. dollar has historically negatively impacted our results of operations. We also have certain indebtedness and payables denominated in the euro, and, during times of a strengthening euro relative to the U.S. dollar, our overall debt obligations and payables in U.S. dollars equivalent will increase.
We enter into certain of our qualifying foreign currency forward contracts under a cash flow hedge program to mitigate the risks associated with fluctuations in the euro against the U.S. dollar for forecasted U.S. dollar-denominated purchases for certain of our international subsidiaries. There can be no assurance that any hedging action will lessen the adverse impact of a variation in currency rates. Also, actions to recover margins may result in lower volume and a weaker competitive position, which may have an adverse effect on our profitability. For example, in our Titanium Technologies segment, a substantial portion of our manufacturing is located in the U.S. and Mexico, while our TiO2 pigment is delivered to customers around the world. Furthermore, our ore cost is principally denominated in U.S. dollars. Accordingly, in periods when the U.S. dollar or Mexican peso strengthen against other local currencies, such as the euro, our costs are higher relative to some of our competitors who operate largely outside of the U.S. and Mexico, and the benefits we realize from having lower costs associated with our manufacturing process are reduced, impacting our profitability.
22
The Chemours Company
Ifweareunabletoinnovateandsuccessfullyintroducenewproducts,ornewtechnologiesorprocessesreducethedemandforourproductsorthepriceatwhichwecansellproducts,ourprofitabilitycouldbeadverselyaffected.
Our industries and the end-use markets into which we sell our products experience periodic technological changes and product improvements, as well as changes in mandates on or regulation of products and services. Our future growth will depend on our ability to gauge the direction of commercial and technological progress in key end-use markets, our ability to fund and successfully develop, manufacture, and market products in such changing end-use markets, and our ability to adapt to changing regulations. We must continue to develop lower-emission manufacturing technologies and identify, develop, and market innovative products or enhance existing products on a timely basis to maintain our profit margins and our competitive position. We may be unable to develop new products or technologies, either alone or with third parties, or license intellectual property rights from third parties on a commercially competitive basis. If we fail to keep pace with the evolving technological innovations in our end-use markets on a competitive basis, including with respect to innovation related to the development of alternative uses for, or application of, products developed that utilize such end-use products, our financial condition and results of operations could be adversely affected. We cannot predict whether technological innovations will, in the future, result in a lower demand for our products or affect the competitiveness of our business. We may be required to invest significant resources to adapt to changing technologies, markets, customer behaviors and demands, competitive environments, and laws, regulations, or enforcements. We cannot anticipate market acceptance of new products or future products. In addition, we may not achieve the expected benefits associated with new products developed to meet new laws, regulations, or enforcements if the implementation of such laws, regulations, or enforcements is delayed, and we may face competition from illegal or counterfeit products in regulated markets.
If our long-lived assets become impaired, we may be required to record a significant charge to earnings.
We have a significant amount of long-lived assets on our consolidated balance sheets. Under GAAP, we review our long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances, indicating that the carrying value of our long-lived assets may not be recoverable, include, but are not limited to, changes in the industrial, economic, political, social, and physical landscapes in which we operate, as well as competition or other factors leading to a reduction in expected long-term sales or profitability. We may be required to record a significant non-cash charge in our financial statements during the period in which any impairment of our long-lived assets is determined, negatively impacting our results of operations.
We could be subject to changes in our tax rates and the adoption of tax legislation or exposure to additional tax liabilities that may adversely affect our results of operations, financial condition, and cash flows.
We are subject to taxes in the U.S. and non-U.S. jurisdictions where our subsidiaries are organized. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. Our future effective tax rates could be affected by and may fluctuate because of changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws or their interpretations, and taxes associated with the repatriation of our non-U.S. earnings. Our tax returns and other tax matters are subject to examination by local tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these examinations. If our effective tax rates were to increase, or if the ultimate determination of the taxes owed by us is for an amount in excess of amounts previously accrued, our operating results, financial condition, and cash flows could be adversely affected.
