UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2017

OR

Commission File Number 001-36794

The Chemours Company

(Exact Name of Registrant as Specified in Its Charter)

 

1007 Market Street, Wilmington, Delaware 19899

(Address of Principal Executive Offices)

Registrant’s Telephone Number: (302) 773-1000

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities are registered pursuant to Section 12(g) of the Act: None

 

The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $7.0 billion. As of February 13, 2018, 182,524,068 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 2018 annual meeting of shareholders (2018 Proxy Statement) are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 2018 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.

 

 

 

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The Chemours Company

Table of Contents

 

 

 

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Forward-looking Statements

This section and other parts of this Annual Report on Form 10-K contain forward-looking statements, within the meaning of the federal securities law, 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 those discussed below and within Item 1A – Risk Factors.

Forward-looking statements are based on certain assumptions and expectations of future events which 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:

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 “DuPont” refer to E.I. du Pont de Nemours and Company, a Delaware corporation, and its consolidated subsidiaries (other than Chemours and its consolidated subsidiaries), unless the context otherwise requires.

 

 

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PART I

Item 1. BUSINESS

Overview

The Chemours Company (herein referred to as us, we, 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 plastics and coatings, refrigeration and air conditioning, general industrial, electronics, mining, and oil refining. Our principal products include titanium dioxide (TiO₂), refrigerants, industrial fluoropolymer resins, sodium cyanide, and performance chemicals and intermediates. We manage and report our operating results through three reportable segments: Titanium Technologies, Fluoroproducts, and Chemical Solutions. Our Titanium Technologies segment is a leading, global producer of TiO₂ pigment, a premium white pigment used to deliver whiteness, brightness, opacity, and protection in a variety of applications. Our Fluoroproducts segment is a leading, global provider of fluoroproducts, including refrigerants and industrial fluoropolymer resins. Our Chemical Solutions segment is a leading, North American provider of industrial chemicals used in gold production, industrials, and consumer applications.

We operate 26 production facilities located in 10 countries and serve approximately 4,000 customers across a wide range of end-markets in nearly 130 countries.

The following chart sets forth the global sales of our businesses for the years ended December 31, 2017, 2016, and 2015.

We are committed to creating value for our customers through the reliable delivery of high quality products and services around the globe. We create value for our customers and stockholders through: (i) operational excellence and asset efficiency, which includes our commitment to safety and environmental stewardship; (ii) strong customer focus to produce innovative, high performance products; (iii) focus on cash flows generation through optimization of our cost structure, and improvement in working capital and supply chain efficiencies through our transformation plan (described below); (iv) organic growth and inorganic expansions to current business; and, (v) creation of an organization that is committed to our corporate values of safety, customer appreciation, simplicity, collective entrepreneurship, and integrity.

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, 2017, no one individual customer balance represented more than 5% of our total outstanding receivables balance and no one individual customer represented more than 10% of our net sales.

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Corporate History

We began operating as an independent company on July 1, 2015 (Separation Date) after separating from E.I. du Pont de Nemours and Company (DuPont) (Separation). Effective prior to the opening of trading on the New York Stock Exchange (NYSE) on the Separation Date, DuPont completed the Separation of the businesses comprising its Performance Chemicals reporting segment, and certain other assets and liabilities, into us, a separate and distinct public company. The Separation was completed by way of a distribution of all of the then-outstanding shares of our common stock through a dividend-in-kind of our common stock (par value $0.01) to holders of DuPont’s common stock (par value $0.30) as of the close of business on June 23, 2015 (Record Date).

On the Separation Date, each holder of DuPont’s common stock received one share of our common stock for every five shares of DuPont’s common stock held on the Record Date. The Separation was completed pursuant to a separation agreement and other agreements with DuPont, 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 DuPont following the Separation and provided for the allocation of various assets, liabilities, rights, and obligations at the Separation Date. These agreements also included arrangements for transition services provided to us by DuPont, which were substantially completed during 2016.

Our Five-Point Transformation Plan

Following the Separation, we developed a five-point transformation plan to address changes to our organization, cost structure, and portfolio of businesses. We made considerable progress on our transformation plan from August 2015 through December 2017 and declared the transformation plan complete at the end of 2017.

The objectives of our multi-year, five-point transformation plan were to improve our financial performance, streamline and strengthen our portfolio, and reduce our leverage by:

Through our cost reduction and growth initiatives, as well as improved market conditions, we delivered over $800 million of incremental adjusted earnings before interest, income taxes, depreciation, and amortization (Adjusted EBITDA) improvement over 2015 through 2017. Through year-end 2017, we realized approximately $350 million in cost savings since the Separation, which improved our pre-tax earnings by similar amounts. We continue to implement additional cost reduction initiatives in order to realize additional structural cost savings through 2018 and beyond. These improvements were realized after offsets related to the impact of divestitures completed during 2016, unfavorable price and mix of other products, and may also be impacted by market factors and other costs to achieve our plan.

For the year ended December 31, 2017, we had pre-tax income and Adjusted EBITDA of $912 million and $1.4 billion, respectively, compared with a pre-tax loss and Adjusted EBITDA of $11 million and $822 million, respectively, for the year ended December 31, 2016, and a pre-tax loss and Adjusted EBITDA of $188 million and $573 million, respectively, for the year ended December 31, 2015. Through a combination of higher cash flows from operations and proceeds from asset sales, we reduced our leverage ratio (defined as the ratio of our net debt, or debt less cash and cash equivalents, to Adjusted EBITDA) to below 2.0 times at the end of 2017.

Adjusted EBITDA is a financial measure that is not defined by generally accepted accounting principles (GAAP) in the United States (U.S.) (i.e., it is a non-GAAP financial measure). For further discussion regarding our use of non-GAAP financial measures and reconciliations to their closest GAAP financial measures, see “Non-GAAP Financial Measures” within Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Growth Expectations Through 2020

On December 1, 2017, we held our first investor day, during which we described how we expect each of our businesses to contribute to our overall growth. For our Titanium Technologies segment, we are implementing a value stabilization strategy in order to seek to reduce volatility for our Ti-Pure^TM TiO₂ pigment earnings. For our Fluoroproducts segment, we are optimizing our fluorochemicals product mix with the expansion of Opteon^TM refrigerants capacity and renewing our fluoropolymers portfolio through application development. For our Chemical Solutions segment, we are expanding our capacity to meet demand for our Mining Solutions products. To the extent we are successful in implementing such plans, as to which no assurance can be made, we aim to meet key financial targets through 2020, including goals for our future net sales growth, Adjusted EBITDA margin improvement, adjusted earnings per share (Adjusted EPS), Free Cash Flows (FCF), and Return on Invested Capital (ROIC).

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Adjusted Net Income, Adjusted EPS, FCF, and ROIC are non-GAAP financial measures. Adjusted Net Income is defined as our net income, adjusted for items excluded from Adjusted EBITDA, except interest expense, depreciation and amortization, and certain provision for (benefit from) income tax amounts. Adjusted EPS is presented on a diluted basis and is calculated by dividing our Adjusted Net Income by the weighted-average number of our common shares outstanding, accounting for the dilutive impact of our stock-based compensation awards. FCF is defined as our cash flows provided by operating activities, less purchases of property, plant, and equipment as shown in our consolidated statements of cash flows. ROIC is defined as Adjusted EBITDA, less depreciation and amortization (Adjusted EBIT), divided by the average of our invested capital, which amounts to our net debt plus equity. For further discussion regarding the risks associated with our failure to meet these key financial targets for 2020, see Item 1A – Risk Factors. For further discussion regarding our use of non-GAAP financial measures and reconciliations to their closest GAAP financial measures, see “Non-GAAP Financial Measures” within Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 TiO₂, and our low cost network of manufacturing facilities allows us to efficiently and cost-effectively serve our global customer base. During 2016, we further enhanced our operating cost advantage with the startup of a second production line at our Altamira, Mexico facility. We believe we are well-positioned to remain one of the lowest cost TiO₂ producers and continue to meet our customers’ growing needs around the world.

In our Fluoroproducts segment, we are one of two globally-integrated producers making both fluorochemicals and fluoropolymers. In our fluorochemicals business, we expect to see increased adoption of Opteon™, one of the world’s lowest global warming potential (GWP) refrigerants, as governments around the world pass legislation that makes the use of low GWP refrigerants a requirement. Our fluoropolymers offerings provide customers with tailored products that have unique properties, including very high temperature resistance and high chemical resistance. We will continue to invest in research and development (R&D) to remain a leader in these areas and ensure that we are able to meet our customers’ needs as regulations change.

In our Chemical Solutions segment, we completed a strategic review of our portfolio in 2016, which included the announced sales of our aniline facility in Beaumont, Texas, our Clean & Disinfect (C&D) business, and our Sulfur products business, as well as ceasing production at our Reactive Metals Solutions (RMS) facility in Niagara Falls, New York. We remain committed to retaining and improving our Mining Solutions business (previously known as our Cyanides business) and the product lines at our Belle, West Virginia site. As the largest global producer of solid sodium cyanide, our Mining Solutions business is recognized for our quality product offering, reliability of supply, and commitment to the safe production, storage, and use of our products. Global demand growth over the next three years is expected to remain healthy, driven by growth in gold ore processing volumes, and use as an intermediate in the synthesis of other chemicals (primarily in China). In the Americas region, the demand for sodium cyanide is expected to far exceed global demand growth rates, and as a result, we are currently building a new manufacturing facility in Mexico using a proprietary manufacturing technology that is inherently easier and safer to use. This new facility is expected to increase our sodium cyanide supply by approximately 50%, and it is expected to be completed in 2018.

We will maintain our commitment to responsible stewardship and safety for our employees, customers, and the communities where we operate. Meeting and exceeding our customers’ expectations while conducting business in accordance with our high ethical standards will continue to be a primary focus for us as we continue to transform into a higher value chemistry company.

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 25 – Geographic and Segment Information” within the Consolidated Financial Statements.

Titanium Technologies Segment

Segment Overview

Our Titanium Technologies segment is a leading, global manufacturer of TiO₂. TiO₂ pigment is used to deliver whiteness, opacity, brightness, and ultra-violet light protection in applications such as architectural and industrial coatings, flexible and rigid plastic packaging, polyvinylchloride (PVC) window profiles, laminate papers used for furniture and building materials, coated paper, and coated paperboard used for packaging. We sell our TiO₂ pigment under the Ti-Pure™ brand name to approximately 700 customers globally. We also sell a chloride-based TiO₂ pigment under the BaiMax^TM brand name, which is exclusively produced for customers in Greater China. We operate four TiO₂ production facilities: two in the U.S., one in Mexico, and one in Taiwan. In addition, we have a large-scale repackaging and distribution facility in Belgium and operate a mineral sands mining operation in Starke, Florida. In total, we have a TiO₂ pigment capacity of approximately 1.25 million metric tons per year. We expanded our TiO₂ production facility in Altamira, Mexico in 2016, and by late 2017, we demonstrated full production capacity.

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We are one of a limited number of producers operating a chloride process for the production of 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 producers, as we uniquely utilize a broad spectrum of titanium-bearing ore feedstocks to achieve 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 end-user total value.

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 be in line with global gross domestic product (GDP) growth. In 2017, demand growth for Ti-Pure^TM was above global GDP due to increased preference for high quality Ti-Pure^TM offerings, as well as global supply and demand dynamics. Longer-term, we expect global TiO₂ pigment demand growth to correlate to global GDP growth rates. Our future Ti-Pure^TM demand growth may be below average global GDP growth rates if our sales into developed markets outpace our sales into emerging markets.

Our Titanium Technologies segment net sales by region and end-market for the years ended December 31, 2017, 2016, and 2015 are set forth in the following charts.

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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We have operated a titanium mine in Starke, Florida since 1949. The mine provides us with access to a low cost source of domestic, high quality ilmenite ore feedstock and supplies less than 10% of our ore feedstock consumption needs. Co-products of our mining operations, which comprised less than 5% of our total sales in Titanium Technologies in 2017, are zircon (zirconium silicate) and staurolite minerals. We are a major supplier of high quality calcined zircon in North America, primarily focused on the precision investment casting industry, foundry, specialty applications, and ceramics. Our staurolite blasting abrasives are used in steel preparation and maintenance and paint removal.

