You need to learn the next dialogue and evaluation at the side of our monetary statements and the associated notes included elsewhere on this Kind 10-Okay. This dialogue and evaluation incorporates forward-looking statements that contain dangers, uncertainties, and assumptions. Our precise outcomes could differ materially from these anticipated in these forward-looking statements because of sure elements, together with, however not restricted to, these set forth underneath "Danger Elements" and elsewhere on this Kind 10-Okay. OVERVIEW We're a pure-play, absolutely built-in lithium firm, with an extended, confirmed historical past of manufacturing efficiency lithium compounds. Our major merchandise, specifically battery-grade lithium hydroxide, lithium carbonate, butyllithium and excessive purity lithium metallic are essential inputs utilized in numerous efficiency purposes. Our technique is to deal with supplying excessive efficiency lithium compounds to the quickly rising EV and broader power storage battery markets, whereas persevering with to keep up our place as a number one world producer of butyllithium and excessive purity lithium metallic. With in depth world capabilities, roughly 80 years of steady manufacturing expertise, purposes and technical experience and deep buyer relationships, we imagine we're properly positioned to capitalize on the accelerating pattern of electrification. We produce lithium compounds to be used in purposes which have particular and continuously altering efficiency necessities, together with battery-grade lithium hydroxide to be used in excessive efficiency lithium-ion batteries. We imagine the demand for our compounds will proceed to develop because the electrification of transportation accelerates, and as using excessive nickel content material cathode supplies will increase within the subsequent technology of battery know-how merchandise. We additionally provide butyllithium, which is used within the manufacturing of polymers and pharmaceutical merchandise, in addition to a spread of specialty lithium compounds together with excessive purity lithium metallic, which is used within the manufacturing of light-weight supplies for aerospace purposes and non-rechargeable batteries. It's in these purposes that now we have established a differentiated place out there by our capacity to constantly produce and ship efficiency lithium compounds. 2020 Highlights The next are the extra vital developments in our enterprise in the course of the 12 months endedDecember 31, 2020 : •Income of$288.2 million in 2020 decreased$100.2 million versus final 12 months primarily on account of decrease common costs and decrease gross sales volumes, largely as a results of COVID-19 decreasing buyer demand. •Gross margin of$36.8 million in 2020 decreased$78.1 million versus the prior 12 months primarily on account of decrease common costs, decrease gross sales volumes and elevated prices as a result of monetary affect of elevated third-party lithium carbonate utilization and incremental COVID-19 associated prices to implement security protocols. •Adjusted EBITDA of$22.3 million decreased$77.5 million in comparison with the prior 12 months quantity of$99.8 million primarily on account of decrease common costs, decrease gross sales volumes and elevated prices as a result of monetary affect of elevated third social gathering lithium carbonate utilization. COVID-19 Impacts Enterprise and Operations In 2020, the COVID-19 pandemic negatively impacted our enterprise, operations and monetary efficiency. Worldwide authorities efforts to include the unfold and mitigate the affect of COVID-19 continued. We nonetheless face operational challenges and uncertainties associated to the unprecedented world COVID-19 pandemic. The emergency measures imposed and re-imposed by governments on companies and people, together with quarantines, journey restrictions, social distancing, closure of non-essential companies and colleges, do business from home necessities, and shelter in place orders, amongst different measures have impacted and will additional affect our workforce and operations, and people of our prospects and suppliers. The severity of the affect on our enterprise, monetary situation and outcomes of operations, continues to evolve and has been diversified throughout geographic areas, and might be depending on how lengthy the pandemic continues, which is presently unknown. The disruptions and period could also be impacted by the actions that governments, companies and people absorb relation to the pandemic, extra contagious variants of the virus, vaccine resistance and delays in vaccine distribution. We now have manufacturing operations within theU.S. ,Argentina ,China , theUnited Kingdom , andIndia , basic operations inSingapore , and gross sales places of work within theU.S. ,China , theUnited Kingdom ,India andJapan . All of those nations have been affected by the COVID-19 pandemic to various levels. They've adopted measures to include it, they usually could undertake even stricter measures sooner or later. InChina , the federal government imposed shutdown orders and journey restrictions, amongst different measures, which have subsequently been diminished. Within theU.S. , the President declared a nationwide emergency, which was adopted by the imposition of restrictions by governors, mayors and public officers, together with inPennsylvania andNorth Carolina the place we 42 -------------------------------------------------------------------------------- Desk of Contents function. The federal government ofArgentina , the place the Firm's major lithium brine useful resource is situated, enacted an emergency decree ordering a nationwide obligatory quarantine requiring the momentary closure of the Firm's native brine operations for about two weeks. We anticipate authorities measures and restrictions globally to have a unfavourable affect on demand for sure of our merchandise and a unfavourable affect on the working price and the environment friendly operation of our amenities, provide chains and logistics. We now have already skilled disruptions and delays inside our provide chain and logistics operations inChina ,Southeast Asia ,Argentina andEurope . This contains issues at ports due to nationwide quarantines, difficulties with scheduling cargo ships, extra warehouse prices on account of cargo delays, and the restriction of actions by vehicles inside and between nations. We now have seen a slowdown in demand for sure of our merchandise and world inventories stay elevated, which has had a downward stress on costs for sure of our merchandise. Extra prospects are beginning to defend their pursuits by diversifying amongst a number of suppliers. Some prospects