We are subject to continuing contingent tax-related liabilities of EID.
There are other significant areas where the liabilities of EID may become our obligations. For example, under the IRC and the related rules and regulations, each corporation that was a member of EID’s consolidated tax reporting group during any taxable period or portion of any taxable period ending on or before the effective time of the distribution is jointly and severally liable for the U.S. federal income tax liability of the entire consolidated tax reporting group for such taxable period. In connection with the Separation and distribution, we entered into a tax matters agreement with EID that allocates the responsibility for prior period taxes of EID’s consolidated tax reporting group between us and EID. If EID were unable to pay any prior period taxes for which it is responsible, however, we could be required to pay the entire amount of such taxes, and such amounts could be significant. Other provisions of federal, state, local, or foreign law may establish similar liability for other matters, including laws governing tax-qualified pension plans, as well as other contingent liabilities.
23
The Chemours Company
Weareaholdingcompanythatisdependentoncashflowsfromouroperatingsubsidiariestofundourdebtobligations,PFASescrowfundingrequirements,capitalexpenditures,andongoingoperations.
All of our operations are conducted, and all of our assets are owned, by our operating companies, which are our subsidiaries. We intend to continue to conduct our operations at the operating companies and any future subsidiaries. Consequently, our cash flows and our ability to meet our obligations, including our debt obligations, PFAS escrow funding requirements, or make cash distributions depends upon the cash flows of our operating companies and any future subsidiaries, as well as the ability of our operating companies and any future subsidiaries to transfer funds in the form of dividends or otherwise.
Our debt is generally the exclusive obligation of The Chemours Company and our guarantor subsidiaries, as described in “Note 20 – Debt” to the Consolidated Financial Statements. Because a significant portion of our operations are conducted by non-guarantor subsidiaries, our cash flows and our ability to service indebtedness, including our ability to pay the interest on our debt when due and principal of such debt at maturity, are dependent to a large extent upon cash dividends and distributions or other transfers from such non-guarantor subsidiaries. Any payment of dividends, distributions, loans, or advances by our non-guarantor subsidiaries to us could be subject to restrictions on dividends or repatriation of earnings under applicable local law, monetary transfer restrictions, and foreign currency exchange regulations in the jurisdictions in which our subsidiaries operate, and any restrictions imposed by the current and future debt instruments of our non-guarantor subsidiaries.
Our subsidiaries are separate legal entities and, except for our guarantor subsidiaries, have no obligation, contingent or otherwise, to pay any amounts due on our debt or to make any funds available for those amounts, whether by dividends, loans, distributions, or other payments, and do not guarantee the payment of interest on, or principal of, our debt. Any right that we have to receive any assets of any of our subsidiaries that are not guarantors upon the liquidation or reorganization of any such subsidiary, and the consequent right of holders of the outstanding notes to realize proceeds from the sale of their assets, will be structurally subordinated to the claims of that subsidiary’s creditors, including trade creditors and holders of debt issued by that subsidiary.
The ability of our operating companies and any future subsidiaries to make any payments to us depends on their earnings, the terms of their indebtedness, including the terms of any credit facilities, and legal restrictions regarding the transfer of funds.
Failure to meet some or all of our key financial and non-financial targets could negatively impact the value of our business and adversely affect our stock price.
From time to time, we may announce certain key financial and non-financial targets that are expected to serve as benchmarks for our performance for a given time period, including goals for our future net sales growth, adjusted earnings before interest, taxes, depreciation, and amortization, adjusted earnings per share, free cash flows, return on invested capital, net leverage ratio, corporate responsibility commitments, and/or sustainability commitments. Our failure to meet one or more of these key targets may negatively impact our results of operations, stock price, and stockholder returns. The factors influencing our ability to meet these key targets include, but are not limited to, changes in the global economic environment, changes in our competitive landscape, including our relationships with new or existing customers, our ability to introduce new products, applications, or technologies, our undertaking of an acquisition, joint venture, or other strategic arrangement, the outcome of any new or existing litigation, our failure to comply with new or existing laws or regulations, and other factors described within this Item 1A – Risk Factors, many of which are beyond our control.
