S-1 1 d603292ds1.htm FORM S-1 Form S-1
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As filed with the Securities and Exchange Commission on August 27, 2018.

Registration No. 333-            

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Livent Corporation

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   2819  

82-4699376

(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

c/o FMC Corporation

2929 Walnut Street

Philadelphia, Pennsylvania, 19104

215-299-6000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Paul W. Graves

President and Chief Executive Officer

Livent Corporation

c/o FMC Corporation

2929 Walnut Street

Philadelphia, Pennsylvania, 19104

215-299-6000

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

 

 

Copies to:

 

Michael Kaplan
William Aaronson
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
 

Rachel Sheridan

Latham & Watkins LLP

555 Eleventh Street NW, Suite 1000

Washington, DC 20004

(202) 637-2200

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☒  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☒

 

 

 

 

Title Of Each Class
Of Securities To Be Registered
 

Proposed
Maximum
Aggregate

Offering Price(1)(2)

  Amount Of
Registration Fee(3)

Common Stock, par value $0.001 per share

 

$100,000,000

 

$12,450.00

 

 

 

(1)

Includes                shares which the underwriters have the right to purchase to cover over-allotments.

(2)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(3)

To be paid in connection with the initial filing of the registration statement.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED AUGUST 27, 2018

PRELIMINARY PROSPECTUS

         Shares

Livent Corporation

Common Stock

$         per share

 

 

This is the initial public offering for Livent Corporation (“Livent”). We are selling              shares of our common stock.

We anticipate that the initial public offering price will be between $         and $         per share. Prior to this offering, there has been no public market for our common stock.

We have granted the underwriters an option to purchase up to an aggregate of              additional shares of our common stock to cover over-allotments at the initial public offering price, less the underwriting discount, for 30 days after the date of this prospectus.

 

 

We intend to list our common stock on the New York Stock Exchange (the “NYSE”) under the symbol “LTHM.”

After the completion of this offering, FMC will continue to own a majority of the voting power of shares of common stock eligible to vote in the election of our directors. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. See “Management—Controlled Company Exception” and “Principal Shareholders.”

 

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 17.

 

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act and will therefore be subject to reduced reporting requirements. See “Prospectus Summary—Emerging Growth Company Status” for additional information.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

     Per
Share
     Total  

Public offering price

   $                $            

Underwriting discounts and commissions(1)

   $        $    

Proceeds to us, before expenses

   $        $    

 

(1)

We have agreed to reimburse the underwriters for certain FINRA-related expenses. For additional information regarding underwriting compensation, see “Underwriting.”

The underwriters expect to deliver the shares to purchasers on or about                 , 2018 through the book-entry facilities of The Depository Trust Company.

 

 

Joint Book-Running Managers

 

BofA Merrill Lynch   Goldman Sachs & Co. LLC   Credit Suisse

Co-Managers

 

Citigroup   Loop Capital Markets   Nomura

            , 2018


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We and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of Livent. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide to you. We are offering to sell, and seeking offers to buy, shares of common stock only under circumstances and in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

 

 

Unless the context requires otherwise, (a) references to “Livent,” the “Company,” “we,” “us” and “our” refer to Livent Corporation and its consolidated subsidiaries after giving effect to the transactions described under “The Separation and Distribution Transactions—The Separation,” and (b) references to “FMC,” and “Parent” refer to FMC Corporation, Livent’s parent, and its consolidated subsidiaries other than Livent and Livent’s subsidiaries. Unless the context requires otherwise, statements relating to our history in this prospectus describe the history of FMC’s lithium segment.

 

 

This prospectus includes industry and market data that we obtained from periodic industry publications, third-party studies and surveys, filings of public companies in our industry and internal company surveys. These sources include government and industry sources. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable. Although we believe the industry and market data to be reliable as of the date of this prospectus, this information could prove to be inaccurate. Industry and market data could be wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and

 

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uncertainties. In addition, we do not know all of the assumptions regarding general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited herein.

Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

 

 

The name and mark, FMC, and other trademarks, trade names and service marks containing FMC appearing in this prospectus are the property of FMC. After the completion of this offering, we will receive a license from FMC to use the name and mark FMC and other trademarks, trade names and service marks used by Livent that contain FMC as summarized in “Certain Relationships and Related Party Transactions—Relationship with FMC—Trademark License Agreement.”

Until            , 2018, all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Non-GAAP Measures

This prospectus contains certain financial measures, including free cash flow, EBITDA and Adjusted EBITDA, that are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“U.S. GAAP”). We refer to these measures as “non-GAAP” financial measures or information.

We use free cash flow as a non-GAAP measure of cash flow generation. By deducting capital expenditures from operating cash flows, we are able to provide a better indication of the ongoing cash being generated that is ultimately available for both debt and equity holders as well as other investment opportunities. Free cash flow does not reflect adjustments for certain non-discretionary cash flows. Our results of operations are presented based on our management structure and internal accounting practices. The structure and practices are specific to us; therefore, our financial results and free cash flow are not necessarily comparable with similar information for other comparable companies. Free cash flow has limitations as an analytical tool and should not be considered in isolation from, as an alternative to, or more meaningful than, cash flows provided by operating activities as determined in accordance with U.S. GAAP. In evaluating free cash flow, you should be aware that in the future we may incur expenses similar to those for which adjustments are made in calculating free cash. Our presentation of free cash flow should not be construed as a basis to infer that our future results will be unaffected by unusual or non-recurring items. Because of these limitations, you should rely primarily on cash flows provided by operating activities as determined in accordance with U.S. GAAP and use free cash flow only as a supplement.

In addition to net income, as determined in accordance with U.S. GAAP, we evaluate operating performance using certain non-GAAP measures such as (i) EBITDA, which we define as net income plus interest expense, net, income tax expense (benefit) and depreciation and amortization, and (ii) Adjusted EBITDA, which we define as EBITDA adjusted for restructuring and other charges (income) and non-operating pension expense and settlement charges (income). Management believes the use of these non-GAAP measures allows management and investors to compare more easily the financial performance of our 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 substitutions for net income or other measures of performance or liquidity reported in accordance with U.S. GAAP.

 

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While we believe that these non-GAAP measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for revenues or net income, in each case as recognized in accordance with U.S. GAAP. For more information regarding these non-GAAP measures and a reconciliation of such measures to the closest comparable U.S. GAAP financial measures, see the footnotes to the financial statements presented in “Prospectus Summary—Summary Historical and Unaudited Pro Forma Combined Financial Data.”

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in our common stock. You should read this entire prospectus carefully, including the “Risk Factors” section and the combined financial statements, the pro forma financial statements and the notes to those statements.

Livent Corporation

Our Business

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, 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 fast growing Electric Vehicle (“EV”) battery market, while continuing to maintain our position as a leading global producer of butyllithium and high purity lithium metal. With extensive global capabilities, over 60 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 vehicle electrification.

 

LOGO

We produce lithium compounds for use in applications that have specific 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 as a synthesizer 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.



 

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Our revenue was $264.1 million and $347.4 million in 2016 and 2017, respectively, representing an annual growth rate of 32%, and $210.7 million for the six months ended June 30, 2018, representing a growth rate of 51% compared to June 30, 2017. We are a highly profitable business, generating net income of $47.1 million, $42.2 million and $70.2 million, cash from operating activities of $51.0 million, $58.3 million and $18.0 million and Adjusted EBITDA of $74.8 million, $126.1 million and $94.5 million in 2016, 2017 and the six months ended June 30, 2018, respectively.

 

LOGO

 

(1)

Company internal estimates

As a result of our focus on supplying performance lithium compounds for use in the rapidly growing EV market, we expect the shares of lithium hydroxide, energy storage and Asia as percentages of our total revenue by product, application and geography, respectively, to increase. We intend to maintain our leadership positions in other high performance markets such as greases and polymers.

We believe that we have earned a reputation as a leading supplier in the markets we serve, based on the performance of our products in our customers’ production processes and our ability to provide application know-how and technical support. In the EV market, we are one of a small number of lithium suppliers whose battery-grade lithium hydroxide has been qualified by customers for use in their cathode material production processes. Throughout our history, as end market application technologies have evolved, we have worked closely with our customers to understand their changing performance requirements and have developed products to address their needs.

 

 

LOGO

As a vertically integrated producer, we benefit from operating one of the lowest cost lithium mineral deposits in the world. We have been extracting lithium brine at our operations at the Salar del Hombre Muerto in



 

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Argentina for more than 20 years, and have been producing lithium compounds for over 60 years. Our operational history provides us with a deep understanding of the process to extract lithium compounds from brine. We have developed proprietary process knowledge that enables us to produce high quality, low impurity lithium carbonate and lithium chloride. We source the majority of our base lithium compounds for use in the production of performance lithium compounds from these low cost operations in Argentina. Our operations in Argentina are expandable, giving us the ability to increase our lithium carbonate and lithium chloride production to meet increasing demand. We also have the operational flexibility to procure lithium carbonate from third party suppliers as raw materials. This strategy allows us to manage our production requirements and raw material cost, creating opportunities to optimize profitability.

We are one of a few lithium compound producers with global manufacturing capabilities. We use the majority of the lithium carbonate we produce in the production of battery-grade lithium hydroxide in the United States and China. We use the lithium chloride we produce in the production of butyllithium products in the United States, the United Kingdom, China and India, as well as in the production of high purity lithium metal in the United States. We have significant know-how and experience in the lithium hydroxide, butyllithium and high purity lithium metal production processes and product applications, which we believe provides us with a competitive advantage in these markets.

Our Market Opportunity

The trend of vehicle electrification is expected to be a significant growth catalyst for lithium compounds over the next decade and into the future. Roskill Consulting Group Limited (“Roskill”) projects that EV sales will grow at a 32% CAGR through 2027, reaching 19.6 million vehicles in annual sales volume. In the long term, according to Bloomberg New Energy Finance, annual EV sales are expected to reach 60.2 million units in 2040, representing a penetration rate of 55% of all vehicles sold annually.

The growth forecasted in the EV market has resulted in a significant increase in current and expected future demand for battery-grade lithium compounds. According to Roskill, the total market consumption of lithium compounds is expected to reach 878 thousand metric tons (“kMT”) by 2027, representing a 15.3% CAGR during the ten-year period. Demand from EV batteries is expected to represent 64% of the total consumption of lithium compounds and total 562 kMT in the same year.

As EV adoption accelerates, we anticipate battery manufacturers will increasingly move to using high nickel content cathode materials in the manufacture of EV batteries. High nickel content cathodes substantially improve the energy density of batteries, enabling longer driving ranges. Battery-grade lithium hydroxide is a critical component in the production of high nickel content cathode materials. According to Roskill, demand for battery-grade lithium hydroxide for use in EV applications is expected to grow at a CAGR of 44% through 2027, reaching 359 kMT when measured on a lithium carbonate equivalent (“LCE”) basis.

As one of the leading producers of battery-grade lithium hydroxide for EV applications, we are well positioned to benefit from this growth. The battery-grade lithium hydroxide market for EV applications has significant barriers to entry, which include:

 

   

Complex process technology required to produce lithium compounds that meet customers’ evolving performance requirements;

 

   

Long timeline required to establish applications expertise, customer relationships and qualify products with customers; and

 

   

New capacity additions have long construction, commissioning and qualification timelines.

With over 20 years of experience in the production of lithium hydroxide, we have established ourselves as a reliable, high-quality supplier. Our manufacturing facilities have been qualified to produce performance lithium



 

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compounds for use in our customers’ battery materials manufacturing processes, resulting in the majority of our production capacity being contracted to customers under multi-year agreements.

Our goal is to maintain a leading market share in battery-grade lithium hydroxide, butyllithium and high purity lithium metal. For high nickel content cathode materials, we believe we are one of a small number of producers capable of consistently delivering battery-grade lithium compounds that meet performance standards demanded by our customers. We have announced a capacity expansion to produce approximately 55 kMT of lithium hydroxide annually by the end of 2025, of which 18.5 kMT was in production at the end of 2017.

Our Products

Our performance lithium compounds are frequently produced to meet specific customer application and performance requirements. We have developed our capabilities in producing performance lithium compounds through decades of interaction with our customers, and our products are key inputs into their production processes. Our customer relationships provide us with first-hand insight into our customers’ production objectives and future needs, which we in turn use to further develop our products.

 

 

LOGO

Other specialties include lithium phosphate, pharmaceutical-grade lithium carbonate, high purity lithium chloride and specialty organics. In addition to performance lithium compounds, we also produce lithium carbonate and lithium chloride, both of which we largely consume as feedstock in the process of producing our performance lithium compounds.

Our Strengths

Leading Global Producer of Performance Lithium Compounds

We are a leading producer of performance lithium compounds. In 2017, sales of performance lithium compounds accounted for 88% of our revenue. We have significant process, product and innovation capabilities, and enjoy a reputation as a reliable supplier with long-standing relationships. We are a leading supplier of



 

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battery-grade lithium hydroxide for EVs globally, and we are one of only two companies today that produce lithium hydroxide in multiple countries. Additionally, we are one of only two global producers of butyllithium with operations in multiple countries, and we are the only producer of high purity lithium metal in the Western Hemisphere.

Positioned to Benefit from Substantial Growth in Electric Vehicles Sales

According to Bloomberg New Energy Finance, EV sales are expected to reach 60.2 million units in 2040, representing a penetration rate of 55% of all vehicles sold. Automotive original equipment manufacturers (“OEMs”) have announced plans to introduce longer-range EV models using higher energy density batteries, and are increasingly doing so by moving to high nickel content cathode materials. This shift will increasingly require battery-grade lithium hydroxide in the production of cathode materials.

As an existing, proven global producer of battery-grade lithium hydroxide, we are well positioned to benefit from this expected increase in lithium demand from EV growth. As one of the pioneers in the lithium industry, we have relationships throughout the lithium-ion battery value chain. Across the battery value chain, product performance requirements have continued to evolve since the first lithium-ion batteries were introduced in the early 1990’s. We have developed our application and materials knowledge by working with our customers over time to produce performance lithium compounds which meet evolving customer needs.

In May 2016, we announced plans to increase our annual lithium hydroxide production capacity to 30 kMT from 10 kMT by the end of 2019; we have successfully executed the first 8 kMT phase of this expansion on time and within budget and we were producing at an annualized rate of 18.5 kMT at the end of 2017. In February 2018, we announced an intention to expand annual lithium hydroxide production capacity to approximately 55 kMT by the end of 2025.

Majority of Future Sales Secured with Multi-Year Agreements

We believe our consistent performance and our clear commitment to expanding production capacity have made us a preferred supplier in our target markets and have allowed us to secure multi-year supply agreements. In 2017 and for the six months ended June 30, 2018, more than 60% and approximately 58%, respectively, of our revenue was generated from customers with whom we have long-term agreements with terms ranging from 2 to more than 5 years in length. Our customers consider securing long-term committed supply of performance lithium compounds to be critical to their future success. As our production of lithium hydroxide increases, we expect the portion of our total revenue generated under multi-year agreements to increase. We expect that all of our capacity expansions will be contracted with customers before we commence production.

Extensive Process Technology and Know-How

For over six decades, we have developed expertise and know-how in the production of lithium compounds. We have developed a proprietary lithium concentration and purification process for brine operations that significantly reduces the time to pump brine from the Salar to processing it into lithium carbonate or lithium chloride. This reduction in processing time compares favorably to a conventional solar evaporation process, while effectively removing impurities and providing increased process control.

We have consistently demonstrated the ability to produce lithium hydroxide that has the physical and chemical properties required by our customers. We have replicated these production capabilities across multiple manufacturing locations, and we have the ability to modify these properties as customer requirements evolve. In butyllithium, we formulate products to the specific requirements of each customer across multiple manufacturing locations.



 

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Global Production Capabilities for Performance Lithium Compounds

Our global footprint includes seven production sites in five countries across four continents, including one site operated by a third party that produces lithium hydroxide for us exclusively. This geographic presence allows us to operate close to our customers in order to better meet their needs.

In Argentina, we have produced lithium carbonate and lithium chloride for over 20 years. Our 2017 production of lithium carbonate was 50% higher than it was in 2013, and we plan to increase capacity through various expansion projects.

We have operated a lithium hydroxide facility in North Carolina for over 60 years and in 2017 we added lithium hydroxide capacity in China. We are one of only two lithium hydroxide producers with operations in more than one country, and believe we are uniquely positioned to add capabilities close to our customers in other regions. We operate butyllithium facilities in the United States, the United Kingdom, China and India. Given the challenges in handling, transporting and using butyllithium products, this close proximity to customer manufacturing facilities is a critical factor in the customer’s choice of supplier. We continue to add capacity in China as the Asia market for butyllithium grows. We are the only producer of high purity lithium metal in the Western Hemisphere. Our metal distillation technology has been improved upon since we adopted it in 2012. We are evaluating expansion of our lithium metal production capabilities as demand increases for our existing metal products, while also developing new metal products.

Low Cost Operations with Capability to Significantly Expand Capacity as Demand Grows

In 2017 and for the six months ended June 30, 2018, we generated an Adjusted EBITDA margin of 36% and 45%, respectively. Our Adjusted EBITDA margin is a function of our low cost position. According to Roskill, in 2018 we operate the lowest cost lithium carbonate and lithium hydroxide operations globally. We believe this leading cost position allows our company to operate profitably across varying market conditions. The low-cost position we enjoy means that we can continue to invest in expanding our production capacity as demand grows and have confidence that we will generate attractive financial returns on our investments.

At the Salar del Hombre Muerto, Argentina, we own mineral concession rights to extract lithium brine until the deposit has been depleted. We have also announced plans to expand production of lithium carbonate in Argentina to at least 60 kMT by the end of 2025, in addition to our announced plans to expand lithium hydroxide capacity to approximately 55 kMT by the same date.

Proven Management Team

Our management team is led by our President and Chief Executive Officer (“CEO”), Paul Graves, who has over 25 years of chemical and global capital markets experience, including since 2012 as Executive Vice President and Chief Financial Officer (“CFO”) of FMC Corporation. He is supported by our Vice President and Chief Operating Officer (“COO”), Thomas Schneberger, who has over 25 years of chemical manufacturing experience, has been at FMC for 11 years, and has been in FMC’s lithium business since 2014. Our Vice President and CFO, Gilberto Antoniazzi, has more than 25 years of experience in FMC’s various businesses, including most recently as CFO of FMC Agricultural Solutions.

Culture of Safety and Sustainability

Safety is a core value of our business and a critical part of our value proposition. We believe our commitment to the safe operation of manufacturing facilities and product stewardship is part of what makes us a preferred supplier of performance lithium products. Our sustainability program is fully integrated across the business and progress in this area is reported annually.



 

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Our Strategy

We believe that growth in EV sales will drive significant growth in demand for performance lithium compounds. We believe that we are well positioned to benefit from this trend thanks to our leading position and long-standing customer relationships. To fully capitalize on this opportunity, our strategy will involve investing in our assets, our technology capabilities and our people to ensure we can continue to meet our customers’ demands.

Expand our Production Capacities

In May 2016, we announced plans to increase our lithium hydroxide capacity to 30 kMT by the end of 2019. In February 2018, we announced our intention to expand our lithium hydroxide capacity to approximately 55 kMT by the end of 2025 at multiple locations. These expansions should ensure we have the capacity to meet customer demands globally, as they expand their own production networks around the globe.

In addition, to support our lithium hydroxide expansion, we have announced plans to expand lithium carbonate production in Argentina from 15 kMT in 2017 to at least 60 kMT by the end of 2025, in four separate stages. We expect to consume substantially all of any incremental lithium carbonate produced internally or sourced externally in our lithium hydroxide operations.

We also continue to add butyllithium capacity at our China facility as demand in Asia continues to increase. For high purity lithium metal, we are evaluating expansion opportunities to align with the potential increase in demand for lithium metal as our customers develop next generation battery technologies.

Diversify our Sources of Supply

We continue to pursue additional sources of lithium carbonate, which may include further expansion in Argentina, acquisition and development of new resources, entering into long-term supply agreements with other producers or some combination thereof. We will continually assess new resources that offer the potential to provide alternative sources of lithium carbonate, and will look to invest in developing such resources where it makes sense to do so.

Expand our Application and Process Technology Capabilities

Our market position today is built upon our ability to consistently provide our customers with the products they need. To maintain this position, we are continuously investing in our application and process technologies. As we work with our customers to understand their evolving lithium needs, we will focus on improving our own abilities to adapt the properties of our products, whether physical or chemical, to meet those needs. This may require us to invest in and potentially acquire new capabilities, hire people or acquire new technical resources.

Develop Next Generation Lithium Compounds

We believe that the evolution of battery technologies will lead to the adoption of lithium-based applications in the anode and electrolyte within the battery. This evolution will require new forms of lithium to be produced, such as new lithium metal powders or printable lithium products. We will continue to invest in our research and development efforts to help us create new products, and will also invest with and partner alongside our customers to further their own research and development efforts.

Invest in Our People

Our business requires that we hire and retain the best research scientists, engineers and technical salesforce in our industry. We will continue to invest in our people through training and developing our employees to ensure we retain the best talent in the industry.



