Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.48M
2: EX-3.1 Articles of Incorporation/Organization or Bylaws HTML 61K
3: EX-10.1 Material Contract HTML 24K
4: EX-10.3 Material Contract HTML 36K
5: EX-31.1 Certification -- §302 - SOA'02 HTML 27K
6: EX-31.2 Certification -- §302 - SOA'02 HTML 28K
7: EX-32.1 Certification -- §906 - SOA'02 HTML 24K
8: EX-32.2 Certification -- §906 - SOA'02 HTML 24K
14: R1 Cover page HTML 75K
15: R2 Condensed Consolidated Statements of Operations HTML 105K
16: R3 Condensed Consolidated Statements of Comprehensive HTML 61K
Income
17: R4 Condensed Consolidated Statements of Comprehensive HTML 30K
Income (Parenthetical)
18: R5 Condensed Consolidated Balance Sheets HTML 133K
19: R6 Condensed Consolidated Balance Sheets HTML 40K
(Parenthetical)
20: R7 Condensed Consolidated Statements of Cash Flows HTML 143K
21: R8 Condensed Consolidated Statements of Cash Flows HTML 25K
(Parenthetical)
22: R9 Condensed Consolidated Statements of Equity HTML 86K
23: R10 Condensed Consolidated Statements of Equity HTML 25K
(Parenthetical)
24: R11 Description of the Business HTML 26K
25: R12 Principal Accounting Policies and Related HTML 32K
Financial Information
26: R13 Recently Issued and Adopted Accounting HTML 38K
Pronouncements and Regulatory Items
27: R14 Revenue Recognition HTML 69K
28: R15 Inventories, Net HTML 31K
29: R16 Investments HTML 27K
30: R17 Restructuring and Other Charges HTML 42K
31: R18 Income Taxes HTML 29K
32: R19 Debt HTML 51K
33: R20 Equity HTML 60K
34: R21 Earnings Per Share HTML 58K
35: R22 Financial Instruments, Risk Management and Fair HTML 113K
Value Measurements
36: R23 Commitments and Contingencies HTML 57K
37: R24 Supplemental Information HTML 73K
38: R25 Recently Issued and Adopted Accounting HTML 37K
Pronouncements and Regulatory Items (Policies)
39: R26 Principal Accounting Policies and Related HTML 27K
Financial Information (Tables)
40: R27 Revenue Recognition (Tables) HTML 63K
41: R28 Inventories, Net (Tables) HTML 32K
42: R29 Restructuring and Other Charges (Tables) HTML 42K
43: R30 Debt (Tables) HTML 46K
44: R31 Equity (Tables) HTML 60K
45: R32 Earnings Per Share (Tables) HTML 55K
46: R33 Financial Instruments, Risk Management and Fair HTML 108K
Value Measurements (Tables)
47: R34 Commitments and Contingencies (Tables) HTML 53K
48: R35 Supplemental Information (Tables) HTML 74K
49: R36 Principal Accounting Policies and Related HTML 43K
Financial Information - Narrative (Details)
50: R37 Principal Accounting Policies and Related HTML 31K
Financial Information - Fair Value Assumptions
(Details)
51: R38 Revenue Recognition - Disaggregation of Revenue by HTML 47K
Major Geographical Region (Details)
52: R39 Revenue Recognition - Narrative (Details) HTML 33K
53: R40 Revenue Recognition - Disaggregation of Revenue By HTML 38K
Major Product Category (Details)
54: R41 Revenue Recognition - Assets and Liabilities HTML 28K
(Details)
55: R42 Revenue Recognition - Performance Obligations HTML 39K
(Details)
56: R43 Inventories, Net - Schedule of Inventory (Details) HTML 33K
57: R44 Investments (Details) HTML 55K
58: R45 Restructuring and Other Charges - Restructuring HTML 37K
Charges in Consolidated Income (Details)
59: R46 Income Taxes (Details) HTML 29K
60: R47 Debt - Long-term Debt (Details) HTML 58K
61: R48 Debt - Narrative (Details) HTML 68K
62: R49 Equity - Additional Information (Details) HTML 52K
63: R50 Equity - Summary of Capital Stock Activity HTML 45K
(Details)
64: R51 Equity - Schedule of Accumulated Other HTML 40K
Comprehensive Loss) (Details)
65: R52 Equity - Reclassification out of AOCI (Details) HTML 47K
66: R53 Earnings Per Share - EPS Calculation (Details) HTML 76K
67: R54 Earnings Per Share - Narrative (Details) HTML 30K
68: R55 Financial Instruments, Risk Management and Fair HTML 38K
Value Measurements - Narrative (Details)
69: R56 Financial Instruments, Risk Management and Fair HTML 38K
Value Measurements - Schedule of Derivatives
(Details)
70: R57 Financial Instruments, Risk Management and Fair HTML 41K
Value Measurements - Derivatives in Cash Flow
Hedging Relationships (Details)
71: R58 Financial Instruments, Risk Management and Fair HTML 32K
Value Measurements - Derivatives Not Designated As
Cash Flow Hedging Instruments (Details)
72: R59 Financial Instruments, Risk Management and Fair HTML 49K
Value Measurements - Recurring Fair Value
Measurements (Details)
73: R60 Commitments and Contingencies - Narrative HTML 40K
(Details)
74: R61 Commitments and Contingencies - Lease Cost and HTML 39K
Terms (Details)
75: R62 Commitments and Contingencies - Maturity of HTML 42K
Operating Lease Liabilities (Details)
76: R63 Supplemental Information - Prepaid and Other HTML 41K
Current Assets (Details)
77: R64 Supplemental Information - Other Assets (Details) HTML 42K
78: R65 Supplemental Information - Accrued and Other HTML 48K
Current Liabilities (Details)
79: R66 Supplemental Information - Other Long-Term HTML 41K
Liabilities (Details)
82: XML IDEA XML File -- Filing Summary XML 147K
80: XML XBRL Instance -- lthm-20220630_htm XML 1.75M
81: EXCEL IDEA Workbook of Financial Reports XLSX 128K
10: EX-101.CAL XBRL Calculations -- lthm-20220630_cal XML 234K
11: EX-101.DEF XBRL Definitions -- lthm-20220630_def XML 505K
12: EX-101.LAB XBRL Labels -- lthm-20220630_lab XML 1.46M
13: EX-101.PRE XBRL Presentations -- lthm-20220630_pre XML 883K
9: EX-101.SCH XBRL Schema -- lthm-20220630 XSD 146K
83: JSON XBRL Instance as JSON Data -- MetaLinks 408± 605K
84: ZIP XBRL Zipped Folder -- 0001742924-22-000024-xbrl Zip 386K
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. YES ☒ 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). YES ☒ 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.