are hesitant to enter into long run agreements whereas managing their very own stock ranges in a extra unsure market surroundings, which additional impacts costs adversely for sure of our merchandise. Within the first quarter of 2020, due to the numerous sensible constraints ensuing from actions being taken by authorities world wide in response to the COVID-19 pandemic, we elected to droop all capital growth work globally. There may be no assurance of the timing for when capital growth work will resume or that it'll resume in any respect. Any vital delay or a failure to renew this work may have an opposed impact on our enterprise, monetary situation and outcomes of operations. The fabric operational challenges that administration and the Board of Administrators are monitoring embrace the well being and security of our workers, geographic quarantines, journey restrictions, social distancing, closure of non-essential companies and colleges, do business from home necessities, shelter in place orders, and the restriction of actions inside and between nations. Liquidity, Monetary Assets, 2025 Notes Issuance and Revolving Credit score Facility Amendments Our working capital was impacted by the consequences of the COVID-19 pandemic throughout 2020. We anticipate this to proceed into 2021. The fast and world unfold of COVID-19 has resulted within the disruption and momentary shutdown of the companies of sure of our prospects, contract producers and suppliers, and limits on entry to the manufacturing amenities of our contract producers and suppliers. A number of of our prospects, contract producers and suppliers have skilled disruptions to their enterprise as a result of COVID-19 pandemic. Sure of our prospects have canceled, postponed or delayed orders. To the extent that we aren't capable of scale back our incurrence of short-term obligations in proportion to the anticipated discount in our money flows, this might end in an extra discount in our working capital. Our makes use of of money have been impacted by the consequences of COVID-19 throughout 2020. We had an elevated use of money ensuing from logistical provide disruptions, similar to elevated warehousing prices, greater sea delivery prices, and using air freight somewhat than cargo ships to fulfill extra unsure buyer supply deadlines. We additionally used money to buy extra private protecting tools for our workers, similar to masks and gloves, and for elevated cleansing and disinfectant prices, wipes and hand sanitizer, extra medical personnel at our amenities, and elevated personnel transportation prices on account of social distancing tips. OnMight 6, 2020 , we entered into the First Modification to the Credit score Settlement withFMC Lithium USA Corp. , the Guarantors, the Lenders and the Agent. Amongst different issues, the First Modification elevated our most web leverage ratio for the fiscal quarters endingJune 30, 2020 ,September 30, 2020 andDecember 31, 2020 from 3.5 to six.0. OnJune 25, 2020 , we issued$225 million in combination principal quantity of 4.125% Convertible Senior Notes due 2025 (the "2025 Notes") in a non-public providing. OnJuly 7, 2020 we issued a further$20.75 million of the 2025 Notes to the preliminary purchasers underneath the Over-Allotment Choice. Whole web proceeds obtained together with Over-Allotment Choice have been$238.2 million . The Firm used the web proceeds obtained to repay quantities excellent underneath its Revolving Credit score Facility. The 2025 Notes have been issued underneath theWorldwide Capital Market Affiliation's Inexperienced Bond framework and adopted the Inexperienced Bond Rules. OnAugust 3, 2020 , we entered into the Second Modification withFMC Lithium USA Corp. , the Guarantors, the Lenders and the Agent. The Second Modification amended the Credit score Settlement, as beforehand amended by the First Modification, to exchange our most complete web leverage ratio of 6.0 for the fiscal quarters endingSeptember 30, 2020 andDecember 31, 2020 with a most first lien leverage ratio (as outlined within the Credit score Settlement) of three.5. The utmost first lien leverage ratio of three.5 will proceed to use for the fiscal quarter endedMarch 31, 2021 and for every fiscal quarter thereafter. The primary lien leverage ratio as of any date is the ratio of economic covenant debt as of such date secured by a lien on any asset or property ofLivent or its restricted subsidiaries on a pari passu or senior foundation with the loans and commitments underneath the Credit score Settlement, minus unrestricted money and money equivalents on our steadiness sheet as of such date, to Earnings Earlier than Curiosity, Taxes, Depreciation and Amortization, as outlined within the Credit score Settlement, for the final 4 fiscal quarters ending on or earlier than such date. See Word 10 to our consolidated and mixed monetary statements included inside this Kind 10-Okay for particulars on the 2025 Notes, the First Modification and the Second Modification. 43 -------------------------------------------------------------------------------- Desk of Contents Company Efforts We now have responded to the COVID-19 pandemic in quite a lot of methods. We assembled aInternational Pandemic Response Workforce whose world members are taken from totally different useful areas, together with Operations, Finance, Industrial, Authorized, Human Assets and Well being & Security.The International Pandemic Response Workforce meets on a common foundation, and offers experiences to the Govt Management group. We now have additionally assembled COVID-19 Response Groups at a number of of its regional areas, who have the accountability to maintain knowledgeable of native issues similar to authorities insurance policies and rules. These Response Groups are serving to to form the Firm's insurance policies in response to the COVID-19 pandemic. We now have additionally labored to establish potential new suppliers and logistics suppliers for its operations in case of additional provide chain disruptions. This contains suppliers of chemical compounds and packaging, and air freight firms. We now have altered world manufacturing schedules to fulfill modifications in buyer demand. Future efforts will proceed alongside these traces and be dictated by the particulars of the COVID-19 pandemic. We proceed to plan for a return to extra normalized enterprise operations as soon as the COVID-19 pandemic subsides. Well being & Security We're working diligently to guard the well being and well-being of its workers, prospects and different key stakeholders. As a necessary enterprise underneath the foundations of the governments within the nations the place we function, our plant personnel proceed to stay on the job at their