Following the 2008 global financial crisis, the TiO₂ pigment market saw a significant swing in average price from 2010 through 2015. As demand fell sharply during the global financial crisis, some high cost sites were shut down, shrinking overall industry capacity. This was followed by a strong surge in demand from 2010 through 2012, which brought on large price increases over a very short period. Soon thereafter, from 2012 through 2016, an influx of new capacity came online, driving TiO₂ pigment prices down sharply. Since 2016, we have been working with our customers to price for the intrinsic value of Ti-Pure^TM to the end-user. We believe that volatility in both price and supply availability are significant concerns for producers and consumers throughout the value chain, and that a more stable price and supply trajectory for Ti-Pure^TM will enable our customers to focus on their downstream customer needs and enhance confidence in the long-term stability of the Ti-Pure^TM supply base.

Industry Overview and Competitors

We estimate that the worldwide demand for TiO₂ in 2017 was approximately 6.1 million metric tons, of which, 60% was for premium performance pigments. Worldwide capacity in 2017 was estimated to be approximately 7.3 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. Over the next few years, we are planning 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 the anticipated needs of our customers during this time. This new capacity will effectively provide the equivalent of a new production line, while requiring a fraction of the capital investment. Our increased production capacity is also expected to be supported with investments to extend our ilmenite mine and through long-term work contracts with our suppliers.

Competition in the TiO₂ pigment market is based primarily on product performance (both product design and quality consistency), supply capability, and technical service. Our major competitors within higher performance pigments include: The National Titanium Dioxide Company, Ltd., or Cristal, Venator Material plc, Kronos Worldwide, Inc., and Tronox Limited.

Beyond multi-national suppliers, the only other large producer is the Chinese producer, the Lomon-Billions Group. The other TiO₂ pigment producers are fragmented, mostly utilizing the sulfate production process, and competing in the general purpose, lower performance pigment market. Within China, over the next few years, we believe that the announced added effective capacity is expected to be somewhat offset by capacity shutdowns at marginal producers.

Raw Materials

The primary raw materials used in the manufacture of TiO₂ 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. Our titanium mine in Starke, Florida supplies less than 10% of our raw materials needs. 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 provides 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 the lowest 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 expense and 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. Distribution efficiency is enhanced through the use of bulk ocean, barge, and rail transportation modes.

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Energy is another key input cost in the TiO₂ manufacturing process, representing approximately 12% of the production cost. We have access to natural gas-based energy at our U.S. and Mexico TiO₂ production facilities and our Florida minerals plant, supporting advantaged energy costs given the low cost of shale gas in the U.S.

Sales, Marketing, and Distribution

We sell the majority of our products through a direct sales force. We also utilize third-party sales agents and distributors to expand our reach. 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 an 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 to product lines and geographic regions in order to maximize utilization and maintain an efficient supply chain.

Customers

Globally, we serve approximately 700 customers through our Titanium Technologies segment. In 2017, our 10 largest Titanium Technologies customers accounted for approximately 35% of the segment’s net sales, and one Titanium Technologies customer represented more than 10% of the segment’s net sales. Our larger customers in the U.S. and Europe 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 Titanium Technologies are producers of decorative coatings, automotive and industrial coatings, polyolefin masterbatches, PVC window profiles, 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 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 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 market, but may vary by region, country, or application. It can also be altered by economic or other demand cycles.

Fluoroproducts Segment

Segment Overview

Our Fluoroproducts segment is a global leader in providing fluorine-based, advanced materials solutions. The segment creates products that have unique properties, such as high temperature resistance, high chemical resistance, and unique di-electric properties, for applications across a broad array of industries and applications. We are a global leader in providing fluoroproducts, such as refrigerants and industrial fluoropolymer resins and derivatives.

The manufacturing of fluoroproducts involves complex processes that include the use of highly corrosive and hazardous intermediates. We have an industry-leading safety culture and apply world-class technical expertise to ensure that our operations run safely and reliably. These capabilities, alongside our R&D expertise, allow us to continuously improve our process technology.

We sell fluoroproducts through two primary product groups: Fluorochemicals and Fluoropolymers.

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Fluorochemicals products include refrigerants, industrial coolers, air conditioning, foam blowing agents, propellants, and fire suppression products. We have held a leading position in the fluorochemicals market since the commercial introduction of Freon™ in 1930. Since the original chlorofluorocarbons (CFCs)-based product was introduced, we have been at the forefront of new technology research for lower GWP and lesser ozone-depleting potential products, leading to the development of hydrochlorofluorocarbons (HCFCs) and hydrofluorocarbons (HFCs). We have a leading position in HFC refrigerants under the brand name Freon™, and we are a leader in the development of sustainable technologies like Opteon™, a line of low GWP hydrofluoroolefin (HFO) refrigerants, which also have a zero-ozone-depletion footprint. Opteon™ was jointly developed with Honeywell International, Inc. (Honeywell) in response to the European Union’s (EU) Mobile Air Conditioning Directive. This patented technology offers similar functionality to current HFC products, but meets or exceeds currently-mandated environmental standards and, in some cases, provides energy efficiency benefits.

We led the industry in the Montreal-Protocol (1987)-driven transition from CFCs to the lesser ozone-depleting HCFCs and non-ozone-depleting HFCs. In 1988, we committed to cease production of CFCs and started manufacturing non-ozone-depleting HFCs in the early 1990s. Driven by new and emerging environmental legislations, and standards currently being implemented across the U.S., Europe, Latin America, and Japan, we have commercialized Opteon™. Over the years, regulations have pushed the industry to evolve and respond to environmental concerns. We will continue to invest in R&D to remain a leader and meet our customers’ needs as regulations change.

Fluorochemicals’ refrigerant sales fluctuate by season as sales in the first half of the year generally are slightly higher than sales in the second half of the year, due to mobile applications. However, Opteon™ sales into mobile air markets will be driven by automotive production, which may lead to less seasonality within Fluorochemicals overall.

Fluoropolymers products include various industrial resins, specialty products, and coatings. We serve a wide range of industrial and end-user applications, including electronics, communications, wires and cable, energy, consumer, oil and gas, and aerospace, among others. Our products’ unique properties include chemical inertness, thermal stability, non-stick adhesion, low friction, weather and corrosion resistance, and extreme temperature resistance.

Our Fluoropolymers products are sold under the brand names Teflon™, Viton™, Krytox™, and Nafion™. Teflon™ coatings and additives are used in multiple end-products including paints, fabrics, carpets, clothing, and other household applications. Teflon™ coatings, resins, additives, and films are also used in a wide range of industrial products. Our fluoroelastomer products, sold under the Viton™ brand name, are used in automotive, consumer electronics, chemical processing, oil and gas, petroleum refining and transportation, and aircraft and aerospace applications. Our Krytox™-branded lubricants are used in a broad range of industrial applications, including bearings, electric motors, and gearboxes. We sell membranes under the brand name Nafion™, which are used in fuel cells, energy flow battery storage, transportation, stationary power, and medical tubing.

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Our Fluoroproducts segment’s net sales by region and product group for the years ended December 31, 2017, 2016, and 2015 are set forth in the following charts.

Industry Overview and Competitors

Our Fluoroproducts segment competes against a broad variety of global manufacturers, as well as regional Chinese and Indian manufacturers. We have a leadership position in fluorine chemistry and materials science, a broad scope and scale of operations, market-driven application development, and deep customer knowledge.

We have global leadership positions in the Fluoroproducts categories as set forth in the following table.

 

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Fluoroproducts demand growth is generally in line with global GDP. Within Fluorochemicals, 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. In Fluoropolymers, overall market growth is expected to be in line with GDP over the next few years, but influenced by increased competition and pricing pressure in some businesses. There are certain emerging technologies, along with our focus on applications development, that may drive our growth at a rate faster than GDP.

Developed markets represent the largest fluoroproducts markets today. Global middle class growth and the increasing demand for expanding infrastructure, alternative energy, consumer electronics, telecommunications, automobiles, refrigerators, and air conditioners are all key drivers of increased demand for various fluoroproducts.

Raw Materials

The primary raw materials required to support the Fluoroproducts segment are fluorspar, chlorinated organics, chlorinated inorganics, hydrofluoric acid, and vinylidene fluoride. These are available in many countries and not concentrated in any particular region.

Our supply chains are designed for maximum competitiveness through favorable sourcing of key raw materials. Our contracts typically include terms that span from two to 10 years, except for select resale purchases that are negotiated on a monthly basis. Most qualified fluorspar sources have fixed contract prices or freely-negotiated, market-based pricing. Although the fluoroproducts industry has historically relied primarily on fluorspar exports from China, we have diversified our sourcing through multiple geographic regions and suppliers to ensure a stable and cost competitive supply. Our current supply agreements are generally in effect for the next five years.

Sales, Marketing, and Distribution

With more than 85 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 fluoroproducts 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 contracts with a typical duration of one year.

We maintain 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, continually optimizes the assignment of our transportation equipment to product lines and geographic regions in order to maximize utilization and flexibility of the supply chain.

Customers

We serve approximately 2,700 customers and distributors globally and, in many instances, these commercial relationships have been in place for decades. No single Fluoroproducts customer represented more than 10% of the segment’s net sales in 2017.

Seasonality

Fluorochemicals’ refrigerant sales fluctuate by season as sales in the first half of the year generally are slightly higher than sales in the second half of the year, due to mobile applications. Seasonality in Fluorochemicals sales is mainly driven by increased demand for residential, commercial, and automotive air conditioning in the spring. This demand peaks in the summer months and declines in the fall and winter. Commercial refrigeration demand is fairly steady throughout the year, but demand is slightly higher during the summer months. Mobile air conditioning demand is slightly higher in the first half of the year due to the timing of automotive shut downs in the second half. Our Opteon^TM sales into mobile air markets will be driven by automotive production, which may lead to less seasonality within Fluorochemicals overall. There is no significant seasonality for Fluoropolymers, as demand is relatively consistent throughout the year; however, demand is slightly higher during the first half of the year.

Chemical Solutions Segment

Segment Overview

Our Chemical Solutions segment comprises a portfolio of industrial chemical businesses, primarily operating in the Americas. The Chemical Solutions segment’s products are used as important raw materials and catalysts for a diverse group of industries including, among others, gold production, 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. We are a leading provider of sodium cyanide in the Americas through our Mining Solutions business.

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As part of our transformation plan announced in 2015, we conducted a strategic review of our Chemical Solutions segment. This process resulted in the divestiture of three assets and businesses, the shutdown of one business, and the decision to retain the remaining businesses. Specifically, we sold our aniline facility in Beaumont, Texas to The Dow Chemical Company (Dow) in March 2016. We also sold our Sulfur business to Veolia North America, Inc. (Veolia) in July 2016 and our C&D business to LANXESS Corporation (Lanxess) in August 2016. These divestitures resulted in gross proceeds of approximately $685 million in 2016. In addition, we ceased production at our RMS facility in Niagara Falls, New York in September 2016. The segment continues to include our Mining Solutions business, an aniline manufacturing unit in Pascagoula, Mississippi, and the product lines at our Belle, West Virginia site, which include our Methylamines, Glycolic Acid, and Vazo™ free radical initiators product lines.

Chemical Solutions operates at three production facilities in North America, which sell products and solutions through two primary product groups: Mining Solutions and Performance Chemicals and Intermediates. The Mining Solutions product group includes our sodium cyanide, hydrogen cyanide, and potassium cyanide product lines. We are the market leader in solid sodium cyanide production in the Americas, which is used primarily by the mining industry for gold and silver production. We are also investing in a new sodium cyanide production facility in Mexico that is expected to be completed in 2018. In the Performance Chemicals and Intermediates product group, we manufacture a wide variety of chemicals used in many different applications. Following our recent divestitures, Performance Chemicals and Intermediates is now comprised of our Methylamines, Glycolic Acid, Vazo™, and Aniline product lines. Our Performance Chemicals and Intermediates business is expected to generally grow in line with growth in global GDP.

Our Chemical Solutions segment’s net sales by region and primary product group for the years ended December 31, 2017, 2016, and 2015 are set forth in the following charts.

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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, methylamines, aniline, and Vazo™. Our positions in these products are the result of our process technology, manufacturing scale, efficient supply chain, and proximity to large customers. Our Chemical Solutions segment also holds, and occasionally licenses, what we believe to be leading process technologies for the production of hydrogen and sodium cyanide, which are used in industrial polymers and gold production.

We have global leadership positions in the product categories as set forth in the following table.