LARGE
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 i☐ NO ☒
As of June 30, 2022, there were i179,270,450
shares of Common Stock, $0.001 par value per share, outstanding.
When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
2025 Notes
$245.75 million principal amount 4.125% Convertible Senior Notes due 2025
ASU
Accounting Standards Update, under U.S. GAAP
Credit Agreement
The Original Credit Agreement, as amended.
EAETR
Estimated
annual effective tax rate
ESG
Environmental, social and governance
EV
Electric vehicle
FASB
Financial Accounting Standards Board
FMC
FMC Corporation
Livent NQSP
Livent Non-Qualified Savings Plan
Nemaska
Nemaska
Lithium Shawinigan Transformation Inc., a subsidiary of Nemaska Lithium Inc., a Canadian lithium company based in Québec, Canada
Nemaska Project
The ownership and operation of the business previously conducted by Nemaska, through a joint venture in which Livent owns a 50% equity interest through its ownership of QLP.
Offering
On June 15, 2021, the Company closed on the issuance of 14,950,000 shares of its common stock, par value $0.001 per share, at a public
offering price of $17.50 per share, in an underwritten public offering. Total net proceeds from the offering were $252.2 million, after deducting underwriters' fees and offering expenses payable by the Company.
OEM
Original equipment manufacturer
Original Credit Agreement
On September 18, 2018 Livent Corporation entered into the credit agreement, which provides for a $400 million senior secured revolving credit facility.
PRSU
Performance-based restricted stock unit
QLP
Québec
Lithium Partners (UK) Limited, a wholly owned subsidiary of Livent. QLP owns a 50% equity interest in the Nemaska 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 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 $400 million senior secured revolving
credit facility
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.
TSR
Total Shareholder
Return
U.S. GAAP
United States Generally Accepted Accounting Principles
Trade
receivables, net of allowance of approximately $i0.3 in 2022 and $i0.3 in 2021
i132.8
i96.4
Inventories,
net
i156.3
i134.6
Prepaid and other current assets
i48.2
i55.3
Total
current assets
i386.3
i399.3
Investments
i421.3
i27.2
Property,
plant and equipment, net of accumulated depreciation of $i248.0 in 2022 and $i243.0
in 2021
i803.2
i677.9
Deferred
income taxes
i0.6
i0.9
Right
of use assets - operating leases, net
i5.5
i6.3
Other
assets
i104.5
i90.9
Total
assets
$
i1,721.4
$
i1,202.5
LIABILITIES
AND EQUITY
Current liabilities
Current portion of long-term debt
$
i13.5
$
i—
Accounts
payable, trade and other
i82.9
i65.4
Accrued
and other liabilities
i49.4
i61.8
Operating
lease liabilities - current
i1.1
i1.1
Income
taxes
i1.9
i3.0
Total
current liabilities
i148.8
i131.3
Long-term
debt
i241.2
i240.4
Operating
lease liabilities - long-term
i4.5
i5.4
Environmental
liabilities
i5.7
i5.6
Deferred
income taxes
i24.9
i12.7
Other
long-term liabilities
i16.2
i11.7
Commitments
and contingent liabilities (Note 13)
i—
i—
Total
current and long-term liabilities
i441.3
i407.1
Equity
Common
stock; $ii0.001/ par value; ii2/
billion shares authorized; i179,374,126 and i161,791,602 shares issued; i179,270,450
and i161,689,984 outstanding as of June 30, 2022 and December 31, 2021, respectively
The
accompanying notes are an integral part of these condensed consolidated financial statements.
11
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 June 30, 2022 and December 31, 2021, the condensed consolidated results of operations for the six months ended June 30, 2022 and 2021, and the condensed consolidated cash flows for the six months ended June 30, 2022 and 2021. 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, 2021 (the "2021 Annual Report on Form 10-K").
Blue Chip Swap. Our wholly owned subsidiary in Argentina uses the U.S. dollar as their 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. During the first half of 2022, to support our capital expansion projects, we transferred U.S. dollars into Argentina through the Blue Chip Swap method whereby our wholly owned Delaware subsidiary, MDA Lithium Holdings LLC, realized a cash gain from the purchase in U.S. dollars and sale in Argentina pesos of Argentina Sovereign U.S. dollar-denominated bonds. The cash gain of U.S. $i8.2 million
and $i22.2 million for the three and six months ended June 30, 2022, respectively, was recorded to Other gain in our condensed consolidated statement of operations.
Performance-Based Restricted Stock Unit ("PRSU") Awards.The Company granted approximately sixty-three thousand PRSUs ("2022 PRSUs") to key employees on February
23, 2022, as authorized under the provisions of the Livent Corporation 2018 Incentive Compensation and Stock Plan. The number of PRSUs ultimately earned will be based on Livent's Total Shareholder Return ("TSR") relative to the TSR of the companies in the Russell 3000 Chemical Supersector Index over a ithree year performance period from January 1, 2022 through December 31, 2024 (the "Performance Period"). The final number
of PRSUs earned will range from i0% to i200%
of the number of PRSUs granted based on the Company's relative TSR performance over the Performance Period.
Because the value of the 2022 PRSUs is dependent upon the attainment of a level of TSR, it requires the impact of the market condition to be considered when estimating the fair value of the 2022 PRSUs. iAs
a result, the Monte Carlo model is applied and the most significant valuation assumptions used related to the 2022 PRSUs during the year ending December 31, 2022, include:
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
The February 23, 2022 grant date fair value of each PRSU granted was $i20.82
per share.
There were no other significant changes to our accounting policies that are set forth in detail in Note 2 to our annual consolidated financial statements in Part II, Item 8 of our 2021 Annual Report on Form 10-K.
Note 3: iRecently Issued and Adopted Accounting
Pronouncements and Regulatory Items
i
New accounting guidance and regulatory items
In November 2021, the Financial Accounting Standard Board ("FASB") issued ASU No. 2021-10, Government Assistance (Topic 832). This ASU requires business entities to disclose information about government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting model. The disclosure requirements include the nature of
the transaction and the related accounting policy used, the line items on the balance sheets and statements of operations that are affected and the amounts applicable to each financial statement line item and the significant terms and conditions of the transactions. The ASU is effective for annual periods beginning after December 15, 2021. The disclosure requirements can be applied either retrospectively or prospectively to all transactions in the scope of the amendments that are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date of initial application. We are evaluating the impact of this ASU on our consolidated financial statements.