respective amenities. We now have instituted quite a few security procedures to guard the well being of those plant personnel. This contains temperature checks earlier than an worker enters any one among our amenities, screening questions, using masks and gloves the place applicable, and social distancing measures. We're now not allowing guests to any of our amenities and all third-party contractors should endure a vigorous screening course of. All employees who can do business from home have been requested to take action, and enterprise journey has been considerably diminished. Communications regarding all of those insurance policies and COVID-19 preventative measures are often distributed to our workers. We base our well being and security protocols on the recommendation supplied by theWhite Home , theFacilities for Illness Management , theWorld Well being Group , and the native authorities authorities within the nations and areas the place it operates. We now have applied the paid sick go away insurance policies underneath the Households First Coronavirus Response Act. These insurance policies are supplemented by our personal paid sick and different go away insurance policies. We now have not skilled any materials worker absences because of COVID-19. Nonetheless, if a major variety of our workers at anyone location have been to require go away because of COVID-19, this might pose a danger to the continued operation of the actual facility and will doubtlessly disrupt our broader operations. There was no large-scale rejection of our merchandise by prospects on account of fears over the transmission of COVID-19 by our merchandise. Authorities Applications We proceed to guage authorities assist and tax reduction packages within the nations the place it operates. This contains assist grants, loans, tax deferrals, and tax credit. We deferred the deposit and cost of the employer's share of social safety taxes for the intervalMarch 27 by December 31, 2020 , pursuant to the CARES Act in accordance with Inside Income Service rules on this matter. InArgentina , we postponed employer contributions to an worker social fund for the month ofMarch 2020 . InChina , we obtained a waiver of native social safety contributions. InSingapore , we obtained sure wage subsidies for the intervalOctober 2019 byJune 2020 , and benefited from a property tax rebate that was partially handed by by the lessor of its rented house. Total, the affect of the COVID-19 pandemic is unsure and continues to evolve, and due to this fact, we can not predict the extent to which our enterprise, outcomes of operations, monetary situation or liquidity will finally be impacted. 2021 Outlook We anticipate greater volumes and barely decrease common pricing throughout our lithium merchandise in 2021 versus the prior 12 months. We additionally anticipate decrease prices, pushed in half by the minimal impact of third-party bought lithium carbonate utilization. 44 -------------------------------------------------------------------------------- Desk of Contents On this part, we focus on the outcomes of our operations for the 12 months endedDecember 31, 2020 in comparison with the 12 months endedDecember 31, 2019 . For a dialogue of the 12 months endedDecember 31, 2019 in comparison with the 12 months endedDecember 31, 2018 , please consult with Half II, Merchandise 7, "Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of Operations" in our Annual Report on Kind 10-Okay for the 12 months endedDecember 31, 2019 . Outcomes of Operations - Years EndedDecember 31, 2020 and 2019 Yr Ended December 31, (in Thousands and thousands) 2020 2019 Income$ 288.2 $ 388.4 Prices and bills: Prices of gross sales 251.4 273.5 Gross margin 36.8 114.9 Promoting, basic and administrative bills 44.6 40.5 Analysis and growth bills 3.7 3.3 Restructuring and different prices 10.7 6.2 Separation-related prices (1.1) 6.3 Whole prices and bills 309.3 329.8
(Loss) / working revenue earlier than loss on extinguishment of debt, fairness within the web lack of the non-consolidated affiliate, curiosity expense, web taxes and revenue taxes
(21.1) 58.6 Loss on debt extinguishment 0.1 - Fairness in web lack of unconsolidated affiliate 0.5 0.8 Curiosity expense, web 3.7 - (Loss)/revenue from operations earlier than revenue taxes (25.4) 57.8 Revenue tax (profit)/expense (6.5) 7.6 Web (loss)/revenue$ (18.9) $ 50.2 Along with web revenue, as decided in accordance withU.S. GAAP, we consider working efficiency utilizing sure non-GAAP measures similar to EBITDA, which we outline as web revenue plus curiosity expense, web, revenue tax expense/(profit), and depreciation and amortization, and Adjusted EBITDA, which we outline as EBITDA adjusted for sureArgentina remeasurement losses/(positive aspects), restructuring and different prices/(revenue), separation-related prices, COVID-19 associated prices and different losses/(positive aspects). Administration believes using these non-GAAP measures permits administration and buyers to match extra simply the monetary efficiency of its underlying enterprise from interval to interval. The non-GAAP data supplied might not be akin to related measures disclosed by different firms due to differing strategies utilized by different firms in calculating EBITDA and Adjusted EBITDA. These measures shouldn't be thought-about as an alternative to web revenue or different measures of efficiency or liquidity reported in accordance withU.S. GAAP. The next desk reconciles EBITDA and Adjusted EBITDA from web revenue. 45
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Desk of Contents Yr Ended December 31, (in Thousands and thousands) 2020 2019 Web (loss)/revenue (GAAP)$ (18.9) $ 50.2 Add again: Revenue tax (profit)/expense (6.5) 7.6 Curiosity expense, web 3.7 - Depreciation and amortization 25.0 20.9 EBITDA (Non-GAAP) 3.3 78.7 Add again: Sure Argentina remeasurement losses (a) 6.6
7.9