 

Raw Materials

Key raw materials for Chemical Solutions include ammonia, methanol, natural gas, hydrogen, 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 not believe that the loss of any particular supplier would be material to our business.

Sales, Marketing, and Distribution

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 large 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 product lines and geographic regions in order to maximize utilization and flexibility of the supply chain.

The strategic placement of our production 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. Our Chemical Solutions segment serves approximately 500 customers globally. No single Chemical Solutions customer represented more than 10% of the segment’s net sales in 2017.

Seasonality

Our Chemical Solutions segment sales are subject to minimal seasonality.

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Intellectual Property

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. We hold many patents, particularly in our Fluoroproducts segment, as described herein. These patents, including various patents that will expire from 2018 through 2034, in the aggregate, are believed to be of material importance to our business. However, we believe that no single patent (or related group of patents) is material in relation to our business as a whole. In addition, particularly in our Titanium Technologies 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. Unlike patents, trade secrets do not have a pre-determined validity period, but are valid indefinitely, so long as their secrecy is maintained. We work actively on a global basis to create, protect, and enforce our intellectual property rights. The protection afforded by these patents and trademarks varies based on country, scope of individual patent, and trademark coverage, as well as the availability of legal remedies in each country. Although certain proprietary intellectual property rights are important to our success, we do not believe that we are materially-dependent on any particular patent 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.

Our Titanium Technologies segment in particular relies upon unpatented proprietary knowledge, continuing technological innovation, and other trade secrets to develop and maintain our competitive position in this sector. 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. In our Titanium Technologies segment’s intellectual property portfolio, we consider our trademarks Ti-Pure™ and BaiMax^TM to be valuable assets and have registered the Ti-Pure^TM trademark in a number of countries and the BaiMax^TM trademark in China.

Our Fluoroproducts segment is the technology leader in the markets in which it participates. We have one of the largest patent portfolios in the fluorine derivatives industry. In our Fluoroproducts segment’s intellectual property portfolio, we consider our Freon™, Opteon™, Teflon™, Viton™, Nafion^TM, and Krytox™ trademarks to be valuable assets.

Our Chemical Solutions segment is a manufacturing and application development 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 application development technologies are no longer under patent coverage.

At the Separation, certain of our subsidiaries entered into an intellectual property cross-license agreement with DuPont, pursuant to which (i) DuPont has agreed to license to us certain patents, know-how, and technical information owned by DuPont or its affiliates which are necessary or useful in our business, and (ii) we have agreed to license to DuPont certain patents owned by us or our affiliates which are necessary or useful in DuPont’s business. In most circumstances, the licenses are perpetual, irrevocable, sub-licensable (in connection with the party’s business), assignable (in connection with a sale of the applicable portion of a party’s business or assets, subject to certain exceptions) worldwide licenses in connection with the current operations of the businesses and, with respect to specified products and fields of use, future operations of such businesses, subject to certain limitations with respect to specified products and fields of use.

Research and Development

We perform R&D activities in all of our segments, with the majority of our efforts focused in the Fluoroproducts segment. The Fluoroproducts segment efforts center around developing new sustainable fluorochemicals, as well as determining new applications and formulations for fluoropolymers that meet our customers’ technical requirements. In the Titanium Technologies and Chemical Solutions segments, our efforts are focused on process technology to reduce cost and maintain safety and stewardship standards.

The following table sets forth our R&D expense by segment for the years ended December 31, 2017, 2016, and 2015.

 

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Backlog

In general, we do not manufacture our products against a backlog of orders and do not consider backlog to be a significant indicator of the level of our future sales activity. Our production and inventory levels are based on the level of incoming orders as well as projections of future demand. Therefore, we believe that backlog information is not material to understanding our overall business and should not be considered a reliable indicator of our ability to achieve any particular level of revenue or financial performance.

Environmental Matters

Information related to environmental matters is included in several areas of this report, 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 20 – Commitments and Contingent Liabilities” within the Consolidated Financial Statements.

Available Information

We are subject to the reporting requirements under the Securities Exchange Act of 1934 (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.

The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, District of Columbia 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

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 “Filings & Reports.”  These reports are made available, without charge, as soon as it is reasonably practicable after we file or furnish them electronically with the SEC.

Employees

We have nearly 7,000 employees, approximately 16% of whom are represented by unions or works councils. Management believes that its relations with its employees and labor organizations are good. There have been no strikes or work stoppages in any of our locations in recent history.

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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 most significant 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. See our “Forward-looking Statements” for more details.

Risks Related to Our Business

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, antitrust 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, including, as discussed below, litigation related to the production and use of PFOA (collectively, perfluorooctanoic acids and its salts, including the ammonium salt) by DuPont prior to the Separation. We have also received inquiries, investigations, and litigation related to HFPO Dimer Acid (sometimes referred to as GenX or C3 Dimer) and other compounds. We have noted a nationwide trend in purported 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. Various factors or developments can lead to changes in current estimates of liabilities such as a final adverse judgment, significant settlement, or change in applicable law. A future adverse ruling or unfavorable development 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 could adversely impact the value of any of our brands that are associated with any such matters. As discussed in more detail in “Note 20 – Commitments and Contingent Liabilities” within the Consolidated Financial Statements, a number of additional PFOA lawsuits have been filed since the MDL Settlement that are not covered by the settlement, and similar additional lawsuits may be filed in the future. In addition, we have received governmental inquiries, and we and DuPont have been named in multiple lawsuits, relating to HFPO Dimer Acid and/or other perfluorinated or polyfluorinated compounds. See the discussion under “Note 20 – Commitments and Contingent Liabilities” within the Consolidated Financial Statements for more detail. These or other governmental inquiries or lawsuits could lead to our incurring liability for damages or other costs, 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, North Carolina facility or otherwise. Additional lawsuits or inquiries also could be instituted related to these products in the future. Accordingly, the existing lawsuits and inquiries, and any such additional litigation, relating to PFOA, HFPO Dimer Acid, 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 results.

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 are required to indemnify DuPont 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. On August 24, 2017, we and DuPont entered into an amendment to the separation agreement concerning future PFOA litigation and costs not covered by the MDL Settlement as detailed in “Note 20 – Commitments and Contingent Liabilities” within the Consolidated Financial Statements. Future PFOA-related costs and settlements could be significant and could exceed the amounts we have accrued with respect thereto, adversely affecting our results of operations. In addition, in the event that DuPont seeks indemnification for adverse trial rulings or outcomes, these indemnification claims could materially adversely affect our financial condition. Disputes with DuPont and others which may arise with respect to indemnification matters including disputes based on matters of law or contract interpretation, could materially adversely affect us.

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We are subject to extensive environmental and health and safety laws and regulations that may result in unanticipated loss or liability related to our current and past operations, and that may result in significant additional compliance costs or obligations, which in either case, could reduce our profitability.

Our operations and production facilities are subject to extensive environmental and health and safety laws and regulations 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, in the U.S., the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, often referred to as Superfund), the Resource Conservation and Recovery Act (RCRA) and similar state and global laws for management and remediation of hazardous materials, the Clean Air Act (CAA) and the Clean Water Act, for protection of air and water resources, the Toxic Substances Control Act, and in the EU, the Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) for regulation of chemicals in commerce and reporting of potential known adverse effects and numerous local, state, federal, and foreign laws and regulations governing materials transport and packaging. If we are found to be in violation of these laws or regulations, 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. We also may be subject to changes in our operations and production 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 and regulations, as well as internal voluntary programs, are significant and will continue to be significant for the foreseeable future. These laws and regulations may change and could become more stringent over time, which could result in significant additional compliance costs to or restrictions on our operations. 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 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. See “Environmental Matters” within Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Note 20 – Commitments and Contingent Liabilities” within 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.

There is also a risk that one or more of our key raw materials or one or more of our products may be found to have, or be characterized or perceived as having, a toxicological or health-related impact on the environment or on our customers or employees or unregulated emissions, which could potentially result in our incurring liability in connection with such characterization and the associated effects of any toxicological or health-related impact. If such a discovery or characterization occurs, we may incur increased costs in order to comply with new regulatory requirements or as a result of litigation. In addition, the relevant materials or products, including products of our customers incorporating our materials or products, may be recalled, phased-out, or banned. Changes in laws, science or regulations, or their interpretation, and our customers’ perception of such changes or interpretations may also affect the marketability of certain of our products.

For example, in May 2016, the European Chemicals Agency (ECHA) accepted a proposal from France’s competent authority under REACH that would classify TiO₂ as a carcinogen for humans by inhalation, starting an ECHA Committee for Risk Action (RAC) process to review and decide on this proposal. In June 2017, ECHA’s RAC announced its preliminary conclusion that the evidence meets the criteria under the EU’s Classification, Labeling, and Packaging Regulation to classify TiO₂ as a Category 2 Carcinogen (suspected human carcinogen) by inhalation. The European Commission (EC) will evaluate the RAC’s formal recommendation in determining whether any regulatory measures should be taken. If the EC were to adopt the regulatory measures that classify TiO₂ as a suspected carcinogen, it could increase our TiO₂ manufacturing and handling processes and costs or result in other liabilities.

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The businesses in which we compete are highly competitive. This competition may adversely affect our results of operations and operating cash flows.

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. 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, and some of our competitors have announced plans to expand their chloride capacity. Similarly, we compete with Chinese producers in our Fluoroproducts business, and the risk of substitution of Chinese producers by our customers could increase if these Chinese producers develop better capabilities to produce similar products to our specialty fluoropolymers.

Our results of operations and financial condition could be seriously impacted by business disruptions and security breaches, including cybersecurity incidents.

Business and/or supply chain disruptions, plant downtime, and/or power outages, and information technology system and/or network disruptions, regardless of cause, including acts of sabotage, employee error or other actions, geo-political activity, military actions, terrorism (including cyberterrorism), weather events, and natural disasters could seriously harm our operations as well as the operations of our customers and suppliers. Any such event 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. 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 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.

Failure to maintain effective internal control could adversely affect our ability to meet our reporting requirements.

The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. One key aspect of the Sarbanes-Oxley Act is that we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, with auditor attestation of the effectiveness of our internal control. If we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our common shares could decline, or we could be subject to penalties or investigations by the NYSE, the SEC, or other regulatory authorities, which would require additional financial and management resources.

Effective internal control is necessary for us to provide reasonable assurance with respect to our financial reports, and to effectively prevent fraud. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal control can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud, our operating results could be harmed. In addition, if we fail to maintain the effectiveness of our internal control, including any failure to implement required new or improved control measures, adapt to changing standards, or oversee efforts by third-party service providers, or if we experience delay in the implementation of any new or enhanced systems, procedures, and control measures, or if we experience difficulties in their implementation, our business and operating results could be harmed, we could fail to meet our reporting obligations, and there could be a material adverse impact on our stock price.

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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 increase. 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.

Our success depends on our ability to attract and retain key employees, and to identify and develop talented personnel to succeed senior management.

Our success depends on the performance of our senior management team and other key employees, and the inability to attract, retain, identify, and develop these individuals could adversely affect our results of operations, financial condition, and cash flows. In addition, 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, including our senior management team, 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.

Conditions in the global economy and global capital markets may adversely affect our results of operations, financial condition, and cash flows.

Our business and operating results may in the future be adversely affected by global 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 the changing financial regulatory environment, that could affect the global economy. 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. Also, our effective tax rate may fluctuate because of variability in our geographic mix of earnings, changes in statutory rates, and taxes associated with the repatriation of our non-U.S. earnings. 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.

Market conditions and global and regional economic downturns, as well as changes in regulatory requirements (including environmental standards), that adversely affect the demand for the end-use products that contain titanium dioxide, fluoroproducts, or our other products, could adversely affect the profitability of our operations and the prices at which we can sell our products, negatively impacting our financial results.

In addition to the general risks associated with being a multi-national corporation, our revenue and profitability are largely dependent on the TiO₂ industry and the industries that are the end-users of our fluoroproducts. TiO₂ and our fluoroproducts, such as refrigerants and resins, 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 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. Our future Ti-Pure^TM 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 our fluorochemicals is driven in part by industry needs to comply with certain mandated environmental regulations (such as markets for refrigerants and foams with low GWP), changes in, or the elimination of, such environmental regulations in the U.S. or other jurisdictions also can negatively impact demand for such products and, as a result, our results of operations and financial condition.

Our reported results 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, 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 revenues 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, and further decline of the euro could affect future periods.