In April 2020, FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The
amendments in this ASU provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. An entity may optionally elect to apply the amendments effective in the first interim period that includes or is subsequent to March 12, 2020 through December 31, 2022. We do not expect adoption to have material impact on our condensed consolidated financial statements.
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 June 30, 2022, countries with sales in excess of 10% of combined revenue consisted of Japan, the U.S., and China. Sales for the three months ended June 30, 2022 for Japan, the U.S., and China totaled $i54.2 million, $i39.6 million,
$i64.6 million, respectively. During the six months ended June 30, 2022, countries with sales in excess of 10% of combined revenue consisted of Japan, the U.S., and China. Sales for the six months ended June 30, 2022 for Japan, the U.S., and China totaled $i84.8
million, $i60.5 million, $i123.8 million, respectively.
During the three months ended June 30, 2021, countries with sales in excess of 10% of combined revenue consisted of Japan, South Korea, the U.S. and China. Sales for the three months ended June 30, 2021 for Japan, South Korea, the U.S. and China totaled $i23.9 million, $i19.4 million,
$i14.7 million and $i26.2 million, respectively.
During the six months ended June 30, 2021, countries with sales in excess of 10% of combined revenue consisted of Japan, South Korea, the U.S. and China. Sales for the six months ended June 30, 2021for Japan, South Korea, the U.S. and China totaled $i40.6 million,
$i30.5 million ,$i27.8 million and $i53.3 million,
respectively.
2.In the fourth quarter of 2021, we reclassified certain revenue from the nine months ended September 30, 2021 from North America to Asia Pacific to present revenue based on product destination.
For the three months ended June 30, 2022, one customer accounted for approximately ii21/%
of total revenue and our 10 largest customers accounted in aggregate for approximately i63% of total revenue. For the three months ended June 30, 2021, one customer accounted for approximately i36%
of total revenue and our 10 largest customers accounted in aggregate for approximately i70% of total revenue. For the six months ended June 30, 2022, one customer accounted for approximately i23%
of total revenue and our 10 largest customers accounted in aggregate for approximately i63% of total revenue.For the six
Notes to the Condensed Consolidated
Financial Statements (unaudited) — (Continued)
months ended June 30, 2021, one customer accounted for approximately i36% of total revenue and our 10 largest customers accounted in aggregate for approximately i67%
of total 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:
The following table presents the opening and closing balances of our receivables, net of allowances. As of June 30, 2022 and December 31, 2021, there were no significant contract liabilities recorded
in the consolidated balance sheets.
Receivables
from contracts with customers, net of allowances
$
i132.8
$
i96.4
$
i36.4
/
i
The
balance of receivables from contracts with customers listed in the table above represents the current trade receivables (including buy/sell arrangements), net of allowance for doubtful accounts. The allowance for receivables represents our best estimate of the probable losses associated with potential customer defaults. We determine the allowance based on historical experience, current collection trends, and external business factors such as economic factors, including regional bankruptcy rates, and political factors.
Performance obligations
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 that are unsatisfied or partially unsatisfied is approximately $i763 million in the next ithree years.
These approximate revenues do not include amounts of variable consideration attributable to contract renewals or contract contingencies. 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.
On July
25, 2022 we entered into a long-term supply agreement with a customer to deliver battery-grade lithium hydroxide over isix years between 2025 and 2030. The contract includes an advance payment from the customer of $i198 million,
payable within i60 days of signing. Revenue will be recognized as volumes are delivered. Any unrecognized deferred revenue is refundable if the agreement is terminated for any reason.
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
Note 6: iInvestments
On June 6, 2022, Livent closed on the Transaction Agreement and Plan
of Merger (the "QLP Merger") with The Pallinghurst Group ("Pallinghurst") to provide Livent with a direct i50% ownership interest in the Nemaska Project, a fully integrated lithium chemical asset located in Québec, Canada that is not yet in commercial production. The Company issued i17,500,000
shares of its common stock to acquire the remaining i50% share of Québec Lithium Partners (UK) Limited ("QLP") previously owned by Pallinghurst and certain of its investors. Upon consummation of the QLP Merger, Livent recorded an Investment of $i387.1 million,
Cash and cash equivalents of $i0.3 million and Short-term debt of $i13.5 million,
representing QLP's equity method investment in the Nemaska Project, cash on hand, and debt, respectively, with a corresponding increase to additional paid in capital of $i373.9 million in its consolidated balance sheet. Livent now owns a i50%
equity interest in the Nemaska Project through its ownership of QLP. The Canadian government, through Investissement Québec (“IQ”), will continue to own the remaining i50% interest in the Nemaska Project.
The Company accounts for the investment in the Nemaska Project 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 six months ended June 30,
2022, we recorded a $i2.7 million and $i4.9 million loss, respectively,
related to our equity interest in the Nemaska Project to Equity in net loss of unconsolidated affiliate in our condensed consolidated statement of operations. The carrying amount of our equity interest in the Nemaska Project was $i418.0 million (representing our i50%
direct interest) and $i23.8 million (representing our i25% indirect interest) as of June 30, 2022 and December 31,
2021, respectively.
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 June 30,
Six Months Ended June 30,
(in
Millions)
2022
2021
2022
2021
Restructuring charges:
Severance-related and exit costs (1)
$
i—
$
i0.1
$
i0.5
$
i0.1
Other
charges:
Environmental remediation (2)
i0.1
i0.1
i0.2
i0.2
Other
(3)
i2.8
i1.8
i3.2
i2.0
Total
Restructuring and other charges
$
i2.9
$
i2.0
$
i3.9
$
i2.3
___________________
1.The
six months ended June 30, 2022 includes severance costs for management changes at certain administrative facilities.
2.There is ione environmental remediation site in Bessemer City, North Carolina.
/
3.Three and six months ended June 30,
2022 and 2021 consists primarily of transaction-related legal fees and miscellaneous nonrecurring transactions.
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.
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
Provision for income taxes for the three and six months ended June 30, 2022 was $i30.2
million and $i34.9 million resulting in an effective tax rate of i33.5% and i23.6%,
respectively. Provision for income taxes for the three and six months ended June 30, 2021 was a benefit of $(i2.5) million and $(i1.6) million resulting in a negative
effective tax rate of (i62.5)% and (i39.0)%, respectively.