 

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Our Industry

Lithium is a soft, naturally occurring, silvery-white metal which, due to its unique chemical and physical properties, is widely used in a range of energy storage and industrial applications. Its high specific heat capacity and charge density, as well as its low thermal expansion, enable high-performance characteristics that could not otherwise be achieved in end use applications. Due to its highly reactive nature, lithium is rarely consumed in its pure form, and instead, is consumed as a compound created through a chemical process. Lithium compounds can be characterized as either performance lithium compounds or base lithium compounds. The most frequently consumed lithium compounds in each category are:

 

 

LOGO

Performance Lithium Compounds

Performance lithium compounds are produced through chemical processes that utilize base lithium compounds, primarily lithium carbonate and lithium chloride, as inputs. The production of performance lithium compounds requires extensive manufacturing process technology and application know-how as products are required to meet specific performance requirements in each customer’s manufacturing application. As a result, performance lithium compounds are often developed in collaboration with customers and undergo rigorous qualification processes to ensure they can meet these requirements. Customer qualification processes take approximately twelve months and may be longer depending on the product, customer and application. Performance lithium compounds are priced based on product performance and the technical support producers can offer customers. Performance compounds are primarily used in lithium-ion batteries for electric vehicles and grease, polymer, pharmaceutical and aerospace applications.

Advancements in lithium-ion battery technology have resulted in increased adoption of lithium-ion batteries for use in powering EVs. Accelerating EV sales, particularly all-battery electric vehicles (“BEVs”) sales, are expected to be the dominant driver of the growth in demand for performance lithium compounds. According to Roskill, the global consumption of performance lithium compounds in 2017 was approximately 67 kMT LCE, and is expected to grow to approximately 461 kMT LCE by 2027, representing a 21% CAGR. Within performance compounds, Roskill forecasts that consumption of lithium hydroxide is expected to experience the fastest growth, from 20 kMT LCE in 2017 to 399 kMT LCE in 2027, representing a 35% CAGR.

We believe we are one of a limited number of companies today with the proven ability to produce performance lithium compounds capable of consistently meeting customer product performance requirements. In 2017, 88% of our revenues came from the sale of performance lithium compounds.

Base Lithium Compounds

Base lithium compounds are produced through the extraction and processing of lithium bearing resources, which are either brine or hard rock minerals. After extraction, the source materials are further processed into higher concentration compounds which are typically used to produce lithium carbonate and lithium chloride and, in the case of hard rock, lithium hydroxide. Base lithium compounds are typically produced to standard specifications, such as minimum lithium content or maximum impurity levels, depending on the end use application. Base lithium compounds are primarily used in energy storage, glass, ceramics and general industrial



 

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applications. Lithium carbonate and lithium chloride are also used as feedstock in the production of performance lithium compounds.

Global consumption of base lithium compounds in 2017, according to Roskill, was approximately 144 kMT LCE, representing 68% of total consumption of lithium compounds on an LCE basis. Roskill forecasts that base lithium compound consumption is expected to grow to approximately 417 kMT LCE by 2027, representing a 11% CAGR and 47% of total consumption of lithium compounds. Demand for lithium carbonate used in energy storage, glass and ceramics applications is expected to be the primary driver of this growth.

Supply of Lithium Compounds

According to Roskill, the global supply of all lithium compounds was 270 kMT LCE in 2017. Six producers, including Livent, Albemarle Corporation (“Albemarle,” previously Rockwood Holdings, Inc.), Sociedad Quimica y Minera (“SQM”), Tianqi Lithium Corporation (“Tianqi”), Jiangxi Ganfeng Lithium Co. Ltd. (“Jiangxi Ganfeng Lithium”) and Orocobre Limited (“Orocobre”), accounted for approximately 86% of the total 2017 supply.

Future consumption of all lithium compounds, according to Roskill, is projected to increase to 878 kMT LCE by 2027. To meet this demand, supply will need to increase by approximately 225% over the next 10 years. In response to this significant supply/demand gap, several producers, including both existing and new entrants, have announced projects to build additional base and performance lithium compound supply. According to Roskill, new entrants to the industry are expected to bring online 41% of forecasted supply expansion through 2027, with the remaining 59% brought online by existing producers, resulting in the total supply of lithium compounds reaching approximately 898 kMT LCE. However, the industry has historically been challenged in bringing supply online within the announced timeframe and at full nameplate capacity. Between 2011 and 2016, mine capacity was forecasted to increase by approximately 350 kMT LCE, but actual expansion achieved was only 110 kMT LCE, according to Roskill. Roskill also estimates that the historical capacity utilization for the industry has rarely exceeded 75%. We believe this is a reflection of the significant challenges at each stage of the project development and production process, which are commonly underestimated in projected supply figures and pose a risk to the effectiveness of new supply to meet demand.

The Separation

Prior to the completion of this offering, we are a wholly owned subsidiary of FMC, and all of our outstanding shares of common stock is owned by FMC.

Prior to the completion of this offering, through a series of steps, FMC will transfer to us substantially all of the assets and liabilities of its lithium business (the “Lithium Business”). In exchange, we will issue or transfer to FMC all of the issued and outstanding shares of our common stock. In addition, immediately prior to the completion of this offering, we and FMC intend to enter into certain agreements that will provide a framework for our ongoing relationship with FMC. For a description of these agreements, see “Certain Relationships and Related Party Transactions—Relationship with FMC.” We also intend to enter into a $400 million revolving credit facility (expected to be undrawn at closing) in connection with the Separation. We refer to the separation transactions, as described in “The Separation and Distribution Transactions—The Separation,” as the “Separation.”



 

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Controlled Company

Immediately following the completion of this offering, FMC will beneficially own     % of our outstanding common stock (or     % if the underwriters’ option to purchase additional shares of common stock is exercised in full). FMC expects in all cases to retain at least 80.1% of the Company’s outstanding common stock immediately following the offering. Accordingly, we will be considered a “controlled company” under the NYSE rules. Under these rules, a “controlled company” may elect not to comply with certain corporate governance requirements, including the requirement to have a board comprised of a majority of independent directors. We intend to take advantage of these exemptions following the completion of this offering. See “Management—Controlled Company Exception.”

The Distribution

FMC has informed us that, following this offering, it may make a tax-free distribution to its stockholders of all or a portion of its remaining equity interest in us, which may include one or more distributions effected as a dividend to all FMC stockholders, one or more distributions in exchange for FMC shares or other securities, or any combination thereof. We refer to any such potential distribution as the “Distribution.” FMC has agreed not to effect the Distribution for a period of 120 days after the date of this prospectus. See “Underwriting.”

FMC has no obligation to pursue or consummate any further dispositions of its ownership interest in us, including through the Distribution, by any specified date or at all. If pursued, the Distribution would be subject to various conditions, including receipt of any necessary regulatory or other approvals and the receipt of an opinion of counsel to the effect that such Distribution would be tax-free to FMC and its stockholders. The conditions to the Distribution may not be satisfied, FMC may decide not to consummate the Distribution even if the conditions are satisfied or FMC may decide to waive one or more of these conditions and consummate the Distribution even if all of the conditions are not satisfied.

Upon completion of the Distribution, we will no longer qualify as a controlled company and will be required to fully implement NYSE corporate governance requirements within one year of the Distribution.

Emerging Growth Company Status

We are an “emerging growth company” within the meaning of the federal securities laws. For as long as we are an emerging growth company, we will not be required to comply with certain requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and the exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We intend to take advantage of these exemptions until we are no longer an emerging growth company. We may remain an emerging growth company for up to five years, although we will lose that status as of the last day of the fiscal year in which we have more than $1.07 billion of revenues, have more than $700.0 million in market value of our common stock held by non-affiliates (assessed as of the most recently completed second quarter), or if we issue more than $1.0 billion of non-convertible debt over a three-year period.

In addition, Section 107 of the Jumpstart Our Business Startups Act (the “JOBS Act”) also provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. This permits an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have irrevocably elected not to avail ourselves of this exemption and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.



 

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Risk Factors

Before you invest in our stock, you should carefully consider all the information in this prospectus, including matters set forth under the heading “Risk Factors.” We believe the primary risks to our business and operations are:

 

   

a decline in the growth in demand for electric vehicles, as our performance will be dependent upon the continued adoption of electric vehicles;

 

   

adverse global economic conditions, as downturns in the sales of our customers’ products in which our lithium compounds are used could negatively affect our sales and profitability;

 

   

volatility in the price for performance lithium compounds, caused by changes in worldwide supply and demand that certain market analysts have predicted may occur over the next seven years as a result of competitors’ announced plans to increase production capacity, as declines in lithium prices could have a material adverse effect on our business, financial condition and results of operations;

 

   

risks relating to our production expansion and related capital expenditures, as such projects are complex, require substantial capital outlays and may face technical or construction-related delays;

 

   

development and adoption of battery technologies that do not rely on performance lithium compounds as an input, as our current business and prospects depend on the continued use and adoption of battery technologies that rely on performance lithium compounds as a critical input;

 

   

the size of our international operations and sales, including political, financial and operational risks specific to Argentina, where we extract and manufacture lithium carbonate and lithium chloride, and other countries where we have active operations, including China, where we process a significant portion of lithium carbonate and lithium chloride into performance lithium compounds;

 

   

customer concentration and the loss of, or significant reduction in orders from, large customers, as we derive a substantial portion of our revenue from a limited number of customers;

 

   

failure to satisfy customer quality standards, which could subject us to damages based on claims brought against us or the loss of customers;

 

   

fluctuations in the price of energy and certain raw materials, as such costs can be volatile, and we may not be able to pass on any increase in cost to our customers; and

 

   

failure to achieve the expected benefits of the Separation, including enhancing strategic and management focus, providing a distinct investment identity and allowing us to efficiently allocate resources and capital.

For a discussion of these and other risks, see “Risk Factors.”

Corporate Information

We were incorporated in the State of Delaware on February 27, 2018. Our principal executive offices are located at 2929 Walnut Street, Philadelphia, Pennsylvania, 19104 and our telephone number is 215-299-6000. Our Internet site is www.livent.com. Our website and the information contained therein or connected thereto is not incorporated into this prospectus or the registration statement of which it forms a part.



 

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The Offering

 

Common stock offered

                shares

Common stock to be outstanding after this offering

                shares

Over-allotment option

                shares

Use of proceeds

   We intend to use the net proceeds from this offering to make a distribution to FMC. See “Use of Proceeds.”

Dividend policy

   We have not yet decided whether to pay any cash dividends or to retain all available funds for use in the operation and expansion of our business. Any decision will be made by our Board of Directors, who will review our dividend policy periodically.

Controlled company

   Following the completion of this offering, FMC will own     % of the voting power of our outstanding common stock. Accordingly, we will be considered a “controlled company” under the NYSE rules. Under these rules, a “controlled company” may elect not to comply with certain corporate governance requirements, including the requirement to have a board comprised of a majority of independent directors. We intend to take advantage of these exemptions following the completion of this offering. See “Management—Controlled Company Exception.”

Proposed NYSE stock symbol

   LTHM

Directed share program

   The underwriters have reserved for sale, at the initial public offering price, up to              shares of common stock to be offered to directors, officers, certain employees and other persons associated with us. The number of shares available for sale to the general public in this offering will be reduced to the extent these persons purchase reserved shares. Any reserved shares not purchased will be offered by the underwriters to the general public on the same terms as the other shares. See “Underwriting.”

Unless otherwise indicated, all information in this prospectus, including information regarding the number of shares of our common stock outstanding:

 

   

assumes an initial public offering price of $         per share (the midpoint of the price range set forth on the front cover of this prospectus);

 

   

assumes the underwriters’ over-allotment option to purchase            additional shares of common stock has not been exercised; and

 

   

does not include the              shares of common stock underlying Company equity awards following (i) the conversion of certain outstanding FMC equity awards into Company equity awards upon the closing of this offering pursuant to their terms and (ii) the grant of the Special IPO Awards (as described in more detail in “Executive Compensation—Special IPO Awards” below).



 

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Summary Historical and Unaudited

Pro Forma Combined Financial Data

The following table sets forth summary historical combined and unaudited pro forma combined financial data. The summary historical combined data as of June 30, 2018 and for the six months ended June 30, 2018 and 2017 presented below have been derived from our unaudited condensed combined financial statements included elsewhere in this prospectus. The summary historical combined data for the years ended December 31, 2017 and 2016 presented below have been derived from our audited combined financial statements included elsewhere in this prospectus.

Our combined financial statements include expense allocations for certain support functions that are provided on a centralized basis within FMC, such as finance, treasury, tax, human resources, legal, investor relations and certain other costs. Where it is possible to specifically attribute such expenses to activities of Livent, these amounts have been charged or credited directly to Livent without allocation or apportionment. Allocation of other such expenses is based on a reasonable reflection of the utilization of the service provided or benefits derived by Livent during the periods presented on a consistent basis, such as, but not limited to, a relative percentage of headcount, tangible assets, cost of goods sold, or segment operating profit, which is defined by FMC as segment revenue less operating expenses.

The financial statements included in the prospectus may not be indicative of our future performance and do not necessarily reflect what our financial position and results of operations would have been had we operated as a standalone public company during the periods presented, including changes that will occur in our operations and capital structure as a result of this offering and the Separation. Our combined financial results have been prepared in accordance with U.S. GAAP.

Livent is a holding company for the legal entities and assets that historically comprised FMC’s Livent Business. Livent was incorporated in Delaware on February 27, 2018. Substantially all of the assets and operations of FMC’s Lithium Business will be transferred to Livent prior to the completion of this offering.

We have prepared our historical combined financial statements as if Livent had operated FMC’s Lithium Business throughout all relevant periods. Our historical combined financial information and statements include the assets, liabilities and operations of FMC’s Lithium Business.

The unaudited pro forma combined financial data set forth below reflects our historical combined financial information, as adjusted to give effect to the following transactions (the “Transactions”) as if each had occurred at January 1, 2017, in the case of the statements of operations data, and June 30, 2018, in the case of the balance sheet data:

 

   

completion of the Separation and entry into related agreements;

 

   

the issuance of              shares of our common stock in this offering at an estimated offering price of $         per share (the midpoint of the price range set forth on the front cover of this prospectus);

 

   

our entry into a $400 million revolving credit facility, which was not drawn as of and during the periods presented, and the commitment and origination fees that would have been paid by us had our revolving credit facility been in place as of and during the periods presented;

 

   

distribution of $         million to FMC with proceeds from this offering; and

 

   

other adjustments described in the notes to the unaudited pro forma condensed combined financial statements.

The summary unaudited pro forma combined financial data below is based upon available information and assumptions that we believe are reasonable. The unaudited pro forma combined financial data is for illustrative



 

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and informational purposes only and is not intended to represent what our financial condition or results of operations would have been had the Transactions occurred on the dates indicated. The unaudited pro forma financial data also should not be considered representative of our future financial condition or results of operations.

You should read this information in conjunction with the information under “Unaudited Pro Forma Condensed Combined Financial Statements”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, our audited combined financial statements and the related notes and our unaudited condensed combined financial statements and the related notes included elsewhere in this prospectus.

 

     Pro Forma      Historical     Historical(1)  
     Six Months
Ended
June 30,
     Year Ended
December 31,
     Six Months
Ended
June 30,
    Year Ended
December 31,
 
(in Millions, except share and per share data)    2018      2017      2018      2017     2017      2016  
     (Unaudited)      (Unaudited)               

Statement of Operations Data:

          

Revenue

         $ 210.7      $ 139.6     $ 347.4      $ 264.1  

Costs of sales

           104.7        82.7       198.6        175.8  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Gross margin

         $ 106.0      $ 56.9     $ 148.8      $ 88.3  

Selling, general and administrative expenses

           8.0        6.9       13.4        12.0  

Corporate allocations

           10.1        10.7       22.1        13.2  

Research and development expenses

           2.0        1.4       3.1        3.1  

Restructuring and other charges

           2.3        3.1       8.7        1.0  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total costs and expenses

         $ 127.1      $ 104.8     $ 245.9      $ 205.1  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Income from operations before non-operating pension expense and settlement charges (income) and income taxes

         $ 83.6      $ 34.8     $ 101.5      $ 59.0  

Non-operating pension expense and settlement charges (income)

           0.2        (1.3     31.4        3.6  

Interest expense, net

           —          —         —          0.9  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Income from operations before income taxes

         $ 83.4      $ 36.1     $ 70.1      $ 54.5  

Provision for income taxes

           13.2        8.5       27.9        7.4  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Net income

         $ 70.2      $ 27.6     $ 42.2      $ 47.1  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Basic earnings per common share

           N/A        N/A       N/A        N/A  

Weighted average number of shares of common stock outstanding-Basic

           N/A        N/A       N/A        N/A  

Diluted earnings per common share

           N/A        N/A       N/A        N/A  

Weighted average number of shares of common stock outstanding-Diluted

           N/A        N/A       N/A        N/A  

 

(1)

Certain amounts in the historical statement of operations data for the years ended December 31, 2017 and 2016 have been reclassified to conform to the current period’s presentation. Refer to Note 4 of the unaudited interim condensed combined financial statements included elsewhere in this prospectus for further information on the presentation of pension expense associated with the adoption of Accounting Standard Update No. 2017-07.



 

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     Pro Forma      Historical      Historical  

(in Millions)

   As of
June 30,
2018
     As of
June 30,
2018
     As of
December 31,
2017
     As of
December 31,
2016
 
     (Unaudited)      (Unaudited)                

Balance Sheet Data:

           

Total assets

      $ 550.3      $ 496.2      $ 372.1  

Total liabilities

        86.8        110.8        61.4  

 

     Six Months
Ended June 30,
    Year Ended
December 31,
 
(in Millions)    2018     2017     2017     2016  
     (Unaudited)              

Cash Flow Data:

        

Cash provided by operating activities

   $ 18.0     $ 13.6     $ 58.3     $ 51.0  

Cash required by investing activities

     (26.8     (25.0     (62.5     (31.3

Cash provided (required) by financing activities

     9.1       8.6       1.5       (18.6

 

     Six Months
Ended June 30,
     Year Ended
December 31,
 
(Unaudited; in Millions)    2018     2017      2017      2016  

Other Data:

          

Free cash flow (1)

   $ (5.4   $ 0.9      $ 9.4      $ 25.3  

EBITDA (2)

     92.0       43.9        86.0        70.2  

Adjusted EBITDA (2)

     94.5       45.7        126.1        74.8  

 

(1)

We use free cash flow as a non-GAAP measure of cash flow generation. By deducting capital expenditures from operating cash flows, we are able to provide a better indication of the ongoing cash being generated that is ultimately available for both debt and equity holders as well as other investment opportunities. Free cash flow does not reflect adjustments for certain non-discretionary cash flows. Our results of operations are presented based on our management structure and internal accounting practices. The structure and practices are specific to us; therefore, our financial results and free cash flow are not necessarily comparable with similar information for other comparable companies. Free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as an alternative to, or more meaningful than, cash flows provided by operating activities as determined in accordance with U.S. GAAP. In evaluating free cash flow, you should be aware that in the future we may incur expenses similar to those for which adjustments are made in calculating free cash. Our presentation of free cash flow should not be construed as a basis to infer that our future results will be unaffected by unusual or non-recurring items. Because of these limitations, you should rely primarily on cash flows provided by operating activities as determined in accordance with U.S. GAAP and use free cash flow only as a supplement. The following table reconciles free cash flow from cash flows provided by operating activities.

 

     Six Months
Ended June 30,
     Year Ended
December 31,
 
(Unaudited; in Millions)    2018      2017      2017      2016  

Cash provided by operating activities

   $ 18.0      $ 13.6      $ 58.3      $ 51.0  

Additions to property, plant and equipment

     (23.4      (12.7      (48.9      (25.7
  

 

 

    

 

 

    

 

 

    

 

 

 

Free cash flow

   $ (5.4    $ 0.9      $ 9.4      $ 25.3  
  

 

 

    

 

 

    

 

 

    

 

 

 

Free cash flow for the year ended December 31, 2017 was impacted by higher tax payments of approximately $14 million primarily associated with the 2017 U.S. Tax Cuts and Jobs Act (the “Tax Act”). Free cash flow in 2016 was impacted by a payment to our U.K. pension plan (the “U.K. Plan”) of approximately $21 million to annuitize the remaining pension obligation.

 

(2)

In addition to net income, as determined in accordance with U.S. GAAP, we evaluate operating performance using certain non-GAAP measures such as EBITDA, which we define as net income plus interest expense, net, income tax expense (benefit), depreciation, and amortization, and Adjusted EBITDA, which we define as EBITDA adjusted for restructuring and other charges (income), and non-operating pension expense and settlement charges (income). 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



 

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  used by other companies in calculating EBITDA and Adjusted EBITDA. This measure should not be considered as a substitute for net income or other measures of performance or liquidity reported in accordance with U.S. GAAP. The following table reconciles EBITDA and Adjusted EBITDA from net income.