Restructuring and different prices (b) 10.7 6.2 Separation-related prices (c) (1.1) 6.3 COVID-19 associated prices (d) 3.2 - Loss on debt extinguishment (e) 0.1 - Different loss (f) (0.5) 0.7 Adjusted EBITDA (Non-GAAP)$ 22.3 $ 99.8 ____________________ (a) Represents affect of foreign money fluctuations on tax property and liabilities and on long-term financial property related to our capital growth as properly as vital foreign money devaluations. The remeasurement positive aspects/(losses) are included inside "Price of gross sales" in our consolidated assertion of operations however are excluded from our calculation of Adjusted EBITDA due to: i.) their nature as revenue tax associated; ii.) their affiliation with long-term capital tasks which won't be operational till future durations; or iii.) the severity of the devaluations and their fast affect on our operations within the nation. (b) We regularly carry out strategic opinions and assess the return on our enterprise. This generally ends in administration modifications or in a plan to restructure the operations of our enterprise. As a part of these restructuring plans, demolition prices and write-downs of long-lived property could happen. Additionally contains authorized charges associated to IPO securities litigation, together with a settlement accrual, web of insurance coverage reimbursement, of$2.0 million as ofDecember 31, 2020 . (c) Represents authorized, skilled, transaction associated charges and different separation-related exercise. (d) Represents incremental prices related to the COVID-19 pandemic recorded in "Price of gross sales" within the consolidated assertion of operations, together with however not restricted to, incremental quarantine associated absenteeism, incremental facility cleansing prices, pandemic associated provides and private protecting tools for workers, amongst different prices; offset by financial reduction supplied by international governments. (e) Represents the partial write off of deferred financing prices for the momentary discount in borrowing capability associated to the First Modification excluded from our calculation of Adjusted EBITDA as a result of the loss is nonrecurring. (f) Represents a portion of our nonrefundable pay as you go analysis and growth prices superior to our unconsolidated affiliate within the fourth quarter 2019 and excluded from our calculation of Adjusted EBITDA in the identical interval as a result of the prices symbolize analysis and growth actions of the affiliate that had not occurred as ofDecember 31, 2019 . These prices have been included with our calculation of Adjusted EBITDA for the twelve months endedDecember 31, 2020 when the prices have been incurred at our unconsolidated affiliate. Yr EndedDecember 31, 2020 in contrast with Yr EndedDecember 31, 2019 Income Income of$288.2 million for 2020 decreased by$100.2 million versus 2019, primarily on account of decrease common costs and decrease gross sales volumes, pushed by a lower in buyer demand associated to COVID-19. Gross Margin Gross margin of$36.8 million for 2020 decreased by$78.1 million versus 2019. The lower in gross margin was primarily on account of decrease common costs, decrease gross sales volumes and elevated prices as a result of monetary affect of elevated third-party lithium carbonate utilization and incremental COVID-19 prices to implement security protocols. Promoting, basic and administrative bills Promoting, basic and administrative bills of$44.6 million for 2020 elevated by$4.1 million in comparison with 2019. The rise in promoting, basic and administrative bills was primarily on account of a nonrecurring$2.3 million worker bonus adjustment credit score obtained from FMC within the prior 12 months, an improve in mark-to-market loss onLivent frequent inventory held within the Livent NQSP of$0.9 million and accelerated depreciation of$0.9 million as a result of exit of ourShanghai workplace lease. 46 -------------------------------------------------------------------------------- Desk of Contents Restructuring and different prices Restructuring and different prices have been$10.7 million and$6.2 million for the years endedDecember 31, 2020 and 2019, respectively. 2020 prices embrace$6.2 million of severance-related prices in comparison with$3.5 million of severance-related prices in 2019. 2020 prices additionally embrace elevated authorized charges associated to IPO securities litigation, together with a settlement accrual, web of insurance coverage reimbursement, of$2.0 million as ofDecember 31, 2020 not incurred within the prior 12 months. See Word 7 to our consolidated and mixed monetary statements of this Kind 10-Okay for particulars. Separation-related prices Separation-related prices for 2020 decreased by$7.4 million in comparison with 2019. 2020 Separation-related prices consisted primarily of authorized charges associated to the Nemaska association offset by a$2.0 million achieve on the settlement of the Nemaska long-term provide settlement. See Word 15 to our consolidated and mixed monetary statements of this Kind 10-Okay for particulars in regards to the Nemaska settlement. We incurred much less authorized {and professional} charges related to the IPO and different Separation-related actions within the present 12 months. Increased prior 12 months Separation-related prices primarily consisted of data know-how infrastructure and software program prices incurred byLivent as a standalone entity in preparation for the termination of theTSA . Curiosity expense Curiosity expense of$3.7 million for 2020 is noncash amortization of debt low cost and transaction prices associated to the 2025 Notes which represents the extra curiosity over the quantity of curiosity capitalized in accordance withU.S. GAAP for 2020. All of our curiosity was capitalized in 2019. Revenue tax (profit)/expense Revenue tax good thing about$(6.5) million for the 12 months endedDecember 31, 2020 and revenue tax expense of$7.6 million for the 12 months endedDecember 31, 2019 , resulted in efficient tax price of 25.6% and 13.1%, respectively. The lower in provision for revenue taxes was primarily on account of a discount in revenue earlier than taxes from$57.8 million for the 12 months endedDecember 31, 2019 to loss earlier than revenue taxes of$25.4 million for the 12 months endedDecember 31, 2020 . The lower in provision for revenue taxes was partially offset by the tax impacts related with fluctuations in international foreign money remeasurement inArgentina . Discuss with Word 9 for additional data. Web (loss)/revenue Web lack of$18.9 million for 2020, in comparison with web revenue of$50.2 million in 2019, a lower of$69.1 million from 2019, was primarily on account of decrease common costs and decrease gross sales volumes, pushed by a lower in buyer demand associated to COVID-19 and elevated prices as a result of monetary affect of elevated third-party lithium carbonate utilization and incremental COVID-19 prices to implement security protocols. 