Subtotal
long-term debt (including current maturities)
i254.7
i240.4
Less
current maturities
(i13.5)
i—
Total
long-term debt
$
i241.2
$
i240.4
______________________________
1.As
of June 30, 2022 and December 31, 2021, there were $ii14.5/
million in letters of credit outstanding under our Revolving Credit Facility and $ii385.5/
million available funds as of June 30, 2022 and December 31, 2021. Fund availability is subject to the Company meeting its debt covenants.
/
Deferred Payment Note ("QLP Note")
Prior to becoming our wholly owned subsidiary pursuant to the QLP Merger, on November 26, 2020, QLP entered into the QLP Note to defer $i12.5 million
of its investment commitment for its i50% share of the Nemaska Project. Upon our acquisition of the remaining share of QLP in June 2022, the QLP Note became the sole liability of Livent. The QLP Note, payable to Nemaska Lithium Shawinigan Transformation Inc., matures on November 26, 2022, is classified as Current portion of long-term debt in our consolidated balance sheets and earns coupon interest at an annual rate of i8%,
compounded to the principal monthly, for the first twelve months. This interest is payable at the maturity date, along with the principal. From November 26, 2021, interest on the note accrues and is payable monthly.
2025 Notes
In the second quarter of 2022, 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, June 30, 2022 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 September 30, 2022. The 2025 Notes are classified as long-term debt.
The Company recognized noncash interest related to the amortization of transaction costs of $i0.4 million and $i0.8 million,
all of which was capitalized, for the three and six months ended June 30, 2022, respectively. The Company recorded $i2.5 million and $i5.1 million
of accrued interest expense related to the principal amount for the three and six months ended June 30, 2022, respectively.
Revolving Credit Facility
The carrying value of our deferred financing costs was $i1.1 million as of June 30, 2022.
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
Notes to the Condensed Consolidated Financial Statements (unaudited)
— (Continued)
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 burdensome 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 June 30, 2022. Our minimum allowable interest coverage ratio is i3.5. We were in compliance with all requirements of the covenants as of June 30, 2022.
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
Note 10: iEquity
As of June 30, 2022 and December 31, 2021, we had ii2/ billion
shares of common stock authorized. iThe following is a summary of Livent's common stock issued and outstanding:
On
June 6, 2022, the Company closed on the QLP Merger and issued i17,500,000 shares of its common stock, par value $i0.001
per share, in a private placement as consideration to acquire the remaining i50% share of QLP previously owned by Pallinghurst and certain of its investors. See Note 6 for details.
Accumulated other comprehensive loss
i
Summarized
below is the roll forward of accumulated other comprehensive loss, net of tax.
(in Millions)
Foreign currency adjustments
Derivative Instruments (1)
Total
Accumulated other comprehensive loss, net of tax as of December
31, 2021
$
(i43.1)
$
i0.2
$
(i42.9)
Other
comprehensive losses before reclassifications
(i5.4)
i—
(i5.4)
Accumulated
other comprehensive loss, net of tax as of June 30, 2022
$
(i48.5)
$
i0.2
$
(i48.3)
(in
Millions)
Foreign currency adjustments
Derivative Instruments (1)
Total
Accumulated other comprehensive loss, net of tax as of December 31, 2020
$
(i44.4)
$
i—
$
(i44.4)
Other
comprehensive gain before reclassifications
i0.9
i0.1
i1.0
Accumulated
other comprehensive loss, net of tax as of June 30, 2021
$
(i43.5)
$
i0.1
$
(i43.4)
1.See
Note 12 for more information.
/
Reclassifications of accumulated other comprehensive loss
Hedging gains reclassified from accumulated other comprehensive loss for the three and six months ended June 30, 2022 were $i0.1 million,
net of provision for income taxes of less than $i0.1 million. We did not have any open derivative positions for the three and six months ended June 30, 2021.
Dividends
For the three and six months ended June 30, 2022 and 2021, we paid iino/
dividends. We do not expect to pay any dividends in the foreseeable future.
Note 11: iEarnings Per Share
Earnings per common share 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 2021 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.
Adjustment
for interest on 2025 Notes, net of tax (1)
i—
i—
i—
i0.2
Net
income after assumed conversion of 2025 Notes (1)
$
ii60.0/
$
ii6.5/
$
ii113.2/
$
ii5.9/
Denominator:
Weighted
average common shares outstanding - basic
i166.6
i148.7
i164.2
i147.6
Dilutive
share equivalents from share-based plans
i1.8
i1.2
i1.7
i1.3
Dilutive
share equivalents from 2025 Notes
i28.1
i28.1
i28.1
i28.1
Weighted
average common shares outstanding - diluted
i196.5
i178.0
i194.0
i177.0
Basic
earnings per common share:
Net income per weighted average share - basic
$
i0.36
$
i0.04
$
i0.69
$
i0.04
Diluted
earnings per common share:
Net income per weighted average share - diluted
$
i0.31
$
i0.04
$
i0.58
$
i0.03
/
1.For
the three and six months ended June 30, 2022 and for the three months ended June 30, 2021, all of the interest for the 2025 Notes was capitalized.
Anti-dilutive stock options
For the three and six months ended June 30, 2022, iino/ne
of the outstanding options to purchase shares of our common stock were anti-dilutive. For the three and six months ended June 30, 2021, options to purchase ii542,760/
shares of our common stock at an average exercise price of $ii20.35/
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 six months ended June 30, 2021.
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 accounts payable approximates their fair value 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 interest rate yield curves and 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:
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
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.
Level 3 - Unobservable inputs for the asset or liability.
The estimated fair value and the carrying amount of debt was $i756.4 million and $i259.3
million, respectively, as of June 30, 2022. 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 June 30, 2022, 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 June 30, 2022 we had open forward contracts with various expiration dates to buy, sell or exchange foreign currencies with a U.S. dollar equivalent of approximately $i50.6 million.
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
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,
2022 if spot rates in the future are consistent with market rates as of June 30, 2022. 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 “Costs of sales and services” line in the condensed consolidated statements of operations.
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 $i68.6 million as of June 30, 2022.
Fair
Value of Derivative Instruments.
i
The following tables provide the gross fair value and net balance sheet presentation of our derivative instruments.
iThe following tables summarize the losses related to our cash flow hedges and derivatives not designated as cash flow hedging instruments. For the three months ended March 31, 2021, we did not have any open derivative cash flow hedge contracts.
1.Amounts
represent the gain or loss on the derivative instrument offset by the gain or loss on the hedged item.