 

     Six Months
Ended June 30,
     Year Ended
December 31,
 
(Unaudited; in Millions)    2018      2017      2017      2016  

Net income

   $ 70.2      $ 27.6      $ 42.2      $ 47.1  

Add back:

           

Interest expense, net

     —                        0.9  

Provision for income taxes

     13.2        8.5        27.9        7.4  

Depreciation and amortization

     8.6        7.8        15.9        14.8  
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

   $ 92.0      $ 43.9      $ 86.0      $ 70.2  
  

 

 

    

 

 

    

 

 

    

 

 

 

Add back:

           

Restructuring and other charges (1)

     2.3        3.1        8.7        1.0  

Non-operating pension expense and settlement charges (income) (2)

     0.2        (1.3      31.4        3.6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 94.5      $ 45.7      $ 126.1      $ 74.8  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

We continually perform strategic reviews and assess the return on our business. This sometimes results 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.

(2)

Our non-operating pension expense and settlement charges (income) are defined as those costs (benefits) related to interest, expected return on plan assets, amortized actuarial gains and losses and the impacts of any plan curtailments or settlements. These costs (benefits) are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance and we consider these costs to be outside our operational performance. We exclude these non-operating pension expense and settlement charges (income) from our Adjusted EBITDA calculation as we believe that removing them provides a better understanding of the underlying profitability of our business, provides increased transparency and clarity in the performance of our retirement plans and enhances period-over-period comparability. We continue to include the service cost and amortization of prior service cost in Adjusted EBITDA. We believe these elements reflect the current year operating costs of our business for the employment benefits provided to active employees.



 

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RISK FACTORS

You should carefully consider the following risks and all of the other information set forth in this prospectus before deciding to invest in shares of our common stock. If any of the following risks actually occurs, our business, financial condition or results of operations would likely suffer. In such case, the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.

Risks Related to Our Growth Strategy and Our Markets

Our growth depends upon the continued growth in demand for electric vehicles.

We are one of a few producers of performance lithium compounds that are a critical input in current and next generation high energy density batteries used in electric vehicle applications. Our growth is dependent upon the continued adoption by consumers of electric vehicles. If the market for electric vehicles does not develop as we expect, or develops more slowly than we expect, our business, prospects, financial condition and results of operations will be affected. The market for electric vehicles is relatively new, rapidly evolving, and could be affected by numerous external factors, such as:

 

   

government regulations;

 

   

tax and economic incentives;

 

   

rates of consumer adoption, which is driven in part by perceptions about electric vehicle features (including range per charge), quality, safety, performance and cost;

 

   

competition, including from other types of alternative fuel vehicles, plug-in hybrid electric vehicles, and high fuel-economy internal combustion engine vehicles; and

 

   

volatility in the cost of oil and gasoline.

Adverse conditions in the economy and volatility and disruption of financial markets can negatively impact our customers, and downturns in our customers’ end-markets could adversely affect our sales and profitability.

We produce performance lithium compounds for application in a diverse range of end-products, including electric vehicle batteries and for a wide variety of industrial, pharmaceutical, aerospace, electronic and polymer applications. Deterioration in the global economy or in the specific industries in which our customers compete could adversely affect the demand for our customers’ products, which, in turn, could negatively affect our sales and profitability. Many of our customers’ end-markets are cyclical in nature or are subject to secular downturns. Historically, cyclical or secular end-market downturns have resulted in diminished demand for our performance lithium compounds and have caused a decline in average selling prices, and we may experience similar problems in the future.

Our research and development efforts may not succeed, and our competitors may develop more effective or successful products.

The industries and the end markets into which we sell our products experience regular technological change and product improvement. Our ability to compete successfully depends in part upon our ability to maintain a superior technological capability and to continue to identify, develop and commercialize new and innovative performance lithium compounds for use in our customers’ products in the electric vehicle, aerospace and other sectors. There is no assurance that our research and development efforts will be successful or that any newly developed products will pass our customers’ qualification processes or achieve market-wide acceptance. If we fail to keep pace with evolving technological innovations in our customers’ end markets, our business, financial condition and results of operations could be adversely affected. In addition, existing or potential competitors may

 

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develop products which are similar or superior to our products or are more competitively priced. If our product launching efforts are unsuccessful, our financial condition and results of operations may be adversely affected.

Lithium prices can be volatile, especially due to changes in supply.

The prices of lithium have been, and may continue to be, volatile. We seek to manage volatility through the sale of performance lithium compounds and by entering into long term contracts with our customers; however, such efforts may not be successful. We expect that prices for the performance lithium compounds we manufacture will continue to be influenced by various factors, including worldwide supply and demand as well as the business strategies of major producers. Some of the major producers (including us) have increased production, which affects overall global supply. In addition, certain market analysts predict a significant increase in global lithium capacity over the next seven years, although there is a high degree of uncertainty about the status of new lithium production capacity expansion projects being developed by current and potential competitors. Declines in lithium prices could have a material adverse effect our business, financial condition and results of operations.

We face competition in our business.

We compete globally against a number of other lithium producers. Competition is based on several key criteria, including technological capabilities, service, product performance and quality, and price. Some of our competitors are larger than we are and may have greater financial resources. These competitors may also be able to maintain greater operating and financial flexibility. If we fail to compete effectively, we may be unable to retain or expand our market share, which could have a material adverse effect on our business, results of operations and financial condition. See “Business—Competition.”

Our production expansion efforts are complex projects that will require significant capital expenditures and are subject to significant risks and uncertainties.

In order to meet growing and forecasted demands for our performance lithium compounds, particularly lithium hydroxide, we have commenced and plan to continue substantial capital projects, including a planned expansion of production of lithium hydroxide to 30 kMT by the end of 2019 and to approximately 55 kMT by the end of 2025, and of lithium carbonate to at least 60 kMT by the end of 2025. These projects are complex undertakings, and there can be no assurance that we will be able to complete these projects within our projected budget and schedule or that we will be able to achieve the anticipated benefits from them. Unforeseen technical or construction difficulties could increase the cost of these projects, delay the projects or render them infeasible. Any significant delay in the completion of the project or increased costs could have an adverse effect on our business, financial condition and results of operations.

We may make future acquisitions which may be difficult to integrate, divert management and financial resources and result in unanticipated costs.

As part of our continuing business strategy, we may make acquisitions of, or investments in, companies or technologies that complement our current products, enhance our market coverage, technical capabilities or production capacity, or offer growth opportunities. We do not have specific timetables for these plans and we cannot be certain that we will be able to identify suitable acquisition or investment candidates for sale at reasonable prices.

Future acquisitions could pose numerous risks to our operations, including difficulty integrating the acquired operations, products, technologies or personnel; substantial unanticipated integration costs; diversion of significant management attention and financial resources from our existing operations; a failure to realize the potential cost savings or other financial benefits and/or the strategic benefits of the acquisitions; and the incurrence of liabilities from the acquired businesses for environmental matters, infringement of intellectual

 

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property rights or other claims, and we may not be successful in seeking indemnification for such liabilities or claims. These and other risks relating to acquiring, integrating and operating acquired assets or companies could cause us not to realize the anticipated benefits from such activity and could have a material adverse effect on our business, financial condition and results of operations.

The development and adoption of new battery technologies that rely on inputs other than lithium compounds could significantly impact our prospects and future revenues.

Current and next generation high energy density batteries for use in electric vehicles rely on lithium compounds as a critical input. The development and adoption of new battery technologies that rely on inputs other than lithium compounds could significantly impact our prospects and future revenues. Many materials and technologies are being researched and developed with the goal of making batteries lighter, more efficient, faster charging and less expensive, and some of these could be less reliant on lithium compounds. We cannot predict which new technologies may ultimately prove to be commercially viable and on what time horizon. Commercialized battery technologies that use less lithium compounds could materially and adversely impact our prospects and future revenues.

We may have difficulty accessing global credit markets.

We expect to rely on cash generated from operations and external financing to fund our growth and ongoing capital needs. The expansion of our business or other business opportunities may require significant amounts of working capital. While we believe that our cash from operations and available borrowings under our revolving credit facility will be sufficient to meet these needs in the foreseeable future, if we need additional external financing, our access to credit markets and the pricing of our capital will be dependent upon maintaining sufficiently strong credit metrics and the state of the capital markets generally. There can be no assurances that we would be able to obtain equity or debt financing on terms we deem acceptable, and it is possible that the cost of any financings could increase significantly, thereby increasing our expenses and decreasing our net income. If we are unable to generate sufficient cash flow or raise adequate external financing, including as a result of significant disruptions in the global credit markets, we could be forced to restrict our operations and growth opportunities, which could adversely affect our operating results.

Risks Relating to Our Operations

We have substantial international operations and sales, and the risks of doing business in foreign countries could adversely affect our business, financial condition and results of operations.

We conduct a substantial portion of our business outside the United States. For the year ended December 31, 2017 and for the six months ended June 30, 2018, approximately 77% and 80%, respectively, of our revenues were derived from sales outside of the United States, of which approximately 44% and 47%, respectively, was denominated in a currency other than the U.S. Dollar (primarily the Chinese yuan and Euro) and approximately 28% and 15%, respectively, of our costs were denominated in a currency other than the U.S. Dollar (primarily the Argentine peso, Chinese yuan and British pound). We expect that the percentage of our revenues denominated in yuan will increase over time. Accordingly, our business is subject to risks related to foreign exchange as well as risks related to the differing legal, political, social and regulatory requirements and economic conditions of the many jurisdictions where we conduct business.

Changes in exchange rates between foreign currencies and the U.S. Dollar will affect the recorded levels of our assets, liabilities, net sales, cost of goods sold and operating margins and could result in exchange losses. Our results of operations may be adversely affected by any volatility in currency exchange rates and our ability to manage effectively our currency transaction and translation risks. Foreign currency debt and foreign exchange forward contracts are used in countries where we do business, thereby reducing our net asset exposure. Foreign exchange forward contracts are also used to hedge firm and highly anticipated foreign currency cash flows. The Argentine peso has recently declined significantly in value, and we currently do not hedge foreign currency risks associated with the Argentine peso due to the limited availability and high cost of suitable derivative instruments.

 

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In addition, it may be more difficult for us to enforce agreements or collect receivables through foreign legal systems. There is a risk that foreign governments may nationalize private enterprises in certain countries where we operate. In certain countries or regions, terrorist activities and the response to such activities may threaten our operations more than in the United States. Social and cultural norms in certain countries may not support compliance with our corporate policies including those that require compliance with substantive laws and regulations. Also, changes in general economic and political conditions in countries where we operate are a risk to our financial performance and future growth. Our sales depend on international trade and moves to impose tariffs and other trade barriers, as is happening in various countries including the United States, could negatively affect our sales and have a material adverse effect on our business, financial condition and results of operations.

We and our subsidiaries are also subject to rules and regulations related to anti-bribery, anti-corruption (such as the Foreign Corrupt Practices Act), anti-money laundering, trade sanctions and export controls. Compliance with such laws may be costly and violations of such laws may carry substantial penalties.

As we continue to operate our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and other related risks. There can be no assurance that the consequences of these and other factors relating to our international operations will not have an adverse effect on our business, financial condition or results of operations.

Our lithium extraction and production operations in Argentina expose us to specific political, financial and operational risks.

We obtain the substantial majority of our lithium from our operations in Argentina. Our operations in Argentina expose us to the following risks, and the occurrence of any of these risks could have a material adverse effect on our business, financial condition or results of operations:

 

   

Political and financial risks that are typical of developing countries, including: high rates of inflation; risk of expropriation and nationalization or changes in or nullification of concession rights; changes in taxation policies; restrictions on foreign exchange and repatriation; labor unrest; and changing political norms, currency controls and governmental regulations that favor or require us to award contracts in, employ citizens of, or purchase supplies from, Argentina. In particular, changes in mining or investment policies or shifts in political attitude in Argentina concerning mining may adversely affect our operations or profitability. There can be no assurance that future governments of Argentina will not impose greater state control of lithium resources, or take other actions that are adverse to us. Argentina has recently faced significant currency devaluation, high inflation and interest rates and labor unrest, and has recently reached a tentative agreement with the International Monetary Fund for a $50 billion line of credit, pursuant to which Argentina must make further reforms to its economy.

 

   

Operational risks stemming from our dependence upon mining concessions granted to us under the Argentine Mining Code. We hold title to these mining concessions in perpetuity until the deposit is exhausted of all minerals, provided that we pay annual mining fees and keep the mining concessions active in accordance with the Argentine Mining Code. Failure to pay the annual fees or to keep the mining concessions active may result in revocation of our mining concessions.

 

   

Risks associated with the loss or depletion of our mineral deposit. Our primary source for lithium is our current brine site at Salar del Hombre Muerto. In order to maintain our production capabilities, we will need to replace or supplement our lithium resources there in the event our access is disrupted or lost, whether due to a natural disaster, depletion or otherwise. Due to the current trend of growth in the lithium industry, there is no assurance that we will be able to discover or acquire new and valuable lithium resources, or that the actual production results will match the expected results.

 

   

Risks of certain natural disasters. Our lithium brines and related production facilities are located in a seismically active region in northwest Argentina. A major earthquake could have adverse consequences for our operations and for general infrastructure, such as roads, rail, and access to goods in Argentina.

 

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Risks associated with water rights and our access to water. Access to fresh water is essential to our production operations in Argentina; we hold water use rights granted to us by provincial Argentine authorities and will need to secure additional water rights for our planned production expansion. See “Business—Raw Materials—Water.” Our operations take place in a dry, mountainous region that has limited access to fresh water, and the governmental authority may alter our rights or the applicable water rights code may change, each of which may limit our access to fresh water. In addition, our access to water may be impacted by changes in geology, climate change (including the potential effects of climate change such as drought, changes in precipitation patterns, and severe weather events) or other natural factors, such as wells drying up or reductions in the amount of water available in the wells or sources from which we obtain water, that we cannot control. There can be no assurance that we will have access to sufficient quantities of water to support our production operations, including our planned production expansion, in the future.

Our operations are subject to hazards and other disruptions, which could adversely affect our reputation and results of operations.

We conduct large-scale lithium production operations in Argentina and own, operate and/or contract with large-scale manufacturing facilities in China, India, the United Kingdom and the United States. Our operating results will be dependent in part on the continued operation of the various production facilities and the ability to manufacture products on schedule. Interruptions at these facilities may materially reduce the productivity and profitability of a particular manufacturing facility, or our business as a whole, during and after the period of such operational difficulties. Our operations and those of our contract manufacturers are subject to hazards inherent in lithium production and manufacturing and the related storage and transportation of raw materials, products such as butyllithium, and wastes. These potential hazards include explosions, fires, severe weather and natural disasters, including earthquakes, mechanical failure, unscheduled downtimes, supplier disruptions, labor shortages or other labor difficulties (including widespread labor unrest in Argentina and Chile), information technology systems outages, disruption in our supply chain or manufacturing and distribution operations, transportation interruptions, chemical spills, discharges or releases of toxic or hazardous substances or gases, shipment of contaminated or off-specification product to customers, storage tank leaks, other environmental risks, or other sudden disruption in business operations beyond our control as a result of events such as acts of sabotage, terrorism or war, civil or political unrest, natural disasters, pandemic situations and large scale power outages. Some of these hazards may cause severe damage to or destruction of property and equipment or personal injury and loss of life and may result in suspension of operations or the shutdown of affected facilities, which could have a material adverse effect on our business, financial condition and results of operations.

We derive a substantial portion of our revenue from a limited number of customers, and the loss of, or a significant reduction in orders from, a large customer could have a material adverse effect on our business and operating results.

In any particular period, a substantial amount of our total revenue could come from a relatively small number of customers. For the year ended December 31, 2017, one customer accounted for approximately 14% of our total revenue. For the six months ended June 30, 2018, a separate customer accounted for approximately 10% of our total revenue. Our ten largest customers accounted in the aggregate for approximately 45% and 51% of our total revenue for the year ended December 31, 2017 and the six months ended June 30, 2018, respectively. It is likely that we will continue to derive a significant portion of our revenue from a relatively small number of customers in the future. If we were to lose any material customer, such loss could have a material adverse effect on our business, financial condition and results of operations.

 

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We may not satisfy customers’ or governments’ quality standards, and we could be subject to damages based on claims brought against us or lose customers as a result of the failure of our products to meet certain quality standards.

Since our products are derived from natural resources, they may contain inorganic impurities that may not meet certain customer or government quality standards. As a result, we may not be able to sell our products if we cannot meet such requirements. In addition, customers may impose stricter quality standards on our products or governments may enact stricter regulations for the distribution or use of our products. Failure to meet such standards could materially adversely affect our business, financial condition and results of operations if we are unable to sell our products in one or more markets or to important customers in such markets. In addition, our cost of production may increase to meet any newly imposed or enacted standards.

We warrant to our customers that our products conform to mutually agreed product specifications. If a product fails to meet warranted quality specifications, a customer could seek a replacement, the refund of the purchase price or damages for costs incurred as a result of the product failing to meet the specification. In addition, because many of our products are integrated into our customers’ products, such as in lithium-ion batteries in automobiles, we may be requested to participate in, or fund in whole or in part the costs of, a product recall conducted by a customer, even though we generally seek to limit our liability for such matters in contracts with our customers.

In addition, we utilize third parties to produce a portion of our lithium hydroxide using our proprietary process and to produce lithium metal. We endeavor to contract with third-party manufacturers that we believe are able to meet our delivery schedule and other requirements. Nevertheless, we may not be able to monitor the performance of these third parties as directly and efficiently as we do our own production facilities. As a result, we are exposed to the risk that our third-party providers may fail to perform their contractual obligations, which may in turn adversely affect our business, financial condition and results of operations.

As with all quality control systems, any failure or deterioration of our quality control systems could result in defects in our projects or products, which in turn may subject us to contractual, product liability and other claims. Any such claims, regardless of whether they are ultimately successful, could cause us to incur significant costs, harm our business reputation and result in significant disruption to our operations. Furthermore, if any such claims were ultimately successful, we could be required to pay substantial monetary damages or penalties, which could have a material adverse effect on our reputation, business, financial condition and results of operations.

Fluctuations in the price of energy and certain raw materials, and our inability to obtain raw materials and products under contract sourcing arrangements, could have an adverse effect on the margins of our products, our business, financial condition and our results of operations.

The long-term profitability of our operations will be, in part, related to our ability to continue to economically and reliably obtain resources, including energy, raw materials, and finished products. Our raw material and energy costs can be volatile and may increase significantly. We enter into long-term contracts for most of our products and these contracts are often at fixed prices or otherwise do not permit us to pass on increased costs in sale prices immediately or at all. To the extent we are unable to obtain such resources or to pass on increases in the prices of energy and raw materials to our customers, our financial condition and results of operations could be materially adversely affected. In addition, we source a significant portion of our intermediate and finished products through contract manufacturing arrangements. An inability to obtain these products or execute under these arrangements would adversely impact our ability to sell products and could have an adverse effect on our business, financial condition and results of operations.

Our success depends upon our ability to attract and retain key employees and the identification and development of talent to succeed senior management.

Our success depends on our ability to attract and retain key personnel, and we rely heavily on our senior management team. The inability to recruit and retain key personnel, including personnel with technical skills, or

 

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the unexpected loss of such personnel may adversely affect our operations. This risk is further enhanced by the planned separation from FMC. In addition, because of our reliance on our senior management team, our future success depends, in part, on our ability to identify and develop or recruit talent to succeed our senior management and other key positions throughout the organization. If we fail to identify and develop or recruit successors, we are at risk of being harmed by the departures of these key employees.

Some of our employees are unionized or are employed subject to local laws that are less favorable to employers than the laws of the United States.

As of June 30, 2018, we had approximately 750 employees. A large number of our employees are employed in countries in which employment laws provide greater bargaining or other rights to employees than the laws of the United States. Such employment rights require us to work collaboratively with the legal representatives of the employees to effect any changes to labor arrangements. For example, most of our employees in Argentina are represented by a union that must approve any changes in conditions of employment, including salaries and benefits and staff changes, and may impede efforts to restructure our workforce. In prior years, we have had to negotiate wage increases for our employees with the union because of inflation in Argentina and will be expected to do so in the future, which is typical for all companies with unions in Argentina. Although we believe that we have a good working relationship with our employees, a strike, work stoppage, slowdown or significant dispute with our employees could result in a significant disruption of our operations or higher ongoing labor costs.

Our business and operations could suffer in the event of cybersecurity breaches or disruptions to our information technology environment.

As with all enterprise information systems, our information technology systems could be penetrated by outside parties intent on extracting information, corrupting information, or disrupting business processes. Our systems, which contain critical information about our business (including intellectual property and confidential information of our customers, vendors and employees), have in the past been, and likely will in the future be, subject to unauthorized access attempts. Unauthorized access could disrupt our business operations and could result in failures or interruptions in our computer systems and in the loss of assets (including our intellectual property and confidential business information), which could harm our competitive position, reduce the value of our investment in research and development and other strategic initiatives or otherwise have a material adverse effect on our business, financial condition or results of operations. In addition, breaches of our security measures or the accidental loss, inadvertent disclosure, or unapproved dissemination of proprietary information or sensitive or confidential information about the company, our employees, our vendors, or our customers, could result in litigation, violations of various data privacy regulations in some jurisdictions, and also potentially result in liability to us. This could damage our reputation, or otherwise harm our business, financial condition, or results of operations, and the devotion of additional resources to the security of our information technology systems in the future could significantly increase the cost of doing business.