24
The Chemours Company
RisksRelatedtoOurOperations
Our ability to make future strategic decisions regarding our manufacturing operationsare subject to regulatory, environmental, political, legal, and economic risks, and to a certain extent may be subject to consents or cooperation from EID under the agreements entered into between us and EID as part of the Separation. These could adversely affect our ability to execute our future strategic decisions and our results of operations and financial condition.
One of the ways we may improve our business is through the expansion or improvement of our facilities. Construction of additions or modifications to facilities involves numerous regulatory, environmental, political, legal, and economic uncertainties that are beyond our control and are subject to various start-up risks and consent to operate. Difficulties in obtaining any of the requisite licenses, permits, and authorizations from governmental or regulatory authorities could increase the total cost, delay, jeopardize, or prevent the construction or opening of such facilities. Our expansion or improvement projects may also require the expenditure of significant amounts of capital, and financing may not be available on economically acceptable terms, or at all. As a result, these projects may not be completed on schedule, at the budgeted cost, or at all, which may adversely affect our results of operations, financial condition, and cash flows. Moreover, our revenue may not increase immediately upon the expenditure of funds on a particular project or may be negatively impacted by regulatory or other developments relating to the chemicals we use or manufacture. As a result, we may not be able to realize our expected investment return, which could also adversely affect our results of operations, financial condition, and cash flows.
We periodically assess our manufacturing operations in order to manufacture and distribute our products in the most efficient manner and to minimize the potential impacts of climate-related physical risks on our operations. Based on our assessments, we may make strategic decisions regarding our manufacturing operations, such as capital improvements to modernize certain units and/or improve structural resilience, move manufacturing or distribution capabilities from one plant or facility to another plant or facility, discontinue manufacturing or distributing certain products, or close or divest all or part of a manufacturing plant or facility, some of which have significant shared services and lease agreements with EID. These agreements may adversely impact our ability to make these strategic decisions regarding our manufacturing operations. Further, if such agreements are terminated or revised, we would have to assess and potentially adjust our manufacturing operations, the closure or divestiture of all or part of a manufacturing plant or facility that could result in future charges that could be significant.
Hazards associated with chemical manufacturing, storage, containment, and transportation could adversely affect our results of operations.
There are hazards associated with chemical manufacturing and the related storage, containment, and transportation of raw materials, products, and wastes. These hazards could lead to an interruption or suspension of operations and have an adverse effect on the productivity and profitability of a particular manufacturing facility or on us as a whole. While we endeavor to provide adequate protection for the safe-handling of these materials, issues could be created by various events, including unforeseen accidents or defects, natural disasters, severe weather events, acts of sabotage, military actions, terrorism, and performance by third parties, including tenants at certain of our manufacturing facilities, and, as a result, we could face the following potential hazards:
• piping and storage tank leaks and ruptures;
• mechanical failure;
• employee exposure to hazardous substances;
• fires and explosions; and,
These hazards may cause personal injury and loss of life, damage to property, contamination of the environment, and damage to natural resources, which could lead to government fines and penalties, remedial obligations, work stoppage injunctions, claims and lawsuits by injured persons, damage to our public reputation and brands, loss of sales and market access, customer dissatisfaction, and diminished product acceptance. If such actions are determined adversely to us or there is an associated economic impact to our business, we may have inadequate insurance or cash flows to offset any associated costs. Such outcomes could adversely affect our financial condition and results of operations.
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The Chemours Company
Ourresultsofoperationsandfinancialconditioncouldbeseriouslyimpactedbybusinessdisruptionsandsecuritybreaches,includingcybersecurityincidents.
