LIVENT CORP. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)

0

[ad_1]

You should read the following discussion and analysis in conjunction with our
financial statements and the related notes included elsewhere in this Form 10-K.
This discussion and analysis contains forward-looking statements that involve
risks, uncertainties, and assumptions. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including, but not limited to, those set forth under "Risk
Factors" and elsewhere in this Form 10-K.

PREVIEW

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.

2021 Highlights

Here are the most significant developments in our activities during the past financial year December 31, 2021:

• Turnover of $420.4 million in 2021 increased $132.2 million compared to 2020 mainly due to higher sales volumes driven by increased customer demand and higher prices.

•Gross margin of $88.4 million in 2021 increased $51.6 million versus 2020
primarily due to higher sales volumes and higher pricing, partially offset by
COVID-19 costs to implement safety protocols and higher logistics, raw material
and other operating costs.

•Net income of $0.6 million in 2021 compared to net loss of $16.3 million for
2020 was primarily due to higher sales volumes, higher pricing and lower
Restructuring and other charges, offset by an increase in the Argentina tax
expense from inflationary tax adjustments, incremental COVID-19 costs to
implement safety protocols, higher logistics, raw material and other operating
costs and $5.5 million Equity in net loss of unconsolidated affiliates.

•Adjusted EBITDA of $69.5 million for 2021 increased $47.2 million compared to
the 2020 amount of $22.3 million primarily due to higher sales volumes and
higher pricing, partially offset by higher logistics, raw material and other
operating costs.

Closing of the public offering of our common shares

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 (the "Offering"). Total net
proceeds from the Offering, were $252.2 million after deducting the
underwriters' fees and offering expenses payable by the Company of $9.4 million.
We intend to use the net proceeds of the Offering primarily for growth capital
expenditures, including lithium capacity expansion, and for general corporate
purposes. In June 2021, we used a portion of the proceeds to repay all amounts
outstanding under our Revolving Credit Facility.

Impacts of COVID-19

Business and operations

During the year ended December 31, 2021, the COVID-19 pandemic continued to
negatively impact our business, operations and financial performance. We still
face operational challenges and uncertainties. The disruptions and duration may
be impacted by the actions that governments, businesses and individuals take in
relation to the COVID-19 pandemic, new variants

                                       41

————————————————– ——————————

Contents

of the virus, vaccine safety issues, vaccine resistance, vaccine availability, delays in vaccine distribution, and individuals’ willingness to be vaccinated.

Each country where we operate has adopted measures to contain COVID-19, and each
may adopt different and/or stricter measures in the future. The government of
Argentina, where the Company's primary lithium brine resource is located, has
enacted numerous emergency measures to stem the spread of COVID-19 and may enact
new ones. We expect government measures and restrictions globally to continue to
have a negative impact on demand for certain of our products and a negative
impact on the efficient operation of our facilities, 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 within and
between countries. The severity of these problems and issues has varied in
different geographic locations over the course of the COVID-19 pandemic and
continues to remain a challenge in all of the countries where we operate.

Customer demand for certain types of our products improved during 2021. However,
customers continue to protect their interests by diversifying among multiple
suppliers. They continue to actively manage their own inventory levels in the
current uncertain market environment. In addition, customers in the fast-growing
EV manufacturing industry are currently experiencing their own supply chain
challenges, including semiconductors shortages, congestion at ports, and rolling
electricity blackouts in China. The semiconductor chip shortage is expected to
continue. 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 continuing spread and effects of COVID-19, including health and safety
protocols and supply and logistics disruptions in China and elsewhere, are
impacting our expansion work in Argentina and the U.S. There can be no assurance
that such impacts will not turn into long-term or continuing delays, cause us to
decide to suspend our capital expansion work, or otherwise negatively impact our
capital expansion. Any significant delay in our capital expansion work in
Argentina or the U.S. could have a material adverse effect on our business,
financial condition and results of operations. In addition to delays, there have
been increased costs due to less availability of materials for construction.

