Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.20M
2: EX-2.2 Plan of Acquisition, Reorganization, Arrangement, HTML 107K
Liquidation or Succession
3: EX-31.1 Certification -- §302 - SOA'02 HTML 27K
4: EX-31.2 Certification -- §302 - SOA'02 HTML 27K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 24K
6: EX-32.2 Certification -- §906 - SOA'02 HTML 24K
12: R1 Cover HTML 74K
13: R2 Condensed Consolidated Statements of Operations HTML 103K
14: R3 Condensed Consolidated Statements of Comprehensive HTML 61K
Income
15: R4 Condensed Consolidated Statements of Comprehensive HTML 28K
Income (Parenthetical)
16: R5 Condensed Consolidated Balance Sheets HTML 134K
17: R6 Condensed Consolidated Balance Sheets HTML 42K
(Parenthetical)
18: R7 Condensed Consolidated Statements of Cash Flows HTML 140K
19: R8 Condensed Consolidated Statements of Cash Flows HTML 25K
(Parenthetical)
20: R9 Condensed Consolidated Statements of Equity HTML 101K
21: R10 Description of the Business HTML 26K
22: R11 Principal Accounting Policies and Related HTML 32K
Financial Information
23: R12 Recently Issued and Adopted Accounting HTML 34K
Pronouncements and Regulatory Items
24: R13 Revenue Recognition HTML 68K
25: R14 Inventories, Net HTML 31K
26: R15 Investments HTML 28K
27: R16 Restructuring and Other Charges HTML 44K
28: R17 Income Taxes HTML 29K
29: R18 Debt HTML 48K
30: R19 Equity HTML 60K
31: R20 Earnings Per Share HTML 51K
32: R21 Financial Instruments, Risk Management and Fair HTML 114K
Value Measurements
33: R22 Commitments and Contingencies HTML 55K
34: R23 Supplemental Information HTML 72K
35: R24 Pay vs Performance Disclosure HTML 36K
36: R25 Insider Trading Arrangements HTML 42K
37: R26 Recently Issued and Adopted Accounting HTML 30K
Pronouncements and Regulatory Items (Policies)
38: R27 Revenue Recognition (Tables) HTML 64K
39: R28 Inventories, Net (Tables) HTML 32K
40: R29 Restructuring and Other Charges (Tables) HTML 43K
41: R30 Debt (Tables) HTML 42K
42: R31 Equity (Tables) HTML 61K
43: R32 Earnings Per Share (Tables) HTML 48K
44: R33 Financial Instruments, Risk Management and Fair HTML 112K
Value Measurements (Tables)
45: R34 Commitments and Contingencies (Tables) HTML 51K
46: R35 Supplemental Information (Tables) HTML 73K
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Financial Information (Details)
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Major Geographical Region (Details)
49: R38 Revenue Recognition - Narrative (Details) HTML 37K
50: R39 Revenue Recognition - Disaggregation of Revenue By HTML 40K
Major Product Category (Details)
51: R40 Revenue Recognition - Assets and Liabilities HTML 36K
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Charges in Consolidated Income (Details)
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57: R46 Income Taxes (Details) HTML 29K
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59: R48 Debt - Narrative (Details) HTML 68K
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Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock, par value $0.001 per share
iLTHM
iNew
York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and "emerging growth company" in Rule 12B-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No i☒
As of September 30, 2023, there were i179,729,437
shares of Common Stock, $0.001 par value per share, outstanding.
As amended, provides for a $500 million senior secured revolving credit facility
EAETR
Estimated annual effective tax rate
EV
Electric vehicle
Exchange Act
Securities and Exchange Act of 1934
FMC
FMC
Corporation
IRA
Inflation Reduction Act
Livent NQSP
Livent Non-Qualified Savings Plan
MdA
Minera del Altiplano SA, our local operating subsidiary in Argentina
Merger Sub
Lightning-A Merger Sub, Inc., a Delaware corporation
Nemaska Lithium or NLI
Nemaska
Lithium Inc., a non-public lithium company not yet in the production stage domiciled in Québec, Canada
Nemaska Lithium Project
Through our subsidiary, Québec Lithium Partners (UK) Limited, we own a 50% equity interest in NLI, which in turn is developing the Nemaska Lithium Project, which will consist of the Whabouchi Mine and concentrator in the James Bay region of Québec and a lithium hydroxide conversion plant in Bécancour, Québec
NewCo
Arcadium Lithium plc, a public limited company incorporated under the laws of the Bailiwick of Jersey (originally incorporated as Lightning-A Limited, a private limited company incorporated under the laws of the Bailiwick of
Jersey)
QLP
Québec Lithium Partners (UK) Limited, a wholly owned subsidiary of Livent, which owns a 50% equity interest in the Nemaska Lithium Project
QLP Merger
On June 6, 2022, Livent closed on the Transaction Agreement and Plan of Merger with The Pallinghurst Group to provide Livent with a direct 50% ownership interest in the Nemaska Lithium Project. Livent issued 17,500,000 shares of its common stock to acquire the remaining 50% share of Québec Lithium
Partners (UK) Limited, previously owned by The Pallinghurst Group and certain of its investors
Revolving Credit Facility
Livent's $500 million senior secured revolving credit facility, as provided by the Credit Agreement
RSU
Restricted stock unit
SEC
Securities and Exchange Commission
Securities Act
Securities Act of 1933
Separation
On October
15, 2018, Livent completed its initial public offering and sold 20 million shares of Livent common stock to the public at a price of $17.00 per share
SOFR
Secured Overnight Financing Rate
Transaction
Proposed transaction to consummate the combination of Livent and Allkem in a merger of equals, stock-for-stock transaction. The transaction, which is expected to close by around the end of calendar year 2023, is subject to customary closing conditions, including, among others, approval by Allkem’s shareholders and our stockholders and receipt of required regulatory approvals
Transaction Agreement
Transaction
Agreement entered into on May 10, 2023, by and among Livent, Allkem and NewCo, and subsequently joined by Merger Sub, providing for the Transaction (as amended on August 2, 2023)
U.S. GAAP
United States Generally Accepted Accounting Principles
Common
stock; $ii0.001/ par value; ii2/
billion shares authorized; i179,837,555 and i179,652,125 shares issued; i179,729,437
and i179,548,550 outstanding as of September 30, 2023 and December 31, 2022, respectively
The
accompanying notes are an integral part of these condensed consolidated financial statements.
9
LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 1: iDescription
of the Business
Background and Nature of Operations
Livent Corporation ("Livent", "we", "us", "Company" or "our") manufactures a wide range of lithium products, which are used primarily in lithium-based batteries, specialty polymers and chemical synthesis applications. We serve a diverse group of markets. A major growth driver for lithium in the future will be the increasing adoption of electric vehicles ("EVs") and other energy storage applications.
Most markets for lithium chemicals are global with significant growth occurring in Asia, followed by Europe and North America, primarily driven by the development and manufacture of lithium-ion batteries. We are one of the primary producers of performance lithium compounds.
Note
2: iPrincipal Accounting Policies and Related Financial Information
iThe accompanying condensed consolidated financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission ("SEC") for interim reporting. As permitted under those rules, certain notes or other financial information that are normally
required by U.S. GAAP have been condensed or omitted from these interim financial statements. The financial statements included in this report reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of our condensed consolidated financial position as of September 30, 2023 and December 31, 2022, the condensed consolidated results of operations, the condensed consolidated statement of comprehensive income and the condensed consolidated statement of changes in equity for the three and nine months ended September 30, 2023 and 2022, and the condensed consolidated cash flows for the nine months ended September 30, 2023 and 2022. The
unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the full year. These statements, therefore, should be read in conjunction with the annual consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the "2022 Annual Report on Form 10-K").
Proposed Transaction with Allkem Limited
On May 10, 2023, we entered into a Transaction Agreement (as subsequently amended on August 2, 2023, the “Transaction Agreement”) with Allkem Limited, an Australian public company limited by shares (“Allkem”), and Arcadium Lithium plc, a public limited company incorporated under the
laws of the Bailiwick of Jersey (originally incorporated as Lightning-A Limited, a private limited company incorporated under the laws of the Bailiwick of Jersey) (“NewCo”), which was subsequently joined by Lightning-A Merger Sub, Inc., a Delaware corporation (“Merger Sub”), providing for a combination of Livent and Allkem in a merger of equals, stock-for-stock transaction (the “Transaction”). According to the Transaction Agreement, each of Livent's stockholders will receive i2.406 shares of NewCo in exchange for each Livent share that they own. Upon completion
of the Transaction, Allkem shareholders and Livent stockholders will hold approximately i56% and i44%, respectively, of NewCo’s shares, and both Livent and Allkem will be subsidiaries
of NewCo. The Transaction is subject to customary closing conditions, including, among others, approval by Allkem’s shareholders and our stockholders and receipt of required regulatory approvals. The Transaction Agreement contains certain termination rights for both Livent and Allkem, including if the Transaction is not completed on or before February 10, 2024, subject in certain circumstances to extension to May 10, 2024 upon notice by either party if necessary to secure certain regulatory approvals. The Transaction Agreement provides that, if the Transaction Agreement is terminated, a party will pay a $i64.6 million
termination fee to the other party in the case of certain events described in the Transaction Agreement, including if such party terminates the Transaction Agreement in connection with such party’s board of directors changing its recommendation that such party's shareholders vote in favor of the Transaction and if the other party terminates the Transaction Agreement due to such party’s board of directors changing such recommendation. The termination fee may also become payable by Livent or Allkem if the Transaction Agreement is terminated in certain circumstances and such party enters into an agreement for an alternative transaction within itwelve months
of such termination. We currently expect the Transaction to close by around the end of calendar year 2023. A registration statement on Form S-4 was filed with the SEC on July 21, 2023, as amended on September 27, 2023, and contains a preliminary proxy statement and prospectus in connection with the previously announced Transaction Agreement.
The foregoing summary of the Transaction Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the terms and conditions of the Transaction Agreement, a copy of which is attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the SEC on May 10, 2023, and
the Amendment to the Transaction Agreement, a copy of which is attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 2, 2023.
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
See “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q for additional information about the Transaction.
Blue
Chip Swap
Our wholly owned subsidiary in Argentina uses the U.S. dollar as its functional currency. Argentina peso-denominated monetary assets and liabilities are remeasured at each balance sheet date to the official currency exchange rate then in effect which represents the exchange rate available for external commerce (import payments and export collections) and financial payments, with currency remeasurement and other transaction gains and losses recognized in earnings. In September 2019, the President of Argentina reinstituted exchange controls restricting foreign currency purchases in an attempt to stabilize Argentina’s financial markets. As a result, a legal trading mechanism known as the Blue Chip Swap emerged in Argentina for all individuals or entities to transfer U.S. dollars out of and into Argentina. The Blue Chip Swap rate is the implicit exchange rate resulting from the Blue Chip Swap transaction.