Business and/or supply chain disruptions, plant downtime, power outages, and/or information technology system and network disruptions, regardless of cause, including acts of sabotage, employee error or other actions, geo-political activity, military actions, and terrorism (including cyberterrorism) could seriously harm our operations, as well as the operations of our customers and suppliers. Further, the nature of our business dictates that we maintain significant concentrations of physical assets in geographic locations which may be vulnerable to the impacts of climate change, including significant changes in storm patterns and intensities, water shortages, increasing atmospheric and water temperatures, and rising sea levels. Such events could also seriously harm our operations, as well as the operations of our customers and suppliers, and accordingly, we continue to study the long-term implications of changing climate parameters on plant siting, operational issues, and water availability. Any of the aforementioned disruptions and/or events could have a negative impact on our business, results of operations, financial condition, and cash flows.
Failure to effectively prevent, detect, and recover from security breaches, including attacks on information technology and infrastructure by hackers, viruses, breaches due to employee error or other actions, or other disruptions, could result in misuse of our assets, business disruptions, loss of property including trade secrets and confidential business information, legal claims or proceedings, reporting errors, processing inefficiencies, negative media attention, loss of sales, and interference with regulatory compliance. Such risks are particularly relevant in consideration of remote working arrangements utilized by our workforce where practicable during the COVID-19 pandemic. Like most major corporations, we have been, and expect to be, the target of industrial espionage, including cyberattacks, from time to time. We have determined that these attacks have resulted, and could result in the future, in unauthorized parties gaining access to certain confidential business information, and have included the obtaining of trade secrets and proprietary information related to the chloride manufacturing process for TiO2 pigment by third parties. Although we do not believe that we have experienced any material losses to date related to these breaches, there can be no assurance that we will not suffer any such losses in the future. We plan to actively manage the risks within our control that could lead to business disruptions and security breaches. As these threats continue to evolve, particularly around cybersecurity, we may be required to expend significant resources to enhance our control environment, processes, practices, and other protective measures. Despite these efforts, such events could materially adversely affect our business, financial condition, or results of operations.
Our information technology is provided by a combination of internal and external services and service providers, and we rely on information technology in many aspects of our business, including internal and external communications, and the management of our accounting, finance, and supply chain functions. Further, our business involves the use, storage, and transmission of information about customers, suppliers, and employees. As we become more dependent on information technology to conduct our business, and as the number and sophistication of cyberattacks increases, the risks associated with cybersecurity, information security, and data privacy also increases. In response to such risks, we provide our employees with cyber and information security training on a periodic and an annual basis. Failure to maintain effective internal control over our information technology and infrastructure could materially adversely affect our business, financial condition, or results of operations, and/or have a material adverse impact on our stock price.
Preparedness plans pertaining to the physical- and cyber-related aspects of our business have been developed with detailed actions needed in the event of unforeseen events or severe weather. We also engineer our facilities to better withstand these events and hold insurance coverage to protect against losses from physical damages and business interruptions. These measures have historically been in place, and such activities and associated costs are driven by normal operational preparedness. However, there can be no assurance that such measures will be effective for a particular event that we may experience.
Our operations could be materially impacted in the event of a failure of our information technology infrastructure.
We currently use an enterprise resource planning (“ERP”) software platform that is no longer supported; however, we are able to pay for extended, customer-specific support, which can be costly. We are currently evaluating our options to upgrade or switch this platform. Any systems failure, accident, or security breach could result in significant costs or disruptions to our operations, which could have a material adverse effect on our business. Further, such improvements and upgrades are often complex, costly, and time-consuming. We may experience challenges integrating any new ERP software platform with our existing technology systems, or may uncover problems with our existing technology systems. Any unsuccessful attempt to upgrade or switch our ERP software platform could result in outages, a disruption to our operations and our ability to serve our customers, and/or damage to our reputation.
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The Chemours Company
RisksRelatedtoOurIndebtedness
Our current level of indebtedness could adversely affect our financial condition, and we could have difficulty fulfilling our obligations under our indebtedness, which may have a material adverse effect on us.
