The Chemours Co.’s internal financial review found its senior management attempted to manipulate vendor payments and receivable schedules to meet the chemical maker’s publicized cash flow targets, the company said in an update Wednesday.
The chemical maker said its senior management “engaged in efforts” to delay payments to vendors that were scheduled for Q4 2023 to be sent in Q1 2024, and to push up collecting receivables from vendors from Q1 2024 to Q4 2023.
“The Audit Committee found that these individuals engaged in these efforts in part to meet free cash flow targets that the Company had communicated publicly, and which also would be part of a key metric for determining incentive compensation applicable to executive officers,” according to the update.
The update comes a week after Chemours placed President and CEO Mark Newman, SVP and CFO Jonathan Lock and VP, Controller and Principal Accounting Officer Camela Wisel on administrative leave last week while the company conducts an internal review of its financial reporting processes, including its ethics hotline system. The company also delayed submitting its annual financial report, which was due Feb. 28.
When named CFO in June 2023, Lock was given a $600,000 base salary in addition to a target annual incentive plan award of 75% of his base salary and a long term incentive plan award of $1 million, according to a May 31 SEC filing. Newman received a compensation package totaling $7,670,351 in 2022, according to Chemours’ 2023 annual report, released in March 2023. This included a $995,833 salary in addition to stock awards, option awards, non-equity incentive plan compensation and “other” compensation.
The company previously disclosed its cash, cash equivalents and restricted cash and restricted cash equivalents totaled approximately $1.8 billion, with $1.2 billion as unrestricted as of Dec. 31, 2023.
The audit committee also found that similar actions regarding the manipulation of vendor payment schedules were made in Q4 2022, but “to a lesser extent.” These actions led to a significant increase in cash flow measures for Chemours' quarter that ended on Dec. 31, 2022, and a decrease in these measures in Q1 2023.
“The Chemours Board of Directors takes these issues very seriously and appreciates the diligent efforts by the Audit Committee, with support from its counsel and Company management, to review these matters,” Board Chairperson Dawn Farrell said in a statement.
In Q3 2023, Chemours introduced “adjusted free cash flow” as a new accounting metric. The new metric excludes the chemical maker’s PFAS-related litigation settlements and legal fees.
“We believe that, paired with Free Cash Flow, this additional non-GAAP view will provide a clearer picture of Chemours underlying cash flow generation absent these litigation related matters,” Lock said in a statement in October.
The audit committee’s review relates to an anonymous tip made to Chemours’ ethics hotline, which was not elevated to the company’s general counsel or the committee. The company said the issue didn’t come to light until Chemours’ year-end 2023 external audit process. The company did not disclose when the tip was made to the hotline.
“The Audit Committee determined that the failure resulted from inadequate controls and procedures regarding the evaluation and escalation of hotline reports and poor judgment by certain employees who handle the intake of such reports,” according to the update.
Chemours plans to evaluate potential “material weaknesses in its internal control over financial reporting as of December 31, 2023” with respect to maintaining effective controls related to the control environment, including the efficiency of the “tone at the top” set by certain members of senior management.”
The company expects to report on those material weaknesses and related remediation plans in its annual 10-K report to the Securities and Exchange Commission.