Recently, the Blue Chip Swap rate has diverged significantly from Argentina’s official rate due to the economic environment. In the second and third quarters of 2023, we transferred U.S. dollars into Argentina through the Blue Chip Swap method whereby we realized a gain from the purchase in U.S. dollars and sale in Argentina pesos of Argentina Sovereign U.S. dollar-denominated bonds. The gain of U.S. $i10.0 million and $i21.4
million for the three and nine months ended September 30, 2023, respectively, was recorded to Other gain in our condensed consolidated statements of operations.
Note 3: iRecently Issued and Adopted Accounting Pronouncements and Regulatory Items
See Note 3 to our consolidated financial
statements in Part II, Item 8 of our 2022 Annual Report on Form 10-K for more information.
Note 4: iRevenue Recognition
Disaggregation of revenue
We disaggregate revenue from contracts with customers by geographical areas (based on product destination) and by product categories.
iThe following table provides information about disaggregated revenue by major geographical region:
1.During
the three months ended September 30, 2023, countries with sales in excess of 10% of consolidated revenue consisted of China, Japan, the U.S., and South Korea. Sales for the three months ended September 30, 2023 for China, Japan, the U.S., and South Korea totaled $i95.6 million, $i42.1 million,
$i30.0 million, and $i20.6 million, respectively. During the nine months ended September 30, 2023,
countries with sales in excess of 10% of consolidated revenue consisted of China, the U.S., Japan, and South Korea. Sales for the nine months ended September 30, 2023 for China, the U.S., Japan, and South Korea, totaled $i274.9 million, $i120.0 million,
$i118.2 million, and $i86.9 million, respectively. During the three months ended September 30,
2022, countries with sales in excess of 10% of consolidated revenue consisted of China, the U.S., and Japan. Sales for the three months ended September 30, 2022 for China, the U.S., and Japan totaled $i85.0 million, $i45.1 million,
and $i39.2 million, respectively. During the nine months ended September 30, 2022, countries with sales in excess of 10% of consolidated revenue consisted of China, Japan, and the U.S. Sales for the nine months ended September 30, 2022 for China, Japan, and the U.S. totaled $i208.8 million,
$i124.1 million, and $i105.6 million, respectively.
For
the three months ended September 30, 2023, two customers accounted for approximately i28% and i25%, respectively, of consolidated revenue and our 10 largest customers accounted in aggregate for approximately i78%
of consolidated revenue. For the three months ended September 30, 2022, one customer accounted for approximately i22% of consolidated revenue and our 10 largest customers accounted in aggregate for approximately i62% of consolidated revenue. For the nine months ended September 30,
2023, two customers accounted for approximately i25% and i22%, respectively, of consolidated revenue and our 10 largest customers accounted in aggregate for approximately i70%
of consolidated revenue. For the nine months ended September 30, 2022, one customer accounted for approximately i23% of consolidated revenue and our 10 largest customers
Notes to the Condensed Consolidated
Financial Statements (unaudited) — (Continued)
accounted in aggregate for approximately i61% of consolidated revenue. A loss of any material customer could have a material adverse effect on our business, financial condition and results of operations.
The following table provides information about disaggregated revenue by major product category:
We satisfy our obligations by transferring goods and services in exchange for consideration from customers. The timing of performance sometimes differs from the timing the associated consideration is received from the customer, thus resulting in the recognition of a contract liability. We recognize a contract liability if the customer’s payment of consideration is received prior to completion of our related performance obligation.
i
The
following table presents the opening and closing balances of our contract liabilities and current trade receivables, net of allowances from contracts with customers.
Occasionally, we may enter into multi-year take or pay supply agreements with customers. The aggregate amount of revenue expected to be recognized related to these contracts’ performance obligations is approximately $i1.7 billion in the next isix
years. Based on our past experience with the customers under these arrangements, we expect to continue recognizing revenue in accordance with the contracts as we transfer control of the product to the customer. However, in the case a shortfall of volume purchases occurs, we will recognize the amount payable by the customer over the remaining performance obligations in the contract.
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
Note 6: iInvestments
Nemaska Lithium Inc. ("Nemaska Lithium" or "NLI"), domiciled in Canada and headquartered in Montreal, Québec, is a non-public mining company not yet in the production stage. It is a development company aiming to vertically integrate, from extracting,
processing and concentrating spodumene to conversion of spodumene into battery-grade lithium hydroxide, primarily intended for EV and other energy storage applications. Its primary assets are construction in progress and intangibles principally related to intellectual property. Nemaska Lithium intends to develop the Whabouchi spodumene mine and concentrator in the James Bay region of Québec and a lithium hydroxide conversion plant in Bécancour, Québec (collectively, the "Nemaska Lithium Project"). As a developing company and to fund the Nemaska Lithium Project, Nemaska Lithium is reliant on securing financing from its shareholders through share subscriptions.
The Company accounts for the investment in Nemaska Lithium as an equity method investment on a one-quarter lag basis and it is included in Investments in our condensed consolidated
balance sheets. For the three and nine months ended September 30, 2023, we recorded a $i6.7 million and $i22.0 million loss,
respectively, related to our equity interest in Nemaska Lithium to Equity in net loss of unconsolidated affiliate in our condensed consolidated statements of operations. The carrying amount of our equity interest in Nemaska Lithium was $i500.7 million and $i437.1 million as
of September 30, 2023 and December 31, 2022, respectively, representing our i50% economic interest.
In October 2023, we entered into an amendment to our shareholders agreement with Nemaska Lithium, and also amendments to certain related service agreements. The Company is evaluating the accounting implications of these amendments.
Note
7: iRestructuring and Other Charges
i
The following table shows other charges included in "Restructuring and other charges" in the condensed consolidated statements of operations:
Three
Months Ended September 30,
Nine Months Ended September 30,
(in Millions)
2023
2022
2023
2022
Restructuring charges:
Severance-related and exit costs
$
i—
$
i0.4
$
i2.4
$
i0.9
Other
charges:
Costs related to the Transaction
i13.6
i0.1
i32.3
i2.3
Bessemer
City plant fire - gain, net of insurance recoveries
(i5.0)
i—
i—
i—
Environmental
remediation
i0.1
i0.1
i0.4
i0.3
Other
(i0.1)
i0.1
(i0.4)
i1.1
Total
Restructuring and other charges
$
i8.6
$
i0.7
$
i34.7
$
i4.6
/
Bessemer
City Plant Fire
On June 26, 2023, a fire broke out at Livent's i800-acre manufacturing facility in Bessemer City, North Carolina. The fire was principally contained to a steel and concrete warehouse which was used primarily to store lithium metal ingots, as well as some ancillary maintenance and production supplies. The warehouse and its contents were destroyed by the fire. There were no injuries and to our knowledge no toxic chemicals or compounds were on fire or released into the environment. All lithium hydroxide, butyllithium and catalyst grade lithium metal production lines were back in
operation by June 29, 2023. The production unit for pharmaceutical grade lithium carbonate was able to resume operation in October 2023, and the production unit for high purity lithium metal is expected to be back online by the end of 2023. Construction to rebuild the warehouse is anticipated to begin in the first quarter of 2024.
The Company recorded a gain, net of insurance recoveries, of $i5.0 million and izero
million for the three and nine months ended September 30, 2023, respectively, for clean-up and disposal costs and the carrying value of fixed assets and inventory destroyed by the fire. The Company continues to work with its insurance providers to assess the damage and applicable insurance coverage amounts recoverable under its enforceable insurance policies.
Notes to the Condensed Consolidated Financial Statements (unaudited) —
(Continued)
Note 8: iIncome Taxes
We determine our interim tax provision using an estimated annual effective tax rate methodology ("EAETR") in accordance with U.S. GAAP. The EAETR is applied to the year-to-date ordinary income, exclusive of discrete items. The tax effects of discrete items are then included to arrive at the total reported interim tax provision.
The
determination of the EAETR is based upon a number of estimates, including the estimated annual pretax ordinary income in each tax jurisdiction in which we operate. As our projections of ordinary income change throughout the year, the EAETR will change period-to-period. The tax effects of discrete items are recognized in the tax provision in the period they occur in accordance with U.S. GAAP. Depending on various factors, such as the item’s significance in relation to total income and the rate of tax applicable in the jurisdiction to which it relates, discrete items in any quarter can materially impact the reported effective tax rate. As a global enterprise, our tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, as well as other factors. As a result, there can be significant volatility in interim tax provisions.
Provision for income taxes for the three and nine months ended
September 30, 2023 was an expense of $i9.3 million and $i47.8 million resulting in an effective tax rate of i9.6%
and i14.1%, respectively. Provision for income taxes for the three and nine months ended September 30, 2022 was an expense of $i21.5 million and $i56.4 million
resulting in an effective tax rate of i21.7% and i22.8%, respectively.
1.As
of September 30, 2023 and December 31, 2022, there were $i20.8 million and $i14.9 million, respectively, in letters of credit
outstanding under our Revolving Credit Facility and $i479.2 million and $i485.1 million available funds as of September 30,
2023 and December 31, 2022, respectively. Fund availability is subject to the Company meeting its debt covenants.
In the fourth quarter of 2023, the holders of the 2025 Notes were notified that the last reported sale price of our common stock for at least i20 trading days (whether or not consecutive) during the period of i30
consecutive trading days ending on, and including, September 30, 2023 was greater than or equal to i130% of the conversion price on each trading day, and as a result, the holders have the option to convert all or any portion of their 2025 Notes through December 31, 2023.
In addition, in light of the impending Transaction, as previously disclosed by the
Company in its Current Report on Form 8-K filed on October 19, 2023, in the fourth quarter of 2023, the holders of the 2025 Notes were notified that all or any portion of their 2025 Notes may be surrendered for conversion at any time from or after October 20, 2023, until i35 trading days after the actual effective date of the proposed Transaction.
The conversion rate for the 2025 Notes is 114.4885 shares of common stock per $1,000
principal amount of 2025 Notes. The 2025 Notes are classified as long-term debt.
The Company recognized non-cash interest related to the amortization of transaction costs for the 2025 Notes of $i0.3 million and $i1.1 million
for the three and nine months ended September 30, 2023, respectively, all of which was capitalized. The
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
Company recorded $i2.5 million
and $i7.6 million of accrued interest expense related to the principal amount for the three and nine months ended September 30, 2023, all of which was capitalized.