As of December 31, 2021, we had approximately $3.8 billion of indebtedness. At December 31, 2021, together with the guarantors, we had approximately $1.2 billion of indebtedness outstanding under our senior secured credit facilities, and a $900 million revolving credit facility (“Revolving Credit Facility”) capacity, which would be senior secured indebtedness, if drawn (collectively, the “Senior Secured Credit Facilities”). Our current level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. The level of our indebtedness could have other important consequences on our business, including:
• restricting us from capitalizing on business opportunities;
The occurrence of any one or more of these circumstances could have a material adverse effect on us.
Our ability to make scheduled payments on and to refinance our indebtedness, including on our outstanding notes, depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business, and other factors (many of which are beyond our control), including the availability of financing in the international banking and capital markets. We cannot be certain that our business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our debt, including the outstanding notes, to refinance our debt, or to fund our other liquidity needs.
If we are unable to meet our debt service obligations or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt, including the outstanding notes. Failure to successfully restructure or refinance our debt could cause us to default on our debt obligations and would impair our liquidity. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.
Moreover, in the event of a default of our debt service obligations, if not cured or waived, the holders of the applicable indebtedness, including holders of our outstanding notes and the Senior Secured Credit Facilities, could elect to declare all the funds borrowed to be due and payable, together with accrued and unpaid interest. We cannot be certain that our assets or cash flows would be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. First, a default in our debt service obligations in respect of the outstanding notes would result in a cross-default under the Senior Secured Credit Facilities. The foregoing would permit the lenders under the Revolving Credit Facility to terminate their commitments thereunder and cease making further loans, and would allow the lenders under the Senior Secured Credit Facilities to declare all loans immediately due and payable and to institute foreclosure proceedings against their collateral. Second, any event of default or declaration of acceleration under the Senior Secured Credit Facilities or certain other agreements relating to our outstanding indebtedness could also result in an event of default under the indenture governing the outstanding notes, and any event of default or declaration of acceleration under any other of our outstanding indebtedness may also contain a cross-default provision. Any such default, event of default if not cured or waived, or declaration of acceleration could force us into bankruptcy, reorganization, insolvency, or liquidation.
Refer to “Note 20 – Debt” to the Consolidated Financial Statements for further discussion related to our indebtedness.
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The Chemours Company
Despiteourcurrentlevelofindebtedness,wemayincursubstantiallymoredebtandenterintoothertransactions,whichcouldfurtherexacerbatetheriskstoourfinancialconditiondescribedabove.
Notwithstanding our current level of indebtedness, we may incur significant additional indebtedness in the future, including additional secured indebtedness (including the $900 million maximum capacity under the Revolving Credit Facility) that would be effectively senior to our outstanding notes. Although the indenture that governs the outstanding notes and the credit agreement that governs the Senior Secured Credit Facilities contain restrictions on our ability to incur additional indebtedness and to enter into certain types of other transactions, these restrictions are subject to a number of significant qualifications and exceptions. Additional indebtedness incurred in compliance with these restrictions, including additional secured indebtedness, could be substantial. These restrictions also do not prevent us from incurring obligations, such as trade payables, that do not constitute indebtedness as defined under our debt instruments. To the extent such new debt is added to our current debt levels, the substantial leverage risks described in the immediately preceding risk factor would increase.
We may need additional capital in the future and may not be able to obtain it on favorable terms.
Our industry is capital intensive, and we may require additional capital in the future to finance our growth and development, implement further marketing and sales activities, fund ongoing R&D activities, make investments driven by environmental compliance, and meet general working capital needs. Our capital requirements will depend on many factors, including acceptance of and demand for our products, the extent to which we invest in new technology and R&D projects, and the status and timing of these developments, as well as the general availability of capital from debt and/or equity markets. However, debt or equity financing may not be available to us on terms we find acceptable, if at all. If we are unable to raise additional capital when needed, our financial condition could be materially and adversely affected.