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Currently, we do not hedge on a transactional basis, but may enter into such arrangements in the future. There can be no assurance that any hedging action in the future 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 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 the benefits we realize from having lower costs associated with our manufacturing process are reduced, impacting our profitability.

The markets for many of our products have seasonally-affected sales patterns.

The demand for TiO₂, certain of our fluoroproducts, and certain of our other products during a given year is subject to seasonal fluctuations. As a result of seasonal fluctuations, our operating cash flows may be negatively impacted due to demand fluctuations. In particular, because TiO₂ is widely used in coatings, demand is higher in the painting seasons of spring and summer. Because certain fluoroproducts are used in refrigerants, such products are in higher demand in the spring and summer in the Northern Hemisphere. We may be adversely affected by anticipated or unanticipated changes in regional weather conditions. For example, poor weather conditions in a region can lead to an abbreviated painting season, which can depress consumer sales of paint products that use TiO₂, which could have a negative effect on our financial position.

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 are subject to worldwide supply and demand as well as 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, consolidation in the industries providing our raw materials may 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.

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.

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.

We also rely materially upon unpatented proprietary technology, know-how, and other trade secrets to maintain our competitive position. While we maintain policies to enter into confidentiality agreements with our employees and third-parties to protect our proprietary expertise and other trade secrets, these agreements may not be enforceable or, even if legally enforceable, we may not have adequate remedies for breaches of such agreements. We also may not be able to readily detect breaches of such agreements. The failure of our patents or confidentiality agreements to protect our proprietary technology, know-how, or trade secrets could result in significantly lower revenues, reduced profit margins, or loss of market share.

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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.

Restrictions under the intellectual property cross-license agreement could limit our ability to develop and commercialize certain products and/or prosecute, maintain, and enforce certain intellectual property.

We depend to a certain extent on DuPont to prosecute, maintain, and enforce certain of the intellectual property licensed under the intellectual property cross-license agreement. Specifically, DuPont is responsible for filing, prosecuting, and maintaining patents that DuPont licenses to us. DuPont also has the first right to enforce such patents, trade secrets, and the know-how licensed to us by DuPont. If DuPont fails to fulfill its obligations or chooses to not enforce the licensed patents, trade secrets, or know-how under the intellectual property cross-license agreement, we may not be able to prevent competitors from making, using, and selling competitive products unless we are able to effectively exercise our secondary rights to enforce such patents, trade secrets, and know-how.

In addition, our restrictions under the intellectual property cross-license agreement could limit our ability to develop and commercialize certain products. For example, the licenses granted to us under the agreement may not extend to all new products, services, and businesses that we may enter in the future. These limitations and restrictions may make it more difficult, time consuming, or expensive for us to develop and commercialize certain new products and services, or may result in certain of our products or services being later to market than those of our competitors.

If we are unable to innovate and successfully introduce new products, or new technologies or processes reduce the demand for our products or the price at which we can sell products, our profitability could be adversely affected.

Our industries and the end-use markets into which we sell our products experience periodic technological changes and product improvements. Our future growth will depend on our ability to gauge the direction of commercial and technological progress in key end-use markets and on our ability to fund and successfully develop, manufacture, and market products in such changing end-use markets. We must continue to 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 with regard 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, competitive environments, and laws and regulations. We cannot anticipate market acceptance of new products or future products. In addition, we may not achieve our expected benefits associated with new products developed to meet new laws or regulations if the implementation of such laws or regulations is delayed.

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, and as a result, we could face the following potential hazards:

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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In connection with our Separation, we were required to assume, and indemnify DuPont for, certain liabilities. As we are required to make payments pursuant to these indemnities to DuPont, we may need to divert cash to meet those obligations and our financial results could be negatively affected. In addition, DuPont’s obligation to indemnify us for certain liabilities may not be sufficient to insure us against the full amount of liabilities for which it will be allocated responsibility, and DuPont may not be able to satisfy its indemnification obligations in the future.

Pursuant to the separation agreement, the employee matters agreement, the tax matters agreement, and the intellectual property cross-license agreement we entered into with DuPont prior to the Separation, we were required to assume, and indemnify DuPont 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 connection with MDL Settlement described in “Note 20 – Commitments and Contingent Liabilities” within the Consolidated Financial Statements, we and DuPont entered into an amendment to the separation agreement concerning PFOA costs, the terms of which are also described in “Note 20 – Commitments and Contingent Liabilities” within the Consolidated Financial Statements. Payments pursuant to these indemnities, whether relating to PFOA costs or otherwise, may be significant and could negatively impact our business, particularly indemnities relating to our actions that could impact the tax-free nature of the distribution. In addition, in the event that DuPont seeks indemnification for adverse trial rulings or outcomes, these indemnification claims could materially adversely affect our financial condition. Disputes with DuPont and others which may arise with respect to indemnification matters, including disputes based on matter of law or contract interpretation, could materially adversely affect us.

Third-parties could also seek to hold us responsible for any of the liabilities of the DuPont businesses. DuPont has agreed to indemnify us for such liabilities, but such indemnity from DuPont may not be sufficient to protect us against the full amount of such liabilities, and DuPont may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from DuPont 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. See “Note 20 – Commitments and Contingent Liabilities” within 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, DuPont, which may not reflect optimal or commercially beneficial terms to us.

Commercial agreements we entered into with DuPont in connection with the Separation were negotiated in the context of the Separation while we were still a wholly-owned subsidiary of DuPont. Accordingly, during the period in which the terms of those agreements were negotiated, we did not have an independent board of directors or management independent of DuPont. Certain commercial agreements, having long terms and commercially-advantageous cancellation and assignment rights to DuPont, 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 and may not be able to be renegotiated 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 DuPont.

Our ability to make future strategic decisions regarding our manufacturing operations are subject to regulatory, environmental, political, legal, and economic risks, and to a certain extent may be subject to consents or cooperation from DuPont under the agreements entered into between us and DuPont 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 existing facilities, such as the expansion of our Altamira TiO₂ facility and the planned facilities for our Opteon^TM refrigerants and construction of our new Mining Solutions facility. Construction of additions or modifications to facilities involves numerous regulatory, environmental, political, legal, and economic uncertainties that are beyond our control. Such 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. 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 adversely affect our results of operations and financial condition.

We periodically assess our manufacturing operations in order to manufacture and distribute our products in the most efficient manner. Based on our assessments, we may make strategic decisions regarding our manufacturing operations such as capital improvements to modernize certain units, 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 DuPont. These agreements may adversely impact our ability to take 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.

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Our customers, prospective customers, suppliers, or other companies with whom we conduct business may need assurances that our financial stability is sufficient to satisfy their requirements for doing or continuing to do business with them.

Some of our customers, prospective customers, suppliers, or other companies with whom we conduct business may need assurances that our financial stability is sufficient to satisfy their requirements for doing or continuing to do business with them, and may require us to provide additional credit support, such as letters of credit or other financial guarantees. Any failure of parties to be satisfied with our financial stability could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We are a holding company that is dependent on cash flows from our operating subsidiaries to fund our debt obligations, capital expenditures, and ongoing operations.

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 or make cash distributions depends upon the cash flows of our operating companies and any future subsidiaries, and the payment of funds by our operating companies and any future subsidiaries in the form of dividends or otherwise. 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.

Our debt is generally the exclusive obligation of The Chemours Company and our guarantor subsidiaries, as described in “Note 18 – Debt” within 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. In addition, payments to us by our subsidiaries are contingent upon our subsidiaries’ earnings.

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.

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 industries in which we operate, particularly the impact of a downturn in the global economy, 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.

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Our failure to comply with the anti-corruption laws of the U.S. and various international jurisdictions could negatively impact our reputation and results of operations.

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), as well as 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.

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. On December 22, 2017, the U.S. government enacted legislation referred to as the Tax Cuts and Jobs Act (Tax Act), which significantly revises the Internal Revenue Code of 1986, as amended (IRC). This law may have a significant impact on our U.S. taxes. The legislation is unclear in certain respects and will require the U.S. Internal Revenue Service (IRS) to issue regulations and interpretations, and possibly technical corrections. While there can be no assurance as to the impact of any additional guidance, we have recorded a provisional amount of income tax to reflect the impact of the law change based on management’s current interpretation of the new legislation. The ultimate impact of U.S. tax reform could be materially different from current estimates based on our actual results and our further analysis of the new law. In addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. Investors should consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.

Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws or their interpretations. 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.

Failure to meet some or all of our key 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 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 EBITDA margin improvement, Adjusted EPS, FCF, and ROIC,. Our failure to meet one or more of these key financial targets may negatively impact our results of operations, stock price, and stockholder returns. The factors influencing our ability to meet these key financial targets include, but are not limited to, the outcome of any new or existing litigation, our failure to comply with new or existing laws or regulations, 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 an acquisition, joint venture, or other strategic arrangement, and other factors described within this Item 1A – Risk Factors, many of which are beyond our control.

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Risks Related to Our Indebtedness

Our significant 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, 2017, we had approximately $4.1 billion of indebtedness. At December 31, 2017, together with the guarantors, we had approximately $1.4 billion of senior secured indebtedness outstanding, and had an additional $750 million of capacity under our revolving credit facility (Revolving Credit Facility), all of which would be senior secured indebtedness, if drawn (collectively, the Senior Secured Credit Facilities). Our significant 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:

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, 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, which could force us into bankruptcy or liquidation. 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, or declaration of acceleration could materially and adversely affect our results of operations and financial condition.

See “Note 18 – Debt” within the Consolidated Financial Statements for further discussion related to our indebtedness.

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Despite our significant level of indebtedness, we may incur substantially more debt and enter into other transactions, which could further exacerbate the risks to our financial condition described above.

Notwithstanding our significant level of indebtedness, we may incur significant additional indebtedness in the future, including additional secured indebtedness that would be effectively senior to our outstanding notes (including up to $750 million of available capacity under the Revolving Credit Facility). 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, 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. Also, regardless of the terms of our debt or equity financing, our agreements and obligations under the tax matters agreement may limit our ability to issue stock, as discussed further in the risk factor, “We agreed to numerous restrictions to preserve the tax-free treatment of the transactions in the U.S., which may reduce our strategic and operating flexibility.”  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 the credit ratings on 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.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.

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. As of December 31, 2017, we had approximately $1.4 billion of our outstanding debt at variable interest rates.

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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:

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.

Risks Related to the Separation

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.

DuPont received a ruling from the IRS substantially to the effect that, among other things, the distribution in connection with the Separation qualified as a tax-free transaction under Section 355 and Section 368(a)(1)(D) of the IRC. The tax-free nature of the distribution was conditioned on the continued validity of the IRS Ruling, as well as on receipt of a tax opinion, in form and substance acceptable to DuPont, substantially to the effect that, among other things, the distribution would qualify as a tax-free transaction under Section 355 and Section 368(a)(1)(D) of the IRC, and certain transactions related to the transfer of assets and liabilities to us in connection with the Separation and distribution would not result in the recognition of any gain or loss to us, DuPont, or our stockholders. The IRS Ruling and the tax opinion relied on certain facts, assumptions, and undertakings, and certain representations from us and DuPont, regarding the past and future conduct of both respective businesses and other matters, and the tax opinion relies on the IRS Ruling. Notwithstanding the IRS Ruling and the tax opinion, the IRS could determine that the distribution or such related transactions should be treated as a taxable transaction if it determines that any of these facts, assumptions, representations, or undertakings were not correct, or that the distribution should be taxable for other reasons, including if the IRS were to disagree with the conclusions in the tax opinion that are not covered by the IRS Ruling.

If the distribution ultimately was determined to be taxable, then a stockholder of DuPont that received shares of our common stock in the distribution would be treated as having received a distribution of property in an amount equal to the fair market value of such shares on the distribution date and could incur significant income tax liabilities. Such distribution would be taxable to such stockholder as a dividend to the extent of DuPont’s current and accumulated earnings and profits. Any amount that exceeded DuPont’s earnings and profits would be treated first as a non-taxable return of capital to the extent of such stockholder’s tax basis in its shares of DuPont stock with any remaining amount being taxed as a capital gain. DuPont would recognize a taxable gain in an amount equal to the excess, if any, of the fair market value of the shares of our common stock held by DuPont on the distribution date over DuPont’s tax basis in such shares. In addition, if certain related transactions fail to qualify for tax-free treatment under U.S. federal, state, and/or local tax law, and/or foreign tax law, we and DuPont could incur significant tax liabilities under U.S. federal, state, and/or local tax law, and/or foreign tax law.