Our inability to protect our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.

Protection of our proprietary processes, methods, formulations, and compounds, the incorporation of such formulations and compounds into various products and other technology is important to our business. Although our existing processes and products may not be protected or protectable by patents, we generally rely on the intellectual property laws of the United States and certain other countries in which our products are produced or sold, as well as licenses and nondisclosure and confidentiality agreements, to protect our intellectual property rights. Additionally, the patent, trade secret and trademark laws of some countries, or their enforcement, may not protect our intellectual property rights to the same extent as the laws of the United States. Failure to protect our intellectual property rights may result in the loss of valuable proprietary technologies. If patents are issued to us, those patents may not provide meaningful protection against competitors or against competitive technologies. We cannot assure you that our intellectual property rights will not be challenged, invalidated, circumvented or rendered unenforceable.

 

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From time to time, we may license or otherwise obtain certain intellectual property rights from third parties and we endeavor to do so on terms favorable to us. However, we may not be able to license or otherwise obtain intellectual property rights on such terms or at all, which could have a material adverse effect on our ability to create a competitive advantage and create innovative solutions for our customers, which will adversely affect our net sales and our relationships with our customers.

With respect to unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets necessary to develop and maintain our competitive position, while we generally enter into confidentiality agreements with our employees and third parties to protect our intellectual property, we cannot assure you that our confidentiality agreements will not be breached, that they will provide meaningful protection for our trade secrets and proprietary manufacturing expertise or that adequate remedies will be available in the event of an unauthorized use or disclosure of our trade secrets or manufacturing expertise. In addition, our trade secrets and know-how may be improperly obtained by other means, such as a breach of our information technology security systems or direct theft.

If we fail to successfully enforce our intellectual property rights, our competitive position could suffer. We may also be required to spend significant resources to monitor and police our intellectual property rights. Similarly, if we were to infringe on the intellectual property rights of others, our competitive position could suffer. Furthermore, other companies may duplicate or reverse engineer our technologies or design around our patents.

In some instances, litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products infringe their intellectual property rights. Any litigation or claims brought by or against us, whether with or without merit, could result in substantial costs to us and divert the attention of our management, which could harm our business and results of operations. In addition, any intellectual property litigation or claims against us could result in the loss or compromise of our intellectual property and proprietary rights, subject us to significant liabilities, require us to seek licenses on unfavorable terms, prevent us from manufacturing or selling certain products or require us to redesign certain products, any of which could harm our business and results of operations.

We have not established “proven” or “probable” reserves, as defined by the SEC under Industry Guide 7, through the completion of a feasibility study for the minerals that we produce.

We have not established proven or probable reserves, as defined by the SEC under Industry Guide 7, through the completion of a “final” or “bankable” feasibility study for any of the minerals that we produce. Since we conduct operations without having established proven or probable reserves, there may be greater inherent uncertainty as to whether or not mineralized material can be economically obtained as originally planned and anticipated. In addition, we do not at present plan to conduct exploration activities or other activities to establish reserves. Because we do not have any proven or probable reserves, there can be no assurance that a commercially viable deposit exists to support production at existing levels or to expand our production capacity in the future, which could have a material adverse effect on our business, financial condition and results of operations.

Regulatory and Governmental Risks

Our business and financial results may be adversely affected by various legal and regulatory proceedings.

We are involved from time to time in legal and regulatory proceedings, which may be material in the future. The outcome of proceedings, lawsuits and claims may differ from our expectations, leading us to change estimates of liabilities and related insurance receivables.

Legal and regulatory proceedings, whether with or without merit, and associated internal investigations, may be time-consuming and expensive to prosecute, defend or conduct, divert management’s attention and other resources, inhibit our ability to sell our products, result in adverse judgments for damages, injunctive relief, penalties and fines, and otherwise negatively affect our business.

 

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We, our operations, facilities, products and raw materials are subject to environmental, health and safety laws and regulations, and costs to comply with, and liabilities related to, these laws and regulations could adversely affect our business.

We are subject to extensive federal, state, local, and foreign environmental and safety laws, regulations, directives, rules and ordinances concerning, among other things, employee health and safety, the composition of our products, the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the usage and availability of water, the cleanup of contaminated properties (including the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, in the U.S., and similar foreign and state laws) and the reclamation of our brine extraction operations and certain other assets at the end of their useful life. In addition, our production facilities require numerous operating permits. Due to the nature of these requirements and changes in our operations, we may incur substantial capital and operating costs, which may have a material adverse effect on our results of operations.

We may also incur substantial costs, including fines, damages, criminal or civil sanctions and remediation costs, or experience interruptions in our operations, for violations arising under these laws and regulations or permit requirements. In addition, we may be required to either modify existing or obtain new permits to meet our capacity expansion plans. We may be unable to modify or obtain such permits or if we can, it may be costly to do so. Furthermore, environmental, health and safety laws and regulations are subject to change and have become increasingly stringent in recent years. Future environmental, health and safety laws and regulations could require us to alter our production processes, acquire pollution abatement or remediation equipment, modify our products or incur other expenses, which could harm our business and results of operations.

If we violate environmental, health and safety laws or regulations, in addition to being required to correct such violations, we can be held liable in administrative, civil or criminal proceedings for substantial fines and other sanctions could be imposed that could disrupt or limit our operations. Liabilities associated with the investigation and cleanup of hazardous substances, as well as personal injury, property damages or natural resource damages arising from the release of, or exposure to, such hazardous substances, may be imposed without regard to violations of laws or regulations or other fault, and may also be imposed jointly and severally. Such liabilities may also be imposed on many different entities, including, for example, current and prior property owners or operators, as well as entities that arranged for the disposal of the hazardous substances.

We have in the past, and may in the future, be subject to claims by third parties or employees relating to exposure to hazardous materials and the associated liabilities may be material. We also have generated, and continue to generate, hazardous wastes at a number of our facilities, including our Bessemer City, North Carolina facility. Additional information may arise in the future concerning the nature or extent of our liability with respect to Bessemer City, North Carolina, and additional sites may be identified for which we are alleged to be liable, that could cause us to materially increase our environmental accrual or the upper range of the costs we believe we could reasonably incur for such matters.

Unanticipated changes in our tax provisions, variability of our effective tax rate, the adoption of new tax legislation or exposure to additional tax liabilities could impact our financial performance.

We operate in multiple jurisdictions, which contributes to the volatility of our effective tax rate. Our future effective tax rates may be materially impacted by numerous items including: a future change in the composition of earnings from foreign and domestic tax jurisdictions; accounting for uncertain tax positions; business combinations; expiration of statutes of limitations or settlement of tax audits; changes in valuation allowances; and changes in tax law. We have a tax stability certificate in Argentina as a result of which our tax burden is determined at 1996 levels and cannot be increased as a result of changes in Argentine federal, provincial and municipal tax rates. This certificate will expire in 2026, and there can be no assurance that our certificate will be renewed on similar terms or at all. Upon expiration of our certificate, our tax burden will no longer be limited to

 

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1996 levels (which approximate current levels) and will be determined by the tax rates in effect at such time or as amended from time to time, which could be materially higher.

We are also subject to ongoing tax audits in various jurisdictions. Tax authorities may disagree with our intercompany charges, cross-jurisdictional transfer pricing or other matters, and may assess additional taxes as a result. There can be no assurance that we will accurately predict the outcomes of these audits, and the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and therefore could have a material impact on our tax provision, net income and cash flows. If these audits result in assessments different from amounts reserved, future financial results may include unfavorable adjustments to our tax liabilities.

Risks Related to the Separation

We may not realize the anticipated benefits from the Separation, and the Separation could harm our business.

We have historically operated as a business segment of FMC. We may not be able to achieve the full strategic and financial benefits expected to result from the Separation, or such benefits may be delayed or not occur at all. The Separation is expected to enhance strategic and management focus, provide a distinct investment identity and allow us to efficiently allocate resources and deploy capital. We may not achieve these and other anticipated benefits for a variety of reasons, including, among others:

 

   

the Separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business;

 

   

following the Separation, we may be more susceptible to economic downturns and other adverse events than if we were still a part of FMC;

 

   

following the Separation, our business will be less diversified than FMC’s business prior to the Separation; our business will also experience a loss of scale and purchasing power and access to certain financial, managerial and professional resources from which we have benefited at lower cost in the past; and

 

   

the other actions required to separate the respective businesses could disrupt our operations.

If we fail to achieve some or all of the benefits expected to result from the Separation, or if such benefits are delayed, our business could be harmed.

We have no history of operating as an independent company, and our historical and unaudited pro forma financial information is not necessarily representative of the results that we would have achieved as an independent, publicly traded company and may not be a reliable indicator of our future results.

Our historical and unaudited pro forma financial information included in this prospectus is not necessarily indicative of our future results of operations, financial condition or cash flows, nor does it reflect what our results of operations, financial condition or cash flows would have been as an independent public company during the periods presented. In particular, the historical financial information included in this prospectus is not necessarily indicative of our future results of operations, financial condition or cash flows primarily because of the following factors:

 

   

Prior to the Separation, our business has been operated by FMC as part of its broader corporate organization, rather than as an independent company; FMC or one of its affiliates provide support for various corporate functions for us, such as information technology, compensation and benefits, human resources, engineering, finance and internal audit.

 

   

Our historical financial results reflect the direct, indirect and allocated costs for such services historically provided by FMC. Following the Separation, FMC will continue to provide some of these

 

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services to us on a transitional basis, generally for a period of up to two years pursuant to a Transition Services Agreement that we will enter into with FMC. See “Certain Relationships and Related Party Transactions—Relationship with FMC.” Our historical financial information does not reflect our obligations under the various transitional and other agreements we will enter into with FMC in connection with the Separation, though costs under such agreements are expected to be broadly similar to what was charged to the business in the past. At the end of this transition period, we will need to perform these functions ourselves or hire third parties to perform these functions on our behalf, and these costs may differ significantly from the comparable expenses we have incurred in the past.

 

   

Our working capital requirements and capital expenditures historically have been satisfied as part of FMC’s corporate-wide cash management and centralized funding programs, and our cost of debt and other capital may significantly differ from the historical amounts reflected in our historical financial statements.

 

   

Currently, our business is integrated with that of FMC and we benefit from FMC’s size and scale in costs, employees and vendor and customer relationships. Thus, costs we will incur as an independent company may significantly exceed comparable costs we would have incurred as part of FMC.

We based the pro forma adjustments included in this prospectus on available information and assumptions that we believe are reasonable; actual results, however, may vary. In addition, our unaudited pro forma financial information included in this prospectus may not give effect to various ongoing additional costs we may incur in connection with being an independent public company. Accordingly, our unaudited pro forma financial statements do not reflect what our results of operations, financial condition or cash flows would have been as an independent public company and are not necessarily indicative of our future financial condition or future results of operations.

Please refer to “Unaudited Pro Forma Condensed Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited historical financial statements and the notes to those statements included elsewhere in this prospectus.

The Distribution may not occur.

FMC has no obligation to complete the Distribution. Whether FMC proceeds with the Distribution, in whole or in part, is subject to a number of conditions, including but not limited to the receipt of any necessary regulatory or other approvals, the existence of satisfactory market conditions and the receipt of an opinion of counsel to the effect that such Distribution will be tax-free to FMC and its stockholders. FMC has the right to abandon or change the structure of the Distribution if FMC determines, in its sole discretion, that the Distribution is not in the best interest of FMC or its stockholders. Furthermore, if the Distribution does not occur, or if FMC does not otherwise dispose of its shares of our common stock, the risks relating to FMC’s control of us and the potential business conflicts of interest between FMC and us will continue to be relevant to our stockholders. The liquidity of shares of our common stock in the market may be constrained for as long as FMC continues to hold a significant position in our stock. A lack of liquidity in our common stock could depress the price of our common stock.

Until completion of the Distribution, FMC will control the direction of our business, and the concentrated ownership of our common stock and our entry into a shareholders’ agreement in connection with this offering will prevent you and other stockholders from influencing significant decisions.

Immediately following the completion of this offering, FMC will own approximately     % of our outstanding common stock (or     % if the underwriters exercise their option to purchase additional shares in full). As long as FMC beneficially controls a majority of the voting power of our outstanding common stock with respect to a particular matter, it will generally be able to determine the outcome of all corporate actions requiring stockholder approval, including the election and removal of directors. Even if FMC were to control less than a

 

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majority of the voting power of our outstanding common stock, it may be able to influence the outcome of such corporate actions so long as it owns a significant portion of our common stock. If FMC does not complete the Distribution or otherwise dispose of its shares of our common stock, it could remain our controlling stockholder for an extended period of time or indefinitely.

FMC’s interests may not be the same as, or may conflict with, the interests of our other stockholders. Investors in this offering will not be able to affect the outcome of any stockholder vote while FMC controls the majority of the voting power of our outstanding common stock. As a result, FMC will be able to control, directly or indirectly and subject to applicable law, all matters affecting us, including:

 

   

any determination with respect to our business direction and policies, including the appointment and removal of officers and directors;

 

   

any determinations with respect to mergers, business combinations or dispositions of assets;

 

   

our financing and dividend policy, and the payment of dividends on our common stock, if any;

 

   

compensation and benefit programs and other human resources policy decisions;

 

   

changes to any other agreements that may adversely affect us; and

 

   

determinations with respect to our tax returns.

In addition, pursuant to a shareholders’ agreement to be entered into by us and FMC in connection with this offering, until FMC ceases to hold a majority of our common stock, we will not be permitted, without FMC’s consent, to take certain significant actions, including any action that would restrict or limit FMC’s ability to freely sell or transfer its shares of our common stock, any action that could result in FMC being in breach or in default under any of its outstanding indebtedness or certain actions with respect to offering or selling equity securities, incurring indebtedness or entering into material transactions. As a result, our ability to take such actions may be delayed or prevented, including actions that our other shareholders, including you, may consider favorable. We will not be able to terminate or amend the shareholders’ agreement, except in accordance with its terms. See “Certain Relationships and Related Party Transactions—Relationship with FMC—Shareholders’ Agreement.”

Because FMC’s interests may differ from ours or from those of our other stockholders, actions that FMC takes with respect to us, as our controlling stockholder and pursuant to its rights under the shareholders’ agreement, may not be favorable to us or our other stockholders.

If FMC sells a controlling interest in our company to a third party in a private transaction, you may not realize any change-of-control premium on shares of our common stock and we may become subject to the control of a presently unknown third party.

Following the completion of this offering, FMC will continue to own a significant equity interest in our company. FMC will have the ability, should it choose to do so, to sell some or all of its shares of our common stock in a privately negotiated transaction, which, if sufficient in size, could result in a change of control of our company.

The ability of FMC to privately sell its shares of our common stock, with no requirement for a concurrent offer to be made to acquire all of the shares of our common stock that will be publicly traded hereafter, could prevent you from realizing any change-of-control premium on your shares of our common stock that may otherwise accrue to FMC on its private sale of our common stock. Additionally, if FMC privately sells its significant equity interests in our company, we may become subject to the control of a presently unknown third party. Such third party may have interests that conflict with those of other stockholders.

 

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After the Separation, some of our directors and officers may have actual or potential conflicts of interest because of their equity ownership in FMC, and some of our directors may have actual or potential conflicts of interest because they also serve as officers of FMC.

Because of their current or former positions with FMC, following the Separation, some of our directors and executive officers may own shares of FMC common stock or have options to acquire shares of FMC common stock, and the individual holdings may be significant for some of these individuals compared to their total assets. In addition, following the Separation, certain of our directors will also serve as officers or directors of FMC. Although all transactions with related parties after this offering will be approved by a committee of non-FMC-affiliated directors, this ownership or service may create the appearance of conflicts of interest when the FMC-affiliated directors and officers are faced with decisions that could have different implications for FMC or us. For example, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between FMC and us regarding the terms of the agreements governing the Separation and the relationship thereafter between the companies.

If FMC completes the Distribution, and there is a determination that the Separation and the Distribution is taxable for U.S. federal income tax purposes, then FMC and its stockholders could incur significant U.S. federal income tax liabilities, and we could incur significant liabilities.

If pursued, completion by FMC of the Distribution would be conditioned on, among other things, the receipt of a tax opinion from counsel that the Distribution, together with certain related transactions, will qualify as a tax-free “reorganization” within the meaning of Section 368(a)(1)(D) of the Internal Revenue Code (the “Code”) and a tax-free distribution within the meaning of Section 355 of the Code. The opinion will rely on certain facts, assumptions, representations and undertakings from FMC and us regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not otherwise satisfied, FMC and its stockholders may not be able to rely on the opinion of counsel and could be subject to significant tax liabilities. Notwithstanding the opinion of counsel, the Internal Revenue Service (“IRS”) could determine on audit that the Separation and the Distribution is taxable if it determines that any of these facts, assumptions, representations or undertakings is not correct or has been violated or if it disagrees with the conclusions in the opinion, or for other reasons, including as a result of certain significant changes in the stock ownership of FMC or us after the Distribution. If the Separation and the Distribution is determined to be taxable for U.S. federal income tax purposes, FMC and/or its stockholders could incur significant U.S. federal income tax liabilities, and we could incur significant liabilities under applicable law or as a result of the Tax Matters Agreement.

We will be subject to numerous restrictions to preserve the tax-free nature of the Separation and Distribution, which may reduce our strategic and operating flexibility.

To preserve the tax-free treatment to FMC and its stockholders of the Separation and the potential Distribution, under the Tax Matters Agreement we will generally be prohibited from taking certain actions including:

 

   

during the two-year period following the Distribution (or otherwise pursuant to a “plan” within the meaning of Section 355(e) of the Code), we may not cause or permit certain business combinations or transactions to occur;

 

   

during the two-year period following the Distribution, we may not discontinue the active conduct of our business (within the meaning of Section 355(b)(2) of the Code);

 

   

during the two-year period following the Distribution, we may not sell or otherwise issue our common stock, other than pursuant to issuances that satisfy certain regulatory safe harbors set forth in Treasury regulations related to stock issued to employees and retirement plans;

 

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during the two-year period following the Distribution, we may not redeem or otherwise acquire any of our common stock, other than pursuant to certain open-market repurchases of less than 20% of our common stock (in the aggregate);

 

   

during the two-year period following the Distribution, we may not amend our certificate of incorporation (or other organizational documents) or take any other action, whether through a stockholder vote or otherwise, affecting the voting rights of our common stock; and

 

   

more generally, we may not take any action that could reasonably be expected to cause the Separation and the Distribution to fail to qualify as tax-free transactions under Section 368(a)(1)(D) and Section 355 of the Code.

If we wish to take any such restricted action, we are required to cooperate with FMC to obtain an IRS ruling or obtain an unqualified tax opinion, in each case to the effect that the action will not affect the tax-free treatment to FMC and its stockholders of the Separation and the Distribution. In the event such actions result in tax-related losses to FMC, we generally will be required to indemnify FMC for such tax-related losses under the Tax Matters Agreement. See “Certain Relationships and Related Party Transactions—Relationship with FMC—Tax Matters Agreement.” Due to these restrictions and indemnification obligations under the Tax Matters Agreement, we may be limited in our ability to pursue strategic transactions, equity or convertible debt financings or other transactions that may otherwise be in our best interests. Also, our potential indemnity obligation to FMC might discourage, delay or prevent a change of control that our stockholders may consider favorable.

We potentially could have received better terms from unaffiliated third parties than the terms we received in our agreements with FMC.

The agreements we entered into with FMC in connection with the Separation were negotiated while we were still part of FMC’s business. See “Certain Relationships and Related Party Transactions—Relationship with FMC.” Accordingly, during the period in which the terms of those agreements will have been negotiated, we did not have an independent board of directors or a management team independent of FMC. The terms of the agreements negotiated in the context of the Separation relate to, among other things, the allocation of assets, intellectual property, liabilities, rights and other obligations between FMC and us, and arm’s-length negotiations between FMC and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business, may have resulted in more favorable terms to the unaffiliated third party.

FMC has agreed to indemnify us for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that FMC’s ability to satisfy its indemnification obligation will not be impaired in the future.

Pursuant to the separation and distribution agreement and certain other agreements with FMC, FMC has agreed to indemnify us for certain liabilities. However, third parties could also seek to hold us responsible for any of the liabilities that FMC has agreed to retain, and there can be no assurance that the indemnity from FMC will be sufficient to protect us against the full amount of such liabilities, or that FMC will be able to fully satisfy its indemnification obligations in the future. Even if we ultimately succeed in recovering from FMC any amounts for which we are held liable, we may be temporarily required to bear these losses. Each of these risks could negatively affect our business, financial condition, results of operations and cash flows.

Risks Related to this Offering and Ownership of Our Common Stock

There may not be an active, liquid trading market for our common stock.