Additionally, our failure to maintain the credit ratings on our debt securities, including the outstanding notes, could negatively affect our ability to access capital and could increase our interest expense on future indebtedness. We expect the credit rating agencies to periodically review our capital structure and the quality and stability of our earnings. Deterioration in our capital structure or the quality and stability of our earnings could result in a downgrade of our overall credit ratings and our debt securities. Any negative rating agency actions could constrain the capital available to us, reduce or eliminate available borrowing to us, and could limit our access to and/or increase the cost of funding our operations. If, as a result, our ability to access capital when needed becomes constrained, our interest costs could increase, which could have material adverse effect on our results of operations, financial condition, and cash flows.
The agreements governing our indebtedness restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.
The agreements governing our indebtedness, including the outstanding notes, contain, and the agreements governing future indebtedness and future debt securities may contain, significant restrictive covenants and, in the case of the Revolving Credit Facility, financial maintenance and negative covenants that will limit our operations, including our ability to engage in activities that may be in our long-term best interests. These restrictive covenants may limit us, and our restricted subsidiaries, from taking, or give rights to the holders of our indebtedness in the event of, the following actions:
• making acquisitions or other investments;
• prepaying, redeeming, or repurchasing certain indebtedness;
• selling or otherwise disposing of assets;
• selling stock of our subsidiaries;
• incurring liens;
• entering into transactions with affiliates;
• entering into transactions that result in a change of control of us; and,
• consolidating, merging, or selling all or substantially all of our assets.
Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of some or all of our indebtedness, which could lead us to bankruptcy, reorganization, or insolvency.
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The Chemours Company
Ourvariablerateindebtednesssubjectsustointerestraterisk,whichcouldcauseourindebtednessserviceobligationstoincreasesignificantly.
Our borrowings under the Senior Secured Credit Facilities are at variable rates and expose us to interest rate risk. As a result, if interest rates increase, our debt service obligations under the Senior Secured Credit Facilities or other variable rate debt would increase, even though the amount borrowed would remain the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease. We may use, from time to time, derivative instruments to mitigate interest rate risk. However, there is no guarantee that derivative contracts may be available to us and/or if such contracts will provide the desired results. As of December 31, 2021, we had approximately $1.2 billion of our outstanding debt under the Senior Secured Credit Facilities at variable interest rates.
Refer to “Note 26 – Financial Instruments” to the Consolidated Financial Statements for further details regarding our interest rate swaps designated as a cash flow hedge.
General Risk Factors
Our stock price could become more volatile and investments could lose value.
The market price for our common stock may be affected by a number of factors, including, but not limited to:
• our quarterly or annual earnings, or those of other companies in our industry;
• actual or anticipated fluctuations in our operating results;
• anticipated or actual outcomes or resolutions of legal or other contingencies;
• the operating and stock price performance of other comparable companies;
• a change in our dividend or stock repurchase activities;
• the announcement of new products by us or our competitors;
A significant drop or rise in our stock price could expose us to costly and time-consuming litigation, which could result in substantial costs and divert management’s attention and resources, resulting in an adverse effect on our business. As further described in “Note 22 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements, lawsuits have been filed alleging that Chemours and certain of its officers have violated the Exchange Act of 1934.
We cannot guarantee the timing or amount of our dividends and/or our share repurchases, which are subject to a number of uncertainties that may affect the price of our common stock.
The declaration, payment, and amount of any dividends, and/or the decision to purchase common stock under our share repurchase programs, are subject to the sole discretion of our board of directors and, in the context of our financial policy and capital allocation strategy, will depend upon many factors, including our financial condition, operating results, cash flows, and relevant prospects, our capital requirements and access to capital markets, covenants associated with certain of our debt obligations, legal requirements, and other factors that our board of directors may deem relevant, and there can be no assurances that we will continue to pay a dividend or repurchase our common shares in the future.
The reduction or elimination of our dividends or share repurchase programs could adversely affect the price of our common stock. Additionally, any repurchases of our common stock will reduce the amount of our common stock outstanding. There can be no assurances that any share repurchase activity will increase stockholder value due to market fluctuations in the price of our common stock, which may reduce the price of our common stock to levels below the repurchase price. Although our share repurchase programs are designed to enhance long-term shareholder value, short-term fluctuations in the market price of our common stock could reduce the program’s overall effectiveness.