Covenants
The Credit Agreement contains certain affirmative and negative covenants that are binding on us and our subsidiary, Livent USA Corp., as borrowers (the "Borrowers") and their subsidiaries,
including, among others, restrictions (subject to exceptions and qualifications) on the ability of the Borrowers and their subsidiaries to create liens, to undertake fundamental changes, to incur debt, to sell or dispose of assets, to make investments, to make restricted payments such as dividends, distributions or equity repurchases, to change the nature of their businesses, to enter into transactions with affiliates and to enter into certain restrictive agreements. Furthermore, the Borrowers are subject to financial covenants regarding leverage (measured as the ratio of debt to adjusted earnings) and interest coverage (measured as the ratio of adjusted earnings to interest expense). Our maximum allowable first lien leverage ratio is i3.5
as of September 30, 2023. Our minimum allowable interest coverage ratio is i3.5. We were in compliance with all requirements of the covenants as of September 30, 2023.
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
Note 10: iEquity
As of September 30, 2023 and December 31, 2022, we had ii2/ billion
shares of common stock authorized. iThe following is a summary of Livent's common stock issued and outstanding:
Summarized below is the roll forward of accumulated other comprehensive loss, net of tax.
(in
Millions)
Foreign currency adjustments
Derivative Instruments
Total
Accumulated other comprehensive loss, net of tax as of December 31, 2022
$
(i51.0)
$
i—
$
(i51.0)
Other
comprehensive losses before reclassifications
(i1.3)
i—
(i1.3)
Amounts
reclassified from accumulated other comprehensive loss
i—
i0.2
i0.2
Accumulated
other comprehensive loss, net of tax as of September 30, 2023
$
(i52.3)
$
i0.2
$
(i52.1)
(in
Millions)
Foreign currency adjustments
Derivative Instruments
Total
Accumulated other comprehensive loss, net of tax as of December 31, 2021
$
(i43.1)
$
i0.2
$
(i42.9)
Other
comprehensive loss before reclassifications
(i11.5)
i—
(i11.5)
Amounts
reclassified from accumulated other comprehensive loss
i—
i0.2
i0.2
Accumulated
other comprehensive loss, net of tax as of September 30, 2022
$
(i54.6)
$
i0.4
$
(i54.2)
/
Reclassifications
of accumulated other comprehensive loss
Hedging losses reclassified from accumulated other comprehensive loss for each of the three and nine months ended September 30, 2023 were $ii0.2/ million,
net of provision for income taxes of $ii0.1/ million.
Hedging losses reclassified from accumulated other comprehensive loss for each of the three and nine months ended September 30, 2022 were $i0.3 million and $i0.2 million,
respectively, net of provision for income taxes of less than $ii0.1/ million
for each period.
Dividends
For the three and nine months ended September 30, 2023 and 2022, we paid iiiino///
dividends. We do not expect to pay any dividends in the foreseeable future.
Note 11: iEarnings Per Share
Earnings per common share ("EPS") is computed by dividing net income by the weighted average number of common shares outstanding during the period on a basic and diluted basis.
Our potentially dilutive securities
include potential common shares related to our stock options, restricted stock units, performance restricted stock units and 2025 Notes. See Note 12 to our consolidated financial statements in Part II, Item 8 of our 2022 Annual Report on Form 10-K for more information. Diluted earnings per share ("Diluted EPS") considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect. Diluted EPS excludes the impact of potential common shares related to our stock options in periods in which the option exercise price is greater than the average market price of our common stock for the period. We use the if-converted method when calculating the potential dilutive effect, if any, of our 2025 Notes.
Weighted
average common shares outstanding - basic
i179.7
i179.3
i179.7
i169.3
Dilutive
share equivalents from share-based plans
i1.5
i2.0
i1.5
i1.8
Dilutive
share equivalents from 2025 Notes
i28.1
i28.1
i28.1
i28.1
Weighted
average common shares outstanding - diluted
i209.3
i209.4
i209.3
i199.2
Basic
earnings per common share:
Net income per weighted average share - basic
$
i0.49
$
i0.43
$
i1.63
$
i1.13
Diluted
earnings per common share:
Net income per weighted average share - diluted
$
i0.42
$
i0.37
$
i1.40
$
i0.96
/
Anti-dilutive
stock options
For the three and nine months ended September 30, 2023, options to purchase i181,024 and i146,770
shares of our common stock, respectively, at an average exercise price of $ii23.33/
per share were anti-dilutive and not included in the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the common stock for the three and nine months ended September 30, 2023. For the three and nine months ended September 30, 2022, iinone/
of the outstanding options to purchase shares of our common stock were anti-dilutive.
Note 12: iFinancial Instruments, Risk Management and Fair Value Measurements
Our financial instruments include cash and cash equivalents, trade receivables, other current assets, investments held in trust fund, trade payables, derivatives
and amounts included in accruals meeting the definition of financial instruments. Investments in the Livent NQSP deferred compensation plan trust fund are considered Level 1 investments based on readily available quoted prices in active markets for identical assets. The carrying value of cash and cash equivalents, trade receivables, other current assets, and trade payables approximates their fair value due to their short term nature and are considered Level 1 investments. iOur other financial instruments include the following:
Estimated amounts that would be received or paid to terminate the contracts at the reporting date based on current market prices for applicable currencies.
The estimated fair value of our foreign exchange forward contracts
have been determined using standard pricing models which take into account the present value of expected future cash flows discounted to the balance sheet date. These standard pricing models utilize inputs derived from, or corroborated by, observable market data such as currency and commodity spot and forward rates.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for
identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
Level 3 - Unobservable inputs for the asset or liability.
The estimated fair value and the carrying amount of debt were $i533.2 million
and $i243.1 million, respectively, as of September 30, 2023. Our 2025 Notes are classified as Level 2 in the fair value hierarchy.
Use of Derivative Financial Instruments to Manage Risk
We mitigate certain financial exposures connected to currency risk through a program of risk management that includes the use of derivative financial instruments. We enter into foreign exchange forward contracts to reduce the effects
of fluctuating foreign currency exchange rates.
We formally document all relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes relating derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. We also assess both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. If we determine that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting with respect to that derivative prospectively.
Foreign Currency Exchange Risk Management
We
conduct business in many foreign countries, exposing earnings, cash flows, and our financial position to foreign currency risks. The majority of these risks arise as a result of foreign currency transactions. The primary currencies for which we have exchange rate exposure are the Euro, the British pound, the Chinese yuan, the Argentine peso, and the Japanese yen. We currently do not hedge foreign currency risks associated with the Argentine peso due to the limited availability and the high cost of suitable derivative instruments. Our policy is to minimize exposure to adverse changes in currency exchange rates. This is accomplished through a controlled program of risk management that could include the use of foreign currency debt and forward foreign exchange contracts. We also use forward foreign exchange contracts
to hedge firm and highly anticipated foreign currency cash flows, with an objective of balancing currency risk to provide adequate protection from significant fluctuations in the currency markets.
Concentration of Credit Risk
Our counterparties to derivative contracts are primarily major financial institutions. We limit the dollar amount of contracts entered into with any one financial institution and monitor counterparties’ credit ratings. We also enter into master netting agreements with each financial institution, where possible, which helps mitigate the credit risk associated with our financial instruments. While we may be exposed to credit losses due to the nonperformance of counterparties, we consider
this risk remote.
Accounting for Derivative Instruments and Hedging Activities
Cash Flow Hedges
We recognize all derivatives on the balance sheet at fair value. On the date we enter into the derivative instrument, we generally designate the derivative as a hedge of the variability of cash flows to be received or paid related to a forecasted transaction (cash flow hedge). We record in accumulated other comprehensive loss ("AOCL") changes in the fair value of derivatives that are designated as and meet all the required criteria for, a cash flow hedge. We then reclassify these amounts into earnings as the underlying hedged item affects earnings. In contrast we immediately record in earnings changes in the fair value of derivatives that are not designated as cash flow hedges. As of September 30,
2023, we had open foreign currency forward contracts in AOCL in a net after-tax gain position of $i0.2 million designated as cash flow hedges of underlying forecasted sales and purchases. As of September 30, 2023 we had open forward contracts with various expiration dates to buy, sell or exchange foreign currencies with a U.S.
dollar equivalent of approximately $i12.4 million.
A net after-tax gain of $i0.2 million, representing open foreign currency exchange contracts,
will be realized in earnings during the year ending December 31, 2023 if spot rates in the future are consistent with market rates as of September 30, 2023. The actual effect on earnings will be dependent on the actual spot rates when the forecasted transactions occur. We recognize derivative gains and losses in the “Cost of sales” line in the condensed consolidated statements of operations.
Notes to the Condensed Consolidated Financial
Statements (unaudited) — (Continued)
Derivatives Not Designated As Cash Flow Hedging Instruments
We hold certain forward contracts that have not been designated as cash flow hedging instruments for accounting purposes. Contracts used to hedge the exposure to foreign currency fluctuations associated with certain monetary assets and liabilities are not designated as cash flow hedging instruments and changes in the fair value of these items are recorded in earnings.
We had open forward contracts not designated as cash flow hedging instruments for accounting purposes
with various expiration dates to buy, sell or exchange foreign currencies with a U.S. dollar equivalent of approximately $i112.1 million as of September 30, 2023.
Fair Value of Derivative Instruments
i
The
following table provides the gross fair value and net balance sheet presentation of our derivative instruments. The Company had open derivative cash flow hedge contracts with a liability position of less than $i0.1 million as of December 31, 2022.
1.Amounts
represent the gain or loss on the derivative instrument offset by the gain or loss on the hedged item.
2.A gain of $i0.2 million related to intercompany loan hedges is included in Restructuring and other charges in the condensed consolidated statements of operations for the nine months ended September 30, 2023. There is ino
gain or loss related to intercompany loan hedges included in Restructuring and other charges for the three months ended September 30, 2023. A gain of $i0.1 million and loss of $i0.1 million
related to intercompany loan hedges is included in Restructuring and other charges in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022.
Notes to the Condensed Consolidated Financial
Statements (unaudited) — (Continued)
Fair Value Measurements
Recurring Fair Value Measurements
i
The following tables present our fair-value hierarchy for those assets and liabilities measured at fair-value on a recurring basis in our condensed consolidated balance sheets.
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Assets
Investments in deferred compensation plan (1)
$
i3.1
$
i3.1
$
i—
i—
Total
Assets
$
i3.1
$
i3.1
$
i—
$
i—
Liabilities
Deferred
compensation plan obligation (2)
$
i5.1
$
i5.1
$
i—
$
i—
Total
Liabilities
$
i5.1
$
i5.1
$
i—
$
i—
____________________
1.Balance
is included in “Investments” in the condensed consolidated balance sheets. Livent NQSP investments in Livent common stock are recorded as "Treasury stock" in the condensed consolidated balance sheets and carried at historical cost. Mark-to-market gains of $i1.0 million and $i0.2 million
were recorded for the three and nine months ended September 30, 2023, respectively, related to the Livent common stock. The mark-to-market gains were recorded in "Selling, general and administrative expenses" in the condensed consolidated statements of operations, with a corresponding offset to the deferred compensation plan obligation in the condensed consolidated balance sheets.