Prior to this offering, there has been no public market for shares of our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on the NYSE or how liquid that market may become. If an active trading market does not develop, you may have

 

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difficulty selling any of our common stock that you purchase. The initial public offering price of shares of our common stock is, or will be, determined by negotiation between us and the underwriters and may not be indicative of prices that will prevail following the completion of this offering. The market price of shares of our common stock may decline below the initial public offering price, and you may not be able to resell your shares of our common stock at or above the initial public offering price.

Our stock price may fluctuate significantly, and you may not be able to resell your shares at or above the initial public offering price.

The trading price of our common stock is likely to be volatile and subject to wide price fluctuations in response to various factors, including:

 

   

market conditions in the broader stock market in general, or in our industry in particular;

 

   

actual or anticipated fluctuations in our quarterly financial and operating results;

 

   

introduction of new products and services by us or our competitors;

 

   

issuance of new or changed securities analysts’ reports or recommendations;

 

   

sales of large blocks of our stock;

 

   

additions or departures of key personnel;

 

   

regulatory developments;

 

   

litigation and governmental investigations;

 

   

economic and political conditions or events; and

 

   

changes in investor perception of our market positions based on third-party information.

These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business.

The trading market for our common stock will also be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline.

We will be a “controlled company” within the meaning of the rules of the NYSE and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

Upon completion of this offering, FMC will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

   

the requirement that a majority of the Board of Directors consist of independent directors;

 

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the requirement that our nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the requirement that our compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

While FMC controls a majority of the voting power of our outstanding common stock, we may not have a majority of independent directors or our nominating and corporate governance and compensation committees may not consist entirely of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE. Upon completion of the Distribution, we will no longer qualify as a controlled company and will be required to fully implement NYSE corporate governance requirements within one year of the Distribution.

The Distribution or future sales by FMC or others of our common stock, or the perception that the Distribution or such sales may occur, could depress our common stock price.

Immediately following the completion of this offering, FMC will own approximately     % of our outstanding common stock (or     % if the underwriters exercise their option to purchase additional shares in full). Subject to the restrictions described in the paragraph below, future sales of these shares in the public market will be subject to the volume and other restrictions of Rule 144 under the Securities Act of 1933 (the “Securities Act”), for so long as FMC is deemed to be our affiliate, unless the shares to be sold are registered with the SEC. We have granted certain registration rights to FMC. See “Shares Eligible for Future Sale.” We are unable to predict with certainty whether or when FMC will sell a substantial number of shares of our common stock to the extent it retains shares following the Distribution or in the event the Distribution does not occur. The Distribution or sale by FMC of a substantial number of shares after this offering, or a perception that the Distribution or such sales could occur, could significantly reduce the market price of our common stock.

We, our officers and directors and FMC have agreed with the underwriters that, without the prior written consent of the representative of the underwriters, we and they will not, subject to certain exceptions, during the period ending 180 days after the date of this prospectus, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or enter into any swap or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock or publicly disclose the intention to make any such offer, sale, pledge or disposition. The representative of the underwriters may, in its sole discretion and at any time without notice, release all or any portion of the shares of our common stock subject to the lock-up. The lock-up agreement with FMC contains an exception that permits FMC to effect the Distribution beginning 120 days after the date of this prospectus. See “Underwriting.”

Immediately following this offering, we intend to file a registration statement registering under the Securities Act the shares of our common stock reserved for issuance under our equity compensation plan. If equity securities granted under our equity compensation plan are sold or it is perceived that they will be sold in the public market, the trading price of our common stock could decline substantially. These sales also could impede our ability to raise future capital.

Some provisions of Delaware law and our certificate of incorporation and bylaws may deter third parties from acquiring us.

Our certificate of incorporation and bylaws provide for, among other things:

 

   

a staggered board and restrictions on the ability of our stockholders to fill a vacancy on the Board of Directors;

 

   

the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

 

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a requirement that certain business combinations with interested stockholders arising after the date on which no person or group owns a majority of the voting power of our common stock must be approved by the holders of at least 80% of the voting power of our common stock;

 

   

advance notice requirements for stockholder proposals; and

 

   

a requirement that, after such time as no person or group holds a majority of the voting power of our common stock, our stockholders may not take action by written consent without a duly called annual or special meeting.

These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions than you desire.

We have not decided yet if we will pay cash dividends.

We have not yet decided whether to pay any cash dividends or to retain all available funds for use in the operation and expansion of our business. Any future determination to pay dividends will be at the discretion of our Board of Directors in accordance with applicable law and will be dependent upon then-existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that our Board of Directors considers relevant.

New investors in our common stock will experience immediate and substantial book value dilution after this offering.

The initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of the outstanding common stock immediately after the offering. Based on an assumed initial public offering price of $        per share (the midpoint of the price range set forth on the cover of this prospectus) and our net tangible book value as of June 30, 2018, if you purchase our common stock in this offering you will pay more for your shares than the amounts paid by our existing stockholders for their shares and you will suffer immediate dilution of approximately $        per share in pro forma net tangible book value. As a result of this dilution, investors purchasing stock in this offering may receive significantly less than the full purchase price that they paid for the shares purchased in this offering in the event of a liquidation. See “Dilution.”

Our internal controls over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.

Prior to the Separation, we were a business segment of FMC, and FMC is subject to Section 404 of the Sarbanes-Oxley Act. However, upon completion of this offering, we will not be required to comply with SEC rules that implement Section 404 of the Sarbanes-Oxley Act and therefore will not be required to make a formal assessment of the effectiveness of our internal controls over financial reporting for that purpose. Section 404(a) of the Sarbanes-Oxley Act, or Section 404(a), requires that beginning with our second annual report following our initial public offering, management assess and report annually on the effectiveness of our internal control over financial reporting and identify any material weaknesses in our internal control over financial reporting. Although Section 404(b) of the Sarbanes-Oxley Act, or Section 404(b), requires our independent registered public accounting firm to issue an annual report that addresses the effectiveness of our internal control over financial reporting, we have opted to rely on the exemptions provided in the JOBS Act, and consequently will not be required to comply with SEC rules that implement Section 404(b) until such time as we are no longer an “emerging growth company.” We expect our first Section 404(a) assessment will take place for our annual report for the fiscal year ending December 31, 2019, and we will not be required to comply with Section 404(b) rules

 

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until we cease to be an “emerging growth company” as defined in the JOBS Act. In order to comply with these rules, we expect to incur additional expenses and devote increased management effort toward ensuring compliance. To maintain and improve the effectiveness of our disclosure controls and procedures, we will need to commit significant resources, hire additional staff and provide additional management oversight. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

When evaluating our internal controls over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or the impact of the same on our operations. If we are not able to implement the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting, and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could negatively affect our results of operations and cash flows.

The obligations associated with being a public company will require significant resources and management attention.

Currently, we are not directly subject to the reporting and other requirements of the Exchange Act. Following the effectiveness of the registration statement of which this prospectus forms a part, we will be directly subject to such reporting and other obligations under the Exchange Act and the rules of the NYSE. As an independent public company, we are required to, among other things:

 

   

prepare and distribute periodic reports, proxy statements and other stockholder communications in compliance with the federal securities laws and NYSE rules;

 

   

have our own board of directors and committees thereof, which comply with federal securities laws and NYSE rules;

 

   

maintain an internal audit function;

 

   

institute our own financial reporting and disclosure compliance functions;

 

   

establish an investor relations function;

 

   

establish internal policies, including those relating to trading in our securities and disclosure controls and procedures; and

 

   

comply with the rules and regulations implemented by the SEC, the Sarbanes-Oxley Act, the Dodd-Frank Act, the Public Company Accounting Oversight Board and the NYSE.

These reporting and other obligations will place significant demands on our management and our administrative and operational resources, including accounting resources, and we expect to face increased legal, accounting, administrative and other costs and expenses relating to these demands that we had not incurred as a segment of FMC. Certain of these functions will be provided on a transitional basis by FMC pursuant to a transition services agreement. See “Certain Relationships and Related Party Transactions—Relationship with FMC—Transition Services Agreement.” Our investment in compliance with existing and evolving regulatory

 

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requirements will result in increased administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities, which could have an adverse effect on our business, financial condition, results of operations and cash flows.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made statements under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Industry Overview,” “Business” and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Risk Factors.” You should specifically consider the numerous risks outlined under “Risk Factors.”

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations.

 

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USE OF PROCEEDS

Assuming an initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, we estimate that the net proceeds to us from the sale of our common stock in this offering will be $             (or $             if the underwriters exercise in full their option to purchase additional shares of common stock from us), after deducting estimated underwriting discounts and commissions and estimated offering expenses. We intend to use the net proceeds from this offering to make a distribution to FMC.

DIVIDEND POLICY

We have not yet decided whether to pay any cash dividends or to retain all available funds for use in the operation and expansion of our business. Any future determination to pay dividends will be at the discretion of our Board of Directors in accordance with applicable law and will be dependent upon then-existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that our Board of Directors considers relevant.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2018 on a historical basis and on a pro forma basis to reflect the Transactions, as defined in “Prospectus Summary—Summary Historical and Unaudited Pro Forma Combined Financial Data.”

The information below is not necessarily indicative of what our cash and cash equivalents and capitalization would have been had the Separation been completed as of June 30, 2018. In addition, it is not indicative of our future cash and cash equivalents and capitalization. This table is derived from, and is qualified in its entirety by reference to, our historical and pro forma financial statements and the notes thereto included elsewhere in this prospectus, and should be read in conjunction with “Unaudited Pro Forma Condensed Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our combined financial statements and notes thereto included elsewhere in this prospectus.

 

     June 30, 2018  
(In Millions, except share and par value data)    Actual      Pro Forma  

Cash and cash equivalents

   $ 1.5      $            
  

 

 

    

 

 

 

Long-term debt(1)

   $ —        $ —    

Stockholders’ equity:

     

Net parent investment

     510.3     

Preferred stock, $0.001 par value per share,        shares authorized,          shares outstanding, actual;        shares authorized, zero shares outstanding, pro forma

     —       

Common stock, $0.001 par value per share,        shares authorized,        shares outstanding, actual;        shares authorized,        shares outstanding, pro forma

     —       

Accumulated other comprehensive income (loss)

     (46.8   

Additional paid-in capital

     —       

Total stockholders’ equity

   $ 463.5      $    
  

 

 

    

 

 

 

Total capitalization

   $ 463.5      $    
  

 

 

    

 

 

 

 

(1)

We also expect to have an undrawn $400 million revolving credit facility.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per share of our common stock after this offering. Dilution results from the fact that the initial public offering price per share of our common stock is substantially in excess of the net tangible book value per share of our common stock for our presently outstanding shares of common stock.

Our pro forma net tangible book value at June 30, 2018 would have been approximately $        , or $         per share of our common stock based on            shares of our common stock issued and outstanding after giving effect to the Separation. Pro forma and net tangible book value is defined as our tangible assets, minus total liabilities, on a pro forma basis giving effect to the Separation but not this offering.

After giving effect to (i) the sale by us of             shares of our common stock at an initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, after deducting the underwriting discounts, estimated offering expenses and other related transaction costs payable by us, and the use of the estimated net proceeds as described under “Use of Proceeds” and (ii) the Transactions, our pro forma net tangible book value at June 30, 2018 would have been approximately $            , or $            per share of our common stock.

The following table illustrates the immediate increase in book value of $            per share to our existing stockholder and the immediate dilution of $            per share to new investors purchasing common stock in this offering:

 

Assumed initial public offering price per share

      $                

Net tangible book value per share prior to this offering at June 30, 2018

   $                   

Increase in net tangible book value per share attributable to new investors

     
  

 

 

    

 

 

 

Pro forma net tangible book value per share after this offering

     
     

 

 

 

Dilution per share to new investors

      $    
     

 

 

 

Each $1.00 increase (decrease) in the assumed initial offering price of $         per share of our common stock would increase (decrease) dilution per share to new investors by approximately $        , assuming that the number of shares offered by us as set forth on the cover page of this prospectus remains the same. Each increase (decrease) of 1.0 million shares in the number of shares offered would increase (decrease) dilution per share to new investors by approximately $        , assuming the initial public offering price of $         per share remains the same. The information discussed above is illustrative only and will adjust based on the actual public offering price and other terms of this offering determined at pricing.

The following table summarizes, at June 30, 2018 (giving pro forma effect to the sale of our common stock in this offering), the difference between the existing stockholder and new investors with respect to the number of shares of our common stock purchased, the total consideration paid for these shares, and the average price per share paid by our existing stockholder and to be paid by the new investors in this offering. The calculation below reflecting the effect of shares purchased by new investors is based on an assumed initial public offering price of $         per share, which is the midpoint of the range set forth on the cover page of this prospectus after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent  

Existing stockholder

                   $                        

New investors

            

Total

        100   $          100  

 

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Each $1.00 increase (decrease) in the assumed initial offering price of $         per share of common stock would increase (decrease) the total consideration paid by new investors by approximately $        , or the percent of total consideration paid by new investors by approximately     %, assuming that the number of shares offered as set forth on the cover page of this prospectus remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares in the offering. An increase (decrease) of 1.0 million shares in the number of shares offered would increase (decrease) the total consideration paid by new investors by approximately $        , or the percent of total consideration paid by new investors by approximately      %, assuming the public offering price per share remains the same. The information discussed above is illustrative only and will adjust based on the actual public offering price and other terms of this offering determined at pricing.

The number of shares purchased is based on shares of our common stock outstanding at June 30, 2018. The discussion and table above exclude shares of our common stock issuable upon exercise of outstanding options. If the underwriters were to fully exercise their option to purchase additional shares of our common stock, the percentage of shares of our common stock held by the existing stockholder would be      %, and the percentage of shares of our common stock held by new investors would be      %. To the extent any outstanding options are exercised, new investors will experience further dilution. To the extent all outstanding options had been exercised at June 30, 2018, the net tangible book value per share after this offering would be $         and total dilution per share to new investors would be $        .

 

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THE SEPARATION AND DISTRIBUTION TRANSACTIONS

The Separation

FMC formed FMC Lithium USA Holding Corp. on February 27, 2018, which was subsequently renamed Livent Corporation. Prior to the completion of this offering, we will enter into a separation and distribution agreement and a number of other agreements with FMC for the purpose of accomplishing the Separation and setting forth various matters governing our relationship with FMC after the completion of this offering. The agreements will also provide for the allocation of employee benefits, tax and other liabilities and obligations attributable or related to periods or events prior to and in connection with this offering. We will enter into these agreements with FMC while we are still a wholly-owned subsidiary of FMC and certain terms of these agreements are not necessarily the same as could have been obtained from a third party.

The following are the principal steps of the Separation:

 

   

FMC will transfer to us the entities, assets, liabilities and obligations that we will hold following the separation of our business from FMC’s other businesses. Such internal reorganization may take the form of asset transfers, dividends, contributions and similar transactions, and will involve the formation of new subsidiaries in U.S. and non-U.S. jurisdictions to own and operate FMC’s Lithium Business in such jurisdictions. Among other things and subject to limited exceptions, such internal reorganization is expected to result in us owning, directly or indirectly, the operations comprising, and the entities that conduct, FMC’s Lithium Business. In exchange, we will issue or transfer to FMC all of the issued and outstanding shares of our common stock.

 

   

We also intend to enter into a new credit facility in connection with the separation which will include a $400 million revolving credit facility (expected to be undrawn at closing).

 

   

Immediately prior to the completion of this offering, we intend to enter into the separation and distribution agreement and a number of other agreements with FMC that will govern certain interactions, including with respect to employee matters, tax matters, transition services and registration rights. For more information regarding the agreements we and FMC intend to enter into, or have entered into, see “Certain Relationships and Related Party Transactions—Relationship with FMC.”

Pursuant to the separation and distribution agreement, to the extent that permits or consents are not obtained to transfer any particular assets or operations to us prior to the closing of this offering, FMC will continue to own such assets or operations but will operate them for our benefit and we will be entitled to the economic benefits thereof. See “Certain Relationships and Related Party Transactions—Relationship with FMC—Separation and Distribution Agreement.”

The Distribution

FMC has informed us that, following this offering, it may make a tax-free distribution to its stockholders of all or a portion of its remaining equity interest in us, which may include one or more distributions effected as a dividend to all FMC stockholders, one or more distributions in exchange for FMC shares or other securities, or any combination thereof. We refer to any such potential distribution as the “Distribution.” FMC has agreed not to effect the Distribution for a period of 120 days after the date of this prospectus. See “Underwriting.”

FMC has no obligation to pursue or consummate any further dispositions of its ownership interest in us, including through the Distribution, by any specified date or at all. If pursued, the Distribution would be subject to various conditions, including receipt of any necessary regulatory or other approvals, and the receipt of an opinion of counsel to the effect that such Distribution would be tax-free to FMC and its stockholders. The conditions to the Distribution may not be satisfied, FMC may decide not to consummate the Distribution even if the conditions are satisfied or FMC may decide to waive one or more of these conditions and consummate the Distribution even if all of the conditions are not satisfied.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The unaudited pro forma condensed combined financial statements consist of the unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2018 and year ended December 31, 2017, and the unaudited pro forma condensed combined balance sheet as of June 30, 2018. The unaudited pro forma condensed combined financial statements have been derived by application of pro forma adjustments to our historical combined financial statements included elsewhere in this prospectus.

On March 31, 2017, FMC publicly announced a plan to separate Livent into a publicly traded company. Prior to the completion of the offering, FMC will transfer to us substantially all of the assets and liabilities of the Lithium Business. In exchange, we will issue or transfer to FMC all of the issued and outstanding shares of our common stock. The unaudited pro forma condensed combined balance sheet reflects the Separation as if it occurred on June 30, 2018, while the unaudited pro forma condensed combined statements of operations give effect to the Separation as if it occurred on January 1, 2017, the beginning of the earliest period presented.

The pro forma adjustments, described in the accompanying notes, are based upon currently available information and certain estimates and assumptions; therefore, actual results could differ, perhaps materially, from these estimates and assumptions. However, management believes that the assumptions used to prepare these pro forma financial statements provide a reasonable basis for presenting the significant effects of the contemplated transactions and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements give pro forma effect to events that are (1) directly attributable to the Separation, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results.

The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred had the Separation been completed on June 30, 2018 for the unaudited pro forma condensed combined balance sheet or on January 1, 2017 for the unaudited pro forma condensed combined statements of operations. The unaudited pro forma condensed combined financial statements should not be relied on as indicative of the historical operating results that we would have achieved or any future operating results or financial position that we will achieve after the completion of the Separation.

The unaudited pro forma condensed combined financial statements give pro forma effect to the matters described in the accompanying notes, including:

 

   

completion of the Separation and entry into related agreements described in “Certain Relationships and Related Party Transactions-Relationship with FMC”;

 

   

the issuance of shares of our common stock in this offering at an estimated offering price of $        per share (the midpoint of the price range set forth on the front cover of this prospectus);

 

   

our entry into a $400 million revolving credit facility, which was not drawn as of and during the periods presented, and the commitment and origination fees that would have been paid by us had our revolving credit facility been in place as of and during the periods presented;

 

   

distribution of $         million to FMC with proceeds from this offering; and

 

   

other adjustments described in the notes to the unaudited pro forma condensed combined financial statements.

Upon completion of the Separation, we will assume responsibility for all our standalone public company costs. The unaudited pro forma condensed combined financial statements do not reflect an approximate $4 million to $7 million per year in incremental costs and expenses that we expect to incur as a result of being a publicly traded company.

 

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The following unaudited pro forma condensed combined financial statements and the related notes should be read in conjunction with “Use of Proceeds”, “Capitalization”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, our audited combined financial statements and the related notes and our unaudited condensed combined financial statements and the related notes included elsewhere in this prospectus.

 

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LIVENT CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2018

 

(in Millions, except share and per share data)    FMC Lithium
As Reported
     Pro Forma
Adjustments
          Livent
Corporation
Pro Forma
 

Revenue

   $ 210.7         

Costs and Expenses

         

Costs of sales

     104.7        (1.1     (B  
  

 

 

    

 

 

     

 

 

 

Gross Margin

   $ 106.0         
  

 

 

    

 

 

     

 

 

 

Selling, general and administrative expenses

     8.0        10.6       (A) (B)    

Corporate allocations

     10.1        (10.1     (B)    

Research and development expenses

     2.0         

Restructuring and other charges

     2.3         
  

 

 

    

 

 

     

 

 

 

Total costs and expenses

   $ 127.1         
  

 

 

    

 

 

     

 

 

 

Income from operations before non-operating pension expense and settlement charges and income taxes

   $ 83.6         

Non-operating pension expense and settlement charges

     0.2         

Interest expense, net

     —            (C)    
  

 

 

    

 

 

     

 

 

 

Income from operations before income taxes

   $ 83.4         

Provision for income taxes

     13.2          (D)    
  

 

 

    

 

 

     

 

 

 

Net income

   $ 70.2         
  

 

 

    

 

 

     

 

 

 

Earnings per share, Basic and Diluted

         

Basic

     N/A                 (E) 

Diluted

     N/A                 (E) 

Weighted Average Shares Outstanding

         

Basic

     N/A                 (E) 

Diluted

     N/A                 (E) 

See notes to unaudited pro forma condensed combined financial statements.

