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Net Sales
3 Months Ended
Mar. 31, 2018
Revenue From Contract With Customer [Abstract]  
Net Sales

Note 4. Net Sales

 

Revenue Recognition

 

Prior to the adoption of Topic 606, Chemours recognized revenue when the earnings process was complete. Revenue for product sales was recognized when product was shipped to the customer in accordance with the terms of the agreement, when title and the risk of loss were transferred, when collectability was reasonably assured, and when pricing was fixed or determinable. Any payments received in advance were recorded as deferred revenue and recognized as shipments were made and title, ownership, and the risk of loss were transferred to the customer. The Company accrued for sales returns and other allowances based on its historical experience, with cash sales incentives reflected as a reduction in revenue and non-cash sales incentives reflected as a charge to the cost of goods sold contemporaneously with the related revenue or selling expense, depending on the nature of the incentive. Amounts billed to customers for shipping and handling fees were included in net sales, and the costs incurred by the Company for the delivery of goods were classified as a component of the cost of goods sold in the consolidated statements of operations. Taxes on revenue-producing transactions were excluded from net sales.

 

Licensing and royalty income was recognized as a component of other income, net in the consolidated statements of operations in accordance with agreed upon terms, when performance obligations were satisfied, when collectability was reasonably assured, and when pricing was fixed or determinable.

 

With the adoption of Topic 606, Chemours recognizes revenue using a five-step model resulting in revenue being recognized as performance obligations within a contract have been satisfied. The steps within that model include: (i) identifying the existence of a contract with a customer; (ii) identifying the performance obligations within the contract; (iii) determining the contract’s transaction price; (iv) allocating the transaction price to the contract’s performance obligations; and, (v) recognizing revenue as the contract’s performance obligations are satisfied. A contract with a customer exists when: (i) the Company enters into an enforceable agreement that defines each party’s rights regarding the goods or services to be transferred, and the related payment terms; (ii) the agreement has commercial substance; and, (iii) it is probable that the Company will collect the consideration to which it is entitled to in the exchange. A performance obligation is a promise in a contract to transfer a distinct good or service, or a series of distinct goods or services to a customer and serves as the unit of account for Topic 606. The transaction price is the customary amount of consideration that the Company expects to be entitled to in exchange for a transfer of the promised goods or services to a customer, excluding any amounts collected by the Company on behalf of third-parties (e.g., sales and use taxes). Judgment is required to apply the principles-based, five-step model for revenue recognition outlined in Topic 606. Management is required to make certain estimates and assumptions about the Company’s contracts with its customers, including, among others, the nature and extent of its performance obligations, its transaction price amounts and any allocations thereof, the critical events which constitute satisfaction of its performance obligations, and when control of any promised goods or services is transferred to its customers.

 

The Company’s revenue from contracts with customers is reflected in the consolidated statements of operations as net sales, the vast majority of which represents product sales that consist of a single performance obligation. Product sales to customers are made under a purchase order (PO), or in certain cases, in accordance with the terms of a master services agreement (MSA) or similar arrangement, which documents the rights and obligations of each party to the contract. When a customer submits a PO for product or requests product under an MSA, a contract for a specific quantity of distinct goods at a specified price is created, and the Company’s performance obligation under the contract is satisfied when control of the product is transferred to the customer, which is indicated by shipment of the product and transfer of title and the risk of loss to the customer. Revenue is recognized on consignment sales when control transfers to the customer, generally at the point of customer usage of the product. The transaction price for product sales is generally the amount specified in the PO or in the request under an MSA; however, as is common in Chemours’ industry, the Company offers variable consideration in the form of rebates, volume discounts, early payment discounts, pricing based on formulas or indices, price matching, and guarantees to certain customers. Such amounts are included in the Company’s estimated transaction price using either the expected value method or the most-likely amount, depending on the nature of the variable consideration included in the contract. The Company regularly assesses its customers’ creditworthiness, and product sales are made based on established credit limits. Payment terms for the Company’s invoices are typically less than 90 days.

 


The Company also licenses the right to access certain of its trademarks to customers under specified terms and conditions in certain arrangements, which is recognized as a component of net sales in the consolidated statements of operations under Topic 606. Under such arrangements, the Company may receive a royalty payment for a trademark license that is entered into on a stand-alone basis or incorporated into an overall product sales arrangement. Royalty income is generally based on customer sales and recognized under the sales-based exception as the customer sale occurs. When minimum guaranteed royalty amounts are included in the transaction price, the Company recognizes royalty income ratably over the license period for the minimum amount. When there is no consideration specified for the use of the Company’s trademark, the entire transaction price is recognized in connection with the transfer of control of product. Royalty income resulting from the right to use the Company’s technology is considered outside the scope of Topic 606 as it is not a part of the Company’s ongoing major or central activities, and consistent with past practice, is recognized as a component of other income, net in the consolidated statements of operations in accordance with agreed upon terms, when performance obligations are satisfied, when collectability is reasonably assured, and when pricing is fixed or determinable.