We have not faced any material issues with employee morale or attrition.
Likewise, we have not faced any material issues with our ability to recruit new
employees or in talent management of existing employees. However, certain of our
employees may resign, and we may be unable to attract certain talent, if we were
to impose any vaccine mandate. Broadly, we are observing tightness in the local
labor markets where we operate in both the U.S. and Argentina (e.g., fewer
applicants and higher wages). This may impact us and our expansion efforts, our
customers and suppliers in the future.

The material operational challenges that management and our Board of Directors
are monitoring are the health and safety of our employees, vaccine availability
and distribution, travel restrictions, COVID-19 mitigation measures, the
relaxation of work from home requirements, the restriction of movements within
and between countries, and supply chain and logistics issues. Furthermore, our
Board of Directors is monitoring the additional expected and unexpected impacts
that COVID-19 is having on the economies in the countries where we operate, such
as Argentina where inflation remains high and economic instability persists, and
China where economic growth has led to shortages of electricity and temporary
shutdowns of third party providers to the Company.

Liquidity and financial resources

Our uses of cash were impacted by the effects of COVID-19 in 2021. We continue
to face logistical supply disruptions, such as higher truck, freight and sea
shipping costs, along with the need to use air freight from time to time. We
expect this to continue. We also continue to use cash to purchase additional
COVID-19 testing, 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 due to social distancing guidelines.

Company efforts

We continue to maintain a Global Pandemic Response Team, regional COVID-19 response teams and a vaccine subcommittee. The Vaccines subcommittee is responsible for monitoring vaccine developments and encouraging our employees to get vaccinated. Our regional COVID-19 response teams continue to keep senior management informed of local issues such as government policies and regulations. Our enterprise risk management processes worked as expected.

We continue to identify potential new suppliers and logistics providers for our
operations as supply chain challenges continue. This includes potential new
suppliers of chemicals and packaging, and air freight companies when required.
We have altered global production schedules to meet changes in customer demand,
supply and logistics challenges. Future efforts will continue along these lines
and be dictated by the particulars of the COVID-19 pandemic. We continue to plan
for a relaxation of
                                       42

————————————————– ——————————

Contents

COVID-19 protocols, more business travel and in-person customer contact, and hybrid working arrangements if and when COVID-19 becomes rampant.

Health and security

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. Our plant personnel continue to remain on the job at their
respective facilities. We instituted safety procedures to protect the health of
these plant personnel based upon local guidance. 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. Our
non-plant personnel are returning to their offices where permitted by
circumstances. Business travel is slowly resuming when permitted, but is still
substantially lower than pre-pandemic levels. Communications relating to all of
these policies and COVID-19 preventative measures are regularly distributed to
our employees, as there can be significant variation with respect to the
COVID-19 pandemic situation in different geographic regions at any one time.

We base our health and safety protocols on advice provided by the White Housethe Centers for Disaster Control and Preventionthe World Health Organizationand local government authorities in the countries and regions where we operate.

In the U.S., we are providing paid sick leave for qualified absences due to
COVID-19. In other geographic locations, we are providing our customary local
sick leave benefits and any other leave and benefits that may be required by
local governmental authorities. 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.

Government programs.

We continue to assess government support and tax relief programs in the countries where we operate. This includes support grants, loans, tax deferrals and tax credits.

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.

Outlook 2022

We expect flat volumes and significantly higher average pricing across our
lithium products in 2022, resulting in higher profitability versus the prior
year. We also expect higher costs versus the prior year, primarily related to
logistics, raw materials and general inflationary pressures.
                                       43

————————————————– ——————————

Contents

In this section, we discuss the results of our operations for the year ended
December 31, 2021 compared to the year ended December 31, 2020. For a discussion
of the year ended December 31, 2020 compared to the year ended December 31,
2019, please refer to Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our Annual Report on Form 10-K
for the year ended December 31, 2020.