 

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LIVENT CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2017

 

(in Millions, except share and per share data)    FMC Lithium
As
Reported(1)
     Pro Forma
Adjustments
          Livent
Corporation
Pro Forma
 

Revenue

   $ 347.4         

Costs and Expenses

         

Costs of sales

     198.6        (1.7     (B  
  

 

 

    

 

 

     

 

 

 

Gross Margin

   $ 148.8         
  

 

 

    

 

 

     

 

 

 

Selling, general and administrative expenses

     13.4        22.4       (A) (B)    

Corporate allocations

     22.1        (22.1     (B)    

Research and development expenses

     3.1         

Restructuring and other charges

     8.7         
  

 

 

    

 

 

     

 

 

 

Total costs and expenses

   $ 245.9         
  

 

 

    

 

 

     

 

 

 

Income from operations before non-operating pension expense and settlement charges and income taxes

   $ 101.5         

Non-operating pension expense and settlement charges

     31.4         

Interest expense, net

     —            (C)    
  

 

 

    

 

 

     

 

 

 

Income from operations before income taxes

   $ 70.1         

Provision for income taxes

     27.9          (D)    
  

 

 

    

 

 

     

 

 

 

Net income

   $ 42.2         
  

 

 

    

 

 

     

 

 

 

Earnings per share, Basic and Diluted

         

Basic

     N/A                 (E) 

Diluted

     N/A                 (E) 

Weighted Average Shares Outstanding

         

Basic

     N/A                 (E) 

Diluted

     N/A                 (E) 

 

(1)

Certain amounts have been reclassified to conform to the current period’s presentation. Refer to Note 4 of the unaudited interim condensed combined financial statements included elsewhere in this prospectus for further information on the presentation of pension expense associated with the adoption of Accounting Standard Update No. 2017-07.

See notes to unaudited pro forma condensed combined financial statements.

 

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LIVENT CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2018

 

(in Millions)    FMC Lithium
As Reported
    Pro Forma
Adjustments
           Livent
Corporation
Pro Forma
 

ASSETS

         

Current assets

         

Cash and cash equivalents

   $ 1.5         (G)     

Trade receivables, net of allowance

     150.2         

Inventories

     52.4         

Prepaid and other current assets

     34.7         
  

 

 

        

Total current assets

   $ 238.8         

Property, plant and equipment, net

     235.3         

Intangible assets

     0.1         

Deferred income taxes

     1.7         

Other assets

     74.4         (F)     
  

 

 

        

Total assets

   $ 550.3         
  

 

 

        

LIABILITIES AND NET PARENT INVESTMENT

         

Current liabilities

         

Accounts payable, trade and other

   $ 45.4         

Accrued and other current liabilities

     15.1         

Income taxes

     1.3         
  

 

 

        

Total current liabilities

   $ 61.8         

Environmental liabilities

     6.0         

Deferred income taxes

     7.9         

Other long-term liabilities

     11.1         

Commitments and contingent liabilities

         

Net parent investment

         

Common stock

   $ —           (H)     

Additional paid-in capital

     —           (H)     

Net parent investment

     510.3         (H)     

Accumulated other comprehensive loss

     (46.8       
  

 

 

        

Total equity

   $ 463.5         
  

 

 

        

Total liabilities and net parent investment

   $ 550.3         
  

 

 

        

See notes to unaudited pro forma condensed combined financial statements.

 

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NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

(A)

Reflects certain stock awards as if the Separation occurred on January 1, 2017. The expense associated with these awards will be recognized ratably over the vesting period, which is generally three years. Therefore our estimate of the fair value of the awards resulted in expense of $              million and $              million for the six months ended June 30, 2018 and year ended December 31, 2017, respectively.

(B)

Represents both the reclassification of “Corporate allocations” to “Selling, general and administrative expenses” as well as adjustments for certain services to be provided by FMC under the transition services agreement following the Separation. As described in Note 2 to both the annual and interim combined financial statements included elsewhere in this prospectus, “Corporate allocations” do not include $4.3 million and $7.1 million of shared service costs historically allocated and recorded within “Cost of sales” for the six months ended June 30, 2018 and year ended December 31, 2017, respectively. These pro forma adjustments reflect the net reduction in costs, as compared to the corporate allocations for each of the periods presented. For more information regarding the transition services agreement, see “Certain Relationships and Related Party Transactions” included elsewhere in this prospectus.

(C)

The following table reflects the adjustments in the unaudited pro forma condensed combined statements of operations to reflect the impact of the adjustments to interest expense, net.

 

(in Millions)    Six Months Ended
June 30, 2018
     Year Ended
December 31, 2017
 

Commitment fees (1)

     

Amortization of Revolving Credit Facility origination fees

     
  

 

 

    

 

 

 

Net pro forma adjustment to interest expense, net

     
  

 

 

    

 

 

 

 

  (1)

Represents the     % annual facility fees based on the terms of our revolving credit facility associated with the total capacity on such revolving credit facility. We expect that the revolving credit facility will not be drawn prior to the Separation.

 

(D)

Reflects the associated income tax benefit (expense) for the pro forma adjustments at the statutory tax rates. We expect our effective rate in future years, however, to vary from the estimated statutory rate.

(E)

The pro forma weighted-average number of shares used to compute pro forma basic and diluted earnings per share for the six months ended June 30, 2018 and year ended December 31, 2017 is              and             , respectively, which represents the number of shares we expect to be outstanding after giving effect to this offering. The unaudited pro forma weighted-average diluted shares outstanding give effect to the potential dilution from common shares related to stock awards granted to our employees as discussed in Note A above.

(F)

Reflects the $              million of origination fees associated with entering into a new revolving credit facility in connection with the Separation. We expect that the revolving credit facility will not be drawn at or prior to the Separation.

(G)

Reflects the following adjustments to cash:

 

Sources

    

Uses

 
Proceeds from sale of common shares      

Distribution to FMC

  
     

Estimated offering expenses (1)

  
        
  

 

 

       

 

 

 

Total Sources

      Total Uses   
  

 

 

       

 

 

 

 

  (1)

Includes estimated underwriting discounts and commissions.

 

(H)

Reflects the elimination of net parent investment as a result of the anticipated post-separation capital structure. Upon the consummation of the Separation, net parent investment will be eliminated and the newly issued equity will be allocated between common stock and additional paid-in-capital based on the number of shares of Livent common stock outstanding at the Separation date.

 

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SELECTED COMBINED FINANCIAL DATA

The following selected historical combined financial data of Livent should be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements and notes thereto included elsewhere in this prospectus. The combined statements of operations data and cash flow data for the six months ended June 30, 2018 and 2017 and the combined balance sheet data as of June 30, 2018 are derived from, and qualified by reference to, the unaudited condensed combined financial statements of Livent included elsewhere in this prospectus. The combined statements of operations data and cash flow data for the years ended December 31, 2017 and 2016 and the combined balance sheet data as of December 31, 2017 and 2016 are derived from, and qualified by reference to, the audited combined financial statements of Livent included elsewhere in this prospectus and should be read in conjunction with those combined financial statements and notes thereto. The information presented below under the caption Other Data (free cash flow, EBITDA, and Adjusted EBITDA) are not metrics that are part of or included in the combined financial statements.

Our combined financial statements include expense allocations for certain support functions that are provided on a centralized basis within FMC. These allocations are based on either a specific identification basis or, when specific identification is not practicable, proportional cost allocation methods (e.g., using third-party sales, segment operating profit (defined by FMC as segment revenue less operating expenses) headcount, etc.), depending on the nature of the services and/or costs.

The combined financial statements included in this prospectus may not be indicative of our future performance and do not necessarily reflect what our financial position and results of operations would have been had we operated as a standalone public company during the periods presented, including changes that will occur in our operations and capital structure as a result of this offering and the Separation.

 

     Historical     Historical(1)  
     Six Months Ended
June 30,
    Year Ended
December 31,
 
(in Millions, except share and per share data)    2018      2017     2017      2016  
     (Unaudited)               

Statement of Operations Data:

          

Revenue

   $ 210.7      $ 139.6     $ 347.4      $ 264.1  

Costs of sales

     104.7        82.7       198.6        175.8  
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross margin

   $ 106.0      $ 56.9     $ 148.8      $ 88.3  

Selling, general and administrative expenses

     8.0        6.9       13.4        12.0  

Corporate allocations

     10.1        10.7       22.1        13.2  

Research and development expenses

     2.0        1.4       3.1        3.1  

Restructuring and other charges

     2.3        3.1       8.7        1.0  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total costs and expenses

   $ 127.1      $ 104.8     $ 245.9      $ 205.1  
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from operations before non-operating pension expense and settlement charges (income) and income taxes

   $ 83.6      $ 34.8     $ 101.5      $ 59.0  

Non-operating pension expense and settlement charges (income)

     0.2        (1.3     31.4        3.6  

Interest expense, net

     —          —         —          0.9  
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from operations before income taxes

   $ 83.4      $ 36.1     $ 70.1      $ 54.5  

Provision for income taxes

     13.2        8.5       27.9        7.4  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income

   $ 70.2      $ 27.6     $ 42.2      $ 47.1  
  

 

 

    

 

 

   

 

 

    

 

 

 

Basic earnings per common share

     N/A        N/A       N/A        N/A  

Weighted average number of shares of common stock outstanding-Basic

     N/A        N/A       N/A        N/A  

Diluted earnings per common share

     N/A        N/A       N/A        N/A  

Weighted average number of shares of common stock outstanding-Diluted

     N/A        N/A       N/A        N/A  

 

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(1)

Certain amounts in the historical statement of operations data for the years ended December 31, 2017 and 2016 have been reclassified to conform to the current period’s presentation. Refer to Note 4 of the unaudited interim condensed combined financial statements included elsewhere in this prospectus for further information on the presentation of pension expense associated with the adoption of Accounting Standard Update No. 2017-07.

 

     Historical  
     As of
June 30,
     As of
December 31,
     As of
December 31,
 
(in Millions)    2018      2017      2016  
     (Unaudited)                

Balance Sheet Data:

        

Total assets

   $ 550.3      $ 496.2      $ 372.1  

Total liabilities

     86.8        110.8        61.4  

 

     Six Months
Ended June 30,
     Year Ended
December 31,
 
(in Millions)    2018      2017      2017      2016  
     (Unaudited)                

Cash Flow Data:

           

Cash provided by operating activities

   $ 18.0      $ 13.6      $ 58.3      $ 51.0  

Cash required by investing activities

     (26.8      (25.0      (62.5      (31.3

Cash provided (required) by financing activities

     9.1        8.6        1.5        (18.6

 

     Six Months
Ended June 30,
     Year Ended
December 31,
 
(Unaudited; in Millions)    2018      2017      2017      2016  

Other Data:

           

Free cash flow (1)

   $ (5.4    $ 0.9      $ 9.4      $ 25.3  

EBITDA (2)

     92.0        43.9        86.0        70.2  

Adjusted EBITDA (2)

     94.5        45.7        126.1        74.8  

 

(1)

For a complete discussion of the method of calculating free cash flow and its usefulness, refer to the “Summary Historical and Unaudited Pro Forma Combined Financial Data” included elsewhere in this prospectus. The following table reconciles free cash flow from cash flows provided by operating activities.

 

     Six Months
Ended June 30,
     Year Ended
December 31,
 
(Unaudited; in Millions)    2018      2017      2017      2016  

Cash provided by operating activities

   $ 18.0      $ 13.6      $ 58.3      $ 51.0  

Additions to property, plant and equipment

     (23.4      (12.7      (48.9      (25.7
  

 

 

    

 

 

    

 

 

    

 

 

 

Free cash flow

   $ (5.4    $ 0.9      $ 9.4      $ 25.3  
  

 

 

    

 

 

    

 

 

    

 

 

 

Free cash flow for the year ended December 31, 2017 was impacted by higher tax payments of $14 million primarily associated with the 2017 Tax Act. Free cash flow in 2016 was impacted by a payment to our U.K. Plan of approximately $21 million to annuitize the remaining pension obligation.

 

(2)

In addition to net income, as determined in accordance with U.S. GAAP, we evaluate operating performance using certain non-GAAP measures such as EBITDA, which we define as net income plus interest expense, net, income tax expense (benefit), depreciation, and amortization, and Adjusted EBITDA, which we define as EBITDA adjusted for restructuring and other charges (income), and non-operating pension expense and settlement charges (income). 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. This measure should not be considered as a substitute for net

 

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  income or other measures of performance or liquidity reported in accordance with U.S. GAAP. The following table reconciles EBITDA and Adjusted EBITDA from net income.

 

     Six Months
Ended June 30,
     Year Ended
December 31,
 
(Unaudited; in Millions)    2018      2017      2017      2016  

Net income

   $ 70.2      $ 27.6      $ 42.2      $ 47.1  

Add back:

           

Interest expense, net

     —          —          —          0.9  

Provision for income taxes

     13.2        8.5        27.9        7.4  

Depreciation and amortization

     8.6        7.8        15.9        14.8  
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

   $ 92.0      $ 43.9      $ 86.0      $ 70.2  
  

 

 

    

 

 

    

 

 

    

 

 

 

Add back:

           

Restructuring and other charges (1)

     2.3        3.1        8.7        1.0  

Non-operating pension expense and settlement charges
(income) (2)

     0.2        (1.3      31.4        3.6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 94.5      $ 45.7      $ 126.1      $ 74.8  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

We continually perform strategic reviews and assess the return on our business. This sometimes results 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.

(2)

Our non-operating pension expense and settlement charges (income) are defined as those costs (benefits) related to interest, expected return on plan assets, amortized actuarial gains and losses and the impacts of any plan curtailments or settlements. These costs (benefits) are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance and we consider these costs to be outside our operational performance. We exclude these non-operating pension expense and settlement charges (income) from our Adjusted EBITDA calculation as we believe that removing them provides a better understanding of the underlying profitability of our business, provides increased transparency and clarity in the performance of our retirement plans and enhances period-over-period comparability. We continue to include the service cost and amortization of prior service cost in Adjusted EBITDA. We believe these elements reflect the current year operating costs of our business for the employment benefits provided to active employees.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our audited combined financial statements and the related notes, our unaudited condensed combined financial statements and the related notes, and our unaudited pro forma condensed combined financial statements and the related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

The discussion of results that follows includes comparisons to a non-GAAP financial measure. The presentation of this non-GAAP measure is intended to enhance the usefulness of financial information by providing measures that our management uses internally to evaluate our performance. The reconciliation of reported U.S. GAAP results to non-GAAP measures is presented in “Non-GAAP Measures” above including descriptions of the excluded items.

Overview

We are a pure-play, fully integrated lithium company, with a long, proven history of producing performance lithium compounds. Our primary products, namely battery-grade lithium hydroxide, 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 fast growing EV battery market, while continuing to maintain our position as a leading global producer of butyllithium and high purity lithium metal.

We produce lithium compounds for use in applications that have specific performance requirements, including battery-grade lithium hydroxide for use in high performance lithium-ion batteries. We also supply butyllithium, which is used as a synthesizer 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.

2018 Highlights

The following are the more significant developments in our business during the six months ended June 30, 2018:

 

   

Revenue of $210.7 million in the six months ended June 30, 2018 increased $71.1 million, or approximately 51%, versus the six months ended June 30, 2017 due to both higher volumes of lithium hydroxide in China driven by the increased production capacity as well as increased pricing. On a regional basis, sales in North America increased 6%, sales in Asia increased 80% and sales in Europe, Middle East and Africa (EMEA) increased by 42%, while sales in Latin America decreased by 9%.

 

   

Gross margin of $106.0 million increased $49.1 million, or approximately 86%, versus the six months ended June 30, 2017 primarily due to higher revenues. Gross margin as a percent of revenue was approximately 50% versus 41% in the six months ended June 30, 2017. The increase in gross margin was primarily driven by prices, product mix and improved operating leverage.

 

   

Non-operating pension expense and settlement charges (income) increased from a benefit of $1.3 million in the six months ended June 30, 2017 to charges of $0.2 million in the six months ended June 30, 2018. The change is primarily due to the allocation of FMC’s net periodic pension benefit during the six months ended June 30, 2017 that was allocated to Livent.

 

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Corporate allocations of $10.1 million remained relatively flat compared to the prior year period.

 

   

Net income of $70.2 million increased $42.6 million from $27.6 million in the prior year period primarily due to the increase in revenue and gross margin from the favorable pricing and product mix discussed above.

 

   

Adjusted EBITDA of $94.5 million increased from $45.7 million in the prior period as a result of the drivers discussed in revenue and gross margin above.

2017 Highlights

The following are the more significant developments in our business during the year ended December 31, 2017:

 

   

Revenue of $347.4 million in 2017 increased $83.3 million or approximately 32% versus 2016. On a regional basis, sales in North America increased 25%, sales in Asia increased 33% and sales in EMEA increased by 41% while sales in Latin America decreased by 17%.

 

   

Gross margin of $148.8 million increased $60.5 million or approximately 69% versus 2016 primarily due to higher revenues. Gross margin as a percentage of revenue was approximately 43% versus 33% in 2016. The increase in gross margin was primarily driven by prices, product mix and improved operating leverage.

 

   

Non-operating pension expense and settlement charges increased from $3.6 million to $31.4 million in 2017. The change is primarily due to the settlement charge of $32.5 million related to the termination of the U.K. Plan, offset by non-operating pension income in 2017.

 

   

Corporate allocations increased $8.9 million to $22.1 million in 2017 as a result of higher profits of Livent which was one of the key drivers used to allocate corporate expenses. The historical segment operating profit, defined by FMC as segment revenue less operating expenses, of Livent increased year over year and drove the increase in allocations of costs from FMC.

 

   

Net income of $42.2 million decreased approximately $4.9 million from $47.1 million in the prior year period primarily due to provisional income tax charges related to the 2017 enactment of the Tax Act as well as the increase in non-operating pension expense and settlement charges which are discussed above. This was mostly offset by higher business performance driving increases in gross margin.

 

   

Adjusted EBITDA of $126.1 million increased from $74.8 million in the prior period as a result of the drivers discussed in revenue and gross margin above.

We are seeing the benefits of our strategy to grow our business in performance lithium compounds, where demand continues to accelerate and pricing trends across our portfolio remain favorable. In June 2017, we started commercial sales from a new lithium hydroxide facility in China and nearly doubled our lithium hydroxide capacity to 18.5 kMT per year. We plan to increase our annual total production capacity of lithium hydroxide to 30 kMT by the end of 2019 and to approximately 55 kMT by the end of 2025. We also expanded production of lithium carbonate at our Argentina site through debottlenecking projects and announced plans to more than triple lithium carbonate production at that same site to reach a capacity of at least 60 kMT per year by the end of 2025.

Factors affecting our performance

Our business and historical financial condition and results of operations have been affected by a number of important factors that we believe will continue to affect our financial condition and results of operations in the future. Our results are primarily affected by the following factors:

 

   

End markets that we serve and fluctuation in customer demand;

 

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Production capacity and supply in the global lithium market;

 

   

Our ability to control cost of sales, manufacturing throughput and operating expenses; and

 

   

Economic growth in Asia and globally.

End markets that we serve and fluctuation in customer demand

Our lithium products are used in a variety of applications due to lithium’s physical and chemical features. Lithium products are used as a necessary input in advanced batteries for EVs, batteries for electronic products, alloys, and to produce high performance greases and fine chemical and pharmaceutical compounds. Accordingly, demand for our lithium products is indirectly affected by the growth and demand fluctuations of these end markets. See “Industry Overview” for a description of the demand for lithium products.

Production capacity and supply

We are one of a small number of principal producers of lithium compounds, along with Albemarle, SQM and Orocobre, and two Chinese producers, Tianqi and Jiangxi Ganfeng Lithium. The global supply of lithium compounds, particularly lithium hydroxide, is forecasted by Roskill to increase significantly by 2025 along with forecasted global demand, as suppliers develop and extract from new lithium sources and expand existing capacity. Any significant growth in supply could depress the price of our products if not offset by the forecasted increase in global demand.

We are expanding our existing extraction and production capacity in various phases to address the forecasted increase in global demand. Our plans include increasing annual lithium carbonate capacity to at least 60 kMT by the end of 2025 and increasing our total lithium hydroxide capacity to 30 kMT by the end of 2019 and to approximately 55 kMT by the end of 2025. The increased production of lithium carbonate will be used primarily as a feed stock for our lithium hydroxide production units. Our planned expansion is in phases to permit us to adjust timing based on market conditions.

Our ability to control production costs and improve efficiency

Our competitiveness and profitability are dependent in part upon our ability to control production costs, maintain efficient operations and make continuous improvements to enhance production efficiency. We extract lithium from naturally occurring lithium-rich brines located in the Andes Mountains of Argentina using a proprietary process and cost effectively convert it into lithium carbonate and lithium chloride. We have taken several initiatives in recent years to improve our production efficiency, including applying different production technologies, installing advanced equipment and machinery, and optimizing the production processes and techniques. The price of other raw materials sourced from external suppliers are determined principally by market forces and changes in governmental policies, as well as our bargaining power with our suppliers. Any significant increase in raw materials costs from current levels could increase our cost of sales and have an adverse effect on our gross profit margins if we are unable to pass such price increases to our customers. In 2017 and for the six months ended June 30, 2018, more than 60% and approximately 58%, respectively, of our revenue was generated from customers with whom we have long-term agreements with terms ranging from 2 to more than 5 years in length. These agreements generally provide for a specific price in a given year, with annual adjustment. As a result, our margins will benefit from declines in raw material prices, but would decline if raw material prices increase, until prices under these long-term agreements are reset. In general, where we have limited sources of raw materials, we have developed contingency plans to minimize the effect of any interruption or reduction in supply, such as sourcing from other suppliers or maintaining safety stocks.