47 -------------------------------------------------------------------------------- Desk of Contents Liquidity and Capital Assets Our potential success in funding our money wants will rely upon the power of the lithium market and our continued capacity to generate money from operations and lift capital from different sources. Our major sources of money are presently generated from operations and borrowings underneath our revolving credit score facility. Money and money equivalents atDecember 31, 2020 andDecember 31, 2019 , have been$11.6 million and$16.8 million , respectively. Of the money and money equivalents steadiness atDecember 31, 2020 ,$10.6 million was held by our international subsidiaries. The money held by international subsidiaries for everlasting reinvestment is usually used to finance the subsidiaries' working actions and future international investments. We now have not supplied extra revenue taxes for any extra outdoors foundation variations inherent in our investments in subsidiaries as a result of the investments are primarily everlasting in period or now we have concluded that no extra tax legal responsibility will come up upon disposal. We now have concluded the Tax Act has not altered our assertion of figuring out reinvested earnings. See Word 9 to the consolidated and mixed monetary statements included inside this Kind 10-Okay for extra data. 2025 Notes OnJune 25, 2020 , we issued$225 million in combination principal quantity of 4.125% Convertible Senior Notes due 2025 in a non-public providing. OnJuly 7, 2020 we issued a further$20.75 million of the 2025 Notes to the preliminary purchasers underneath the Over-Allotment Choice. Whole web proceeds obtained together with Over-Allotment Choice have been$238.2 million . The Firm used the web proceeds obtained to repay quantities excellent underneath its Revolving Credit score Facility. The 2025 Notes have been issued underneath theWorldwide Capital Market Affiliation's Inexperienced Bond framework and adopted the Inexperienced Bond Rules. See Word 9 to the consolidated and mixed monetary statements included inside this Kind 10-Okay for extra particulars on the 2025 Notes. Revolving Credit score Facility OnSeptember 28, 2018 , we entered right into a credit score settlement amongst us and all of ourU.S. subsidiaries as debtors (the "Debtors"), sure of our wholly owned subsidiaries as guarantors, the lenders social gathering thereto (the "Lenders"),Citibank, N.A ., as administrative agent, and sure different monetary establishments social gathering thereto, as joint lead arrangers (the "Credit score Settlement"). The Credit score Settlement offers for a$400 million senior secured revolving credit score facility,$50 million of which is on the market for the issuance of letters of credit score for the account of the Debtors, with an choice, topic to sure situations and limitations, to extend the mixture quantity of the revolving credit score commitments to$600 million (the "Revolving Credit score Facility"). The issuance of letters of credit score and the proceeds of revolving credit score loans made pursuant to the Revolving Credit score Facility can be found, and might be used, for basic company functions, together with capital expenditures and permitted acquisitions, of the Debtors and their subsidiaries. See Word 9 to the consolidated and mixed monetary statements included inside this Kind 10-Okay for extra data. Quantities underneath the Revolving Credit score Facility could also be borrowed, repaid and re-borrowed on occasion till the ultimate maturity date of the Revolving Credit score Facility, which would be the fifth anniversary of the Revolving Credit score Facility's efficient date. Voluntary prepayments and dedication reductions underneath the Revolving Credit score Facility are permitted at any time with none prepayment premium upon correct discover and topic to minimal greenback quantities. Revolving loans underneath the Credit score Settlement will bear curiosity at a floating price, which might be both a base price or a Eurocurrency borrowing plus relevant margin. Base price borrowings are outlined as the best of the speed of curiosity introduced publicly byCitibank, N.A . inNew York Metropolis from time to time as its "base price"; the federal funds efficient price plus 0.5%; or a Eurodollar price for a one-month curiosity interval plus 1%. The Eurocurrency borrowing might be outlined as a Eurodollar price for one, two, three or six months. The relevant margins for the 2 varieties of loans are set by reference toLivent's leverage ratio, calculated by dividing our debt by our money flows. Each the debt and money flows used on this calculation are phrases outlined within the Credit score Settlement. Every Borrower on a joint and several other foundation is required to pay a dedication price quarterly in arrears on the common day by day unused quantity of every Lender's revolving credit score dedication at a price equal to an relevant share based mostly on the leverage ratio, as decided in accordance with the provisions of the Credit score Settlement. The relevant margin and the dedication price are topic to adjustment as supplied within the Credit score Settlement. The Debtors' home materials subsidiaries (the "Guarantors") will assure the obligations of the Debtors underneath the Revolving Credit score Facility. The obligations of the Debtors and the Guarantors are secured by all the current and future property of the Debtors and the Guarantors, together with the Debtors' facility and actual property inBessemer Metropolis, North Carolina , topic to sure exceptions and exclusions as set forth within the Credit score Settlement and different safety and collateral paperwork. Amendments to our Revolving Credit score Facility OnMight 6, 2020 , we entered into the First Modification to the Credit score Settlement (the "First Modification") withFMC Lithium USA Corp. , the Guarantors, the Lenders and the Agent. Amongst different issues, the First Modification amended and restated the Authentic Credit score Settlement to (i) improve our most web leverage ratio for the fiscal quarters endingJune 30, 2020 ,September 30, 2020 andDecember 31, 2020 from 3.5 to six.0, (ii) put a cap of$325 million on our total borrowings underneath the 48 -------------------------------------------------------------------------------- Desk of Contents Revolving Credit score Facility tillMarch 31, 2021 , (iii) amend our unfavourable covenant on indebtedness to allow unsecured indebtedness (together with convertible debt) as much as$350 million , (iv) amend our unfavourable covenants on investments to allow extra investments inMinera del Altiplano S.A. , our Argentine subsidiary, (v) limit our capacity to declare or pay money dividends tillMarch 31, 2021 and (vi) improve the relevant margin on our borrowings by 25 foundation factors, in every case as described within the First Modification. The foregoing description of the First Modification doesn't purport to be full and is certified in its entirety by reference to the First Modification, together with the amended and restated Credit score Settlement hooked up thereto, which is filed as Exhibit 10.1 to our Quarterly Report on Kind 10-Q for the three months endedMarch 31, 2020 . OnAugust 3, 2020 , we entered into the Second