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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 DuPont or DuPont’s stockholders and, under the tax matters agreement that we entered into with DuPont prior to the Separation, DuPont 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 DuPont 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 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 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 DuPont 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 business, financial condition, results of operations, and cash flows in future reporting periods.

We are subject to continuing contingent tax-related liabilities of DuPont.

There are several significant areas where the liabilities of DuPont may become our obligations. For example, under the IRC and the related rules and regulations, each corporation that was a member of DuPont’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 DuPont that allocates the responsibility for prior period taxes of DuPont’s consolidated tax reporting group between us and DuPont. If DuPont 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.

We agreed to numerous restrictions to preserve the tax-free treatment of the transactions in the U.S., which may reduce our strategic and operating flexibility.

Our ability to engage in significant equity transactions could be limited or restricted in order to preserve, for U.S. federal income tax purposes, the tax-free nature of the distribution by DuPont. Even if the distribution otherwise qualifies for tax-free treatment under Section 355 of the IRC, the distribution may result in corporate-level taxable gain to DuPont under Sections 355(e) and 368(a)(1)(D) of the IRC if 50% or more, by vote or value, of shares of our stock or DuPont’s stock are acquired or issued as part of a plan or series of related transactions that includes the distribution. The process for determining whether an acquisition or issuance triggering these provisions has occurred is complex, inherently factual, and subject to interpretation of the facts and circumstances of a particular case. Any acquisitions or issuances of our stock or DuPont’s stock within a two-year period after the distribution generally are presumed to be part of such a plan, although we or DuPont, as applicable, may be able to rebut that presumption. Accordingly, under the tax matters agreement entered into prior to the Separation, for the two-year period following the distribution, we are prohibited, except in certain circumstances, from:

These restrictions may limit our ability to pursue certain strategic transactions or other transactions, including our transformation plans that we may believe to otherwise be in our best interests or that might increase the value of our business. In addition, under the tax matters agreement, we are required to indemnify DuPont against any such tax liabilities as a result of the acquisition of our stock or assets, even if we do not participate in or otherwise facilitate the acquisition.

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Risks Related to Our Common Stock

Our stock price could become more volatile and investments could lose value.

The market price of our common stock and the number of shares traded each day has experienced significant fluctuations since our Separation from DuPont and may continue to fluctuate significantly. The market price for our common stock may be affected by a number of factors, including, but not limited to:

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.

We cannot guarantee the timing or amount of our dividends and/or our share repurchases, which are subject to a number of uncertainties, which 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 program 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 and 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 program 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 program is 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.

A stockholder’s percentage of ownership in us may be diluted in the future.

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.

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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:

In addition, we are subject to Section 203 of the Delaware General Corporations Law (DGCL). Section 203 of the DCGL 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 best interests and/or our stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

Several of the agreements that we have entered into with DuPont require DuPont’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.

In addition, an acquisition or further issuance of our stock could trigger the application of Section 355(e) of the IRC. Under the tax matters agreement executed prior to the Separation, we would be required to indemnify DuPont for the tax imposed under Section 355(e) of the IRC resulting from an acquisition or issuance of its stock, even if it did not participate in or otherwise facilitate the acquisition, and this indemnity obligation might discourage, delay, or prevent a change of control that a stockholder may consider favorable. See the risk factor, “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” for further information.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

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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 chart below sets forth our production facilities at December 31, 2017.

 

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 chart below sets forth our stand-alone technical centers at December 31, 2017.

 

Our plants and equipment are maintained in good operating condition. We believe that we have sufficient production capacity for our primary products to meet demand in 2018. Our properties are primarily owned by us; however, certain properties are leased, as noted in the preceding tables.

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We recognize that the security and safety of our operations are critical to our employees and communities, as well as our future. Physical security measures have been combined with process safety measures, administrative procedures, and emergency response preparedness into an integrated security plan. Prior to the Separation, DuPont conducted vulnerability assessments at its operating facilities in the U.S., as well as high priority sites worldwide, and as a result, identified and implemented appropriate measures to protect these facilities from physical and cyberattacks. We intend to conduct similar vulnerability assessments periodically in the future. We are partnering with carriers, including railroad, shipping, and trucking companies, to secure chemicals in transit.

 

Item 3. LEGAL PROCEEDINGS

Legal Proceedings

We are subject to various legal proceedings, including, but not limited to, product liability, patent infringement, antitrust claims, and claims for property damage or personal injury. Information regarding certain of these matters is set forth below and in “Note 20 – Commitments and Contingent Liabilities” within the Consolidated Financial Statements.

Litigation

PFOA: Environmental and Litigation Proceedings

For purposes of this report, the term PFOA means collectively perfluorooctanoic acid and its salts, including the ammonium salt, and does not distinguish between the two forms. Information related to this and other litigation matters is included in “Note 20 – Commitments and Contingent Liabilities” within the Consolidated Financial Statements.

Fayetteville, North Carolina

The following actions related to Fayetteville, North Carolina, as discussed in “Note 20 – Commitments and Contingent Liabilities” within the Consolidated Financial Statements, are filed in the U.S. District Court for the Eastern District of North Carolina, Southern Division:

Carey et al. vs. E.I. DuPont de Nemours and Company (7:17-cv-00189-D; 7:17-cv-00197-D; and, 7:17-cv-00201-D); and,

Cape Fear Public Utility Authority vs. The Chemours Company FC, LLC et al. and Brunswick County v. DowDuPont et al. (7:17-cv-00195-D and 7:17-cv-00209-D).

Environmental Proceedings

LaPorte Plant, LaPorte, Texas

The U.S. Environmental Protection Agency (EPA) conducted a multimedia inspection at the DuPont LaPorte, Texas facility in January 2008. DuPont, the EPA, and the U.S. Department of Justice began discussions in the fall of 2011 relating to the management of certain materials in the facility’s waste water treatment system, hazardous waste management, flare, and air emissions. These negotiations continue. We operate a fluoroproducts production facility at this site.

Dordrecht, Netherlands

We have received requests from the Labor Inspectorate (ISZW), the local environmental agency (OZHZ), and the National Institute for Public Health and the Environment (RIVM) in the Netherlands for information and documents regarding the Dordrecht site’s operations. We have complied with the requests, and no further documents have been requested of us since the publication of the reports in May 2017 (RIVM) and July 2017 (ISZW). The agencies will decide whether additional investigation is warranted. We understand that some of the requests from OZHZ are part of a preliminary investigation initiated by a public prosecutor, although we have not received notice that it intends to pursue such action.

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Fayetteville, North Carolina

Upon notifying the North Carolina Department of Environmental Quality (NC DEQ) of findings from groundwater studies conducted on the site, we received, on September 6, 2017, a Notice of Violation (NOV) and Notice of Intent to Enforce from NC DEQ pursuant to North Carolina groundwater quality standards. Since then, we have been conducting further studies on-site and off-site in cooperation with NC DEQ to better understand the nature and extent of environmental contamination involving certain perfluorinated compounds related to our Fayetteville, North Carolina operations. These studies are ongoing and will be used to determine what groundwater-focused remedial actions, if any, may be necessary to protect people and the environment and comply with the State’s standards. On February 12, 2018, NC DEQ issued an NOV related to groundwater on and around the site which directs us to respond with source control measures. We continue to take action in response to the NOV and will continue to cooperate with NC DEQ.

Item 4. MINE SAFETY DISCLOSURES

Information regarding mine safety and other regulatory actions at our surface mine in Starke, Florida is included in Exhibit 95 to this Annual Report on Form 10-K.

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EXECUTIVE OFFICERS OF THE REGISTRANT

The following list sets forth our executive officers and a summary of their professional experience.

Mark P. Vergnano, age 60, serves as our President and Chief Executive Officer (CEO). Prior to joining Chemours, he held roles of increasing responsibility at DuPont. In October 2009, Mr. Vergnano was appointed Executive Vice President of DuPont and was responsible for multiple businesses and functions, including the businesses in the Chemours segment: DuPont Chemicals and Fluoroproducts and Titanium Technologies. In June 2006, he was named Group Vice President of DuPont Safety and Protection. In October 2005, he was named Vice President and General Manager — Surfaces and Building Innovations. In February 2003, he was named Vice President and General Manager — Nonwovens. Prior to that, he had several assignments in manufacturing, technology, marketing, sales, and business strategy. Mr. Vergnano joined DuPont in 1980 as a process engineer. Mr. Vergnano was appointed Chairman of the National Safety Council in 2017 and has served on its board of directors since 2007. He also serves on the board of directors of the American Chemistry Council since 2015 and Johnson Controls International plc since 2016. He previously served on the board of directors of Johnson Controls, Inc. from 2011 to 2016.

Mark E. Newman, age 54, serves as our Senior Vice President and Chief Financial Officer (CFO). Mr. Newman joined Chemours in November 2014 from SunCoke Energy, where he was SunCoke Energy’s Senior Vice President and CFO and led its financial, strategy, business development, and information technology functions. Mr. Newman joined SunCoke’s leadership team in March 2011 to help drive SunCoke’s separation from its parent company, Sunoco, Inc. He led SunCoke through an initial public offering and championed a major restructuring of SunCoke, which resulted in the initial public offering of SunCoke Energy Partners in January 2013, creating the first coke-manufacturing master limited partnership. Prior to joining SunCoke, Mr. Newman served as Vice President – Remarketing and Managing Director of SmartAuction, Ally Financial Inc. (previously General Motors Acceptance Corporation). Mr. Newman began his career at General Motors in 1986 as an Industrial Engineer and progressed through several financial and operational leadership roles within the global automaker, including Vice President and CFO of Shanghai General Motors Limited; Assistant Treasurer of General Motors Corporation; and, Vice President – North America and CFO. Mr. Newman joined the board of Altria Group, Inc. in February 2018.

Bryan Snell, age 61, serves as our President — Titanium Technologies. Mr. Snell was appointed President — Titanium Technologies in May 2015. Previously, he served as Planning Director — DuPont Performance Chemicals from 2014 to 2015. Prior to that, he held leadership positions in DuPont Titanium Technologies, including Planning Director from 2011 to 2012 in Wilmington, Delaware and from 2012 to 2013 in Singapore, and Global Sales and Marketing Director from 2008 to 2010. Mr. Snell served as Regional Operations Director — DuPont Coatings and Color Technologies Platform in 2007 and 2008. He was posted in Taiwan from 2002 to 2006, in the roles of Plant Manager — Kuan Yin Plant and Asia/Pacific Regional Director, DuPont Titanium Technologies. Mr. Snell joined DuPont in 1978 as a process engineer and has experience in nuclear and petrochemical operations, as well as sales, business strategy, and mergers and acquisitions (M&A).

Paul Kirsch, age 54, serves as our President — Fluoroproducts. Mr. Kirsch joined Chemours in June 2016 from Henkel AG and Company, where he served as Senior Vice President of supply chain and operations for three years. Prior to that, he was President of the automotive, metals, and aerospace division of Henkel AG and Company KGaA. Before joining Henkel in 2009, Mr. Kirsch spent nearly 25 years in various engineering, operations, and business development roles of increasing responsibility within the automotive and telematics industries. He was Vice President of Hughes Telematics, where his responsibilities included business development, quality, and strategic planning. He also served as Vice President of XM Satellite Radio, where he was responsible for growing and running the automotive business of the Washington, District of Columbia-based firm. Mr. Kirsch started his career at Delphi in 1985, where he worked for nearly 19 years, in both regional and global roles ranging in product engineering, process engineering, M&A, marketing and sales, and strategic planning. He spent nearly 11 years of his professional career living abroad in Europe and Asia.

Christian W. Siemer, age 59, serves as our President — Chemical Solutions. Mr. Siemer was appointed to this role in July 2014. Mr. Siemer joined DuPont in 2010 as the Managing Director of Clean Technologies, a business unit of DuPont Sustainable Solutions focused on process technology development and licensing. He led the successful acquisition of MECS Inc., the global leader in technology for the production of sulfuric acid. Mr. Siemer began his career in 1980 with Stauffer Chemicals as a process engineer. Following Stauffer’s acquisition by ICI plc, Mr. Siemer moved through a range of commercial roles and overseas assignments managing portfolios of international industrial and specialty chemical businesses.