2.Balance is included in “Other long-term liabilities” in the condensed consolidated balance sheets.
/
Note
13: iCommitments and Contingencies
Contingencies
We are a party to various legal proceedings, certain of these matters are discussed below. Livent records liabilities for estimated losses from contingencies when information available indicates that a loss is probable and the amount of the loss, or range of loss, can be reasonably estimated. As additional information becomes available, management adjusts its assessments and estimates. Legal costs are expensed as incurred.
In addition to the legal
proceedings noted below, we have certain contingent liabilities arising in the ordinary course of business. Some of these contingencies are known but are so preliminary that the merits cannot be determined, or if more advanced, are not deemed material based on current knowledge; and some are unknown - for example, claims with respect to which we have no notice or claims which may arise in the future from products sold, guarantees or warranties made, or indemnities provided. Therefore, we are unable to develop a reasonable estimate of our potential exposure of loss for these
Notes
to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
contingencies, either individually or in the aggregate, at this time. There can be no assurance that the outcome of these contingencies will be favorable, and adverse results in certain of these contingencies could have a material adverse effect on the consolidated financial position, results of operations in any one reporting period, or liquidity.
Argentine Customs & Tax Authority Matters
Minera del Altiplano SA, our subsidiary in Argentina ("MdA"), has received notices from the Argentine Customs Authorities that they are conducting customs audits in Salta (for 2015 to 2019, 2021 and 2022), Rosario (for 2016 and 2017), Buenos Aires and Ezeiza (for 2018, 2019, 2021 and 2022) regarding the export of lithium carbonate by MdA from each of those locations.
See Note 14 for more information about the payment the Company made in June 2023 for export duties and interest claimed by the Customs Authorities of Buenos Aires, Ezeiza and Salta related to exports made between the years 2018 – 2022. MdA was also notified from the Argentine Tax Authority of the start of transfer pricing audits for the periods 2017 and 2018.
During a part of this period, MdA was a subsidiary of FMC. However, the Company agreed to bear any possible liability for these types of matters under the terms of the Tax Matters Agreement that it entered into with FMC in connection with the Separation. A range of reasonably possible liabilities, if any, cannot be currently estimated by the
Company.
Leases
All of our leases are operating leases as of September 30, 2023 and December 31, 2022. We have operating leases for corporate offices, manufacturing facilities, and land. Our leases have remaining lease terms of three to itwenty-seven years. iQuantitative
disclosures about our leases are summarized in the table below.
Three Months Ended September 30,
Nine Months Ended September 30,
(in Millions, except for weighted-average amounts)
2023
2022
2023
2022
Lease
Cost
Operating lease cost
$
i0.4
$
i0.3
$
i1.0
$
i1.0
Short-term
lease cost
i0.1
i0.1
i0.3
i0.3
Total
lease cost (1)
$
i0.5
$
i0.4
$
i1.3
$
i1.3
Other
information
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid for operating leases
$
i0.4
$
i0.3
$
i1.1
$
i1.0
__________________________
1.Lease
expense is classified as "Selling, general and administrative expenses" in our condensed consolidated statements of operations.
As of September 30, 2023, our operating leases had a weighted average remaining lease term of i17.3 years and a weighted average discount rate of i6.5%.
i
The table below presents a maturity analysis of our operating lease liabilities for each of the next five years and a total of the amounts for the remaining years.
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
Note 14: iSupplemental Information
i
The
following tables present details of prepaid and other current assets, other assets, accrued and other current liabilities, and other long-term liabilities as presented on the condensed consolidated balance sheets:
1.We
conduct business in Argentina. As of September 30, 2023 and December 31, 2022, $i38.2 million and $i40.0 million, respectively, of outstanding
receivables due from the Argentina government, which primarily represent export tax and export rebate receivables, was denominated in U.S. dollars. A recent judicial decision relating to the U.S. dollar-denominated export tax receivable portion ($i34.8 million) permits the Argentina government to reimburse us in Argentine pesos at the historical foreign exchange rate applicable at each past payment date, adjusted by a bank deposit interest rate. While Livent filed an appeal on November 6, 2023 and believes it has valid defenses on the technical merits, the ultimate resolution
of this matter could result in a possible loss of up to $i33.8 million. We continually review the recoverability of all outstanding receivables by analyzing historical experience, current collection trends and regional business and political factors among other factors.
2.Bank Acceptance Drafts are a common Chinese finance note used to settle trade transactions. Livent accepts these notes from Chinese customers based on criteria intended to ensure collectability and limit working capital usage.
3.In
June 2023, the Company decided to pay $i21.7 million for the export duties and interest claimed by the Customs Authorities of Buenos Aires, Ezeiza and Salta related to exports made between the years 2018 – 2022 registered in those locations. This payment stops the accrual of any further interest. It was a deposit made under protest, and was not an admission of any of the claims made by the Customs Authorities or a waiver of any of the Company's defenses, including
recovery of the deposit plus interest. The cases remain in discussion. See Note 13 for more information.
4.We record deferred charges for certain contract manufacturing agreements which we amortize over the term of the underlying contract.
Contingencies
related to uncertain tax positions (2)
i6.8
i5.7
Self-insurance
reserves
i1.4
i1.5
Asset retirement obligations
i0.2
i0.2
Other
long-term liabilities
i2.9
i3.4
Total
$
i17.4
$
i15.9
____________________
1.Amounts
primarily include accrued capital expenditures related to our expansion projects.
2.As of September 30, 2023, we have recorded a liability for uncertain tax positions of $i6.4 million and a $i0.4
million indemnification liability where the offsetting uncertain tax position is with FMC, per the tax matters agreement.
/
24
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Statement under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995: We and our representatives
may from time to time make written or oral statements that are "forward-looking" and provide other than historical information, including statements contained in Item 2 of this Quarterly Report on Form 10-Q, in our other filings with the SEC, or in reports to our stockholders.
In some cases, we have identified forward-looking statements by such words or phrases as "will likely result,""is confident that,""expect,""expects,""should,""could,""may,""will continue to,""believe,""believes,""anticipates,""predicts,""forecasts,""estimates,""projects,""potential,""intends" or similar expressions identifying "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including the negative of those words and phrases. Such forward-looking statements
are based on our current views and assumptions regarding future events, future business conditions and the outlook for the Company based on currently available information. These forward-looking statements may include projections of our future financial performance, our anticipated growth strategies, anticipated trends in our business, and the anticipated timing for, and outcome and effects of, the proposed Transaction with Allkem. These statements are only predictions based on our current expectations and projections about future events. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement.
Investors are cautioned to carefully consider
the risk factors discussed in Part I, Item 1A of our 2022 Annual Report on Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, achievements, or timing for, or outcome and effects of, the proposed Transaction with Allkem. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We are under no duty to and specifically decline to undertake any obligation to publicly revise or update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform our prior statements to actual results, revised
expectations or to reflect the occurrence of anticipated or unanticipated events.
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
Our condensed consolidated financial statements are prepared in conformity with U.S. GAAP. The preparation of our financial statements requires management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses and that have or could have a material impact on our financial condition and results of operations. We have described our accounting estimates in Note 2 to our consolidated financial statements included in Part II, Item 8 of our 2022 Annual Report on Form 10-K. The SEC has defined critical accounting estimates as those estimates made in accordance with U.S. GAAP that involve a significant level of measurement uncertainty and have had or are reasonably likely to have a material impact
on the financial condition or operating performance of a company.
We have reviewed these accounting estimates, identifying those that we believe contain matters that are inherently uncertain, have significant levels of subjectivity and complex judgments and are critical to the preparation and understanding of our condensed consolidated financial statements. We have reviewed these critical accounting estimates with the Audit Committee of our Board of Directors. Critical accounting estimates are central to our presentation of results of operations and financial condition and require management to make judgments, assumptions and estimates on certain matters. We base our estimates, assumptions and judgments on historical experience, current conditions and other reasonable factors.
As a result of inflation, rising interest rates and various global conflicts, there has been uncertainty
and disruption in the global economy and financial markets. The estimates used for, but not limited to, revenue recognition and the collectability of trade receivables, impairment and valuation of long-lived assets, and income taxes could be impacted. We have assessed the impact and are not aware of any specific events or circumstances that required an update to our estimates and assumptions or materially affected the carrying value of our assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
OVERVIEW
We are a pure-play, fully integrated lithium company, with a long, proven history of producing performance lithium compounds. Our primary products, namely battery-grade
lithium hydroxide, lithium carbonate, butyllithium and high purity lithium metal are critical inputs used in various performance applications. Our strategy is focused on supplying high
25
performance lithium compounds to the rapidly growing EV and broader energy storage battery markets, while continuing to maintain our position as a leading global producer of butyllithium and high purity lithium metal. With extensive global capabilities, approximately 80 years of continuous production experience, applications and technical expertise and deep customer relationships, we believe we are well positioned to capitalize on the accelerating trend of electrification.
We produce lithium compounds for use in applications
that have specific and constantly changing performance requirements, including battery-grade lithium hydroxide for use in high performance lithium-ion batteries. We believe the demand for our compounds will continue to grow as the electrification of transportation accelerates, and as the use of high nickel content cathode materials increases in batteries. We also supply butyllithium, which is used in the production of polymers and pharmaceutical products, as well as a range of specialty lithium compounds including high purity lithium metal, which is used in the production of lightweight materials for aerospace applications and non-rechargeable batteries. It is in these applications that we have established a differentiated position in the market through our ability to consistently produce and deliver performance lithium compounds.
Third Quarter 2023 Highlights
The following are the
more significant developments in our business during the three months ended September 30, 2023:
•Revenue of $211.4 million for the three months ended September 30, 2023 decreased $20.2 million, or approximately 9%, compared to $231.6 million for the three months ended September 30, 2022, due to lower lithium carbonate pricing and lower butyllithium pricing and volumes, partially offset by an increase in lithium carbonate volumes and higher lithium hydroxide pricing.
•Net income of $87.4 million for the three months ended September 30, 2023 compared to net income of $77.6 million for the three months ended September 30,
2022 was due to a $10 million gain from our sale of Argentina Sovereign U.S. dollar-denominated bonds and lower income tax expense, partially offset by a decrease in gross margin of $2.9 million, higher Restructuring and other charges including those related to the Transaction of $13.6 million and $3.2 million higher Equity in net loss of unconsolidated affiliate.
•Adjusted EBITDA of $119.7 million for the three months ended September 30, 2023 increased $8.9 million, compared to $110.8 million for the three months ended September 30, 2022, primarily due to a favorable mix of raw materials costs of $18.8 million, increased lithium carbonate volumes of $10.3 million and lower selling, general and administrative expenses of $1.8 million, partially offset by lower pricing of $5.1 million and decreased
butyllithium volumes of $16.9 million.