Modification withFMC Lithium USA Corp. , the Guarantors, the Lenders and the Agent. The Second Modification amended the Credit score Settlement, as beforehand amended by the First Modification to exchange our most complete web leverage ratio of 6.0 for the fiscal quarters endingSeptember 30, 2020 andDecember 31, 2020 with a most first lien leverage ratio (as outlined within the Credit score Settlement) of three.5. The utmost first lien leverage ratio of three.5 will proceed to use for the fiscal quarter endedMarch 31, 2021 and for every fiscal quarter thereafter. The primary lien leverage ratio as of any date is the ratio of economic covenant debt as of such date secured by a lien on any asset or property ofLivent or its restricted subsidiaries on a pari passu or senior foundation with the loans and commitments underneath the Credit score Settlement, minus unrestricted money and money equivalents on our steadiness sheet as of such date, to Earnings Earlier than Curiosity, Taxes, Depreciation and Amortization, as outlined within the Credit score Settlement, for the final 4 fiscal quarters ending on or earlier than such date. The foregoing description of the Second Modification doesn't purport to be full and is certified in its entirety by reference to the Second Modification and the Credit score Settlement, which Second Modification is filed as Exhibit 10.2 to our Quarterly Report on Kind 10-Q for the three months endedJune 30, 2020 . We had$281.4 million and$154.6 million debt excellent as ofDecember 31, 2020 andDecember 31, 2019 , respectively. The Credit score Settlement incorporates sure affirmative and unfavourable covenants which are binding on the Debtors and their subsidiaries, together with, amongst others, restrictions (topic to exceptions and {qualifications}) on the power of the Debtors and their subsidiaries to create liens, to undertake elementary modifications, to incur debt, to promote or eliminate property, to make investments, to make restricted funds similar to dividends, distributions or fairness repurchases, to vary the character of their companies, to enter into transactions with associates and to enter into sure burdensome agreements. Amongst different restrictions, our Revolving Credit score Facility incorporates monetary covenants relevant toLivent and its consolidated subsidiaries associated to leverage (measured because the ratio of debt to adjusted earnings) and curiosity protection (measured because the ratio of adjusted earnings to curiosity expense). Our most allowable first lien leverage ratio is 3.5 as ofDecember 31, 2020 . Our minimal allowable curiosity protection ratio is 3.5. We have been in compliance with all covenants atDecember 31, 2020 . Assertion of Money Flows Money supplied by working actions was$6.3 million and$58.1 million for the years endedDecember 31, 2020 and 2019, respectively. The lower in money supplied by working actions for 2020 as in comparison with the money supplied by working actions for 2019 was primarily pushed by decrease web revenue and a lower in our accounts payables, partially offset by elevated collections of our commerce receivables in and a$23.7 million cost in the primary quarter of 2019 to FMC associated to Separation issues. Money required by investing actions of operations was$131.1 million and$190.0 million for the years endedDecember 31, 2020 and 2019, respectively. The lower in money required by investing actions for 2020 in comparison with 2019 is primarily as a result of Firm's election to droop all capital growth work globally inMarch 2020 , leading to decreased capital expenditures for manufacturing capability of lithium carbonate and hydroxide. Money supplied by financing actions was$119.1 million and$120.5 million for the years endedDecember 31, 2020 and 2019, respectively. For the primary half of 2020 and 2019, web money proceeds for financing actions have been supplied primarily by web attracts on our Revolving Credit score Facility which have been used for capital expenditures for manufacturing capability of lithium carbonate and hydroxide. Within the second half of 2020, the Firm used the$238.2 million complete web proceeds obtained for the 2025 Notes together with Over-Allotment Choice to repay quantities excellent underneath its Revolving Credit score Facility. Different potential liquidity wants We plan to fulfill our liquidity wants by accessible money, money generated from operations, borrowings underneath the dedicated Revolving Credit score Facility, and different potential working capital financing methods that could be accessible to us. AtDecember 31, 2020 , our remaining borrowing capability underneath our Revolving Credit score Facility, topic to assembly our debt covenants, was 49 -------------------------------------------------------------------------------- Desk of Contents$275.0 million , together with letters of credit score utilization. The First Modification places a cap of$325 million on our total borrowings underneath the Revolving Credit score Facility tillMarch 31, 2021 . We anticipate COVID-19 pandemic uncertainties and lithium market challenges to proceed in 2021. Our web leverage ratio could improve in the course of the subsequent 12 months as it can proceed to be decided, largely, by our capacity to handle the timing and quantity of our capital expenditures, which is inside our management; obtain forecasted working outcomes and to pursue different working capital financing methods that could be accessible to us, which is much less sure and outdoors our management. InMarch 2020 , due to the numerous sensible constraints ensuing from actions being taken by authorities world wide in response to the COVID-19 pandemic, the Firm elected to droop all capital growth work globally.Livent stays dedicated to its long-term growth plans. The restart of its capital tasks might be pushed by improved pricing dynamics or agency long-term commitments from prospects coupled with the absence of COVID-19 associated restrictions. The corporate stays centered on sustaining its monetary flexibility and can proceed to handle its money stream and capital allocation selections to navigate by this difficult surroundings. We imagine that our accessible money and money from operations, along with our borrowing availability underneath the Revolving Credit score Facility and different potential working capital financing methods that could be accessible to us, will present satisfactory liquidity for the following 12 months. Entry to capital and the availability of financing on acceptable phrases sooner or later might be affected by many elements, together with our credit standing, financial situations, the COVID-19 pandemic and the general liquidity of capital markets.