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David C. Shelton, age 54, serves as our Senior Vice President, General Counsel, and Corporate Secretary. Prior to Chemours, Mr. Shelton was appointed Associate General Counsel in 2011 and was responsible for the U.S. Commercial team, which included the business lawyers and paralegals counseling all DuPont business units, with the exception of Agriculture. Mr. Shelton also served as the Commercial Attorney to a variety of DuPont businesses including the Performance Materials platform, which he advised on international assignment in Geneva, and the businesses now comprising the DuPont Chemicals and Fluoroproducts business unit. Prior to that, Mr. Shelton advised the company on environmental and remediation matters as part of the environmental legal team. Mr. Shelton joined DuPont in 1996, after seven years in private practice as a litigator in Pennsylvania and New Jersey.

Susan M. Kelliher, age 51, serves as our Senior Vice President — Human Resources and Health Services. Ms. Kelliher joined Chemours in 2017 from Albemarle Corporation, where she served as Senior Vice President – Human Resources for the global specialty chemical company. Prior to Albemarle, she served as Vice President – Human Resources at Hewlett Packard, where she held a number of leadership positions on global teams including Imaging and Printing and Global Sales and Enterprise Marketing from 2007 to 2012. Before joining Hewlett Packard, Ms. Kelliher served as Vice President – Human Resources for Cymer, Inc., where she led the people function. She joined Cymer from The Home Depot where, from 2004 to 2007, she was the Vice President – Human Resources for the growth engines of the company – Business Development and Home Services including responsibility for due diligence and integration for the company’s acquisitions. From 2000 to 2004, Ms. Kelliher served as Senior Director of Human Resources for Corporate Business Development and International Operations for Raytheon. Prior to Raytheon, she served as the Director of Human Resources – Western Region for YUM! Brands, Pizza Hut division from 1995 to 2000. Ms. Kelliher started her career at Mobil Oil, where her career progressed through a variety of assignments including support for new ventures in Europe, Russia, and Africa from 1990 to 1995.

 

Erich Parker, age 66, serves as our Senior Vice President of Corporate Communications and Chief Brand Officer. Mr. Parker was appointed Creative Director and Global Director of Corporate Communications of DuPont in 2010. He led the initiative to develop corporate positioning and its creative expression through branded content and program sponsorship with large international news media outlets. In 2008, Mr. Parker was appointed Communications Leader for DuPont’s Safety and Protection Platform. Prior to joining DuPont, Mr. Parker was principal of his own public relations and marketing communications firm based in Washington, District of Columbia and New York. Mr. Parker has also served as Executive Vice President of Association and Issues Management; Director of Communications for the American Academy of Actuaries; founding publisher and Executive Editor of the magazine, Contingencies; and, Public Affairs Aide for Renewable Energy to the Secretary of Energy, U.S. Department of Energy.

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Registrant’s Common Equity and Related Stockholder Matters

Our common stock is listed on the NYSE under the symbol, “CC.”  The number of record holders of our common stock was 51,197 at February 13, 2018. Holders of our common stock are entitled to receive dividends when they are declared by our board of directors, and dividends are generally declared and paid on a quarterly basis. The stock transfer agent and registrar is Computershare Trust Company, N.A.

Our common stock began trading on July 1, 2015. The following table sets forth our quarterly high and low trading stock prices and dividends per common share for 2017 and 2016.

 

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

Share Repurchase Program

On November 30, 2017, our board of directors approved a share repurchase program authorizing the purchase of shares of our issued and outstanding common stock in an aggregate amount not to exceed $500 million, plus any associated fees or costs in connection with our share repurchase activity. Under the share repurchase program, shares of our common stock may be purchased in the open market from time to time, subject to management’s discretion, as well as general business and market conditions. Our share repurchase program became effective on November 30, 2017 and continues through its expiration on December 31, 2020. The program may be suspended or discontinued at any time. All common shares purchased under the share repurchase program are held as treasury stock and are accounted for using the cost method.

From December 1, 2017 through December 31, 2017, we purchased 2,386,406 shares of our issued and outstanding common stock under the share repurchase program, which amounted to $116 million at an average share price of $48.81 per share. All common shares purchased were part of our share repurchase program, which was announced to the public on December 1, 2017. The aggregate amount of our common stock that remains available for purchase under the share repurchase program at December 31, 2017 is $384 million.

Subsequent to December 31, 2017, in January 2018, we purchased an additional 654,241 shares of our issued and outstanding common stock under the share repurchase program, which amounted to $34 million and an average share price of $51.23 per share.

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Stock Performance Graph

The following graph presents the cumulative total stockholder returns for our common stock compared with the Standard & Poor’s (S&P) MidCap 400 and the S&P MidCap 400 Chemical indices since the Separation from DuPont on July 1, 2015, the date that our common stock began “regular-way” trading on the NYSE.

 

The graph assumes that the values of our common stock, the S&P MidCap 400 index, and the S&P MidCap 400 Chemical index were each $100 on July 1, 2015, and that all dividends were reinvested.

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Item 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The selected historical consolidated financial data for each of the years ended December 31, 2017, 2016, and 2015, and as of December 31, 2017 and 2016 was derived from the audited consolidated financial statements included within the Consolidated Financial Statements of this Annual Report on Form 10-K. The selected historical consolidated financial data for each of the years ended December 31, 2014 and 2013, and as of December 31, 2015, 2014, and 2013 was derived from our audited consolidated financial statements not included in this Annual Report on Form 10-K.

The selected historical consolidated financial data for the years ended December 31, 2013 and 2014, and for the first six months of the year ended December 31, 2015, include expenses of DuPont that were allocated to us for certain corporate functions, including information technology, R&D, finance, legal, insurance, compliance, and human resources activities. These costs may not be representative of our actual costs as an independent, publicly-traded company. In addition, our selected historical consolidated financial data does not reflect changes related to our Separation from DuPont, including changes in our cost structure, personnel needs, tax structure, capital structure, financing, and business operations. Consequently, the financial information included herein may not necessarily reflect what our financial position, results of operations, and cash flows would have been had we been an independent, publicly-traded company during the periods presented. Accordingly, these historical results should not be relied upon as an indicator of our future performance.

For a better understanding, this section should be read in conjunction with Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements.

 

 

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) supplements the Consolidated Financial Statements and the related notes thereto included elsewhere herein to help provide an understanding of our financial condition, changes in financial condition, and results of our operations for the periods presented. Our forward-looking statements are based on certain assumptions and expectations of future events that may not be accurate or realized. These statements, as well as our historical performance, are not guarantees of future performance. Forward-looking statements also involve risks and uncertainties that are beyond our control. Additionally, there may be other risks and uncertainties that we are unable to identify at this time or that we do not currently expect to have a material impact on our business. Factors that could cause or contribute to these differences include, but are not limited to, the risks, uncertainties, and other factors discussed within Item 1A – Risk Factors. This MD&A should be read in conjunction with the Consolidated Financial Statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K.

Overview

We are a leading, global provider of performance chemicals that are key inputs in end-products and processes in a variety of industries. We deliver customized solutions with a wide range of industrial and specialty chemical products for markets including plastics and coatings, refrigeration and air conditioning, general industrial, electronics, mining, and oil refining. Our principal products include TiO₂ pigment, refrigerants, industrial fluoropolymer resins, and a portfolio of mining and industrial chemicals, including sodium cyanide.

We manage and report our operating results through three reportable segments: Titanium Technologies, Fluoroproducts, and Chemical Solutions. Our positions within each of these businesses reflect the strong value proposition we provide to our customers based on our long history and reputation in the chemical industry for safety, quality, and reliability.

On July 1, 2015, DuPont completed our previously announced spin-off by distributing our common stock, on a pro rata basis, to DuPont’s stockholders of record as of the close of business on the Record Date. Each holder of DuPont common stock received one share of our common stock for every five shares of DuPont’s common stock held on the Record Date. The Separation was completed pursuant to a separation agreement and several other agreements with DuPont, including an employee matters agreement, a tax matters agreement, a transition services agreement, and an intellectual property cross-license agreement, each of which was filed with the SEC as an exhibit to our Current Report on Form 8-K on July 1, 2015. These agreements govern the relationship among us and DuPont following the Separation, and provide for the allocation of various assets, liabilities, rights, and obligations. These agreements also include arrangements for transition services provided to us by DuPont, which were substantially completed during 2016.

Basis of Presentation

Prior to July 1, 2015, our operations were included in DuPont’s financial results in different legal forms, including, but not limited to, wholly-owned subsidiaries for which we were the sole business, components of legal entities in which we operated in conjunction with other DuPont businesses, and a majority-owned joint venture. For periods prior to July 1, 2015, the Consolidated Financial Statements, included elsewhere in this Annual Report on Form 10-K, have been prepared from DuPont’s historical accounting records and are presented on a stand-alone basis as if the business operations had been conducted independently from DuPont. The Consolidated Financial Statements include the historical operations, assets, and liabilities of the legal entities that are considered to comprise our business, including certain environmental remediation and litigation obligations of DuPont and its subsidiaries that we may be required to indemnify pursuant to the Separation-related agreements executed prior to the Separation. All of the allocations and estimates in the Consolidated Financial Statements prior to July 1, 2015 are based on assumptions that management believes are reasonable.

Recent Developments

U.S. Income Tax Reform

On December 22, 2017, the U.S. enacted the Tax Act, which, except for certain provisions, is effective for tax years beginning on or after January 1, 2018. The Tax Act significantly changes existing U.S. tax law and includes numerous provisions that will affect businesses, such as: (i) reducing the U.S. federal corporate tax rate from 35% to 21%; (ii) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (iii) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (iv) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (v) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (vi) creating the base erosion anti-abuse tax, a new minimum tax; (vii) creating a new limitation on deductible interest expense; (viii) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and, (ix) creating the global intangibles low-tax income inclusions.

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For the year ended December 31, 2017, the net provisional impact of tax reform recognized in our provision for income taxes is a $3 million benefit, which includes tax expense associated with the deemed repatriation transition tax on our unremitted foreign earnings. This net benefit is inclusive of a release of the valuation allowance on carryforward foreign tax credits utilized against the deemed repatriation transition tax and the revaluation of our net U.S. deferred tax liabilities as a result of the lower federal rate. We continue to examine the impacts that the Tax Act may have on our effective tax rate in the future. Our accounting for the impacts of the Tax Act is provisional in nature, and is subject to adjustments during a measurement period not to exceed one year from the enactment date in accordance with the SEC’s Staff Accounting Bulletin No. 118 (SAB No. 118). Our provisional estimates could change significantly within this measurement period due to many factors, including, but not limited to, changes in our interpretation of the provisions of the Tax Act, IRS and U.S. Treasury Department (Treasury) guidance that may be issued, and actions we may take.

Share Repurchase Program

On November 30, 2017, our board of directors approved a share repurchase program authorizing the purchase of shares of our issued and outstanding common stock in an aggregate amount not to exceed $500 million, plus any associated fees or costs in connection with our share repurchase activity. Our share repurchase program became effective on November 30, 2017 and continues through its expiration on December 31, 2020. Through December 31, 2017, we purchased 2,386,406 shares of our issued and outstanding common stock under the share repurchase program, which amounted to $116 million. Of the 2,386,406 shares purchased by Chemours, 206,106 shares amounting to $10 million settled subsequent to December 31, 2017. Shares purchased under the share repurchase program are held as treasury stock and are accounted for using the cost method.

Build-to-suit Lease of Research and Development Facility

In October 2017, we executed a build-to-suit lease agreement to construct a new 312,000-square-foot R&D facility on the Science, Technology, and Advanced Research campus of the University of Delaware (UD) in Newark, Delaware (The Chemours Discovery Hub). The land on which The Chemours Discovery Hub will be located is leased to a third-party owner-lessor by UD, and we will act as the construction agent and ultimate lessee of the facility based on our agreement with the owner-lessor. Project costs paid by the owner-lessor are reflected in our consolidated balance sheets as construction-in-progress within property, plant, and equipment, and a corresponding build-to-suit lease liability within long-term debt. Through December 31, 2017, project costs paid by the owner-lessor amounted to $8 million. Construction of The Chemours Discovery Hub is expected to be completed by early 2020.