Proposed Transaction with Allkem Limited
On May 10, 2023, we entered into a Transaction Agreement (as subsequently amended on August 2, 2023, the “Transaction Agreement”) with Allkem Limited, an Australian public company limited by shares (“Allkem”), and Arcadium Lithium plc, a public limited company incorporated under the laws of the Bailiwick of Jersey (originally incorporated as Lightning-A Limited, a private limited company incorporated under the laws of the Bailiwick of Jersey) (“NewCo”), which was subsequently joined by Lightning-A Merger Sub, Inc., a Delaware corporation (“Merger Sub”), providing for a combination of Livent and Allkem in a merger of equals, stock-for-stock transaction (the “Transaction”).
According to the Transaction Agreement, each of Livent's stockholders will receive 2.406 shares of NewCo in exchange for each Livent share that they own. Upon completion of the Transaction, Allkem shareholders and Livent stockholders will hold approximately 56% and 44%, respectively, of NewCo’s shares, and both Livent and Allkem will be subsidiaries of NewCo. The Transaction is subject to customary closing conditions, including, among others, approval by Allkem’s shareholders and our stockholders and receipt of required regulatory approvals. The Transaction Agreement contains certain termination rights for both Livent and Allkem, including if the Transaction is not completed on or before February 10, 2024, subject in certain circumstances to extension to May 10, 2024 upon notice
by either party if necessary to secure certain regulatory approvals. The Transaction Agreement provides that, if the Transaction Agreement is terminated, a party will pay a $64.6 million termination fee to the other party in the case of certain events described in the Transaction Agreement, including if such party terminates the Transaction Agreement in connection with such party’s board of directors changing its recommendation that such party's shareholders vote in favor of the Transaction and if the other party terminates the Transaction Agreement due to such party’s board of directors changing such recommendation. The termination fee may also become payable by Livent or Allkem if the Transaction Agreement is terminated in certain circumstances and such party enters into an agreement for an alternative transaction within twelve months of such termination. We currently expect the Transaction to close by around the end of calendar year 2023. A registration statement
on Form S-4 was filed with the SEC on July 21, 2023, as amended on September 27, 2023, and contains a preliminary proxy statement and prospectus in connection with the previously announced Transaction Agreement.
The foregoing summary of the Transaction Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the terms and conditions of the Transaction Agreement, a copy of which
26
is attached as Exhibit 2.1 to the Company’s Current Report on
Form 8-K, filed with the SEC on May 10, 2023, and the Amendment to the Transaction Agreement, a copy of which is attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 2, 2023.
See “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q for additional information about the Transaction.
Argentina Remeasurement Impacts
Our wholly owned subsidiaries in Argentina use the U.S. dollar as their functional currency. Argentina peso-denominated monetary assets and liabilities are remeasured at each balance
sheet date to the currency exchange rate then in effect, with currency remeasurement and other transaction gains and losses recognized in earnings. On August 14, 2023, Argentina's currency suffered a significant loss in value following the announcement of the results of Argentina's primary elections. This devaluation created an immediate loss of $9.6 million for the three and nine months ended September 30, 2023 in our condensed consolidate statements of operations associated with the impacts of the remeasurement on our local balance sheet at the date of the devaluation attributable to our Argentina operations.
Business Update
The global economy and business environment in the diverse group of markets we serve present us with various opportunities and challenges. The demand for lithium
products remains strong, driven by the increased adoption of EVs and other energy storage applications, providing us with the opportunity to continue to develop high performance lithium compound products and maintain our position as a leading global producer of butyllithium and high purity lithium metal. We believe our business fundamentals are sound and we have positioned ourselves to manage the impact on our business of inflation, high energy costs and shortages, supply chain disruptions, various global conflicts, higher interest rates, the strength of the U.S. dollar, and the corresponding weakening of foreign currencies. Given our extensive global capabilities, vast experience in the markets we serve, and deep customer relationships, we believe we are well positioned to capitalize on new business opportunities and the accelerating trend of electrification.
We continue to optimize our production network to meet changes in
customer demand. In order to timely manufacture and deliver products, we have at times used air freight to ship resources or finished goods. We continue to look at new raw material suppliers, warehousing and logistics providers to enhance our supply chain and the delivery experience for our customers. We continue to observe tightness in the local labor markets in almost all of the geographic locations where we operate (e.g., competition for workers, fewer applicants, and higher wages), local labor resource capability constraints and delays in procurement of longer lead time equipment. This may impact us and our expansion efforts, our customers and suppliers. We also remain subject to strict quality requirements from our customers.
We have had many years of reliable lithium production in Argentina. Nevertheless, our operations in Argentina are subject to their own unique challenges. Argentina continues to experience high
inflation, a weakening currency, high natural gas, oil and power prices, and social and labor unrest. In addition, there is provincial and national political uncertainty for the national second round election that is scheduled for November 19, 2023. There is also financial uncertainty over the Argentina Government's ability to repay debt obligations that are maturing in the future. As a result of this mix of factors, there is increasing interest and focus from federal and provincial governments to obtain additional sources of funding, such as through customs and tax revenues and other concessions from private and/or foreign companies, including from the lithium industry. Further, a shortfall of foreign currency reserves has led to significant restrictions on foreign exchange transactions, which in turn has placed severe limits on imports, including certain materials for our operations and expansion project. Additionally,
vendor concerns regarding high inflation and the inability to restock items has resulted in increased pricing uncertainty with respect to products and equipment. We have also experienced delays in the commissioning of our expansion project in Argentina. Resource availability, quality challenges, and long lead times for materials have impacted the expansion start-up date and will lead to lower than initially expected lithium carbonate production in 2023.
Customers in the EV manufacturing industry are transitioning their businesses for continued expected growth in electrification. In China, EV sales reached new records during the third quarter of 2023. Because subsidies were not lowered at year-end as in previous years, the difference in the strength of China’s EV demand during the second half of 2023 compared to the first half is likely to be less notable than in previous years. In China, lithium iron phosphate (LFP) cathode-based
batteries and plug-in electric hybrid vehicles (PHEVs) have increased their share in the chemistry and EV mix throughout 2023. In the U.S., EV sales growth has been strong despite the higher interest rate environment. However, under new rules promulgated under the U.S. Inflation Reduction Act of 2022 (the "IRA"), several automakers’ EV models will not qualify for full or partial consumer tax credits for this year. The potential impact of the recent United Auto Workers strike is yet to be significantly felt. Some automakers in Europe had to partially curtail EV assembly due to reduced demand during the third quarter of 2023. Globally, price reductions, particularly those of a few leading EV manufacturers, will likely continue to put commercial and financial pressures on several other automakers in the world's major EV markets. To support rising battery demand for EV and stationary
27
storage
applications, cell manufacturers, cathode producers and lithium chemicals producers are adding capacity in different geographies. The customer qualification and ramp-up of these cell, cathode, and lithium chemicals lines will in turn determine lithium consumption. All of these variables may continue to add volatility and uncertainty to the overall EV and battery supply chains that may adversely impact our business. This could cause delays in our customers' demand for our high-performance lithium compounds, further adversely impacting our business and growth plans. As prices of lithium chemicals declined inside and outside China during the third quarter of 2023, many producers and traders offloaded their inventory and drove prices below costs of numerous integrated and non-integrated converters in China.
The material matters that management is currently monitoring are: the health and safety of our employees; the proposed Transaction
with Allkem; our global expansion efforts; the development of the Nemaska Lithium Project; political and economic instability in Argentina; the supply and demand balance of battery-grade and total lithium compounds in the global marketplace; volatile lithium market prices and the impact they may have on earnings; inflation, rising interest rates and fluctuating foreign currency exchange rates, and the negative impact they may have on our operations, customers and key end markets such as electric vehicles; the prospect of a recession in the U.S. and elsewhere, and its impact on EV sales; global supply chain and logistics issues, and our ability to deliver products and receive key inputs; the impact of the IRA on the Company and customer demand; global energy supply concerns and prices; the potential economic and geopolitical consequences of various global conflicts; the potential for
a U.S. government shutdown beginning in November 2023; and the potential for cybersecurity breaches.
2023 Business Outlook
The Company expects total volumes sold in 2023 to be roughly flat versus 2022, due to commissioning related delays on lithium carbonate expansion start-up.This is not expected to impact 2024 volumes. Livent is still expecting higher year-over-year average realized pricing on a lithium carbonate equivalent (LCE) basis versus 2022, resulting in higher profitability versus full year 2022. The Company also expects lower costs versus the prior year, primarily related to lower raw material and third
party purchases.
Income
from operations before equity in net loss of unconsolidated affiliate, loss on debt extinguishment and other gain
93.4
102.7
340.8
233.5
Equity in net loss of unconsolidated affiliate
6.7
3.5
22.0
8.4
Loss
on debt extinguishment
—
0.1
—
0.1
Other gain
(10.0)
—
(21.4)
(22.2)
Income from operations before
income taxes
96.7
99.1
340.2
247.2
Income tax expense
9.3
21.5
47.8
56.4
Net
income
$
87.4
$
77.6
$
292.4
$
190.8
In
addition to net income, as determined in accordance with U.S. GAAP, we evaluate operating performance using certain Non-GAAP measures such as EBITDA, which we define as net income plus interest expense, net, income tax expense, and depreciation and amortization; and Adjusted EBITDA, which we define as EBITDA adjusted for Argentina remeasurement losses, Argentina interest income, restructuring and other charges, Separation-related costs, COVID-19 related costs and other losses/(gains). Management believes the use of these Non-GAAP measures allows management and investors to compare more easily the financial performance of its underlying business from period to period. The Non-GAAP information provided may not be comparable to similar measures disclosed by other companies because of differing methods used by other companies in calculating EBITDA and Adjusted EBITDA. These measures should not be considered as a substitute for net income or other measures of performance
or liquidity reported in accordance with U.S. GAAP. The following table reconciles EBITDA and Adjusted EBITDA from net income.