Economic growth in Asia and globally

Lithium products have diverse industrial and commercial uses and the market demand for these products is affected by the state of the global economy and the stability of international trade, among other factors. In recent

 

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years, the Asia Pacific region has become an important market for lithium and its influence on the global lithium products industry has been increasing. In 2017 and for the six months ended June 30, 2018, 59% and 62%, respectively, of our revenue was derived from sales to the Asia Pacific region. China currently comprises over half of global demand for EVs, and we expect demand for lithium products, particularly lithium hydroxide, will increase in the Asia Pacific region such that it remains the largest region in terms of consumption.

Components of revenues and costs and expenses

Revenue

Our revenue is derived from sales of our products, net of sales discounts, product returns and allowances. In addition, revenue includes shipping and handling costs when such costs are billed to customers. Sales are primarily made pursuant to long-term purchase agreements. We occasionally enter into multi-year take or pay supply agreements with customers. Revenue is recognized in accordance with the contracts as we transfer control of the product to the customer.

Amounts billed for sales and use taxes, value-added taxes, and certain excise and other specific transactional taxes imposed on revenue-producing transactions are presented on a net basis and excluded from sales in the combined income statements. We record a liability until remitted to the respective taxing authority.

Costs and expenses

Cost of sales. Our cost of sales consists of variable and fixed components. Our variable costs are proportional to volume and consist principally of raw materials, packaging and related supplies, certain energy costs, royalty costs, and certain distribution costs including inbound, outbound, and internal shipping and transfer costs. Our fixed costs are not significantly impacted by production volume and consist principally of certain fixed manufacturing costs and other distribution network costs, including warehousing. Fixed manufacturing costs comprise headcount-related costs and overhead, including depreciation, periodic maintenance costs, purchasing and receiving costs, inspection costs and certain energy costs.

Selling, general and administrative expense and Corporate allocations. Our selling, general and administrative (“SG&A”) expenses include sales and marketing, expenses and corporate allocations. Corporate allocations are costs incurred by FMC to operate FMC’s businesses, which were allocated to Livent for the combined financial statements. These allocated costs are primarily related to shared service costs, centralized functions, and certain corporate functions such as finance, treasury, tax, human resources, legal, investor relations, and certain other costs. The allocation is based on a reasonable reflection of the utilization of the service provided or benefits received by Livent during the periods presented on a consistent basis, such as, but not limited to, a relative percentage of headcount, tangible assets, cost of goods sold and segment operating profit, defined by FMC as segment revenue less operating expenses. Segment operating profit was established as the primary allocation method driver as it aligns with how we measure our performance.

Following this offering, pursuant to agreements with FMC, we expect that FMC will continue to provide us with some of the services related to certain governance and corporate functions on a transitional basis in exchange for agreed-upon fees, and we expect to incur other costs to replace the services and resources that will not be provided by FMC. Our SG&A expense will also include expense associated with being a standalone public company. As a standalone public company, our total costs related to such support functions may differ from the costs that were historically allocated to us from FMC. We estimate the costs associated with being a standalone public company will be approximately $4 to $7 million more per year than the corporate allocations reflected in the annual combined financial statements of $29.1 million for the year ended December 31, 2017. As described in Note 2 to the annual combined financial statements, $22.1 million of costs are included within “Corporate allocations” and $7.1 million of costs are included within “Cost of sales” on the combined statements of operations.

Research and development expense. Our research and development costs are incurred for the development of new products. In addition, we also incur expenses to improve our manufacturing process technology, which are accounted for within cost of goods sold in the combined financial statements.

 

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Restructuring and other charges. We continually perform strategic reviews and assess the return on our business. This sometimes results in a plan to restructure the operations of the business. We record an accrual for severance and other exit costs under the provisions of the relevant accounting guidance as restructuring charges.

Additionally, as part of these restructuring plans, write-downs of long-lived assets may occur. Two types of assets are impacted: assets to be disposed of by sale and assets to be abandoned. Assets to be disposed of by sale are measured at the lower of carrying amount or estimated net proceeds from the sale. Assets to be abandoned with no remaining future service potential are written down to amounts expected to be recovered. The useful life of assets to be abandoned that have a remaining future service potential are adjusted and depreciation is recorded over the adjusted useful life.

Other charges also include costs for site remediation plans associated with our environmental obligations at our Bessemer City site with respect to certain discontinued products.

Non-operating pension expense and settlement charges (“income”). Our non-operating pension expense and settlement charges (“income”) are defined as those costs related to interest, expected return on plan assets, amortized actuarial gains and losses and the impacts of any plan curtailments or settlements. These costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance and we consider these costs to be outside our operational performance.

The majority of the non-operating pension expense and settlement charges in 2017 was due to the settlement charge as a result of the U.K. Plan termination. As a result, we no longer have a liability on our combined balance sheet associated with the U.K. Plan.

Interest Expense, net. Interest income consists of interest income earned on our cash, cash equivalents and short-term investments. Interest expense consists of interest expense associated with debt obligations.

Provision for Income Taxes. Provision for income taxes consists of an estimate of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business, as adjusted for allowable credits, deductions and the valuation allowance against deferred tax assets. Taxable income in the U.S. included in these combined financial statements has been included in FMC’s consolidated federal and state returns, with FMC making all income tax payments. We have calculated income taxes as if Livent were a separate legal entity filing separate legal entity tax returns.

 

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Results of Operations - Six Months Ended June 30, 2018 and 2017

 

     Six Months Ended June 30,  

(in millions)

       2018              2017      

Revenue

   $ 210.7      $ 139.6  

Cost of sales

     104.7        82.7  
  

 

 

    

 

 

 

Gross margin

   $ 106.0      $ 56.9  

Selling, general and administrative expenses

     8.0        6.9  

Corporate allocations

     10.1        10.7  

Research and development expenses

     2.0        1.4  

Restructuring and other charges

     2.3        3.1  
  

 

 

    

 

 

 

Income from operations before non-operating pension expense and settlement charges (income) and income taxes

   $ 83.6      $ 34.8  

Non-operating pension expense and settlement charges (income)

     0.2        (1.3

Provision for income taxes

     13.2        8.5  
  

 

 

    

 

 

 

Net income

   $ 70.2      $ 27.6  
  

 

 

    

 

 

 

Revenue

Revenue of $210.7 million increased by approximately 51% percent versus the prior-year period, driven by higher prices, particularly in lithium hydroxide and butyllithium, and higher volumes as a result of the new lithium hydroxide production in China and our higher production in Argentina. Higher pricing contributed 23% to the revenue increase and higher volumes impacted revenue by 26%. Foreign currency had a favorable impact on the change in revenue of 2%.

Gross margin

Gross margin of $106.0 million increased approximately $49.1 million, or approximately 86%, versus the prior-year period. The increase in gross margin was primarily driven by improved pricing and mix discussed above of approximately $32 million, with benefits also coming from operating leverage. These increases were partially offset by higher raw material prices and energy prices, which lowered margins by approximately $2 million. We expect our cost of sales to be relatively flat as a percentage of revenues going forward.

Selling, general and administrative expenses

Selling, general and administrative expense in for the six months ended June 30, 2018 increased slightly compared to the prior-year period.

Corporate allocations

Corporate allocation for the six months ended June 30, 2018 remained relatively flat compared to the prior-year period.

Research and development expenses

Research and development expense in for the six months ended June 30, 2018 increased by $0.6 million, or 43%, versus the prior-year period due to increased spending in energy applications.

Restructuring and other charges

Restructuring and other charges in for the six months ended June 30, 2018 and 2017 were primarily associated with asset write-downs and miscellaneous restructuring efforts of $2.1 million and $2.7 million, respectively,

 

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related to our operations at our manufacturing site located in Bessemer City, North Carolina. The objective of these restructuring efforts was to optimize both the assets and cost structure by reducing certain production lines at the site. Additionally, there were other charges of $0.2 million related to environmental remediation activities during both periods.

Non-operating pension expense and settlement charges (income)

Non-operating pension expense and settlement charges increased in the six months ended June 30, 2018 primarily due to the allocation of FMC’s net periodic pension benefit during the six months ended June 30, 2017 that was allocated to Livent. The amount in 2018 represents the approximate portion of FMC’s net periodic pension cost of the U.S. Plan during the six months ended June 30, 2018, which was allocated based on Livent employees’ relative participation in the plan.

Provision for income taxes

Provision for income taxes for the six months ended June 30, 2018 of $13.2 million increased $4.7 million versus the prior year period primarily due to an overall increase in global earnings. The lower effective tax rate was due to the impact of U.S. tax reform with a reduced U.S. tax rate, as well as the mix of earnings in jurisdictions with favorable tax rates drove the decrease. We expect our tax rate, excluding discrete items, will be approximately 20% going forward.

Net income

Net income of $70.2 million increased approximately $42.6 million from $27.6 million in the prior year period primarily due to revenue and gross margin growth, partially offset by the increase in tax expense discussed above.

Results of Operations - 2017 and 2016

 

     Year Ended December 31,  
(in millions)        2017              2016      

Revenue

   $ 347.4      $ 264.1  

Cost of sales

     198.6        175.8  
  

 

 

    

 

 

 

Gross margin

   $ 148.8      $ 88.3  

Selling, general and administrative expenses

     13.4        12.0  

Corporate allocations

     22.1        13.2  

Research and development expenses

     3.1        3.1  

Restructuring and other charges

     8.7        1.0  
  

 

 

    

 

 

 

Income from operations before non-operating pension expense and settlement charges, interest expense, net and income taxes

   $ 101.5      $ 59.0  

Non-operating pension expense and settlement charges

     31.4        3.6  

Interest expense, net

     —          0.9  

Provision for income taxes

     27.9        7.4  
  

 

 

    

 

 

 

Net income

   $ 42.2      $ 47.1  
  

 

 

    

 

 

 

Certain amounts in the historical statement of operations data for the years ended December 31, 2017 and 2016 have been reclassified to conform to the current period’s presentation. Refer to Note 4 of the unaudited interim condensed combined financial statements included elsewhere in this prospectus for further information on the presentation of pension expense associated with the adoption of Accounting Standard Update No. 2017-07.

 

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Revenue

Revenue of $347.4 million increased by approximately 32% versus the prior-year period driven by improved pricing and mix, which accounted for a 23% increase as the business continued to shift its resources into lithium hydroxide and other specialty products. Additionally, higher volumes impacted revenue by 9%. Foreign currency had a minimal impact on the change in revenue.

Gross margin

Gross margin of $148.8 million increased $60.5 million or approximately 69% versus last year. The increase in gross margin was primarily driven by improved pricing and mix discussed above of approximately $59 million, with benefits also coming from operating leverage. These increases were partially offset by higher raw material prices and energy prices, which lowered margins by approximately $6 million.

Selling, general and administrative expenses

Selling, general and administrative expense in 2017 increased slightly compared to the prior-year period.

Corporate allocations

Corporate allocation for 2017 increased compared to the prior year due to improved results of Livent. Segment operating profit, defined by FMC as segment revenue less operating expenses, was the primary allocation method driver and the proportion of Livent’s operating profit to the total FMC segment operating profit was higher in 2017 and resulted in increased allocation compared to historical costs.

Research and development expenses

Research and development expense in 2017 remained flat compared to the prior-year period.

Restructuring and other charges

Restructuring and other charges in 2017 were primarily associated with asset write-downs and miscellaneous restructuring efforts of $7.8 million related to our operations at our manufacturing site located in Bessemer City, North Carolina. The objective of these restructuring efforts was to optimize both the assets and cost structure by reducing certain production lines at the site. Additionally, there were other charges of $0.4 million related to environmental remediation activities.

Restructuring and other charges (income) in 2016 included charges of $0.6 million associated with the Argentine government’s action to devalue its currency. In 2015, the Argentine government initiated actions to significantly devalue its currency. These actions continued into the first quarter of 2016. Additionally, other charges included costs for environmental remediation of $0.2 million.

Non-operating pension expense and settlement charges

Non-operating pension expense and settlement charges increased in 2017 primarily due to the settlement charge of $32.5 million related to the termination of the U.K. Plan. FMC completed the buy-out of the annuity, completing the plan termination and relieving us of the pension liability for the U.K. Plan.

Provision for income taxes

Provision for income taxes for 2017 of $27.9 million increased $20.5 million versus the prior year primarily due to the 2017 enactment of the Tax Act. The net impact of the Tax Act added approximately $11 million to income tax expense. As a result of the transition tax being paid by FMC, the associated liability is not included in the combined balance sheets, but the impact to the provision for income taxes was included in the combined statement of operations.

 

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Net income

Net income of $42.2 million decreased approximately $4.9 million from $47.1 million in the prior year period primarily due to provisional income tax charges related to the 2017 enactment of the Tax Act as well as the increase in non-operating pension expense and settlement charges. These were partially offset by improved business performance.

Liquidity and Capital Resources

Historically, FMC has provided centralized cash management and other finance services to Livent. FMC will cease providing these services following this offering. Only cash accounts specifically attributable to Livent are reflected on the balance sheets of our combined financial statements.

Following this offering, our capital structure and sources of liquidity will change significantly compared to our historical capital structure as part of FMC. We will no longer participate in FMC’s capital management system and will be evaluated separately in terms of credit and capital allocation by providers of financing. 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 long-term sources of cash will be cash generated from operations, borrowings under our new revolving credit facility, and potentially fixed income debt issuance.

We anticipate that we will enter into a credit agreement providing for a revolving credit facility in an aggregate principal amount of up to $400 million to be provided by a syndicate of banks and other financial institutions. We expect that the revolving credit facility will be undrawn at closing; following this offering, we expect to use borrowings under our revolving credit facility from time to time for working capital purposes and for general corporate purposes.

Our primary future cash needs will relate to working capital, operating activities (including debt service), capital spending and strategic investments. Capital spending will focus on supporting customer requirements for lithium hydroxide and on producing and securing highly reliable, cost-effective access to lithium carbonate to serve as an input in the production of our specialty lithium products such as lithium hydroxide.

Our near-term debt service obligations will consist of interest payments, principal amortization and other fees associated with our credit agreement. We will be required to pay a commitment fee to the lenders of our revolving credit facility in respect of the unutilized commitments thereunder.

Projected 2019 capital expenditures and expenditures related to contract manufacturers are expected to be approximately $250 million. We anticipate investing between $525 million and $600 million (inclusive of the $250 million referred to above) to increase our lithium carbonate capacity to at least 60 kMT by the end of 2025. We intend to expand our lithium carbonate capacity in phases, and expect to reach capacity of 32 kMT by the end of 2020, 42 kMT by the end of 2022 and 52 kMT by the end of 2024 before reaching the anticipated capacity of at least 60 kMT by the end of 2025, and intend to spend approximately half of the anticipated expenditures prior to the end of 2022, with the remainder spent by the end of 2025. We also expect to invest between $80 million and $170 million to expand our lithium hydroxide capacity to approximately 55 kMT by the end of 2025. Similar to our lithium carbonate expansion plans, we intend to expand our lithium hydroxide capacity in phases and to expand to at least 33 kMT by the end of 2020 and 48 kMT by the end of 2023 before reaching the anticipated capacity of 55 kMT by the end of 2025. We intend to spend approximately $30 million to $50 million before the end of 2020 and the remainder thereafter. In the next five years, inclusive of the expenditures referenced in this paragraph, we expect to spend $1.0 billion on maintenance and expansion projects.

We believe that our available cash and cash from operations, together with borrowing availability under our credit agreement, will provide adequate liquidity for the next twelve months. Access to capital and the availability of financing on acceptable terms in the future will be affected by many factors, including our credit rating, economic conditions, and the overall liquidity of capital markets.

 

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Revolving Credit Facility

On or about the date of this offering, Livent will enter into a Credit Agreement among Livent and one of its subsidiaries, as borrowers (the “Borrowers”), the lenders party thereto (the “Lenders”), Citibank, N.A., as administrative agent, and certain other financial institutions party thereto, as joint lead arrangers (the “Credit Agreement”).

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 for the account of the Borrowers, 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, of the Borrowers and their subsidiaries.

Amounts under the Revolving Credit Facility may be borrowed, repaid and re-borrowed from time to time until the final maturity date of the Revolving Credit Facility, which will be the fifth anniversary of the Revolving Credit Facility’s effective date. Voluntary prepayments and commitment reductions under the Revolving Credit Facility are permitted at any time without any prepayment premium upon proper notice and subject to minimum dollar amounts.

Revolving loans under the Credit Agreement will bear interest at a floating rate, which will be a base rate or a Eurodollar rate equal to the London interbank offered rate for the relevant interest period, plus, in each case, an applicable margin based on the Company’s leverage ratio, as determined in accordance with the provisions of the Credit Agreement. The base rate will be the greatest of: the rate of interest announced publicly by Citibank, N.A. in New York City from time to time as its “base rate”; the federal funds effective rate plus 0.5%; and a Eurodollar rate for a one-month interest period plus 1%. The Company is required to pay a commitment fee quarterly in arrears on the average daily unused amount of each Lender’s revolving credit commitment at a rate equal to an applicable percentage based on the Company’s leverage ratio, as determined in accordance with the provisions of the Credit Agreement. The applicable margin and the commitment fee are subject to adjustment as provided in the Credit Agreement.

The Borrowers’ present and future domestic material subsidiaries (the “Guarantors”) will guarantee the obligations of the Borrowers under the Revolving Credit Facility. The obligations of the Borrowers and the Guarantors are secured by all of the present and future assets of the Borrowers and the Guarantors, including the Borrowers’ facility and real estate in Bessemer City, North Carolina, subject to certain exceptions and exclusions as set forth in the Credit Agreement and other security and collateral documents.

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.

In addition, the Credit Agreement requires the Company to abide by certain financial covenants calculated for the Company and its subsidiaries on a consolidated basis. Specifically, the Credit Agreement requires that the Company and its subsidiaries not:

 

   

Permit a Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) as of the last day of any period of four consecutive fiscal quarters of the Company to be more than 3.50 to 1.00; and

 

   

Permit a Minimum Interest Coverage Ratio (as defined in the Credit Agreement) as of the last day of any period of four consecutive fiscal quarters of the Company to be less than 3.50 to 1.00.

 

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The Credit Agreement contains customary events of default (which are, in some cases, subject to certain exceptions, thresholds, notice requirements and grace periods), including, among others, non-payment of principal or interest or other amounts, misrepresentation, failure to perform or observe covenants, cross-defaults with certain other indebtedness or material agreements, certain change in control events, voluntary or involuntary bankruptcy proceedings, certain judgments or decrees, invalidity of the Credit Agreement or any security or collateral documents, and certain ERISA events. The Credit Agreement also contains certain representations, warranties and conditions, in each case as set forth in the Credit Agreement.

Six Months Ended June 30, 2018 vs. 2017

Statement of Cash Flows

Cash provided by operating activities was $18.0 million and $13.6 million for the six months ended June 30, 2018 and 2017, respectively.

The table below presents the components of net cash provided by operating activities.

 

     Six Months Ended June 30,  

(in Millions)

         2018                  2017        

Income from operations before interest expense, net and income taxes

   $ 83.4      $ 36.1  

Special charges and depreciation and amortization (1)

     11.1        9.6  
  

 

 

    

 

 

 

Operating income before depreciation and amortization (Non-GAAP) (2)

   $ 94.5      $ 45.7  

Change in trade receivables, net (3)

     (28.1      (30.2

Change in inventories (4)

     (3.3      7.9  

Change in accounts payable (5)

     (14.2      4.9  

Change in advance payments from customers

     (1.8      (1.5

Change in all other operating assets and liabilities (6)

     (13.9      (7.5

Restructuring and other spending

     (0.6      (0.1

Environmental spending, continuing, net of recoveries

     (0.1      (0.2

Tax payments, net of refunds (7)

     (14.5      (4.6

Net interest payments

     —          (0.8
  

 

 

    

 

 

 

Cash provided by operating activities

   $ 18.0      $ 13.6  
  

 

 

    

 

 

 

 

(1)

Represents the sum of restructuring and other charges, non-operating pension expense and settlement charges and depreciation and amortization.

(2)

Referred to as Adjusted EBITDA. See note 2 in “Prospectus Summary—Summary Historical and Unaudited Pro Forma Combined Financial Data” for a reconciliation to GAAP.

(3)

The change in cash flows related to trade receivables in 2018 and 2017 were primarily driven by timing of collections. The increase in each year was also the result of higher revenues in each period compared to the corresponding comparable prior period.

(4)

The change in cash flows related to inventories is a result of decreased inventory levels due to higher sales volume.