Results of operations – Years ended December 31, 2021 and 2020

                                                                           Year Ended December 31,
(in Millions)                                                             2021                 2020
Revenue                                                              $      420.4          $    288.2
Costs and expenses:
Costs of sales                                                              332.0               251.4
Gross margin                                                                 88.4                36.8
Selling, general and administrative expenses                                 49.9                44.6
Research and development expenses                                             3.0                 3.7
Restructuring and other charges                                               3.8                10.7
Separation-related costs/(income)                                             2.0                (1.1)
Total costs and expenses                                                    390.7               309.3

Operating income before loss on extinguishment of debt, equity in net loss of non-consolidated companies and interest expense, net

                                                                 29.7               (21.1)
Loss on debt extinguishment                                                     -                 0.1
Equity in net loss of unconsolidated affiliates                               5.5                 0.5

Interest expense, net                                                         0.3                 0.3
Income/(loss) from operations before income taxes                            23.9               (22.0)
Income tax expense/(benefit)                                                 23.3                (5.7)

Net income/(loss)                                                    $        0.6          $    (16.3)



In addition to net income/(loss), 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/(benefit), and depreciation and amortization, and Adjusted EBITDA, which
we define as EBITDA adjusted for Argentina remeasurement losses, restructuring
and other charges, separation-related costs/(income), COVID-19 related costs and
other loss/(gain). 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/(loss) 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/(loss).
                                       44

————————————————– ——————————

  Table of Contents

                                              Year Ended December 31,
(in Millions)                                    2021                2020
Net income/(loss)                       $       0.6                $ (16.3)
Add back:
Income tax expense/(benefit)                   23.3                   (5.7)
Interest expense, net                           0.3                    0.3
Depreciation and amortization                  25.1                   25.0
EBITDA (Non-GAAP)                              49.3                    3.3
Add back:
Argentina remeasurement losses (a)              5.3                    6.6
Restructuring and other charges (b)             3.8                   10.7
Separation-related costs/(income) (c)           2.0                   (1.1)
COVID-19 related costs (d)                      5.2                    3.2
Loss on debt extinguishment (e)                   -                    0.1
Other loss/(gain) (f)                           3.9                   (0.5)
Adjusted EBITDA (Non-GAAP)              $      69.5                $  22.3


____________________

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
significant currency devaluations. The remeasurement losses are included within
"Cost of sales" in our consolidated statement of operations but are excluded
from our calculation of Adjusted EBITDA because of: i.) their nature as income
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. 2021
Restructuring and other charges consisted primarily of environmental
remediation, transaction related legal fees and miscellaneous nonrecurring
costs. 2020 consists of severance-related costs related to management changes,
exit costs, and legal fees related to IPO securities litigation, including a
settlement accrual, net of insurance reimbursement, of $2.0 million as of
December 31, 2020. The IPO litigation settlement was finalized in the second
quarter of 2021.

vs. Represents legal and professional fees and any other activity related to the separation.

d.Represents incremental costs associated with the COVID-19 pandemic recorded in
"Cost of sales" in the 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.Represents the partial write off of deferred financing costs for the temporary
reduction in borrowing capacity of the Revolving Credit Facility excluded from
our calculation of Adjusted EBITDA because the loss is nonrecurring.

f.2021 represents our 25% interest in transaction costs incurred for the Nemaska
Transaction, certain project-related costs and interest expense, all included in
Equity in net loss of unconsolidated affiliates in our consolidated statement of
operations. 2020 represents a portion of our nonrefundable prepaid research and
development costs advanced to our unconsolidated affiliate in the fourth quarter
2019 and excluded from our calculation of Adjusted EBITDA in the same period
because the costs represent research and development activities of the affiliate
that had not occurred as of December 31, 2019. These costs were included with
our calculation of Adjusted EBITDA in 2020 when the costs were incurred at our
unconsolidated affiliate.

Year ended December 31, 2021 compared to the year ended December 31, 2020

Income

Revenue of $420.4 million for 2021 increased by approximately 46%, or $132.2
million, versus $288.2 million for 2020 primarily due to higher volumes, driven
by an increase in customer demand and higher pricing.

Gross margin

Gross margin of $88.4 million for 2021 increased by $51.6 million, or
approximately 140%, versus $36.8 million for 2020. The increase in gross margin
was primarily due to sales volumes and higher pricing, partially offset by
COVID-19 costs to implement safety protocols and higher logistics, raw material
and other operating costs.