2017 Restructuring Program

During the third and fourth quarters of 2017, we announced certain restructuring activities designed to further the cost savings and productivity improvements outlined under management’s transformation plan (which is discussed in further detail below). These activities include, among other efforts: (i) outsourcing and further centralizing certain of our business process activities; (ii) consolidating our existing, outsourced third-party information technology (IT) providers; and, (iii) implementing various upgrades to our current IT infrastructure. Additionally, we announced a voluntary separation program (VSP) for certain eligible U.S. employees in an effort to better manage the anticipated future changes to our workforce. We recognized $32 million in charges related to our restructuring activities and VSP for the year ended December 31, 2017, and we anticipate that we will incur an additional $20 million to $25 million in charges for restructuring-related activities and termination benefits through the end of 2018.

Settlement of PFOA MDL Litigation

As previously reported, approximately 3,500 lawsuits have been filed in various federal and state courts in Ohio and West Virginia alleging personal injury from exposure to perfluorooctanoic acid and its salts, including the ammonium salt (PFOA), in drinking water as a result of the historical manufacture or use of PFOA at the Washington Works plant outside Parkersburg, West Virginia. That plant was previously owned and/or operated by the performance chemicals segment of DuPont and is now owned and/or operated by us. These personal injury lawsuits were consolidated in multi-district litigation in the U.S. District Court for the Southern District of Ohio (MDL).

In March 2017, DuPont entered into an agreement with the MDL plaintiffs’ counsel providing for a global settlement of all cases and claims in the MDL, including all filed and unfiled personal injury cases and claims that are part of the plaintiffs’ counsel’s claims inventory, as well as cases that have been tried to a jury verdict (MDL Settlement). The total settlement amount was $670.7 million in cash, with half paid by us and half paid by DuPont. DuPont’s payment was not subject to indemnification or reimbursement by us and we accrued $335 million associated with this matter at December 31, 2016.

In the second and third quarters of 2017, we paid $15 million and $320 million in settlement payments, respectively, for accruals made in connection with the PFOA MDL Settlement for a complete release of all claims by the settling plaintiffs.

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Details of the PFOA MDL Settlement are discussed further in “Note 20 – Commitments and Contingent Liabilities” to the Consolidated Financial Statements.

Debt Transactions

In May 2017, we completed an offering of a $500 million aggregate principal amount of 5.375% Senior Unsecured Notes due 2027 (Offering). A portion of the net proceeds from the Offering was used to pay the $335 million we accrued for the PFOA MDL Settlement. The remaining net proceeds were available for our general corporate purposes.

In April 2017, we entered into an amendment to our existing credit agreement to provide for a new class of term loans denominated in euros and U.S. dollars, in an aggregate principal amount of €400 million and $940 million, respectively (April Amendment). The proceeds from the new class of term loans were used to repay our existing senior secured term loan outstanding of $1.4 billion, in full. No incremental debt was incurred in connection with the April Amendment.

Details of the Offering and the April Amendment are discussed further within “Liquidity and Capital Resources” of this MD&A, under the heading “Credit Facilities and Notes.”  

Sale of Corporate Headquarters

In April 2017, we completed the sale of our corporate headquarters building located in Wilmington, Delaware for net proceeds of $29 million. We used $13 million of the net proceeds from this sale to repay a portion of our outstanding term loans in accordance with the credit agreement. Also, in connection with the sale, we entered into lease agreements to leaseback a portion of the building beginning in April 2017. In connection with the sale and leaseback transaction, we deferred a gain of $2 million.

Chemical Solutions Portfolio Optimization

On June 13, 2016, we entered into an asset purchase agreement with Veolia, pursuant to which Veolia agreed to acquire our Sulfur business for a purchase price of $325 million in cash, subject to customary working capital and other adjustments. We completed the sale on July 29, 2016, receiving total proceeds of $321 million in cash, net of estimated working capital adjustments.

On April 22, 2016, we entered into a stock and asset purchase agreement with Lanxess, pursuant to which Lanxess agreed to acquire our C&D product line by acquiring certain of our subsidiaries and assets comprising the C&D business for a purchase price of $230 million in cash, subject to customary working capital and other adjustments. We completed the sale on August 31, 2016 and received $223 million in cash, net of working capital adjustments.

On March 1, 2016, we completed the sale of our aniline facility in Beaumont, Texas to Dow for cash proceeds of $140 million. As part of this transaction, we also entered into a supply agreement with an initial two-year term to supply Dow with its additional aniline requirements from our Pascagoula, Mississippi production facility.

We used the proceeds from the above sales to fund capital expenditures, and for our general corporate purposes.

Transformation Plan

Following the Separation in 2015, we announced a plan to transform our company by reducing structural costs, growing market positions, optimizing our portfolio, refocusing investments, and enhancing our organization. We made considerable progress on our transformation plan from August 2015 through December 2017, and declared the transformation plan complete at the end of 2017. Under the transformation plan, we delivered over $800 million of incremental Adjusted EBITDA improvement over 2015 through 2017. Through year-end 2017, we realized approximately $350 million in cost savings since the Separation, which improved our pre-tax earnings by similar amounts. Further, through a combination of higher cash flows from operations and proceeds from asset sales, we reduced our leverage ratio to below 2.0 times at the end of 2017. We continue to implement additional cost reduction initiatives in order to realize additional structural cost savings through 2018 and beyond. These improvements were realized after offsets related to the impact of divestitures completed during 2016 (as discussed above), unfavorable price and mix of other products, and may also be impacted by market factors and other costs to achieve our plan. The results of our transformation actions are further discussed in the “Our Results and Business Highlights,” “Segment Reviews,” and “2018 Outlook” sections of this MD&A.

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Growth Expectations Through 2020

On December 1, 2017, we held our first investor day, during which we described how we expect each of our businesses to contribute to our overall growth. For our Titanium Technologies segment, we are implementing a value stabilization strategy in order to seek to reduce volatility for our Ti-Pure^TM TiO₂ pigment earnings. For our Fluoroproducts segment, we are optimizing our fluorochemicals product mix with the expansion of Opteon^TM refrigerants capacity and renewing our fluoropolymers portfolio through application development. For our Chemical Solutions segment, we are expanding our capacity to meet demand for our Mining Solutions products. To the extent we are successful in implementing such plans, as to which no assurance can be given, we identified key financial targets through 2020, including goals for our future net sales growth, Adjusted EBITDA margin improvement, Adjusted EPS, FCF, and ROIC. For further discussion regarding the risks associated with meeting our key financial targets for 2020 and the factors that may affect our ability to achieve these targets, see Item 1A – Risk Factors. For further discussion regarding our use of non-GAAP financial measures and reconciliations to their closest GAAP financial measures, see “Non-GAAP Financial Measures” within this MD&A.

Our Results of Operations and Business Highlights

Results of Operations

Our results of operations for the year ended December 31, 2017 exhibit our strong performance, with positive contributions from all three of our segments. Our net sales increased to $6.2 billion for the year ended December 31, 2017 when compared with $5.4 billion for the same period in 2016, primarily attributable to higher average selling prices and higher demand for our Ti-Pure^TM TiO₂ pigment in the Titanium Technologies segment, improved pricing for our base refrigerants, increased adoption of our Opteon^TM refrigerants, and higher demand for our fluoropolymer products in the Fluoroproducts segment, and increased volume across most businesses in the Chemical Solutions segment. These increases were partially offset by the impact of our 2016 portfolio changes in the Chemical Solutions segment. Our net income and our Adjusted EBITDA increased to $746 million and $1.4 billion for the year ended December 31, 2017, respectively, when compared with $7 million and $822 million for the same period in 2016, respectively. These increases were primarily attributable to the aforementioned increases in pricing and volume, plus the impact of cost reductions from our cost savings initiatives and portfolio changes. These increases were partially offset by higher performance-related compensation and transformation costs during 2017. Additionally, in 2016, our net income was negatively impacted by the accrual of $335 million in legal costs related to the PFOA MDL Settlement.

The following table sets forth our results of operations for the years ended December 31, 2017, 2016, and 2015.

 

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Net Sales

The following table sets forth the impacts of price, volume, currency, and portfolio and/or other changes on our total net sales for the years ended December 31, 2017 and 2016.

 

2017 Compared with 2016

Our net sales increased by $783 million, or 15%, to $6.2 billion for the year ended December 31, 2017 when compared with $5.4 billion for the year ended December 31, 2016. This increase reflects an 8% improvement in price, primarily attributable to higher average selling prices for our Ti-Pure^TM TiO₂ pigment in the Titanium Technologies segment and improved pricing for our base refrigerants in the Fluoroproducts segment, and an 11% improvement in volume, primarily attributable to higher demand for our Ti-Pure^TM TiO₂ pigment in the Titanium Technologies segment, the increased adoption of our Opteon^TM refrigerants and higher demand for our fluoropolymer products in the Fluoroproducts segment, and increased volume across most businesses in the Chemical Solutions segment. These increases were partially offset by the impact of portfolio changes in the Chemical Solutions segment related to the 2016 sales of our Sulfur and C&D businesses and our aniline facility in Beaumont, Texas, as well as the production shutdown at our RMS facility in Niagara Falls, New York, which combined, led to a 4% reduction in our net sales.

2016 Compared with 2015

Our net sales decreased by $317 million, or 6%, to $5.4 billion for the year ended December 31, 2016 when compared with $5.7 billion for the year ended December 31, 2015. This decrease reflects a 3% reduction in price, primarily attributable to lower average selling prices for our Ti-Pure^TM TiO₂ pigment and fluoropolymer products in the Titanium Technologies and Fluoroproducts segments, respectively, and lower average selling prices in the Chemical Solutions segment resulting from the impact of lower raw materials costs on contractual pass-through terms. Additionally, our decrease in net sales reflects a 1% reduction for unfavorable foreign currency exchange impacts in the Fluoroproducts segment and a 4% reduction for our aforementioned portfolio changes in the Chemical Solutions segment. These decreases were partially offset by volume increases due to increased demand for our Ti-Pure^TM TiO₂ pigment and Opteon^TM refrigerants for Europe and the U.S. in the Titanium Technologies and Fluoroproducts segments, respectively, which drove a 2% increase in our net sales.

Cost of Goods Sold

2017 Compared with 2016

Our cost of goods sold (COGS) increased by $139 million, or 3%, to $4.4 billion for the year ended December 31, 2017 when compared with $4.3 billion for the year ended December 31, 2016. This increase was primarily attributable to increases in volume, as well as increases in costs associated with our transformation activities and higher performance-related compensation costs during 2017, which were partially offset by the impact of portfolio changes in our Chemical Solutions segment.

2016 Compared with 2015

Our COGS decreased by $472 million, or 10%, to $4.3 billion for the year ended December 31, 2016 when compared with $4.8 billion for the year ended December 31, 2015. This decrease is primarily attributable to lower operating costs, including lower raw materials and overhead costs, and improvements in plant utilization during 2016. In addition, the 2016 portfolio changes in our Chemical Solutions segment further decreased our COGS for the year then-ended. These decreases were partially offset by costs for certain inventory and asset write-downs in connection with our portfolio changes during 2016, as well as higher performance-related compensation costs.

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Selling, General, and Administrative Expense

2017 Compared with 2016

Our selling, general, and administrative (SG&A) expense decreased by $332 million, or 36%, to $602 million for the year ended December 31, 2017 when compared with $934 million for the year ended December 31, 2016. This decrease was primarily attributable to the accrual of $335 million in legal costs related to the PFOA MDL Settlement at the end of 2016, as well as lower management and administrative and transaction-related costs, the latter associated with the sales of our Sulfur and C&D businesses in 2016, which did not recur in 2017. These decreases were partially offset by incremental costs related to our transformation activities and higher performance-related compensation costs in 2017.

2016 Compared with 2015

Our SG&A expense increased by $302 million, or 48%, to $934 million for the year ended December 31, 2016 when compared with $632 million for the year ended December 31, 2015. This increase was primarily attributable to the aforementioned legal and transaction-related costs associated with our PFOA MDL Settlement and the sales of our Sulfur and C&D businesses during 2016, respectively, as well as higher costs for performance-related compensation, legal, and other settlements for the year then-ended. These increases were partially offset by lower pension costs and our cost reduction initiatives, including costs associated with our global workforce reduction and other initiatives in connection with our transformation plan.

Research and Development Expense

2017 Compared with 2016

Our R&D expense was flat at $80 million for the years ended December 31, 2017 and 2016.

2016 Compared with 2015

Our R&D expense decreased by $17 million, or 18%, to $80 million for the year ended December 31, 2016 when compared with $97 million for the year ended December 31, 2015. This decrease reflects reductions in spend, primarily attributable to decisions to focus on fewer, higher return projects. Our global workforce reduction initiative, which was enacted in 2015, also impacted our R&D function and contributed to this decrease.