2.A loss of $i0.1 million and $i0.2 million
related to intercompany loan hedges is included in Restructuring and other charges in the consolidated statement of operations for the three and six months ended June 30, 2022, respectively. A loss of $i0.1 million and $i0.2 million
related to intercompany loan hedges is included in Restructuring and other charges in the consolidated statement of operations for the three and six months ended June 30, 2021, respectively
/
Fair Value Measurements
Fair value is 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. Market participants are defined as buyers or sellers in the principle or most advantageous market for the asset or liability that are independent of the reporting
entity, knowledgeable and able and willing to transact for the asset or liability.
Fair Value Hierarchy
We have categorized our assets and liabilities that are recorded at fair value, based on the priority of the inputs to the valuation technique, into a three-level fair-value hierarchy. The fair-value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets and liabilities fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair-value measurement of the instrument.
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
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)
$
i3.4
$
i3.4
$
i—
$
i—
Total
Assets
$
i3.4
$
i3.4
$
i—
$
i—
Liabilities
Deferred
compensation plan obligation (2)
$
i5.9
$
i5.9
$
i—
$
i—
Total
Liabilities
$
i5.9
$
i5.9
$
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. A mark-to-market gain of $i0.4 million and $i0.2 million
was recorded for the three and six months ended June 30, 2022, respectively, related to the Livent common stock. The mark-to-market losses were recorded in "Selling, general and administrative expense" in the condensed consolidated statement 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 contingencies, either individually or in the aggregate, at this time. There can be no assurance that the outcome of these
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)
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 2016 to 2017), Rosario (for 2016 and 2017), Buenos Aires and Ezeiza (for 2018 and 2019) regarding the export of Lithium Carbonate by MdA from each of
those locations.
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 June 30, 2022
and December 31, 2021. We have operating leases for corporate offices, manufacturing facilities, and land. Our leases have remaining lease terms of one to thirteen years. iQuantitative disclosures about our leases are summarized in the table below.
Three
Months Ended June 30,
Six Months Ended June 30,
(in Millions, except for weighted-average amounts)
2022
2021
2022
2021
Lease Cost
Operating
lease cost
$
i0.3
$
i0.4
$
i0.7
$
i0.6
Short-term
lease cost
i0.1
i0.4
i0.2
i0.7
Variable
lease cost
i—
i0.1
i—
i0.1
Total
lease cost (1)
$
i0.4
$
i0.9
$
i0.9
$
i1.4
Other
information
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid for operating leases
$
i0.3
$
i0.6
$
i0.7
$
i1.1
__________________________
1.Lease
expense is classified as "Selling, general and administrative expenses" in our condensed consolidated statements of operations.
As of June 30, 2022, our operating leases had a weighted average remaining lease term of i8.0 years and a weighted average discount rate of i4.9%.
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 June 30, 2022 and December 31, 2021, $i39.2 million and $i38.4
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. As with all outstanding receivable balances, we continually review recoverability 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.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)
i5.9
i2.3
Self-insurance
reserves
i1.7
i1.5
Asset
retirement obligations
i0.3
i0.3
Other
long-term liabilities
i2.6
i1.7
Total
$
i16.2
$
i11.7
____________________
1.Amounts
primarily include accrued capital expenditures related to our expansion projects.
2.As of June 30, 2022, we have recorded a liability for uncertain tax positions of $i5.5 million and a $i0.4
million indemnification liability where the offsetting uncertain tax position is with FMC, per the tax matters agreement.
/
26
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 and anticipated trends in our business. 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.
The continuing effects of the COVID-19
global pandemic, supply chain shortages and logistics disruptions, inflation, rising interest rates, increased energy costs and energy rationing in China, and economic and political instability in Argentina are factors that are impacting the Company. Restrictions intended to slow the spread of COVID-19 have led to and may continue to cause business and supply chain disruptions, volatility in global capital and financial markets (including inflation), and a global slowdown of economic activity.
Additional factors include, among other things:
•a decline in the growth in demand for EVs using high performance lithium compounds;
•volatility in the price for performance lithium compounds;
•adverse
global economic and weather conditions that may result in adverse impact on supply chains and customer demand;
•competition from other lithium producers;
•quarterly and annual fluctuations of our operating results;
•risks relating to Livent’s capacity expansion efforts and current production;
•potential development and adoption of battery technologies that do not rely on performance lithium compounds as an input, or that require a lesser amount of performance lithium compounds;
•difficulty accessing global capital and credit markets;
•the conditional conversion feature
of the 2025 Notes;
•the lack of sufficient cash flow from our business to pay our debt;
•the success of Livent’s research and development efforts;
•future acquisitions that may be difficult to integrate or are otherwise unsuccessful;
•risks inherent in international operations and sales, including political, financial and operational risks specific to Argentina, China and other countries where Livent has active operations;
•the effects of war or other conflicts, including but not limited to, the ongoing war in Ukraine and the related sanctions against Russia, acts of retaliation by Russia (including cyber-attacks and curtailment of
natural gas supplies), terrorism or other catastrophic events that may affect global supply chains, oil prices, inflation, and general economic conditions;
•operations or supply chain disruptions due to physical and other risks, including natural disasters, epidemics, pandemics, and other catastrophic events beyond our control;
•customer concentration and the possible loss of, or significant reduction in orders from, large customers;
•failure to satisfy customer qualification processes and customer and government quality standards;
27
•global
inflation, fluctuations in the price of energy and certain raw materials;
•employee attraction and retention, especially in relation to our capacity expansion efforts;
•union relations;
•cybersecurity breaches;
•our ability to protect our intellectual property rights;
•ESG matters, including risk of not meeting our ESG targets, especially as they relate to emissions and greenhouse gas intensity, and other climate change related risks;
•we have not established “proven” or “probable” mineral reserves, as defined by the SEC, through the completion of a feasibility
study for the minerals that we produce;
•legal and regulatory proceedings, including any shareholder lawsuits;
•compliance with environmental, health and safety laws;
•changes in tax laws;
•risks related to our separation from FMC Corporation;
•risks related to ownership of our common stock, including price fluctuations;
•provisions under Delaware law and our charter documents that may deter third parties from acquiring us; and
•the lack of cash dividends at this time.
Investors
are cautioned to carefully consider the risk factors discussed in Part I, Item 1A of our 2021 Annual Report on Form 10-K.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. 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 judgements, 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 2021 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.