                                       45

————————————————– ——————————

Contents

Selling, general and administrative expenses

Selling, general and administrative expenses of $49.9 million for 2021 increased
by $5.3 million, or approximately 12% versus $44.6 million in 2020. The increase
in selling, general and administrative expenses was primarily due to an increase
in employee compensation.

Restructuring and other charges

Restructuring and other charges of $3.8 million for 2021 decreased by $6.9
million or approximately 64% versus $10.7 million for 2020. Restructuring and
other charges for 2020 consisted of severance-related costs for management
changes at certain operating and administrative facilities, exit costs of $1.6
million for the closing of leased office space and legal fees related to IPO
securities litigation, including a settlement accrual, net of insurance
reimbursement, of $2.0 million as of December 31, 2020. The IPO litigation
settlement was finalized in the second quarter of 2021. 2021 Restructuring and
other charges consisted primarily of environmental remediation, transaction
related legal fees and miscellaneous nonrecurring costs. See Note 8 to our
consolidated financial statements of this Form 10-K for details.

Equity in the net loss of non-consolidated companies

Equity in the net loss of non-consolidated companies of $5.5 million for 2021 stems from our 25% interest in Nemaska ​​Project and understand $1.6 million one-time transaction costs incurred for the Nemaska ​​Transaction by an unconsolidated affiliate.

Interest expense

Interest expense of $0.3 million for 2021 and 2020 is noncash amortization of
transaction costs related to the 2025 Notes which represents the excess interest
over the amount of interest capitalized in accordance with U.S. GAAP for 2021.
Interest expense of $15.4 million and $12.0 million was capitalized in 2021 and
2020, respectively.

Income tax expense/(benefit)

The increase in income tax expense to $23.3 million for 2021 compared to the
income tax benefit of $(5.7) million for 2020 was primarily due to the
fluctuations in foreign currency impacts in Argentina of $15.5 million and
$(10.0) million for 2021 and 2020, 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 for 2021 was met in the third quarter of 2021.
Additionally, the increase in tax expense was due to income/(loss) from
operations of $23.9 million and $(22.0) million for 2021 and 2020, respectively.
The increase in income tax expense was partially offset by an Argentina income
tax law, which was amended on June 16, 2021 to introduce new progressive
corporate income tax rates from 25% to 35%. This change resulted in a tax
benefit of $(2.2) million for the revaluation of Argentina net deferred tax
assets for the twelve months ended December 31, 2021.

Net income/(loss)

Net income of $0.6 million for 2021 compared to net loss of $16.3 million for
2020 was primarily due to higher sales volumes, higher pricing and lower
Restructuring and other charges, offset by an increase in income tax expense,
COVID-19 costs to implement safety protocols, higher logistics, raw material and
other operating costs and $5.5 million Equity in net loss of unconsolidated
affiliate.

                                       46

————————————————– ——————————

Contents

Cash and capital resources

Our prospective success in funding our cash needs will depend on the strength of
the lithium market and our continued ability to generate cash from operations
and raise capital from other sources. Our primary sources of cash are currently
generated from operations and borrowings under our revolving credit facility.

Cash and cash equivalents as of December 31, 2021 and 2020, were $113.0 million
and $11.6 million, respectively. Of the cash and cash equivalents balance as of
December 31, 2021 and 2020, $26.9 million and $10.6 million was held by our
foreign subsidiaries, respectively. 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 to the consolidated financial statements included within
this Form 10-K for more information.

Tickets 2025

In 2020, we issued $245.8 million in aggregate principal amount of 4.125%
Convertible Senior Notes due 2025. Total net proceeds received were
$238.2 million. The Company used the net proceeds received to repay amounts
outstanding under its Revolving Credit Facility. The 2025 Notes were issued
under the International Capital Market Association's Green Bond framework and
followed the Green Bond Principles. See Note 11 to the consolidated financial
statements included within this Form 10-K for more details on the 2025 Notes.

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 to the
consolidated financial statements included within this Form 10-K for more
information.