Contractual obligations and business commitments from
Anticipated money funds per interval
Lower than 1 Greater than 5 (in Thousands and thousands) 12 months 1-3 years 3-5 years years Whole Lease obligations$ 2.0 $ 3.8
Buy obligations (1)
32.5 16.5 - - 49.0 Principal funds on debt (2) - 35.6 245.8 - 281.4 Whole$ 34.5 $ 55.9 $ 249.4 $ 11.2 $ 351.0 _________________ (1) Represents sure of our uncooked materials business contract buy obligations which are enforceable and legally binding necessities contracts with specified portions, pricing and timing of transactions. (2) Represents the steadiness, as ofDecember 31, 2020 , of the Firm's Revolving Credit score Facility which matures in 2023 and the 2025 Notes which mature in 2025. See Word 15 to our consolidated and mixed monetary statements included in this Kind 10-Okay for extra data. Local weather Change The potential bodily impacts of local weather change on our operations are extremely unsure, and are particular to the geographic circumstances of areas during which we function. These could embrace modifications in rainfall and storm patterns and intensities, water shortages, altering sea ranges and altering temperatures. These modifications could have a fabric opposed impact on our operations, together with brine manufacturing and transportation of uncooked supplies. A lot of governmental our bodies have launched or are considering legislative and regulatory change in response to the potential impacts of local weather change. Such laws or regulation, if enacted, doubtlessly may embrace provisions for a "cap and commerce" system of allowances and credit or a carbon tax, amongst different provisions. There's additionally a possible for local weather change laws and regulation to adversely affect the price of bought power and electrical energy. The rising issues about local weather change and associated more and more stringent rules could present us with new or expanded enterprise alternatives. We present options to firms pursuing various gas merchandise and applied sciences (similar to renewable fuels, gas-to-liquids and others), emission management applied sciences (together with mercury emissions), various transportation automobiles and lithium-ion battery applied sciences and different related options. As demand for, and laws mandating or incentivizing using, various gas applied sciences that restrict or eradicate greenhouse fuel emissions will increase, we will proceed to watch the market and provide options the place now we have applicable know-how. 50 -------------------------------------------------------------------------------- Desk of Contents Not too long ago Issued and Adopted Accounting Pronouncements and Regulatory Objects See Word 3 "Not too long ago Issued and Adopted Accounting Pronouncements and Regulatory Objects" to our consolidated and mixed monetary statements included on this Kind 10-Okay. Off-Steadiness Sheet Preparations We don't have any off-balance sheet preparations which have or are moderately prone to have a present or future impact on our monetary situation, modifications in monetary situation, revenues or bills, outcomes of operations, liquidity, capital expenditures or capital sources that's materials to buyers. Important Accounting Insurance policies Our consolidated and mixed monetary statements are ready in conformity withU.S. GAAP. The preparation of those monetary statements requires us to make estimates and judgments that have an effect on the reported quantities of property, liabilities, revenues and bills. We now have described our accounting insurance policies in Word 2 "Principal Accounting Insurance policies and Associated Monetary Data" to our consolidated and mixed monetary statements included on this Kind 10-Okay. We have reviewed these accounting insurance policies, figuring out those who we imagine to be essential to the preparation and understanding of our consolidated monetary statements. We now have reviewed these essential accounting insurance policies with the Audit Committee of the Board of Administrators. Important accounting insurance policies are central to our presentation of outcomes of operations and monetary situation in accordance withU.S. GAAP and require administration to make estimates and judgments on sure issues. We base our estimates and judgments on historic expertise, present situations and different affordable elements. As a result of COVID-19 pandemic, there was uncertainty and disruption within the world economic system and monetary markets. The estimates used for, however not restricted to, income recognition and the collectability of commerce receivables, impairment and valuation of long-lived property, and revenue taxes may very well be impacted. We now have assessed the affect and aren't conscious of any particular occasions or circumstances that required an replace to our estimates and assumptions or materially affected the carrying worth of our property or liabilities as of the date of issuance of this Kind 10-Okay. These estimates could change as new occasions happen and extra data is obtained. Precise outcomes may differ materially from these estimates underneath totally different assumptions or situations. Income recognition and commerce receivables Sale of Items Income from product gross sales is acknowledged when (or as) we fulfill a efficiency obligation by transferring the promised items to a buyer, that's, when management of the great transfers to the client. The client is then invoiced at the agreed-upon value with cost phrases usually starting from 30 to 180 days. In figuring out when the management of products is transferred, we sometimes assess, amongst different issues, the switch of danger and title and the delivery phrases of the contract. The switch of title and danger sometimes happens both upon cargo to the client or upon receipt by the client. As such, we sometimes acknowledge income when items are shipped based mostly on the related incoterm for the product order, or in some areas, when supply to the client's requested vacation spot has occurred. Once we carry out delivery and dealing with actions after the switch of management to the client (e.g., when management transfers previous to supply), they're thought-about success actions, and accordingly, the prices are accrued for when the associated income is acknowledged. For FOB delivery level phrases, income is acknowledged on the time of cargo because the buyer positive aspects management at this cut-off date. We file quantities billed for delivery and dealing with charges as income. Prices incurred for delivery and dealing with are recorded as prices of gross sales. Quantities billed for gross sales and use taxes, value-added taxes, and sure excise and different particular transactional taxes imposed on revenue-producing transactions are introduced on a web foundation and excluded from income within the consolidated and mixed statements of operations. We file a legal responsibility till remitted to the respective taxing authority. Variable Consideration As part of our customary enterprise observe, we could provide gross sales incentives to our prospects, similar to quantity reductions or rebates. Variable consideration given can differ by product. For all such contracts that embrace any variable consideration, we estimate the quantity of variable consideration that must be included within the transaction value using both the anticipated worth methodology or the more than likely quantity methodology relying on the character of the variable consideration. Variable consideration is included within the transaction value if, in our judgment, it's possible {that a} vital future reversal of cumulative income underneath the contract won't happen. Though figuring out the transaction value requires vital judgment, now we have vital historic expertise with incentives supplied to prospects and estimating the anticipated consideration contemplating historic patterns of incentive payouts. These estimates are re-assessed every reporting interval as required. 