Three Months Ended September 30,
Nine Months Ended September 30,
(in
Millions)
2023
2022
2023
2022
Net income
$
87.4
$
77.6
$
292.4
$
190.8
Add
back:
Income tax expense
9.3
21.5
47.8
56.4
Depreciation
and amortization
7.7
6.6
21.5
19.4
EBITDA (Non-GAAP)
104.4
105.7
361.7
266.6
Add
back:
Argentina remeasurement losses (a)
11.6
1.2
20.5
3.0
Restructuring and other charges (b)
8.6
0.7
34.7
4.6
Separation-related
costs (c)
—
0.1
—
0.5
COVID-19 related costs (d)
—
0.6
—
2.1
Loss
on debt extinguishment (e)
—
0.1
—
0.1
Other loss (f)
5.1
2.4
16.1
5.9
Subtract:
Blue
Chip Swap gain (g)
(10.0)
—
(21.4)
(22.2)
Argentina interest income (h)
—
—
—
(1.5)
Adjusted
EBITDA (Non-GAAP)
$
119.7
$
110.8
$
411.6
$
259.1
___________________
a.Represents
impact of currency fluctuations on tax assets and liabilities and on long-term monetary assets associated with our capital expansion as well as foreign currency devaluations. The remeasurement losses are included within "Cost of sales" in our condensed consolidated statements of operations but are excluded from our calculation of Adjusted EBITDA because of: i.) their nature as income
29
tax related; ii.) their association with long-term capital projects which will not be operational until future periods; or iii.) the severity of the devaluations and their immediate impact on our operations in the country.
b.We continually perform strategic reviews and assess the return
on our business. This sometimes results in management changes or in a plan to restructure the operations of our business. As part of these restructuring plans, demolition costs and write-downs of long-lived assets may occur. The three and nine months ended September 30, 2023 includes costs related to the Transaction of $13.6 million and $32.3 million, respectively, and the Bessemer City plant fire gain, net of insurance recoveries, of $5.0 million and zero million, respectively. The three and nine months ended September 30, 2022 includes costs related to the Transaction of $0.1 million and $2.3 million, respectively (see Note 7 for more information).
c.Represents legal and professional fees and other Separation-related activity.
d.Represents
incremental costs associated with COVID-19 recorded in "Cost of sales" in the condensed consolidated statements of operations, including but not limited to, incremental quarantine related absenteeism, incremental facility cleaning costs, COVID-19 testing, pandemic-related supplies and personal protective equipment for employees, among other costs; offset by economic relief provided by foreign governments.
e.Represents the partial write-off of deferred financing costs for amendments to the Revolving Credit Facility excluded from our calculation of Adjusted EBITDA because the loss is nonrecurring.
f.Represents our ownership interest (which is 50% and was 25% prior to June 6, 2022) in costs incurred for certain project-related costs to align Nemaska Lithium's reported results with
Livent's capitalization policies and interest expense incurred by NLI, all included in Equity in net loss of unconsolidated affiliate in our condensed consolidated statements of operations. The Company accounts for its equity method investment in Nemaska Lithium on a one quarter lag basis (see Note 6 for more information).
g.Represents the gain from the sale in Argentina pesos of Argentina Sovereign U.S. dollar-denominated bonds due to the significant divergence of Argentina's Blue Chip Swap market exchange rate from the official rate.
h.Represents interest income received from the Argentina government for the period beginning when the recoverability of certain of our expansion-related VAT receivables were approved by the Argentina government and
ending on the date when the reimbursements were paid by the Argentina government but is excluded from our calculation of Adjusted EBITDA because of its association with long-term capital projects which will not be operational until future periods.
Revenue of $211.4 million for the three months ended September 30, 2023 (the "2023 Quarter") decreased by approximately 9%, or $20.2 million, compared to $231.6 million for the three months ended September 30, 2022 (the "2022 Quarter") due to lower lithium carbonate pricing and lower butyllithium pricing and volumes, partially offset by an increase in
lithium carbonate volumes and higher lithium hydroxide pricing.
Gross margin
Gross margin of $116.5 million for the 2023 Quarter decreased by $2.9 million, or approximately 2%, versus $119.4 million for the 2022 Quarter. The decrease in gross margin was due to impacts of lower pricing of $5.1 million, lower volumes of butyllithium and Argentina currency devaluation of $15.3 million, partially offset by a favorable mix of raw materials costs of $18.8 million and an increase in lithium carbonate volumes.
Selling, general and administrative expenses
Selling, general and administrative expenses of $13.2 million for the 2023 Quarter decreased by $1.8 million, or approximately 12% versus $15.0 million for the 2022 Quarter. The decrease in selling, general and administrative expenses was primarily
due to a decrease in employee compensation costs in the 2023 Quarter.
Restructuring and other charges
Restructuring and other charges of $8.6 million for the 2023 Quarter increased by $7.9 million versus $0.7 million for the 2022 Quarter. Restructuring and other charges for the 2023 Quarter primarily consisted of $13.6 million of costs related to the Transaction partially offset by $5.0 million for a gain, net insurance recoveries, from the Bessemer City fire. 2022 Quarter Restructuring and other charges consisted primarily of costs related to the Transaction and costs related to management changes at certain administrative facilities (see Note 7 for details).
Equity in net loss of unconsolidated affiliate
Equity in net loss of unconsolidated affiliate of $6.7 million and $3.5 million for the
2023 Quarter and 2022 Quarter, respectively, arises out of our ownership interest in the Nemaska Lithium Project (which is 50% and was 25% prior to June 6, 2022). The increase of $3.2 million represents project-related costs incurred by our unconsolidated affiliate as the Nemaska Lithium Project continues detailed engineering work (see Note 6 for details).
30
Income tax expense
The decrease in income tax expense to $9.3 million resulting in an effective tax rate of 9.6% for the 2023 Quarter compared to the income tax expense of $21.5 million resulting in an effective tax rate of 21.7% for the 2022 Quarter, was primarily due to the significant fluctuations
in foreign currency impacts in Argentina of ($11.5) million and $3.2 million for the 2023 Quarter and 2022 Quarter, respectively.
Net income
Net income of $87.4 million for the 2023 Quarter increased $9.8 million, or approximately 13%, versus $77.6 million for the 2022 Quarter. The increase was due to a $10 million gain from our sale of Argentina Sovereign U.S. dollar-denominated bonds (see Note 2 for more information) and lower income tax expense, partially offset by a decrease in gross margin of $2.9 million, higher Restructuring and other charges including those related to the Transaction of $13.6 million and $3.2 million higher Equity in net loss of unconsolidated affiliate.
Revenue
of $700.7 million for the nine months ended September 30, 2023 (the "2023 YTD") increased by approximately 18%, or $106.9 million, compared to $593.8 million for the nine months ended September 30, 2022 (the "2022 YTD") primarily due to higher pricing across all products except for lithium carbonate of $149.9 million, partially offset by lower volumes across all products except lithium hydroxide of $39.2 million.
Gross margin
Gross margin of $425.9 million for the 2023 YTD increased by $144.1 million, or approximately 51%, versus $281.8 million for the 2022 YTD. The increase in gross margin was primarily due to higher pricing across all products except for lithium carbonate of $149.9 million and favorable mix of raw materials of $41.5 million, partially offset by lower
volumes across all products except lithium hydroxide of $28.4 million and Argentina currency devaluation of $21.4 million.
Selling, general and administrative expenses
Selling, general and administrative expenses of $47.1 million for the 2023 YTD increased by $6.5 million, or approximately 16.0% versus $40.6 million for the 2022 YTD. The increase in selling, general and administrative expenses was primarily due to an increase in professional fees and employee compensation.
Restructuring and other charges
Restructuring and other charges of $34.7 million for the 2023 YTD increased by $30.1 million versus $4.6 million for the 2022 YTD. Restructuring and other charges for the 2023 YTD primarily consisted of $32.3 million of costs related to the Transaction, and $2.4 million severance related charges.
2022 YTD Restructuring and other charges consisted primarily of costs related to the Transaction and miscellaneous nonrecurring transactions (see Note 7 for details).
Equity in net loss of unconsolidated affiliate
Equity in net loss of unconsolidated affiliate of $22.0 million and $8.4 million for the 2023 YTD and 2022 YTD, respectively, arises out of our ownership interest in the Nemaska Lithium Project (which is 50% and was 25% prior to June 6, 2022). The increase of $13.6 million represents project-related costs incurred by our unconsolidated affiliate as the Nemaska Lithium Project continues detailed engineering work (see Note 6 for details).
Income tax expense
The decrease in income tax expense to $47.8 million resulting in an effective
tax rate of 14.1% for the 2023 YTD compared to the income tax expense of $56.4 million resulting in an effective tax rate of 22.8% for the 2022 YTD, was primarily due to the significant fluctuations in foreign currency impacts in Argentina of ($12.0) million and $11.4 million for the 2023 YTD and 2022 YTD, respectively. This decrease in income tax expense was partially offset by an increase in income from operations.
Net income
Net income of $292.4 million for the 2023 YTD increased $101.6 million, or approximately 53.2%, versus $190.8 million for the 2022 YTD. The increase was primarily higher gross margin of $144.1 million and lower income tax expense, partially offset by higher Restructuring and other charges of $34.5 million driven primarily by costs related to the Transaction and $13.6 million higher Equity in net loss of unconsolidated affiliate.
31
LIQUIDITY
AND CAPITAL RESOURCES
Our prospective success in funding our cash needs will depend on the strength of the lithium market and our continued ability to generate cash from operations and raise capital from other sources. Our primary sources of cash are currently generated from operations and borrowings under our Revolving Credit Facility.
Cash and cash equivalents as of September 30, 2023 and December 31, 2022, were $112.6 million and $189.0 million, respectively. Of the cash and cash equivalents balance as of September 30, 2023, $35.3 million were held by our foreign subsidiaries. The cash held by foreign subsidiaries
for permanent reinvestment is generally used to finance the subsidiaries’ operating activities and future foreign investments. We have not provided additional income taxes for any additional outside basis differences inherent in our investments in subsidiaries because the investments are essentially permanent in duration or we have concluded that no additional tax liability will arise upon disposal. See Note 11, Part II, Item 8 of our 2022 Annual Report on Form 10-K for more information.
Statement of Cash Flows
Cash provided by operating activities was $261.8 million and $328.2 million for the 2023 YTD and 2022 YTD, respectively.
The decrease in cash provided
by operating activities for the 2023 YTD as compared to the cash provided by operating activities for the 2022 YTD was primarily driven by an increase in net income for the 2023 YTD, offset by an increase in inventories and decrease in accounts payable for the 2023 YTD and a $198 million customer advance payment received for a long-term supply agreement in the third quarter of 2022 YTD.
Cash used in investing activities was $315.5 million and $225.7 million for the 2023 YTD and 2022 YTD, respectively.
The increase in cash used in investing activities for the 2023 YTD compared to the 2022 YTD is primarily due to an increase in capital expenditures due to increased spend on expansion projects and a $85.4 million investment in our unconsolidated affiliate, Nemaska Lithium in the 2023 YTD compared to$17.7 million for 2022 YTD.
Cash used in
financing activities was $21.5 million and $1.0 million for the 2023 YTD and 2022 YTD, respectively.
Represents the net impact of a $21.7 million payment of deposit to Argentina Customs Authorities in 2023 YTD, financing fees paid for amendments to our Revolving Credit Facility and purchases of treasury stock under the Livent NQSP, partially offset by proceeds from the issuance of common stock under the Company's incentive plans.