We had $245.8 million and $281.4 million debt outstanding as of December 31,
2021 and 2020, respectively. Our December 31, 2021 debt outstanding was
comprised solely of our 2025 Notes 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. The Credit Agreement contains certain affirmative and
negative covenants that are binding on the Borrowers and their subsidiaries,
including, among others, restrictions (subject to exceptions and qualifications)
on the ability of the Borrowers and their subsidiaries to create liens, to
undertake fundamental changes, to incur debt, to sell or dispose of assets, to
make investments, to make restricted payments such as dividends, distributions
or equity repurchases, to change the nature of their businesses, to enter into
transactions with affiliates and to enter into certain burdensome agreements.
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 December 31, 2021. Our
minimum allowable interest coverage ratio is 3.5. We were in compliance with all
covenants at December 31, 2021.

Cash flow statement

Cash flows generated by operating activities were $26.4 million and $6.3 million for the years ended December 31, 2021 and 2020, respectively.

The increase in cash provided by operating activities for 2021 compared to 2020
was primarily driven by higher net income and a decrease in payments of accounts
payables in 2021 compared to 2020, partially offset by an increase in trade
receivables and inventories in 2021 compared to 2020.

Cash allocated to investing activities was $143.3 million and $131.1 million for the years ended December 31, 2021 and 2020, respectively.

The increase in cash used in investing activities for 2021 compared to 2020 is
primarily due to the Company's election to suspend all capital expansion work
globally in March 2020 to the second quarter of 2021. The time lag of slowing
down and subsequently ramping back up capital spending ended in the third
quarter of 2021 and resulted in a significant increase in capital expenditures
for capacity expansion of lithium carbonate and hydroxide during the fourth
quarter of 2021.

Cash from financing activities was $218.0 million and $119.1 million for the years ended December 31, 2021 and 2020, respectively.

                                       47

————————————————– ——————————

Contents

The increase in cash provided by financing activities for 2021 compared to 2020
is primarily due to the net proceeds received from the Offering of $252.2
million in the second quarter of 2021, partially offset by the repayment of the
Revolving Credit Facility in the same period.

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 December 31, 2021, our remaining borrowing capacity under our Revolving
Credit Facility, subject to meeting our debt covenants, was $385.5 million,
including letters of credit utilization.

We expect the COVID-19 pandemic uncertainties, and the resulting lithium market
challenges to continue in 2022. 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 estimates 2022 total capital spending to be in the range
of $280 million to $320 million.

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.

Contractual obligations and commercial commitments

As of December 31, 2021, we have significant committed contracts that we believe
will affect cash over the next three years. These contracts represent certain of
our raw material commercial contract purchase obligations that are enforceable
and legally binding requirements contracts with specified quantities, pricing
and timing of transactions. Expected cash payments for such purchase obligations
are $3.5 million in 2022, $4.9 million in 2023 and $2.8 million for 2024.

Climate change

The potential physical impacts of climate change on our operations are highly
uncertain, and are specific to the geographic circumstances of areas in which we
operate. These may include changes in rainfall and storm patterns and
intensities, droughts and water shortages, changing sea levels and changing
temperatures, and an increase in the number and severity of weather events and
natural disasters. These changes may have a material adverse effect on our
operations, including lithium extraction and production processes, as well as
transportation of raw materials and delivery of products to customers. We may
also face more stringent customer and regulatory requirements to accelerate the
pace of our GHG and water use reduction initiatives, including achievement of
our 2040 net zero target, more reliance on renewable energy sources and more
water re-use and re-cycling. Climate change may also exacerbate socio-economic
and political issues around the world and have other direct impacts to
ecosystems, human health and quality of life, ranging from destruction of
habitats to air, water and land quality to growing incidences of famines,
pandemics and population shifts.

In addition, a number of governmental bodies have introduced or are
contemplating legislative and regulatory change in response to the potential
impacts of climate change. Such legislation or regulation, if enacted,
potentially could include provisions for a "cap and trade" system of allowances
and credits or a carbon tax, among other provisions. There is also a potential
for climate change legislation and regulation to adversely impact the cost of
purchased energy and electricity.

The growing concerns about climate change and related increasingly stringent
regulations may provide Livent with new or expanded business opportunities.
Livent's technologies and applications contribute to the efforts of our
customers to revolutionize their product lines and markets. As a key part of the
EV and battery supply chain, we provide lithium products that help enable the
growth of electric transportation and the shift away from fossil fuels. As
demand for, and legislation mandating or incentivizing the use of, alternative
fuel technologies that limit or eliminate greenhouse gas emissions increases, we
will continue to monitor the market and offer solutions where we have
appropriate technology.