The following is a list of those accounting estimates that we have deemed most critical to the presentation and understanding of our results of operations and financial condition. See the "Critical Accounting Estimates" section included within
"Management's Discussion and Analysis of Financial Condition and Results of Operations" within Part II, Item 7 of our 2021 Annual Report on Form 10-K for a detailed description of these estimates and their potential effects on our results of operations and financial condition.
•Revenue recognition
•Trade and other receivables
•Impairment and valuation of long-lived assets
•Income taxes
28
Due to the COVID-19 pandemic, inflation and rising interest rates, 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 to focus on supplying high 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 the next generation of battery technology products. 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.
Second Quarter 2022 Highlights
The following are the more significant developments in our business during the three months ended June 30, 2022:
•Revenue
of $218.7 million for the three months ended June 30, 2022 increased $116.5 million, or approximately 114%, compared to $102.2 million for the three months ended June 30, 2021, primarily due to higher pricing across all of our products partially offset by a decrease in sales volumes.
•Net income of $60.0 million for the three months ended June 30, 2022 compared to net income of $6.5 million for the three months ended June 30, 2021 was primarily due to higher pricing across all of our products partially offset by a decrease in sales volumes, higher logistics, raw material and other operating costs, higher Restructuring and other charges, $2.7 million Equity in net loss of unconsolidated affiliate and an increase
to income tax expense. The three months ended June 30, 2022 also includes a $8.2 million gain from our sale of Argentina Sovereign U.S. dollar-denominated bonds (see Note 2 for more information).
•Adjusted EBITDA of $95.0 million for the three months ended June 30, 2022 increased $79.0 million compared to $16.0 million for the three months ended June 30, 2021, primarily due to higher pricing across all of our products partially offset by a decrease in sales volumes and higher logistics, raw material and other operating costs.
COVID-19 Impacts
During the three months ended June 30, 2022, the
Company has continued to respond to the disruptions caused by the COVID-19 pandemic, which is still negatively impacting our business, operations and financial performance.
Pursuant to its zero-COVID strategy, the government of China continues to enact emergency measures in certain geographic locations to stem the spread of COVID-19 and may enact new ones in other locations. We expect government measures and restrictions in China to continue to have a negative impact on the efficient operation of our facilities, toll manufacturers, supply chains and logistics. Disruptions and delays within our supply chain and logistics operations included problems and congestion at ports, difficulties with scheduling cargo ships, higher shipment and freight costs, additional warehouse costs due to shipment delays, lack of driver availability and fewer transportation options, and the restriction of movements by trucks. This has impacted
our expansion work globally. In addition to delays, there have been increased costs due to slowdown of availability of materials.
Our uses of cash were impacted by the effects of COVID-19 during the three months ended June 30, 2022. We continue to use cash to purchase additional COVID-19 testing kits, personal protective equipment for our employees, such as masks and gloves, and for increased cleaning and disinfectant costs, additional medical personnel at our facilities, and increased personnel transportation costs.
29
We continue to protect the health and well-being of our employees, customers and other key stakeholders in accordance with changing circumstances
and local conditions. This can include pre-entry screening, the use of masks and gloves, social distancing measures, and quarantine of close contacts with suspected or confirmed COVID-19 cases. We have not experienced any material employee absences as a result of COVID-19. However, social distancing measures and other health and safety protocols have led to reduced workforce numbers in certain locations, such as with our expansion project in Argentina. If a significant number of our employees at any one location were to require leave as a result of COVID-19, this could pose a risk to the continued operation of the particular facility and could potentially disrupt our broader operations.
Overall, the impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot predict the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted.
Business
Update
In addition to the inflation and supply chain disruptions to the global economy caused by, or as a consequence of, the COVID-19 pandemic, the global economy has been impacted by the conflict in Ukraine. This has exacerbated supply chain disruptions, increased our costs for energy and contributed to inflation in almost all of the markets where we operate. The lasting effects of the war in Ukraine are still unknown.
From an operational standpoint, we continue to identify potential new suppliers and logistics providers as global supply chain challenges continue and adversely impact our business. This includes potential new suppliers of chemicals and packaging, and air freight companies when required so that we may deliver product to our customers in a timely manner. We have altered global production schedules to meet changes in customer demand, supply and logistics challenges.
We are also observing 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) and delays in procurement of longer lead time equipment. This may impact us and our expansion efforts, our customers and suppliers in the future. We continue to be subject to strict quality requirements from our customers.
Our operations in Argentina are subject to their own unique challenges. Argentina is experiencing high inflation, high natural gas prices and social and labor unrest. There is increasing pressure from federal and provincial governments to obtain additional tax revenues and other concessions from private companies. A shortfall of foreign currency reserves has also led to currency restrictions, which in turn has placed severe limits on imports, including certain materials for our operations and expansion project. The tight capital
controls have created alternative markets for dollars, which has led to a steep divergence between official and unofficial exchange rates. This gap in the exchange rate has created a destabilizing environment for the Argentinian peso and makes it difficult to know the true worth of local goods.
Customers in the EV manufacturing industry are currently experiencing or have recently experienced their own supply chain constraints and problems, including semiconductor chip shortages and multi-week shutdowns of OEMs and their suppliers in China. Supplier disruptions driven by a number of factors are expected to continue and add volatility and uncertainty to the overall EV supply chain, which may adversely impact our business. This and similar supply chain disruptions experienced by our customers could cause delays in their demand for our high performance lithium compounds, further adversely impacting our business and growth plans.
The
material matters that management is currently monitoring are: the health and safety of our employees; our expansion efforts globally; the future development of the Nemaska Project; the supply and demand balance of battery-grade lithium in the global marketplace; COVID-19 and its impact on our operations and the global supply chain; inflation and rising interest rates and the negative impact they may have on our customers and key end markets such as EV sales; the prospect of a recession in the U.S. and elsewhere, and its impact on EV sales; global supply chain and logistics issues; political and economic instability in Argentina; and, global energy supply concerns.
2022 Business Outlook
To begin the year, Livent expected flat volumes and significantly higher average pricing across its lithium products in 2022, resulting in higher profitability versus the prior year. The
Company also expected higher costs versus the prior year, primarily related to logistics, raw materials and general inflationary pressures.
Since this time, Livent has significantly increased its outlook for 2022 financial performance. With no expected change in volumes, this is driven by even higher average pricing across all lithium products.