Other potential liquidity needs
We plan to meet our liquidity needs through available cash, cash generated from operations, borrowings under the committed Revolving Credit Facility, and other potential working capital financing strategies that may be available to us. As of September 30,
2023, our remaining borrowing capacity under our Revolving Credit Facility, subject to meeting our debt covenants, is $479.2 million, including letters of credit utilization.
Our net leverage ratio is determined, in large part, by our ability to manage the timing and amount of our capital expenditures, which is within our control. It is also determined by our ability to achieve forecasted operating results and to pursue other working capital financing strategies that may be available to us, which is less certain and outside our control. The Company estimates 2023 total capital spending to be in the range of $325 million to $375 million.
There continue to be challenges relating to expansion projects, including design modifications and labor and material shortages. This has the potential to
increase costs and extend delivery times versus expectations, impacting both Argentina and Canada.
We will look to various sources of financing for development of the Nemaska Lithium Project, in which we have a 50% economic interest, including, but not limited to third-party debt financing, government funding, financing or prepayments from future customers and contribution from existing shareholders.
We expect increasing energy costs and shortages, inflation, rising interest rates, currency fluctuations and various global conflicts to continue in 2023. The Company remains focused on maintaining its financial flexibility and will continue to manage its cash flow and capital allocation decisions to navigate through this challenging environment.
We believe
that our available cash and cash from operations, together with our borrowing availability under the Revolving Credit Facility and other potential financing strategies that may be available to us, will provide adequate liquidity for the next 12 months. Access to capital and the availability of financing on acceptable terms in the future will be affected by many factors, including our credit rating, economic conditions and the overall liquidity of capital markets and cannot be guaranteed.
Commitments and Contingencies
See Note 13 to these condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
32
Contractual Obligations and
Commercial Commitments
Information related to our contractual commitments as of December 31, 2022 can be found in a table included within Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations within our 2022 Annual Report on Form 10-K. There have been no significant changes to our contractual commitments during the period ended September 30, 2023.
Climate Change
A detailed discussion related to climate change can be found in Part II, Item 7 of our 2022 Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
DERIVATIVE FINANCIAL INSTRUMENTS AND MARKET RISKS
Our earnings, cash flows and financial position are exposed to market risks relating to fluctuations in commodity prices, interest rates and foreign currency exchange rates. Our policy is to minimize exposure to our cash flow over time caused by changes in interest and currency exchange rates. To accomplish this, we have implemented a controlled program of risk management consisting of appropriate derivative contracts entered into with major financial institutions.
The analysis below presents
the sensitivity of the market value of our financial instruments to selected changes in market rates and prices. The range of changes chosen reflects our view of changes that are reasonably possible over a one-year period. Market value estimates are based on the present value of projected future cash flows considering the market rates and prices chosen.
As of September 30, 2023, our net derivative financial instrument position was a net asset of $0.3 million. In the second quarter of 2023, we placed foreign currency hedges for 2023 projected exposure.
Foreign Currency Exchange Rate Risk
Our worldwide operations expose us to currency risk from sales, purchases, expenses and intercompany loans denominated in currencies other than the U.S. dollar, our functional currency. The primary currencies
for which we have exchange rate exposure are the Euro, the British pound, the Chinese yuan, the Argentine peso, and the Japanese yen. Foreign currency debt and foreign exchange forward contracts are used in countries where we do business, thereby reducing our net asset exposure. Foreign exchange forward contracts are also used to hedge firm and highly anticipated foreign currency cash flows. We currently do not hedge foreign currency risks associated with the Argentine peso due to the limited availability and the high cost of suitable derivative instruments.
To analyze the effects of changing foreign currency rates, we have performed a sensitivity analysis in which we assume an instantaneous 10% change in the foreign currency exchange rates from
their levels as of September 30, 2023 with all other variables (including interest rates) held constant.
Hedged Currency vs. Functional Currency
(in Millions)
Net asset position on condensed consolidated balance sheets
One of the strategies that we can use to manage interest rate exposure is to enter into interest rate swap agreements. In these agreements, we agree to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated on an agreed-upon notional principal amount. As of September 30, 2023, we had no interest rate swap agreements.
Our debt portfolio as of September 30, 2023 is composed of fixed-rate and variable-rate debt, consisting of borrowings under our 2025 Notes and Revolving Credit Facility. Changes in interest rates affect different portions of our variable-rate debt portfolio in different ways. As of September 30, 2023, we had no outstanding balances under the Revolving Credit Facility.
33
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is provided in "Derivative Financial Instruments and Market Risks," under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on management’s evaluation (with the participation of the Company’s Chief Executive Officer and Chief Financial Officer), the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30,
2023, the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to provide reasonable assurance that information required to be disclosed by the Company in reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Change in Internal Controls. There have been no changes in internal control over financial reporting that occurred during the quarter
ended September 30, 2023, that materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
34
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in legal proceedings from time to time in the ordinary course of our business, including with respect to workers’ compensation matters.Based on information currently available and established reserves, we have no reason to believe that the ultimate resolution of any known legal proceeding will have a material adverse effect on our financial position, liquidity or results of operations. However, there can be no assurance that the outcome of any such legal proceeding will be favorable, and adverse results in certain of these legal proceedings could have a material adverse effect on our financial position, results of operations in any one reporting period, or liquidity. Except as set forth in Note 13 to our condensed consolidated financial statements, which is incorporated herein by reference to the extent applicable, there are no material changes from the legal proceedings previously disclosed in our 2022 Annual Report on Form 10-K.
ITEM
1A. RISK FACTORS
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A of our 2022 Annual Report on Form 10-K, which is available at www.sec.gov and on our website at www.livent.com. Other than the risk factors set forth below, we do not believe that there have been material changes in the risk factors set forth in our 2022 Annual Report on Form 10-K. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business,
financial condition or future results.
Risks Relating to the Proposed Transaction with Allkem Limited:
The completion of the Transaction contemplated by the Transaction Agreement is subject to a number of conditions and the Transaction Agreement may be terminated in accordance with its terms. As a result, the timing surrounding the closing of the Transaction is uncertain and there is a risk that the Transaction may not be completed.
The completion of the Transaction is subject to the satisfaction or waiver of a number of conditions as set forth in the Transaction Agreement, including, among others: Australian court approval of the scheme of arrangement (the “scheme”) pursuant to the Australian Corporations Act; the approval of the scheme by Allkem’s shareholders; the approval of the Transaction by our stockholders; the NYSE having
approved the listing of the NewCo shares to be issued in the Transaction; the Australian Stock Exchange (“ASX”) having provided approval for the admission of NewCo as a foreign exempt listing to the official list of the ASX; all applicable governmental consents under specified antitrust and investment screening laws having been obtained and remaining in full force and effect and all applicable waiting periods having expired, lapsed or been terminated (as applicable); NewCo’s registration statement on Form S-4 in connection with the Transaction having become effective; no governmental entity of a competent jurisdiction having issued any order that is in effect and restrains, enjoins or otherwise prohibits the consummation of the Transaction and no governmental entity having jurisdiction over any party having adopted any law that is in effect and makes consummation of the Transaction illegal or otherwise prohibited; the representations and warranties of each
of Livent and Allkem being true and correct to the extent required by, and subject to the applicable materiality standards set forth in, the Transaction Agreement; each of Livent, Allkem and the other parties to the Transaction Agreement having in all material respects performed the obligations and complied with the covenants required to be performed or complied with by it under the Transaction Agreement; there having been no material adverse effect (as defined in the Transaction Agreement) with respect to Livent or Allkem; the independent expert in connection with the scheme having issued (and not withdrawn, changed or qualified) its report, which concludes that the scheme is in the best interest of Allkem shareholders; Livent having received an opinion from tax counsel to the effect that the Transaction should be tax-free to certain Livent stockholders; and certain determinations by the Australian Tax Office regarding the availability of certain relief to qualifying
Australian resident Allkem shareholders.The timing surrounding whether these conditions will be satisfied or waived, if at all, is uncertain. Additionally, other events could intervene to delay or result in the failure to close the Transaction.
If the scheme effectiveness has not occurred by February 10, 2024 (subject to extension by either party until May 10, 2024 in order to obtain antitrust or investment screening law or other regulatory approvals), either we or Allkem may choose to terminate the Transaction Agreement. However, this right to terminate the Transaction Agreement will not be available to us or Allkem if such party has materially breached the Transaction Agreement and the breach is the principal cause of the failure of the scheme effectiveness to have occurred prior
to such date. We or Allkem may elect to terminate the Transaction Agreement in certain other circumstances, including if the Allkem shareholders or our stockholders fail to approve the Transaction at their respective shareholder meetings, and we and Allkem can mutually decide to terminate the Transaction Agreement at any time prior to the effective time, before or after the required approval by the Allkem shareholders or our stockholders.
The completion of the Transaction is subject to risks and uncertainties surrounding conditions that may be imposed by regulatory or governmental entities which may reduce the anticipated benefits of the Transaction or could prevent the closing of the Transaction entirely.
35
Regulatory
and governmental entities may impose conditions on the granting of consents required in connection with the Transaction. The conditions imposed by regulatory and governmental entities on the granting of consents, orders and approvals may require divestitures of certain divisions, operations or assets of Livent or Allkem and may impose costs, limitations or other restrictions on the conduct of the business of NewCo, Livent or Allkem. Under the Transaction Agreement, each of Livent and Allkem has agreed to cooperate with each other and use their respective reasonable best efforts to take all actions and do all things necessary, proper or advisable to consummate the Transaction as promptly as reasonably practicable, including to obtain as promptly as reasonably practicable all consents, registrations, approvals, permits, expirations or terminations of waiting periods and authorizations necessary or advisable to be obtained from any governmental entity and any third party
in order to consummate the Transaction. However, neither we nor Allkem will be required to take actions that would reasonably be expected to have a material and adverse impact on such party and its subsidiaries, taken as a whole, or the benefits or synergies such party expects to realize from the Transaction. We and Allkem will not be required to propose, commit to or effect any divestitures or other restrictions or actions with respect to our respective business or operations unless the effectiveness of such agreement or action is conditioned upon the closing of the Transaction, and neither we nor Allkem may propose, commit to or effect any such divestitures or other restrictions or actions without the prior written consent of Livent or Allkem (as applicable) in such party’s sole discretion.
Though the parties have successfully obtained
certain consents, including antitrust clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, compliance with any conditions imposed by other regulatory and governmental entities may reduce the anticipated benefits of the Transaction, which could also have an adverse effect on NewCo’s business, cash flows and results of operations, and neither we nor Allkem can predict what, if any, changes may be required by regulatory or governmental authorities whose consents, orders or approvals are required.
The termination of the Transaction Agreement could negatively impact us and, in certain circumstances, could require us to pay a termination fee to Allkem.