In 2020, Livent began the voluntary process of implementing the framework
established by the Task Force for Climate-Related Financial Disclosures ("TCFD")
to assess, disclose and plan for the company's risks and opportunities related
to climate change. As part of this process, we will evaluate various
climate-related scenarios and business models in a net zero economy.
                                       48

————————————————– ——————————

Contents

More information on TCFD will be provided in our future Sustainability Reports
and other disclosures. Nothing in any of our Sustainability Reports, or sections
thereof, shall be deemed incorporated by reference into this Form 10-K.

Recently published and adopted accounting pronouncements and regulatory material

See Note 3 “Recently Issued and Adopted Accounting Pronouncements and Regulatory Matters” to our consolidated financial statements included in this 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 is material to investors.

Critical accounting estimates

Our consolidated financial statements are prepared in conformity with U.S. GAAP.
The preparation of these financial statements requires management to make
judgments, assumptions and estimates that affect the reported amounts of assets,
liabilities, revenues and expenses and that have or could have a material impact
on our financial condition and results of operations. We have described our
accounting policies in Note 2 "Principal Accounting Policies and Related
Financial Information" to our consolidated financial statements included in this
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 consolidated financial statements. We have reviewed these critical
accounting estimates with the Audit Committee of the Board of Directors.
Critical accounting estimates are central to our presentation of results of
operations and financial condition in accordance with U.S. GAAP 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.

Due to the COVID-19 pandemic, 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 Form 10-K. 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.

Revenue recognition

Sale of goods

Revenue from product sales is recognized when we transfer control of the
promised goods to a customer. We determine when the control of goods is
transferred typically by assessing, among other things, the transfer of title
and risk and the shipping terms of the contract. Judgment is sometimes required
when assessing specific customer facts and circumstances surrounding transfer of
control.

Variable Consideration

As a part of our customary business practice, we may offer sales incentives to
our customers, such as volume discounts or rebates. Variable consideration given
can differ by product. For all such contracts that include any variable
consideration, we estimate the amount of variable consideration that should be
included in the transaction price utilizing either the expected value method or
the most likely amount method depending on the nature of the variable
consideration. Although determining the transaction price requires significant
judgment, we have significant historical experience with incentives provided to
customers and estimating the expected consideration considering historical
patterns of incentive payouts. These estimates are re-assessed each reporting
period as required.

In addition to the variable consideration described above, in certain instances,
we may require our customers to meet certain volume thresholds within their
contract term. We estimate what amount of variable consideration should be
included in the transaction price at contract inception and continually reassess
this estimation each reporting period to determine situations when the minimum
volume thresholds will not be met. Variable consideration is included in the
transaction price if, in our judgment, it is probable that a significant future
reversal of cumulative revenue under the contract will not occur. In those
circumstances, we apply the guidance on breakage and estimate the amount of the
shortfall and recognize it over the remaining performance obligations in the
contract.


                                       49

————————————————– ——————————

Contents

Right of return

We assure our customers that our products conform to mutually agreed product specifications. This offer is accounted for as a right of return and the transaction price is adjusted for an estimate of expected returns.

Customers and other debtors

The allowance for trade receivables represents our best estimate of the probable
losses associated with potential customer defaults. In developing our allowance
for trade receivables, we consider general factors such as historical
experience, current collection trends and external economic and political
factors as well as specific customer circumstances where the risk of collection
has been reasonably identified either due to liquidity constraints or disputes
over contractual terms and conditions. One of our subsidiaries that conducts
business within Argentina has outstanding receivables due from the Argentina
government, which primarily represent export tax and export rebate receivables.
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.

Depreciation and valuation of long-lived assets

Our long-lived assets primarily include property, plant and equipment and
intangible assets. The Company has no goodwill or indefinite-lived intangible
assets as of December 31, 2021. We periodically evaluate whether events or
circumstances indicate that the net book value of our property, plant and
equipment may not be recoverable ("triggering events"). We exercise significant
judgment in performing this evaluation, considering factors such as general
market outlooks, company-specific historical results as well as future forecasts
for production, operating income and cash flows. No triggering events occurred
during 2021.