Restructuring and Asset-related Charges, Net

2017 Compared with 2016

Our restructuring and asset-related charges, net amounted to $57 million for the year ended December 31, 2017, primarily attributable to decommissioning and other charges in the Chemical Solutions segment associated with the production shutdown at our RMS plant in Niagara Falls, New York for $17 million, and restructuring charges and employee termination benefits in all segments associated with our 2017 restructuring program for $32 million. Additional charges incurred during 2017 include $4 million in the Titanium Technologies segment and $3 million in the Fluoroproducts segment for decommissioning and other charges associated with the closure of our Edge Moor, Delaware plant and certain production lines in our U.S. manufacturing plants, respectively, and $1 million in charges related to write-downs for certain of our assets. Our restructuring and asset-related charges, net amounted to $170 million for the year ended December 31, 2016, primarily attributable to decommissioning and other charges of $30 million, $8 million, and $7 million associated with the aforementioned closures of our Edge Moor and RMS plants, and our Fluoroproducts production lines, respectively. In addition, during 2016, we recorded asset-related charges for impairments of $58 million and $48 million in the Chemical Solutions segment related to the sale of our Sulfur business and for our aniline plant in Pascagoula, Mississippi, respectively, and $13 million in Corporate and Other related to the sale of our corporate headquarters building in Wilmington, Delaware.

2016 Compared with 2015

Our restructuring and asset-related charges, net amounted to $170 million for the year ended December 31, 2016, primarily attributable to the aforementioned plant and production line closures, and impairment charges related to certain of our assets and businesses. Our restructuring and asset-related charges, net amounted to $333 million for the year ended December 31, 2015, primarily attributable to employee termination benefits, decommissioning, asset-related, and other charges of $140 million, $24 million, and $12 million for the aforementioned closure of our Edge Moor plant, our Fluoroproducts production lines, and our RMS plant, respectively. In addition, we recorded $112 million in charges for employee termination benefits associated with our 2015 global restructuring program in all segments, and $45 million in asset-related charges for an impairment associated with the closure of our RMS facility.

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Interest Expense, Net

2017 Compared with 2016

Our interest expense, net increased by $2 million, or 1%, to $215 million for the year ended December 31, 2017 when compared with $213 million for the year ended December 31, 2016. This increase reflects additional interest from the issuance of our 2027 Notes in the Offering, which is partially offset by decreased interest from the repricing of our senior secured term loan in connection with the April Amendment and lower outstanding principal due to payments on the same. In addition, in 2016, we recorded a non-recurring net gain of $10 million on debt extinguishment resulting from the repurchase of certain portions of our senior unsecured notes in the open market, which is partially offset by a non-recurring loss of $4 million resulting from the write-off of certain unamortized debt issuance costs associated with the reduction in commitment on our Revolving Credit Facility.

2016 Compared with 2015

Our interest expense, net increased by $81 million, or 61%, to $213 million for the year ended December 31, 2016 when compared with $132 million for the year ended December 31, 2015. This increase reflects the first full year of interest expense following the issuance of our Senior Secured Credit Facilities and senior unsecured notes in May 2015.

Other Income, Net

2017 Compared with 2016

Our other income, net amounted to $79 million for the year ended December 31, 2017, primarily attributable to $30 million and $24 million in normal, recurring leasing, contract, and miscellaneous income and royalty income, respectively. In addition, we recognized net gains on the sale of certain of our assets and businesses for $22 million, which included a $13 million gain in connection with the sale of our land in Repauno, New Jersey that was previously deferred and realized upon meeting certain milestones, and a $12 million gain associated with the sale of our Edge Moor, Delaware plant site, net of certain losses on other disposals. Finally, we recognized net foreign currency exchange gains of $3 million during 2017. Our other income, net amounted to $247 million for the year ended December 31, 2016, primarily attributable to $35 million and $15 million in normal, recurring leasing, contract, and miscellaneous income and royalty income, respectively. In addition, we recognized net gains on the sale of certain of our assets and businesses for $254 million, which included $169 million associated with the sale of our C&D business and $89 million associated with the sale of our aniline plant in Beaumont, Texas. Our 2016 other income, net, was partially offset by net foreign currency exchange losses of $57 million, primarily attributable to a strengthening of the U.S. dollar against the Mexican peso.

2016 Compared with 2015

Our other income, net amounted to $247 million for the year ended December 31, 2016, primarily attributable to the aforementioned normal, recurring leasing, contract, and miscellaneous income and royalty income, and gains on the sale of our C&D business and aniline facility, which were partially offset by net foreign currency exchange losses. Our other income, net amounted to $54 million for the year ended December 31, 2015, primarily attributable to $25 million and $19 million in normal, recurring leasing, contract, and miscellaneous income and royalty income, respectively, and $19 million in net foreign currency exchange gains, primarily attributable to our foreign currency forward contracts. Our 2015 other income, net was partially offset by $9 million in net losses associated with the sales of certain of our assets and businesses.

Provision for (Benefit from) Income Taxes

2017 Compared with 2016

Our provision for income taxes amounted to $165 million for the year ended December 31, 2017, representing an effective income tax rate of 18%. Our benefit from income taxes amounted to $18 million for the year ended December 31, 2016, representing an effective income tax rate of 164%. The $183 million increase in our provision for income taxes for the year ended December 31, 2017 when compared with the same period in 2016 is primarily attributable to increased profitability, as well as changes in the geographic mix of our earnings. Our provision for income taxes for the year ended December 31, 2017 reflects a $22 million windfall benefit from the federal and state impact of share-based payments, a release of reserves for uncertain tax positions resulting in a benefit of $6 million, and the provisional impacts of U.S. tax reform, which resulted in a net benefit of $3 million. The net $3 million benefit from U.S. tax reform includes tax expense associated with the deemed repatriation transition tax on our unremitted foreign earnings, a release of the valuation allowance on carryforward foreign tax credits utilized against the deemed repatriation transition tax, and the revaluation of our net U.S. deferred tax liabilities as a result of the lower federal rate.

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2016 Compared with 2015

Our benefit from income taxes amounted to $18 million for the year ended December 31, 2016, representing an effective income tax rate of 164%. Our benefit from income taxes amounted to $98 million for the year ended December 31, 2015, representing an effective income tax rate of 52%. The $80 million decrease in our benefit from income taxes and the change in our effective income tax rate for the year ended December 31, 2016 when compared with the same period in 2015 is primarily attributable to our recognition of a $50 million valuation allowance on our U.S. foreign tax credits, the geographical mix of our earnings, and our recognition of gains in connection with the sales of certain of our assets and businesses during the year. These decreases were partially offset by the additional income tax benefit resulting from our $335 million accrual for the PFOA MDL Settlement at the end of 2016.

Segment Reviews

Adjusted EBITDA represents our primary measure of segment performance and is defined as income (loss) before income taxes, excluding the following:

A reconciliation of Adjusted EBITDA to net income (loss) for the years ended December 31, 2017, 2016, and 2015 is included in “Non-GAAP Financial Measures” in this MD&A and in “Note 25 – Geographic and Segment Information” to the Consolidated Financial Statements.

The following table sets forth our total Adjusted EBITDA by segment for the years ended December 31, 2017, 2016, and 2015.

 

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Titanium Technologies

The following chart sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Titanium Technologies segment for the years ended December 31, 2017, 2016, and 2015.

 

 

The following table sets forth the impacts of price, volume, currency, and portfolio and/or other changes on our Titanium Technologies segment’s net sales for the years ended December 31, 2017 and 2016.

 

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2017 Compared with 2016

 

Segment net sales increased by $594 million, or 25%, for the year ended December 31, 2017 when compared with the same period in 2016. This increase was primarily attributable to higher average selling prices for our Ti-Pure^TM TiO₂ pigment driving a 17% price increase in segment net sales, and higher global demand for our Ti-Pure^TM TiO₂ pigment across most regions driving an 8% volume increase in segment net sales. Our segment net sales volume in 2017 was above historical trends, which are typically in line with global GDP growth due to customers’ preference for our high quality Ti-Pure^TM TiO₂ pigment, as well as certain global supply constraints.

Segment Adjusted EBITDA increased by $396 million, or 85%, and segment Adjusted EBITDA margin increased by approximately 900 basis points for the year ended December 31, 2017 when compared with the same period in 2016. These increases were primarily attributable to the aforementioned higher average selling prices and increased demand for our Ti-Pure^TM TiO₂ pigment, partially offset by higher performance-related compensation, transformation, and raw materials costs in the segment.

2016 Compared with 2015

Segment net sales decreased by $28 million, or 1%, for the year ended December 31, 2016 when compared with the same period in 2015. This decrease was primarily attributable to lower average selling prices for our Ti-Pure^TM TiO₂ pigment affecting a 3% price decrease in segment net sales, partially offset by a 2% volume increase in segment net sales primarily attributable to higher demand in Europe and the U.S. Our segment net sales volume in 2016 was in line with seasonal and historical trends.

Segment Adjusted EBITDA increased by $140 million, or 43%, and segment Adjusted EBITDA margin increased by approximately 600 basis points for the year ended December 31, 2016 when compared with the same period in 2015. These increases were primarily attributable to productivity improvement initiatives, including the closure of our Edge Moor, Delaware plant and global headcount reductions, which collectively resulted in lower raw materials and plant operating costs in the segment. These increases were partially offset by the aforementioned lower average selling prices for our Ti-Pure^TM TiO₂ pigment and higher performance-related compensation costs in the segment.

Fluoroproducts

 

The following chart sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Fluoroproducts segment for the years ended December 31, 2017, 2016, and 2015.

 

 

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The following table sets forth the impacts of price, volume, currency, and portfolio and/or other changes on our Fluoroproducts segment’s net sales for the years ended December 31, 2017 and 2016.

 

 

2017 Compared with 2016

 

Segment net sales increased by $390 million, or 17%, for the year ended December 31, 2017 when compared with the same period in 2016. This increase was primarily attributable to significantly stronger global demand for our Opteon^TM refrigerants and improved demand for our fluoropolymer products driving a 16% volume increase in segment net sales, and higher selling prices for our base refrigerants driving a 1% price increase in segment net sales. This increase was partially offset by lower selling prices for both our Opteon^TM refrigerants due to expected automotive contractual price declines and our fluoropolymer products, as well as lower volume for our base refrigerants due to the phase-down of HCFC refrigerants (e.g., Freon^TM) in the segment.

 

Segment Adjusted EBITDA increased by $224 million, or 50%, and segment Adjusted EBITDA margin increased by approximately 500 basis points for the year ended December 31, 2017 when compared with the same period in 2016. These increases were primarily attributable to the aforementioned increased demand for our Opteon^TM refrigerants and fluoropolymer products and the favorable pricing for our base refrigerants, as well as cost reductions from our cost savings initiatives in the segment. These increases were partially offset by the aforementioned unfavorable pricing for both our Opteon^TM refrigerants and fluoropolymer products, lower volume for our base refrigerants, and higher performance-related compensation and transformation costs in the segment.

2016 Compared with 2015

Segment net sales increased by $34 million, or 1%, for the year ended December 31, 2016 when compared with the same period in 2015. This increase was primarily attributable to stronger demand for our Opteon^TM refrigerants in Europe and the U.S. driving a 4% volume increase in segment net sales, partially offset by lower selling prices for our fluoropolymer products due to competitive pricing pressures, lower volume for our base refrigerants due to the phase-down of HCFC refrigerants, and unfavorable foreign currency exchange impacts from the euro, Brazilian real, and Mexican peso, each affecting a 1% decrease in net sales for the segment.

Segment Adjusted EBITDA increased by $145 million, or 48%, and segment Adjusted EBITDA margin increased by approximately 700 basis points for the year ended December 31, 2016 when compared with the same period in 2015. These increases were primarily attributable to the aforementioned increased demand for our Opteon^TM refrigerants, as well as margin improvements and cost reductions from our cost savings initiatives in the segment. These increases were partially offset by the aforementioned unfavorable pricing for our fluoropolymer products, lower volume for our base refrigerants, unfavorable foreign currency exchange impacts, and higher performance-related compensation costs in the segment.

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Chemical Solutions

 

The following chart sets forth the net sales, Adjusted EBITDA, and Adjusted EBITDA margin amounts for our Chemical Solutions segment for the years ended December 31, 2017, 2016, and 2015.