Income
from operations before equity in net loss of unconsolidated affiliate, interest expense, net and other gain
84.7
5.4
130.8
7.1
Equity in net loss of unconsolidated affiliate
2.7
1.4
4.9
2.7
Interest
expense, net
—
—
—
0.3
Other gain
(8.2)
—
(22.2)
—
Income from operations before income taxes
90.2
4.0
148.1
4.1
Income
tax expense/(benefit)
30.2
(2.5)
34.9
(1.6)
Net income
$
60.0
$
6.5
$
113.2
$
5.7
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, gain from sale of Argentina Sovereign U.S. dollar-denominated bonds and other loss. 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 June 30,
Six Months Ended June
30,
(in Millions)
2022
2021
2022
2021
Net income
$
60.0
$
6.5
$
113.2
$
5.7
Add
back:
Interest expense, net
—
—
—
0.3
Income tax expense/(benefit)
30.2
(2.5)
34.9
(1.6)
Depreciation
and amortization
6.4
6.3
12.8
12.5
EBITDA (Non-GAAP)
96.6
10.3
160.9
16.9
Add
back:
Argentina remeasurement losses (a)
0.8
1.0
1.8
3.3
Restructuring and other charges (b)
2.9
2.0
3.9
2.3
Separation-related
costs (c)
0.3
0.6
0.4
0.5
COVID-19 related costs (d)
0.7
1.4
1.5
2.3
Other
loss (e)
1.9
0.7
3.5
1.8
Subtract:
Blue Chip Swap gain (f)
(8.2)
—
(22.2)
—
Argentina
interest income (g)
—
—
(1.5)
—
Adjusted EBITDA (Non-GAAP)
$
95.0
$
16.0
$
148.3
$
27.1
___________________
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 statement of operations but are excluded from our calculation of Adjusted EBITDA because of: i.) their nature as income
31
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 six months ended June 30, 2022 includes $0.5 million of severance costs for management changes at certain administrative facilities and $0.4 million for miscellaneous nonrecurring costs. The three and six months ended June 30, 2022 and 2021 includes transaction related legal fees (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 statement 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.The three and six months ended June 30, 2022 and 2021 represents our ownership interest (which was 25% prior to June 6, 2022) in certain project-related costs, interest expense and transaction costs incurred for the Nemaska Project, all included in Equity in net loss of unconsolidated affiliate in our condensed consolidated statement of operations. The
Company accounts for its equity method investment in the Nemaska Project on a one quarter lag basis (see Note 6 for more information).
f.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 (see Note 2 for more information) and is excluded from Adjusted EBITDA because it is nonrecurring.
g.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 $218.7 million for the three months ended June 30, 2022 (the "2022 Quarter") increased by approximately 114%, or $116.5 million, compared to $102.2 million for the three months ended June 30, 2021 (the "2021 Quarter") primarily due to higher pricing across all of our products partially offset by a decrease in sales volumes.
Gross margin
Gross margin of $102.5 million for the 2022 Quarter increased by $82.1 million, or approximately
402%, versus $20.4 million for the 2021 Quarter. The increase in gross margin was primarily due to higher pricing across all of our products partially offset by a decrease in sales volumes and higher logistics, raw material and other operating costs.
Restructuring and other charges
Restructuring and other charges of $2.9 million for the 2022 Quarter increased by $0.9 million versus $2.0 million for the 2021 Quarter. Restructuring and other charges for the 2022 Quarter primarily consisted of transaction related legal fees. 2021 Quarter Restructuring and other charges consisted primarily of transaction related legal fees and miscellaneous nonrecurring transactions (see Note 7 for details).
Equity in net loss of unconsolidated affiliate
Equity in net loss of unconsolidated affiliate of $2.7 million
and $1.4 million for the 2022 Quarter and 2021 Quarter, respectively, arises out of our ownership interest in the Nemaska Project (which was 25% prior to June 6, 2022) and the increase of $1.3 million represents certain project-related costs incurred by our unconsolidated affiliate (see Note 6 for details).
Interest expense, net
All $4.0 million and $3.9 million of our interest for the 2022 Quarter and 2021 Quarter, respectively, was capitalized.
Income tax expense/(benefit)
The increase in income tax expense to $30.2 million for the 2022 Quarter compared to the income tax benefit of $(2.5) million for the 2021 Quarter, was primarily due to an increase in income from operations, and the fluctuations in foreign currency
impacts in Argentina of $12.5 million and ($0.3) for the 2022 Quarter and 2021 Quarter respectively. Within foreign currency impacts, Argentina tax law annually requires an increase to taxable income for inflationary adjustments in the period when the consumer price index fluctuates over a specific threshold, which was met in the 2022 Quarter. Additionally, the increase in
32
income tax expense was partially offset by an increase in forecasted jurisdictional mix of earnings where the statutory rate is lower than the U.S. Federal statutory rate.
Net income
Net income of $60.0 million for the 2022 Quarter compared to net income of $6.5
million for the 2021 Quarter was primarily due to higher pricing across all of our products partially offset by a decrease in sales volumes, higher logistics, raw material and other operating costs, higher Restructuring and other charges, $2.7 million Equity in net loss of unconsolidated affiliate and an increase to income tax expense. The 2022 Quarter also includes a $8.2 million gain from our sale of Argentina Sovereign U.S. dollar-denominated bonds (see Note 2 for more information).
Revenue of $362.2 million for the six months ended June 30, 2022 (the "2022 YTD") increased by approximately 87%, or $168.3 million, compared to $193.9 million for
the six months ended June 30, 2021 (the "2021 YTD") primarily due to higher pricing across all of our products partially offset by a decrease in sales volumes.
Gross margin
Gross margin of $162.4 million for the 2022 YTD increased by $128.7 million, or approximately 382%, versus $33.7 million for the 2021 YTD. The increase in gross margin was primarily due to higher pricing across all of our products partially offset by a decrease in sales volumes and higher logistics, raw material and other operating costs.
Restructuring and other charges
Restructuring and other charges of $3.9 million for the 2022 YTD increased by $1.6 million versus $2.3 million for the 2021 YTD. Restructuring and other charges for the 2022 YTD included severance costs
of $0.5 million for management changes at certain administrative facilities and transaction related legal fees. 2021 YTD Restructuring and other charges consisted primarily of transaction related legal fees and miscellaneous nonrecurring costs (see Note 7 for details).
Equity in net loss of unconsolidated affiliates
Equity in net loss of unconsolidated affiliates of $4.9 million and $2.7million for the 2022 YTD and 2021 YTD, respectively, arises out of our ownership interest in the Nemaska Project (which was 25% prior to June 6, 2022) and the increase of $2.2 million represents certain project-related costs incurred by our unconsolidated affiliate (see Note 6 for details).