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The Chemours Company
Astockholder’spercentageofownershipinusmaybedilutedinthefuture.
A stockholder’s percentage ownership in our common stock may be diluted because of equity issuances for acquisitions, capital market transactions, or otherwise, including, without limitation, equity awards that we may be granting to our directors, officers, and employees. Such issuances may have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.
In addition, our amended and restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences, and relative participating, optional, and other special rights, including preferences over our common stock with respect to dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of our common stock.
Certain provisions in our amended and restated certificate of incorporation and amended and restated by-laws, and of Delaware law, may prevent or delay an acquisition of us, which could decrease the trading price of the common stock.
Our amended and restated certificate of incorporation and amended and restated by-laws contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include, among others:
• the inability of our stockholders to act by written consent;
• the limited ability of our stockholders to call a special meeting;
In addition, we are subject to Section 203 of the Delaware General Corporations Law (“DGCL”). Section 203 of the DGCL provides that, subject to limited exceptions, persons that (without prior board of directors approval) acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation, or acquisitions of additional shares, for a three-year period following the date on which that person or its affiliate becomes the holder of more than 15% of the corporation’s outstanding voting stock.
We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if an acquisition proposal or offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in our and/or our stockholders’ best interests. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.
Several of the agreements that we have entered into with EID require EID’s consent to any assignment by us of our rights and obligations, or a change of control of us, under the agreements. The consent rights set forth in these agreements might discourage, delay, or prevent a change of control that a stockholder may consider favorable.
Our success depends on our ability to attract and retain key employees, and to identify and develop talented personnel to succeed our senior management and other key employees.
Our success depends on the performance of our key employees, including our senior management team. If we are unable to attract, retain, identify, and develop a talented, diverse set of leaders, whether due to technical, geographical, social, or other differences, our results of operations, financial condition, and cash flows could be adversely affected. Further, if we are unable to effectively plan for the succession of our senior management team, our results of operations, financial condition, and cash flows could be adversely affected, as we may be unable to realize our business strategy. While our ongoing personnel practices identify a succession process for our key employees, we cannot guarantee the effectiveness of this process, the continuity of highly-qualified individuals serving in all of our key positions at particular moments in time, and/or the completeness of any knowledge transfer at the time of succession, including its impacts on our general operations and on our internal controls over our financial reporting.
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The Chemours Company
Item1B.UNRESOLVEDSTAFFCOMMENTS
None.
Item 2. PROPERTIES
Our Production Facilities and Technical Centers
Our corporate headquarters is located in Wilmington, Delaware, and we maintain a global network of production facilities and technical centers located in cost-effective and strategic locations. We also use contract manufacturing and joint venture partners in order to provide regional access or to lower manufacturing costs, as appropriate.
The following chart sets forth our production facilities at December 31, 2021.
Production Facilities
(1) Site is leased from a third party.
(2) Site with joint venture equity affiliates.
We have technical centers and R&D facilities located at a number of our production facilities. We also maintain stand-alone technical centers to serve our customers and provide technical support.
The following chart sets forth our stand-alone technical centers at December 31, 2021.
Technical Centers
North America Newark, Delaware (1,3) Wilmington, Delaware (1,2)
Europe, the Middle East, and Africa Kallo, Belgium (1) Meyrin, Switzerland (1,2)
Latin America Mexico City, Mexico (1)
Asia Pacific Shanghai, China (1,3)
(1) Site is leased from a third party.
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The Chemours Company
Ourplantsandequipmentaremaintainedingoodoperatingcondition.Webelievethatwehavesufficientproductioncapacityforourprimaryproductstomeetdemandin2022.Ourpropertiesareprimarilyownedbyus;however,certainpropertiesareleased,asnotedintheprecedingtables.