51 -------------------------------------------------------------------------------- Desk of Contents Along with the variable consideration described above, in sure cases, we could require our prospects to fulfill sure quantity thresholds inside their contract time period. We estimate what quantity of variable consideration must be included within the transaction value at contract inception and regularly reassess this estimation every reporting interval to find out conditions when the minimal quantity thresholds won't be met. Variable consideration is included within the transaction value if, in our judgment, it's possible {that a} vital future reversal of cumulative income underneath the contract won't happen. In these circumstances, we apply the steerage on breakage and estimate the quantity of the shortfall and acknowledge it over the remaining efficiency obligations within the contract. Proper of Return We warrant to our prospects that our merchandise conform to mutually agreed product specs. This providing is accounted for for granted of return and the transaction value is adjusted for an estimate of anticipated returns. Contract Asset and Contract Legal responsibility Balances We fulfill our obligations by transferring items and providers in change for consideration from prospects. The timing of efficiency generally differs from the timing the related consideration is obtained from the client, thus ensuing within the recognition of a contract legal responsibility. We acknowledge a contract legal responsibility if the client's cost of consideration is obtained previous to completion of our associated efficiency obligation. We periodically enter into prepayment preparations with prospects and obtain advance funds for product to be delivered in future durations. These advance funds are recorded as deferred income and labeled as "Advance funds from prospects" on the consolidated steadiness sheet. Income related to advance funds is acknowledged as shipments are made and title, possession and management move to the client. Commerce Receivables Commerce receivables encompass quantities owed from buyer gross sales and are recorded when income is acknowledged. The allowance for commerce receivables represents our greatest estimate of the possible losses related to potential buyer defaults. In growing our allowance for commerce receivables, we use a two stage course of which incorporates calculating a basic system to develop an allowance to appropriately deal with the uncertainty surrounding assortment danger of our whole portfolio and particular allowances for patrons the place the danger of assortment has been moderately recognized both on account of liquidity constraints or disputes over contractual phrases and situations. Our methodology of calculating the overall system consists of estimating the recoverability of commerce receivables based mostly on historic expertise, present assortment developments, and exterior enterprise elements similar to financial elements, together with regional chapter charges, and political elements. Our evaluation of commerce receivable assortment danger is carried out quarterly, and the allowance is adjusted accordingly. Impairments and valuation of long-lived property Our long-lived property primarily embrace property, plant and tools and intangible property. The Firm has no goodwill or indefinite-lived intangible property as ofDecember 31, 2020 . We check for impairment every time occasions or circumstances point out that the web e-book worth of our property, plant and tools might not be recoverable from the estimated undiscounted anticipated future money flows anticipated to outcome from their use and eventual disposition. In circumstances the place the estimated undiscounted anticipated future money flows are lower than web e-book worth, an impairment loss is acknowledged equal to the quantity by which the web e-book worth exceeds the estimated honest worth of property, which relies on discounted money flows on the lowest degree determinable. The estimated money flows mirror our assumptions about promoting costs, volumes, prices and market situations over an affordable time frame. Revenue taxes We now have recorded a valuation allowance to cut back deferred tax property in sure jurisdictions to the quantity that we imagine is extra doubtless than to not be realized. In assessing the necessity for this allowance, now we have thought-about a quantity of things together with future taxable revenue, the jurisdictions during which such revenue is earned and our ongoing tax planning methods. Within the occasion that we decide that we might not be capable of understand all or a part of our web deferred tax property sooner or later, an adjustment to the deferred tax property can be charged to revenue within the interval such dedication was made. Equally, ought to we conclude that we might be capable of understand sure deferred tax property within the future in extra of the web recorded quantity, an adjustment to the deferred tax property would improve revenue within the interval such dedication was made. Moreover, we file revenue tax returns inthe US and numerous state and international jurisdictions, as a part of a FMC authorized entity for the interval endedFebruary 28, 2019 . Sure revenue tax returns for FMC entities taxable within theU.S. and vital international jurisdictions are open for examination and adjustment. We assess our revenue tax positions and file a legal responsibility for all years open to examination based mostly upon our analysis of the info, circumstances and knowledge accessible on the reporting date. 52 -------------------------------------------------------------------------------- Desk of Contents For these tax positions the place it's extra doubtless than not {that a} tax profit will be sustained, now we have recorded the most important quantity of tax profit with a better than 50% probability of being realized upon final settlement with a taxing authority that has full information of all related data. We regulate these liabilities, if crucial, upon the completion of tax audits or modifications in tax regulation. See Word 9 to our consolidated and mixed monetary statements included in this Kind 10-Okay for added dialogue surrounding revenue taxes. 53 -------------------------------------------------------------------------------- Desk of Contents ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our earnings, money flows and monetary place are uncovered to market dangers regarding fluctuations in commodity costs, rates of interest and international foreign money change charges. Our coverage is to reduce publicity to our money stream over time brought on by modifications in curiosity and foreign money change charges. To accomplish this, now we have applied a managed program of danger administration consisting of applicable by-product contracts entered into with main monetary establishments. The evaluation beneath presents the sensitivity of the market worth of our monetary devices to chose modifications in market charges and costs. The vary of modifications chosen displays our view of modifications which are moderately potential over a one-year interval. Market worth estimates are based mostly on the current worth of projected future money flows contemplating the market charges and costs chosen. As ofDecember 31, 2020 and 2019, we had no open by-product money stream hedge contracts.Livent's 2021 hedge plan might be outlined when administration projections are finalized and authorised. Overseas Forex Alternate Price Danger Our worldwide operations expose us to foreign money danger from gross sales, purchases, bills and intercompany loans denominated in currencies aside from theU.S. greenback, our useful foreign money. The first currencies for which now we have change price publicity are the Euro, the British pound, the Chinese language yuan, the Argentine peso, and the Japanese yen. Overseas foreign money debt and international change ahead contracts are used the place we do enterprise, thereby decreasing our web asset publicity. Overseas change ahead contracts are additionally used to hedge agency and extremely anticipated international foreign money money flows. We presently don't hedge international foreign money dangers related to the Argentine peso as a result of restricted availability and the excessive price of appropriate by-product devices. To investigate the consequences of adjusting international foreign money charges, we carry out a sensitivity evaluation during which we assume an instantaneous 10% change within the international foreign money change charges from their ranges atDecember 31, 2019 with all different variables (together with rates of interest) held fixed. As ofDecember 31, 2020 and 2019, we had no open by-product money stream hedge contracts. Curiosity Price Danger One of many methods that we will use to handle rate of interest publicity is to enter into rate of interest swap agreements. In these agreements, we conform to change, at specified intervals, the distinction between mounted and variable curiosity quantities calculated on an agreed-upon notional principal quantity. As ofDecember 31, 2020 and 2019, we had no rate of interest swap agreements. Our debt portfolio atDecember 31, 2020 consists of fixed-rate and variable-rate debt; consisting of borrowings underneath our 2025 Notes and Revolving Credit score Facility. Modifications in rates of interest have an effect on totally different parts of our variable-rate debt portfolio in numerous methods. Primarily based on the variable-rate debt in our debt portfolio atDecember 31, 2020 , a one share level improve or lower in rates of interest would have elevated or decreased, respectively, gross curiosity expense by$1.0 million for the 12 months endedDecember 31, 2020 . 54
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