Income taxes

Our annual tax rate is determined based on our income, statutory tax rates and
the tax impacts of items treated differently for tax purposes than for financial
reporting purposes. Also inherent in determining our annual tax rate are
judgements and assumptions regarding the recoverability of certain deferred tax
balances, primarily net operating loss and other carryforwards, and our ability
to uphold certain tax positions. We have recorded a valuation allowance to
reduce deferred tax assets in certain jurisdictions to the amount that we
believe is more likely than not to be realized. In assessing the need for this
allowance, we have considered a number of factors including future taxable
income, the jurisdictions in which such income is earned and our ongoing tax
planning strategies. In the event that we determine that we would not be able to
realize all or part of our net deferred tax assets in the future, an adjustment
to the deferred tax assets would be charged to income in the period such
determination was made. Similarly, should we conclude that we would be able to
realize certain deferred tax assets in the future in excess of the net recorded
amount, an adjustment to the deferred tax assets would increase income in the
period such determination was made.

Additionally, we filed income tax returns in the U.S. and various state and
foreign jurisdictions, as part of a FMC legal entity for the period ended
February 28, 2019. Certain income tax returns for FMC entities taxable in the
U.S. and significant foreign jurisdictions are open for examination and
adjustment. We assess our income tax positions and record a liability for all
years open to examination based upon our evaluation of the facts, circumstances
and information available at the reporting date. For those tax positions where
it is more likely than not that a tax benefit will be sustained, we have
recorded the largest amount of tax benefit with a greater than 50% likelihood of
being realized upon ultimate settlement with a taxing authority that has full
knowledge of all relevant information. The evaluation of the Company's uncertain
tax positions involves significant judgment in the interpretation and
application of U.S. GAAP and complex domestic and international tax laws.
Although management believes the Company's uncertain tax positions are
reasonable, no assurance can be given that these matters will not be subject to
successful challenge by the applicable taxing authority and the final tax
outcome will not be different from that which is reflected in the Company's
reserves.

Because there are a number of estimates and assumptions inherent in calculating
the various components of our tax provision, certain changes or future events
such as changes in tax legislation, geographic mix of earnings and completion of
tax audits could have an impact on those estimates, our effective tax rate and
financial results.

See Note 10 to our consolidated financial statements included in this Form 10-K for additional discussion regarding income taxes.

                                       50

————————————————– ——————————

Contents

SECTION 7A. QUANTITATIVE AND QUALITATIVE INFORMATION ON MARKET RISK

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 December 31, 2021, our net financial instrument position was a net asset
of $0.2 million. As of December 31, 2020, we had no open derivative cash flow
hedge contracts. Livent's 2022 hedge plan will be executed in the first quarter
of 2022 when management's projections are approved.

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 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 perform a
sensitivity analysis in which we assume an instantaneous 10% change in the
foreign currency exchange rates from their levels at December 31, 2021 with all
other variables (including interest rates) held constant. As of December 31,
2020, we had no open derivative cash flow hedge contracts.

                                                                          

Hedged Currency vs. Functional Currency

                                              Net asset position on         Net liability             Net asset
                                              consolidated balance        position with 10%         position with
(in Millions)                                        sheets                 strengthening           10% weakening
Net asset/(liability) position as of December
31, 2021                                      $              0.2          $          (2.0)         $        1.6


Interest Rate Risk

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
December 31, 2021 and 2020, we had no interest rate swap agreements.

Our debt portfolio at December 31, 2021 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 December 31, 2021, we had
no outstanding balances under the Revolving Credit Facility.

Based on the variable-rate debt in our debt portfolio at December 31, 2021, a
one percentage point increase or decrease in interest rates would have increased
or decreased, respectively, gross interest expense by $0.2 million for the year
ended December 31, 2021.

                                       51

————————————————– ——————————

Contents

© Edgar Online, source Previews

[ad_2]
Source link

Share.

Comments are closed.