 

Consistent with the fact that the vast majority of the Company’s payment terms are less than 90 days from the point at which control of the promised goods or services is transferred, no adjustments have been made for the effects of a significant financing component under Topic 606. Additionally, the Company has elected to recognize incremental costs associated with obtaining contracts as an expense when incurred if the amortization period of the assets that the Company would have recognized is one year or less. Amounts billed to customers for shipping and handling fees are considered a fulfillment cost and are included in net sales, and the costs incurred by the Company for the delivery of goods are classified as a component of the cost of goods sold in the consolidated statements of operations.

 

Disaggregation of Net Sales

 

The following table sets forth a disaggregation of the Company’s net sales by geographic region, product group, and segment for the three months ended March 31, 2018.

 

 

 

Three Months Ended March 31, 2018

 

 

 

 

 

 

 

Chemical

 

 

Titanium

 

 

 

 

 

 

 

Fluoroproducts

 

 

Solutions

 

 

Technologies

 

 

Total

 

Net sales by geographic region (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

303

 

 

$

81

 

 

$

233

 

 

$

617

 

Asia Pacific

 

 

153

 

 

 

19

 

 

 

242

 

 

 

414

 

Europe, the Middle East, and Africa

 

 

222

 

 

 

5

 

 

 

247

 

 

 

474

 

Latin America (2)

 

 

54

 

 

 

39

 

 

 

132

 

 

 

225

 

Total net sales

 

$

732

 

 

$

144

 

 

$

854

 

 

$

1,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales by product group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fluorochemicals

 

$

395

 

 

$

 

 

$

 

 

$

395

 

Fluoropolymers

 

 

337

 

 

 

 

 

 

 

 

 

337

 

Mining solutions

 

 

 

 

 

66

 

 

 

 

 

 

66

 

Performance chemicals and intermediates

 

 

 

 

 

78

 

 

 

 

 

 

78

 

Titanium dioxide and other minerals

 

 

 

 

 

 

 

 

854

 

 

 

854

 

Total net sales

 

$

732

 

 

$

144

 

 

$

854

 

 

$

1,730

 

 

 

(1)

Net sales are attributed to countries based on customer location.

 

(2)

Latin America includes Mexico.

Substantially all of the Company’s net sales are derived from goods and services transferred at a point in time.

 


Contract Balances

 

The Company’s assets and liabilities from contracts with customers constitute accounts receivable - trade, deferred revenue, and customer rebates. An amount for accounts receivable - trade is recorded when the right to consideration under a contract becomes unconditional. An amount for deferred revenue is recorded when consideration is received prior to the conclusion that a contract exists, or when a customer transfers consideration prior to the Company satisfying its performance obligations under a contract. Customer rebates represent an expected refund liability to a customer based on a contract. In contracts with customers where a rebate is offered, it is generally applied retroactively based on the achievement of a certain sales threshold. As revenue is recognized, the Company estimates whether or not the sales threshold will be achieved to determine the amount of variable consideration to include in the transaction price.

 

The following table sets forth the Company’s contract balances from contracts with customers at March 31, 2018 and December 31, 2017.

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Accounts receivable - trade, net (1)

 

$

1,016

 

 

$

847

 

Customer rebates

 

 

54

 

 

 

83

 

 

 

(1)

Accounts receivable - trade, net includes trade notes receivable of $3 and $1 and is net of allowances for doubtful accounts of $6 and $5 at March 31, 2018 and December 31, 2017, respectively. Such allowances are equal to the estimated uncollectible amounts.

The Company’s deferred revenue balance as of March 31, 2018 and December 31, 2017 was not significant. Additionally, changes in the Company’s deferred revenue balance resulting from additions for advance payments and deductions for amounts recognized in net sales during the three months ended March 31, 2018 were not significant. For the three months ended March 31, 2018, the amount of revenue recognized from performance obligations satisfied in prior periods (e.g., due to changes in transaction price) was not significant.

 

There were no other contract asset balances or capitalized costs associated with obtaining or fulfilling customer contracts as of March 31, 2018 or December 31, 2017.

 

Remaining Performance Obligations

 

Certain of the Company’s MSA or other arrangements contain take-or-pay clauses, whereby customers are required to purchase a fixed minimum quantity of product during a specified period, or pay the Company for such orders, even if not requested by the customer. The Company considers these take-or-pay clauses to be an enforceable contract, and as such, the legally-enforceable minimum amounts under such an arrangement are considered to be outstanding performance obligations on contracts with an original expected duration greater than one year. As of March 31, 2018, Chemours had $87 of remaining performance obligations. The Company expects to recognize approximately 20% of its remaining performance obligations as revenue in 2018, an additional 25% in 2019, and the balance thereafter. The Company applies the practical expedient in Topic 606 and does not include remaining performance obligations that have original expected durations of one year or less, or amounts for variable consideration allocated to wholly-unsatisfied performance obligations or wholly-unsatisfied distinct goods that form part of a single performance obligation, if any. Amounts for contract renewals that are not yet exercised as of March 31, 2018 are also excluded.