Interest expense, net
All $8.0 million of our interest
for the 2022 YTD was capitalized. Interest expense for the 2021 YTD is noncash amortization of transaction costs of $0.3 million related to the 2025 Notes which represents the excess interest over the amount of interest capitalized in accordance with U.S. GAAP for the 2021 YTD.
Income tax expense/(benefit)
The increase in income tax expense to $34.9 million for the 2022 YTD compared to the income tax benefit of $(1.6) million for the 2021 YTD, was primarily due to an increase in income from operations, and the fluctuations in foreign currency impacts in Argentina of $8.2 million and $(1.7) million for the 2022 YTD and the 2021 YTD, respectively. Within foreign currency impacts, Argentina tax law annually requires an increase to taxable income for inflationary adjustments in the period when the consumer price index fluctuates over a specific threshold, which
was met in the 2022 Quarter. Additionally, the increase in income tax expense was partially offset by an increase in forecasted jurisdictional mix of earnings where the statutory rate is lower than the U.S. Federal statutory rate.
Net income
Net income of $113.2 million for the 2022 YTD compared to net income of $5.7 million for the 2021 YTD was primarily due to higher pricing across all of our products partially offset by a decrease in sales volumes, higher logistics, raw material and other operating costs, higher Restructuring and other charges, $4.9 million Equity in net loss of unconsolidated affiliate and an increase to income tax expense. The 2022 YTD also includes a $22.2 million gain from our sale of Argentina Sovereign U.S. dollar-denominated bonds (see Note 2 for more information)
33
LIQUIDITY
AND CAPITAL RESOURCES
Cash and cash equivalents as of June 30, 2022 and December 31, 2021, were $49.0 million and $113.0 million, respectively. Of the cash and cash equivalents balance as of June 30, 2022, $28.4 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 2021 Annual Report on Form 10-K for more information.
On July 25, 2022 we entered into a long-term supply agreement with a customer to deliver battery-grade lithium hydroxide over six years between 2025 and 2030. The contract includes an advance payment from the customer of $198 million, payable within 60 days of signing.
Revolving Credit Facility
The Credit Agreement provides for a $400
million senior secured revolving credit facility, $50 million of which is available for the issuance of letters of credit, with an option, subject to certain conditions and limitations, to increase the aggregate amount of the revolving credit commitments to $600 million (the "Revolving Credit Facility"). The issuance of letters of credit and the proceeds of revolving credit loans made pursuant to the Revolving Credit Facility are available, and will be used, for general corporate purposes, including capital expenditures and permitted acquisitions, See Note 11, Part II, Item 8 of our 2021 Annual Report on Form 10-K for more information.
We had $259.3 million and $245.8 million debt outstanding as of June 30, 2022 and December 31, 2021, respectively. Our June 30, 2022 debt
outstanding was comprised of our 2025 Notes and QLP Note because in June 2021 we used a portion of the net proceeds from the Offering to repay all amounts outstanding under our Revolving Credit Facility. Among other restrictions, our Revolving Credit Facility contains financial covenants applicable to Livent and its consolidated subsidiaries related to 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 3.5 as of June 30, 2022. Our minimum allowable interest coverage ratio is 3.5. We were in compliance with all covenants as of June 30, 2022.
Statement of Cash Flows
Cash
provided by operating activities was $61.2 million and $30.6 million for the 2022 YTD and 2021 YTD, respectively.
The increase in cash provided by operating activities for the 2022 YTD as compared to the cash provided by operating activities for the 2021 YTD was primarily driven by an increase in net income partially offset by an increase in inventories and trade receivables in the 2022 YTD compared to the 2021 YTD.
Cash used in investing activities was $(124.1) million and $(42.7) million for the 2022 YTD and 2021 YTD, respectively.
The increase in cash used in investing activities for the 2022 YTD compared to the 2021 YTD is primarily due to the ramping up of capital spending in the second half of 2021 and the 2022 YTD as Livent resumed its capital expansion work in Argentina and the U.S., resulting in a significant increase in capital
expenditures for capacity expansion during 2022 YTD versus the 2021 YTD.
Cash provided by financing activities was $0.2 million and $216.9 million for the 2022 YTD and 2021 YTD, respectively.
Net cash proceeds from financing activities decreased in the 2022 YTD compared to the 2021 YTD because the Company did not draw upon its Revolving Credit Facility in the 2022 YTD. 2021 YTD consists primarily of net proceeds of $252.2 million from the Offering, partially offset by the repayment of the outstanding balance of our Revolving Credit Facility in June 2021.
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 June 30, 2022, our remaining borrowing capacity under our Revolving Credit Facility, subject to meeting our debt covenants, is $385.5 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. In the first quarter of 2020, because of the significant practical constraints resulting from actions being taken by authorities around the word in response to the COVID-19 pandemic, the
Company elected to suspend all capital expansion work globally. As of the second quarter of 2021, Livent resumed its capital expansion work in Argentina and the U.S. Based on this resumption, the Company
34
estimates 2022 total capital spending to be $300 million to $340 million. This estimate has increased slightly since the beginning of the year as a result of accelerating work as Livent looks to progress multiple expansion opportunities.
We expect COVID-19 pandemic related impacts to continue in 2022. 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, the COVID-19 pandemic 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.
Contractual
Obligations and Commercial Commitments
Information related to our contractual commitments as of December 31, 2021 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 2021 Annual Report on Form 10-K. There have been no significant changes to our contractual commitments during the period ended June 30, 2022.
Climate Change
A detailed discussion related to climate change can be found in Part II, Item 7 of our 2021 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 June 30, 2022, our net financial instrument position was a net asset of $0.2 million. In the second quarter of 2022, we placed foreign currency hedges for 2022 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 June 30, 2022 with all other variables (including interest rates) held constant.
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 June 30, 2022, we had no interest rate swap agreements.
Our debt portfolio as of June 30, 2022 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 June 30, 2022, and for the six months ended June 30,
2022, we had no outstanding balances under the Revolving Credit Facility.
36
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 June 30, 2022, 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 June 30, 2022, that materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
37
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 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 2021 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 2021 Annual Report on Form 10-K, which is available at www.sec.gov and on our website at www.livent.com.
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.
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 June 30, 2022 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.
# Schedules to the Transaction Agreement and Plan of Merger have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The
registrant will furnish copies of any such schedules to the Securities and Exchange Commission upon request.
39
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.