If the Transaction Agreement is terminated in accordance with its terms and the Transaction is not completed, our ongoing business may be adversely affected by a variety of factors, including the failure
to pursue other beneficial opportunities during the pendency of the Transaction, the failure to obtain the anticipated benefits of completing the Transaction, the payment of certain costs relating to the Transaction and the focus of our management on the Transaction for an extended period of time rather than on ongoing business matters or other opportunities or issues. Our stock price may fall as a result of any such termination, to the extent that the current price of our shares reflects a market assumption that the Transaction will be completed (although this is difficult to predict with any certainty). In addition, the failure to complete the Transaction may result in negative publicity or a negative impression of Livent in the investment community and may affect our relationship with employees, customers, suppliers, vendors and other partners.
We may be required to pay Allkem a termination fee equal to $64.6 million if
the Transaction Agreement is terminated under certain circumstances specified in the Transaction Agreement relating to, among other things, if our Board of Directors changes its recommendation that Livent stockholders vote in favor of the Transaction or if there is an intentional and material breach of certain provisions of the Transaction Agreement by us. Further, we will also be required to pay Allkem the $64.6 million termination fee if the Transaction Agreement is terminated under certain circumstances specified in the Transaction Agreement after we receive a competing transaction proposal, and, within 12 months after the date of termination, we enter into a definitive agreement with respect to, or consummate, a change of control transaction with any party. If the Transaction Agreement is terminated and we determine to seek another business combination or strategic opportunity, we may not be able to negotiate a transaction with another party on terms comparable to,
or better than, the terms of the Transaction.
The pendency of the Transaction could adversely affect our and Allkem’s respective businesses, results of operations, and financial condition.
The pendency of the Transaction could cause disruptions in and create uncertainty surrounding our and Allkem’s respective businesses, including by affecting our and Allkem’s relationships with our and their respective existing and future customers, suppliers, vendors, partners, and employees, and our and Allkem’s respective standing with local communities, regulators, and other government officials. This could have an adverse effect on our and Allkem’s respective businesses, results of operations and financial condition, as well as the market prices of our shares and Allkem’s shares, regardless of whether the Transaction is completed. In particular, we and Allkem could potentially lose important
personnel who decide to pursue other opportunities as a result of the Transaction. Any adverse effect could be exacerbated by a prolonged delay in completing the Transaction. We and Allkem could also potentially lose customers, suppliers or vendors, existing customers, suppliers or vendors may seek to change their existing business relationships or renegotiate their contracts with us or Allkem or defer decisions concerning us or Allkem and potential customers, suppliers, or vendors could defer entering into contracts with us or Allkem, each as a result of uncertainty relating to the Transaction. In addition, in an effort to complete the Transaction, we and Allkem have expended, and will continue to expend, significant management resources on matters relating to the Transaction, which are
being diverted from our and Allkem’s day-to-day operations, and significant demands are being, and will continue to be, placed on the managerial, operational and financial personnel and systems of Livent and Allkem in connection with efforts to complete the Transaction.
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While the Transaction Agreement is in effect, Livent and Allkem are subject to restrictions on their conduct and business activities, which could adversely affect both companies’ businesses, financial results, financial condition or share prices.
Under the Transaction Agreement, each of Livent and Allkem is subject to a range of restrictions on the conduct of its respective business and generally
must operate its business in the ordinary course of business consistent with past practice prior to completing the Transaction. These restrictions may constrain our and Allkem’s ability to pursue certain business strategies. The restrictions may also prevent us and Allkem from pursuing otherwise attractive business opportunities, making acquisitions and investments or making other changes to our and its respective businesses prior to the completion of the Transaction or the termination of the Transaction Agreement. Any such lost opportunities may reduce either or both companies’ competitiveness or efficiency and could lead to an adverse effect on their respective business, financial results, financial condition or share prices.
The Transaction Agreement contains restrictions on our ability to pursue alternatives to the Transaction, which may limit the value that our stockholders could receive from a transaction.
The
Transaction Agreement generally prohibits us, subject to certain exceptions, from initiating, soliciting, knowingly encouraging or otherwise knowingly facilitating any inquiries or the making of any proposal or offer that constitute or would reasonably be expected to lead to any competing transaction proposal. Further, subject to limited exceptions and consistent with applicable law, the Transaction Agreement prohibits our Board of Directors from changing, withholding, withdrawing, qualifying or modifying, in a manner adverse to Allkem, its recommendation that our stockholders approve the Transaction and, in specified circumstances, Allkem has a right to negotiate with us in order to match any competing transaction proposal that may be made. Although our Board of Directors is permitted to take certain actions in response to a superior transaction proposal or a competing transaction proposal that would reasonably be expected to result in a superior transaction proposal
if it determines that the failure to do so would likely breach its statutory or fiduciary duties under applicable law, in specified situations, we may still be required to pay to Allkem a termination fee of $64.6 million. These provisions may limit our ability to pursue offers from third parties that could result in greater value to our stockholders than they would receive in the Transaction. The $64.6 million termination fee may also discourage third parties from pursuing an acquisition proposal with respect to Livent.
NewCo, Livent and Allkem may be targets of shareholder class actions or derivative actions, which could result in substantial costs and may delay or prevent the Transaction from being completed.
Shareholder class action lawsuits or derivative lawsuits are often brought against companies that have entered into transaction agreements. Such litigation can be costly
and time consuming and can create uncertainty. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the Transaction, then that injunction may delay or prevent the Transaction from being completed.
One of the conditions to consummating the Transaction is that no governmental entity has enacted any law or issued any order restraining, enjoining or otherwise prohibiting the consummation of the Transaction. Consequently, if a party secures injunctive or other relief prohibiting, delaying or otherwise adversely affecting Livent’s, Allkem’s or NewCo’s ability to complete the Transaction on the terms contemplated by the Transaction Agreement, then such law or injunctive or other relief may prevent consummation of the Transaction in a timely manner
or at all. These lawsuits also have the potential to negatively impact NewCo, Livent or Allkem’s reputation.
Operational Risks:
Our business and operations could suffer in the event of cybersecurity breaches or disruptions to our information technology systems, as well as those of third parties throughout our global supply chain.
As with all enterprise information systems, our information technology systems, as well as those of various third parties on which we rely now or in the future, including our vendors, contractors, consultants and other partners (collectively, "Business Partners"), could be penetrated by outside parties intent on extracting information, corrupting information, or disrupting business processes, and may sustain damage from or otherwise be subject to computer viruses, unauthorized
access, data breaches, phishing attacks, cybercriminals, natural disasters (including hurricanes and earthquakes), terrorism, war and telecommunication and electrical failures. Such information technology systems are additionally vulnerable to security breaches from inadvertent or intentional actions by our employees, Business Partners, and/or other third parties. Any of the foregoing may compromise our system infrastructure, or that of our Business Partners, or lead to data leakage. Such systems, which contain critical information about our business (including trade secrets, digital supply chain information and confidential information of our customers, Business Partners and employees), have in the past been, and likely will in the future be, subject to unauthorized access attempts. Unauthorized access could disrupt our business operations and could result in failures or interruptions in such computer systems and in the loss of assets (including our trade secrets and
confidential business information), which could harm our competitive position, reduce the value of our investment in research and development and
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other strategic initiatives or otherwise have a material adverse effect on our business, financial condition or results of operations. In addition, breaches of our security measures or the security measures of our Business Partners or the accidental loss, inadvertent disclosure, or unapproved dissemination of proprietary information or sensitive or confidential information about the Company, our employees, Business Partners or customers, could result in litigation, violations
of various data privacy regulations in some jurisdictions, and also potentially result in liability to us. This could damage our reputation, or otherwise harm our business, financial condition, or results of operations, and the devotion of additional resources to the security of such information technology systems in the future could significantly increase the cost of doing business.
We rely on our Business Partners to implement effective security measures and identify and correct for any such failures, deficiencies or breaches. If the information technology systems of our Business Partners become subject to disruptions or security breaches, we may have insufficient recourse against such third parties and we may have to expend significant resources to mitigate the impact of such incidents and to develop and implement protections to prevent future events of this nature from occurring. Additionally, if our Business Partners fail
to maintain or protect their information technology systems and data integrity effectively or fail to anticipate, plan for or manage significant disruptions to their information technology systems, we or our Business Partners could have difficulty preventing, detecting and controlling such cyber breaches, and any such breaches could result in losses described above as well as disputes with our partners, regulatory sanctions or penalties, increases in operating expenses, expenses or lost revenues or other adverse consequences, any of which could have a material adverse effect on our business, financial condition, or results of operations.
Forward-Looking Information
We wish to caution readers not to place undue reliance on any forward-looking statements contained herein, which speak only as of the date made. We specifically decline to undertake any obligation to publicly revise any
forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Repurchases of Common Shares
A summary of our repurchases of Livent's common stock for the three months ended September 30, 2023 is as follows:
ISSUER
PURCHASES OF EQUITY SECURITIES
Period
Total Number of Shares Purchased (1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (2)
1.The
trustee of the Livent NQSP reacquires shares of Livent common stock from time to time through open-market purchases relating to investments by employees in our common stock, one of the investment options available under the Livent NQSP. Such shares are held in a trust fund and recorded to Treasury stock in our condensed consolidated balance sheets.
2.We have no publicly announced stock repurchase programs.
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ITEM 5. OTHER INFORMATION
10b-5(1)
Trading Plan
iiGilberto Antoniazzi, the Company’s iVice President
and Chief Financial Officer, iadopted a trading plan that is intended to satisfy the affirmative defense of Rule 10b5-1(c) and complies with the requirements of Rule 10b5-1 (the “Sales Plan”) to sell an aggregate of i20,343 shares upon the exercise of stock options held by Mr. Antoniazzi under the
Company’s stock compensation plans. The Sales Plan was adopted on iAugust 16, 2023, with sales commencing under the Sales Plan on November 15, 2023. The Sales Plan terminates on the earliest to occur of (a) the close of business on December 29, 2023; (b) execution of all trades or expiration of all of the orders relating to such trades as specified in the Sales Plan; (c) the date that the broker receives notice of liquidation, dissolution, bankruptcy, insolvency, or death of Mr. Antoniazzi; (d) when the broker receives notice from Mr. Antoniazzi of his termination of the Sales Plan; (e) when
the broker determines, in its sole discretion, that the Sales Plan has been terminated, including, without limitation, where the broker determines there has been a modification or change to the Sales Plan that constitutes the termination of the Sales Plan; (f) the date the broker notifies Mr. Antoniazzi of the broker’s termination of the Sales Plan due to Mr. Antoniazzi’s breach of any of the terms of the Sales Plan or in the event that Mr. Antoniazzi trades shares outside of the Sales Plan; or (g) where the broker exercises any other termination right it may have under this Sales Plan./
Other than as noted above, during the three months ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange
Act of 1934, as amended) iadopted or iiterminated/
a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).
^ Certain schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K but will be furnished supplementally to the Securities and Exchange Commission upon request.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