(5)

The change in cash flows related to accounts payable is primarily driven by timing of payments made to suppliers and vendors. The 2018 period is also impacted by a significant decrease in payables that built in 2017 associated with a lithium hydroxide manufacturing agreement. This manufacturing agreement and its impact on working capital is discussed in more detail within footnote 3 on page 63.

(6)

Changes in all periods presented primarily represent timing of payments associated with all other operating assets and liabilities. Please see the condensed combined statements of cash flows included within the interim combined financial statements for disaggregation of the components that make up this line item.

(7)

Tax payments in 2018 increased due to higher global earnings in the period compared to the prior year period.

Cash required by investing activities was $26.8 million and $25.0 million for the six months ended June 30, 2018 and 2017, respectively.

 

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The change in cash required by investing activities is primarily due to our investments in production capacity of lithium carbonate and hydroxide resulting in increased capital expenditures. These were offset by a prepayment of $10.0 million to Nemaska under a long-term supply agreement for lithium carbonate in 2017.

Cash provided by financing activities was $9.1 million and $8.6 million for the six months ended June 30, 2018 and 2017, respectively.

As FMC managed our cash and financing arrangements, all excess cash generated through earnings were deemed remitted to FMC and all sources of cash were deemed funded by FMC.

2017 vs. 2016

Statement of Cash Flows

Cash provided by operating activities was $58.3 million and $51.0 million for the year ended December 31, 2017 and 2016, respectively.

The table below presents the components of net cash provided by operating activities.

 

     Year ended December 31,  

(in Millions)

       2017              2016      

Income from operations before interest expense, net and income taxes

   $ 70.1      $ 55.4  

Special charges and depreciation and amortization (1)

     56.0        19.4  
  

 

 

    

 

 

 

Operating income before depreciation and amortization (Non-GAAP) (2)

   $ 126.1      $ 74.8  

Change in trade receivables, net (3) (4)

     (71.3      (8.3

Change in inventories (5)

     6.9        (7.9

Change in accounts payable (3) (6)

     32.5        1.8  

Change in accrued customer rebates

     —          (0.4

Change in advance payments from customers

     (0.4      1.6  

Change in all other operating assets and liabilities (7)

     (11.3      22.7  

Restructuring and other spending

     (0.9      —    

Environmental spending, continuing, net of recoveries

     (0.3      (0.5

Pension and other postretirement benefit contributions (8)

     (1.1      (24.3

Tax payments, net of refunds (9)

     (21.9      (7.7

Net interest payments

     —          (0.8
  

 

 

    

 

 

 

Cash provided by operating activities

   $ 58.3      $ 51.0  
  

 

 

    

 

 

 

 

(1)

Represents the sum of restructuring and other charges (income), non-operating pension expense and settlement charges, and depreciation and amortization.

(2)

Referred to as Adjusted EBITDA.

(3)

During 2016, we entered into an exclusive lithium hydroxide manufacturing agreement with a contract manufacturer in China as part of an expansion of our lithium hydroxide production capabilities. We sell lithium carbonate to the contract manufacturer for use as feedstock. We purchase the lithium hydroxide produced by the contract manufacturer to sell on to our end customers. We do not recognize revenue or profit on our transactions with the contract manufacturer, but our working capital balances are impacted; specifically accounts receivable and accounts payable.

(4)

The change in cash flows related to trade receivables in 2017 and 2016 were primarily driven by higher revenues as well as the agreement with the contract manufacturer which was $46.5 million of the increase discussed above.

(5)

Changes in inventory are a result of decreased inventory levels due to higher sales volume as well as the impacts of the contract manufacturing agreement noted above.

(6)

The change in cash flows related to accounts payable is primarily driven by timing of payments made to suppliers and vendors as well as the new payables of $25.4 million associated with the arrangement with the contract manufacturer discussed above.

(7)

Changes in all periods presented primarily represent timing of payments associated with all other operating assets and liabilities. Amounts in 2016 also include cash receipts of $15.9 million related to collections from the Argentina government which largely did not

 

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  repeat in 2017. Please see the combined statements of cash flows included within the annual combined financial statements for disaggregation of the components that make up this line item.
(8)

Amounts represent contributions to the U.K. Plan of $1.1 million and $24.3 million which were primarily made to annuitize the remaining pension obligation, respectively. The plan was annuitized in 2016 and then the buy-out of the annuity occurred in 2017 which terminated the plan.

(9)

Tax payments in 2017 are significantly higher due to tax payments primarily associated with the 2017 U.S. Tax Cuts and Job Act which are ultimately funded by FMC.

Cash required by investing activities was $62.5 million and $31.3 million for the year ended December 31, 2017 and 2016, respectively.

The change in cash required by investing activities is primarily due to our investments in production capacity of lithium carbonate and hydroxide resulting in increased capital expenditures. In 2017, we made a prepayment of $10.0 million to Nemaska under a long-term supply agreement for lithium carbonate.

Cash provided (required) by financing activities was $1.5 million and $(18.6) million for the year ended December 31, 2017 and 2016, respectively.

As FMC managed our cash and financing arrangements, all excess cash generated through earnings were deemed remitted to FMC and all sources of cash were deemed funded by FMC. Additionally, 2016 included repayments of third-party debt of our Argentine subsidiary that were fully paid off during the period.

Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2017.

 

Contractual Commitments    Expected Cash Payments by Year  

(in millions)

   Total      Less than 1 year      1 - 3 years      3 - 5 years      More than 5
years
 

Long-term debt obligations

   $ —        $ —        $ —        $ —        $ —    

Operating lease obligations (1)

   $ 8.3      $ 0.7      $ 1.5      $ 1.4      $ 4.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total (2)

   $ 8.3      $ 0.7      $ 1.5      $ 1.4      $ 4.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Obligations associated with operating leases.

(2)

As of December 31, 2017, the liability for uncertain tax positions was $7.5 million. This liability is excluded from the table above. Additionally, projected 2018 net environmental remediation spending of $0.5 million is also excluded from the table above. Due to the high degree of uncertainty regarding the timing of potential future cash flows associated with these liabilities, we are unable to make a reasonably reliable estimate of the amount and periods in which these liabilities might be paid.

Recently Adopted and Issued Accounting Pronouncements and Regulatory Items

See Note 4 “Recently Issued and Adopted Accounting Pronouncements and Regulatory Items” to our unaudited condensed combined financial statements included in this prospectus.

JOBS Act

We are an emerging growth company under the JOBS Act. The JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report

 

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on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. We may remain an emerging growth company for up to five years, although we will lose that status as of the last day of the fiscal year in which we have more than $1.07 billion of revenues, have more than $700.0 million in market value of our common stock held by non-affiliates (assessed as of the most recently completed second quarter), or if we issue more than $1.0 billion of non-convertible debt over a three-year period.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.

Critical Accounting Policies

These combined financial statements were prepared in conformity with U.S. GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We have described our accounting policies in Note 3 “Summary of Significant Accounting Policies” to our combined financial statements included in this prospectus. We have reviewed these accounting policies, identifying those that we believe to be critical to the preparation and understanding of our combined financial statements. Critical accounting policies are central to our presentation of results of operations and financial condition in accordance with U.S. GAAP and require management to make estimates and judgments on certain matters. We base our estimates and judgments on historical experience, current conditions and other reasonable factors.

Revenue recognition and trade receivables

We recognize revenue when the earnings process is complete, which is generally upon transfer of title. This transfer typically occurs either upon shipment to the customer or upon receipt by the customer. In all cases, we apply the following criteria in recognizing revenue: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable and collection is reasonably assured. Rebates due to customers are accrued as a reduction of revenue in the same period that the related sales are recorded based on the contract terms.

We record amounts billed for shipping and handling fees as revenue. Costs incurred for shipping and handling are recorded as costs of sales and services. Amounts billed for sales and use taxes, value-added taxes, and certain excise and other specific transactional taxes imposed on revenue-producing transactions are presented on a net basis and excluded from revenue in the combined statement of operations. We record a liability until remitted to the respective taxing authority.

Trade receivables consist of amounts owed from customer sales and are recorded when revenue is recognized. 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 use a two-stage process which includes calculating a general formula to develop an allowance to appropriately address the uncertainty surrounding collection risk of our entire portfolio and specific allowances for customers where the risk of collection has been reasonably identified either due to liquidity constraints or disputes over contractual terms and conditions.

Our method of calculating the general formula consists of estimating the recoverability of trade receivables based on historical experience, current collection trends, and external business factors such as economic factors,

 

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including regional bankruptcy rates, and political factors. Our analysis of trade receivable collection risk is performed quarterly, and the allowance is adjusted accordingly.

On January 1, 2018, Accounting Standards Update 2014-09, Revenue from Contracts with Customers, became effective. See Note 4 to the unaudited condensed combined financial statements included in this prospectus for more information.

Impairments and valuation of long-lived assets

Our long-lived assets primarily include property, plant and equipment. We test for impairment whenever events or circumstances indicate that the net book value of our property, plant and equipment may not be recoverable from the estimated undiscounted expected future cash flows expected to result from their use and eventual disposition. In cases where the estimated undiscounted expected future cash flows are less than net book value, an impairment loss is recognized equal to the amount by which the net book value exceeds the estimated fair value of assets, which is based on discounted cash flows at the lowest level determinable. The estimated cash flows reflect our assumptions about selling prices, volumes, costs and market conditions over a reasonable period of time.

See Note 6 to our unaudited condensed combined financial statements included elsewhere in this prospectus for charges associated with long-lived asset disposal costs and the activity associated with the restructuring reserves.

Income taxes

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 file income tax returns in the United States and various state and foreign jurisdictions, as part of a FMC legal entity. 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. We adjust these liabilities, if necessary, upon the completion of tax audits or changes in tax law.

On December 22, 2017, the Tax Act was enacted in the United States. The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings.

As of June 30, 2018, we had not completed our accounting for the tax effects of enactment of the Tax Act, however, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax.

Quantitative and Qualitative Disclosures About Market Risk

Our earnings, cash flows and financial position are exposed to market risks relating to fluctuations in commodity prices, foreign currency exchange rates and interest rates. Our financial instruments are trade

 

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receivables and trade payables. These financial instruments are recorded at cost, which approximates fair value due to the short-term nature of the instruments. FMC also entered into derivative contracts to hedge exposures at the corporate level.

Commodity Price Risk

Many of the products we purchase are commodities whose price is determined by the market’s supply and demand for such products. Price fluctuations in our selling prices and key costs, including energy, have a significant effect on our financial performance. Energy costs are diversified among electricity and natural gas. As of June 30, 2018, we had no open commodity contracts. As a result, there was no sensitivity analysis performed over commodity price risk for the current period.

Foreign Currency Exchange Rate Risk

Our worldwide operations expose us to currency risk from sales, purchases, expenses and loans denominated in currencies other than the U.S. dollar, our functional currency. The primary currencies for which we have exchange rate exposure are the Euro, the British pound, the Chinese yuan, the Argentine peso, and the Japanese yen. Foreign currency debt and foreign exchange forward contracts are used in countries where we do business, thereby reducing our net asset exposure. Foreign exchange forward contracts are also used to hedge firm and highly anticipated foreign currency cash flows. We currently do not hedge foreign currency risks associated with the Argentine peso due to the limited availability and the high cost of suitable derivative instruments.

Based on a 10% change in market rates, the strengthening and weakening of the dollar against these currencies as of June 30, 2018 would have increased or decreased our net income for the six months ended June 30, 2018 by $10.5 million and $10.3 million, respectively. The same 10% change in market rates as of December 31, 2017 would have increased or decreased our net income for the year ended December 31, 2017 by $8.0 million and $12.6 million, respectively. This analysis assumes that all remaining variables, including interest rates, remain constant.

Interest Rate Risk

Following this offering, we will have no outstanding debt, but we will have $400 million of variable debt available for borrowing and will be exposed to interest rate risk arising from fluctuations in interest rates. At this time, we do not intend to use any interest rate swaps to manage this risk, but may at a point in the future.

 

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INDUSTRY OVERVIEW

Lithium is a soft, naturally occurring, silvery-white metal that is widely used in a range of energy storage and industrial applications. Lithium is the lightest of all metals and has the highest specific heat capacity among all elements, a high charge density and low thermal expansion properties, enabling high-performance characteristics in end use applications that could not otherwise be achieved. These unique chemical and physical properties make it ideally suited for use in a variety of commercial applications.

Prior to 2000, lithium was primarily used in a wide range of industrial market applications, including air treatment, ceramics, glass, greases, metallurgy, non-rechargeable batteries, pharmaceuticals and polymers. According to Roskill, industrial applications accounted for over 50% of the end market use of lithium in 2017, as measured in LCE, which is the standard unit of measurement used in the industry to equilibrate lithium content across different types of lithium compounds.

Lithium Consumption in 2017

 

2017 Lithium Consumption by Application    2017 Lithium Consumption by Product

LOGO

  

LOGO

 

Source: Roskill

Note: Figures shown on an LCE basis

(1)   Refers to both rechargeable battery and primary battery applications

(2)   Refers to both ceramics and glass-ceramics applications

(3)   Refers to metallurgical powders, air treatment and other applications

  

 

Source: Roskill

Note: Figures shown on an LCE basis

(1)   Refers to both battery-grade lithium carbonate and technical grade lithium carbonate

(2)   Refers to technical grade lithium hydroxide

(3)   Refers to battery-grade lithium metal

(4)   Refers to mineral, lithium bromide and other lithium compounds

Lithium’s use in energy storage applications accelerated in the 1990’s with the introduction of a commercially viable, rechargeable, lithium-ion battery. Lithium-ion battery technology provided a more efficient, longer-lasting and lighter alternative to incumbent battery technologies. The introduction and adoption of portable electronic devices over the past two decades fueled the initial growth in demand for lithium compounds in energy storage applications. In recent years, advancements in lithium-ion battery technology have resulted in increased adoption of lithium-ion batteries for use in powering EVs.

According to Roskill, in 2017, smartphones contained an average of 0.008 kg LCE per device, plug-in hybrid electric vehicles (“PHEVs”) contained an average of 9 kg LCE per vehicle, while BEVs contained an average of 42 kg LCE per vehicle with longer-range BEVs containing even higher quantities of lithium compounds.

Overview of Lithium Compounds

Lithium is a highly reactive metal that is rarely consumed in its pure form. Instead, lithium is consumed as a compound created through a chemical process. We believe lithium compounds can be characterized as either

 

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performance lithium compounds or base lithium compounds. The below chart shows the most frequently consumed lithium compounds in each category.

 

Base Lithium Compounds

 

     

Performance Lithium Compounds

 

•  Lithium Carbonate

   

•  Lithium Hydroxide (battery grade & non-battery)

•  Lithium Chloride

   

•  Butyllithium

   

•  High Purity Lithium Metal

According to Roskill, the estimated total consumption of lithium compounds in 2017 was approximately 212 kMT LCE. Over the next decade, Roskill forecasts that total consumption will increase to approximately 878 kMT LCE. Over the same period, Roskill forecasts that consumption of performance lithium compounds will increase to 53% of total consumption of lithium compounds, driven by growth in battery-grade lithium hydroxide.

Forecasted Consumption Growth in Base and Performance Lithium Compounds

 

LOGO

 

Source: Roskill

 

(1)

Refers to the two compounds listed under “Base Lithium Compounds” and direct mineral sales

(2)

Refers to the three compounds listed under “Performance Lithium Compounds” as well as lithium bromide and other lithium compounds

Performance Lithium Compounds

Performance lithium compounds are produced through chemical processes that utilize base lithium compounds, primarily lithium carbonate and lithium chloride, as inputs. The production of performance lithium compounds requires extensive manufacturing process technology and application know-how as products are required to meet specific performance requirements in each customer’s manufacturing application. As a result, performance lithium compounds are often developed in collaboration with customers and undergo rigorous qualification processes to ensure they can meet these requirements. Customer qualification processes take approximately twelve months and may be longer depending on the product, customer and application. Performance lithium compounds are priced based on product performance and the technical service producers can offer customers. We believe we are one of a limited number of companies today with the proven ability to produce performance lithium compounds capable of consistently meeting customer product performance requirements.

 

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Battery-Grade Lithium Hydroxide Expected to Drive

Significant Growth of Performance Lithium Compounds

 

Lithium

Compound

 

 

+

 

Primary

Performance

Application

 

     

Market

Size(1)

kMT

(2017)

 

     

Market

Size(1)

kMT

(2027)

 

     

10-Year

CAGR

(2017-2027)

 

     

Market Share(1)

of Total Lithium
Compounds

(2017)

 

     

Market Share(1)

of Total Lithium

Compounds

(2027)

 

Battery-grade

Lithium

Hydroxide

     

•  Electric Vehicles

      20.0       398.8       34.9%       9.5%       45.4%

Non-Battery

Lithium

Hydroxide

     

•  High performance Greases

      14.3       16.7       1.5%       6.8%       1.9%

Butyllithium(2)

     

•  Polymer

 

•  Pharmaceutical

      9.5       12.8       3.0%       4.5%       1.5%

High Purity

Lithium Metal

and Other(3)

     

•  Primary Battery

 

•  Aerospace

      23.6       32.8       3.4%       11.1%       3.7%

Total

        67.4     460.9     21.2%     31.9%     52.5%

 

Source: Roskill

Note: Figures shown on an LCE basis

(1)

Market size and share based on consumption

(2)

Includes butyllithium by-products that are sold as different products

(3)

Other includes lithium floride, lithium bromide and other smaller product lines

Battery-Grade Lithium Hydroxide

Battery-grade lithium hydroxide is primarily used to produce high nickel content cathode materials for use in EV battery applications. High nickel content cathodes enable the production of higher energy density batteries, allowing vehicles to achieve greater driving range between charges for the same battery weight. According to Bloomberg New Energy Finance, high nickel content cathodes are expected to be increasingly adopted in evolving battery technologies over the coming years, and since production of these cathodes requires the use of battery-grade lithium hydroxide, demand for this compound is expected to grow significantly.

We primarily sell battery-grade lithium hydroxide to the high-growth EV battery market, but we also serve a sub-set of the grease market by selling to producers of high performance greases.

Non-Battery Lithium Hydroxide

Non-battery lithium hydroxide is primarily sold into grease applications for use in automobiles, aircraft, railcars and agricultural and other types of equipment. Lithium greases are non-corrosive, extremely versatile and work well in a wide range of temperatures and weather conditions. According to the annual grease survey conducted by NLGI (formerly known as the National Lubricating Grease Institute), over 70% of worldwide grease production is lithium-based, and lithium hydroxide is the key raw material used in the grease manufacturing process.

Butyllithium

Butyllithium is an organolithium compound used to initiate polymerization in the manufacturing of synthetic rubber and other polymers. One of the primary applications for synthetic rubber is in the production of fuel-efficient “green” tires. Compared to traditional tires, “green” tires are more fuel efficient as they offer lower rolling resistance, better wet grip and reduced noise and wear resistance. As a chemical reagent, butyllithium is used in the synthesis of certain organic compounds, including active pharmaceutical ingredients, agrochemicals and electronic materials.

 

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Due to the hazardous nature of transporting, storing and using butyllithium, customers prefer to minimize inventory held at their manufacturing sites. Consequently, consumers of butyllithium prefer suppliers who are located in the same regions with the ability to provide safe-handling and technical support. We are one of only two butyllithium producers with manufacturing facilities in multiple countries. Our global footprint includes the United States, the United Kingdom, China and India.

High Purity Lithium Metal

High purity lithium metal is mainly used in aluminum alloys and non-rechargeable lithium batteries. In aluminum alloys, high purity lithium metal is used to impart specific strength and weight characteristics in aerospace applications. Currently, we are the only producer of high purity lithium metal in the Western Hemisphere.

Base Lithium Compounds

Base lithium compounds are produced through the extraction and processing of lithium bearing resources, which are either brine or hard rock. After extraction, the source materials are further processed into higher concentration compounds which are typically used to produce lithium carbonate and lithium chloride and, in the case of hard rock, lithium hydroxide. Base lithium compounds are typically produced to standard specifications, such as minimum lithium content or maximum impurity levels, depending on the end use application. Base lithium compounds are primarily used in energy storage, glass, ceramics and general industrial applications. Lithium carbonate and lithium chloride are also used as feedstock in the production of performance lithium compounds.

Lithium Carbonate Is Expected To Drive Growth of Base Lithium Compounds

 

Lithium

Compound

      Primary Performance
Application
      

Market

Size(1)

kMT

(2017)

 

      

Market

Size(1)

kMT

(2027)

 

      

10-Year

CAGR

(2017-2027)

      

Market Share(1)

of Total Lithium

Compounds

(2017)

 

      

Market Share(1)

of Total Lithium

Compounds

(2027)

 

Lithium

Carbonate

   

•  Electronics

                        
   

•  Ceramics

     104.9      366.7      13.3%      49.6%      41.8%
     

•  Electric Vehicles

                                            

Lithium

Chloride

& Other(2)

     

•  Air Treatment

       39.3        50.0        2.4%        18.6%        5.7%

Total

         144.1      416.7      11.2%      68.1%      47.5%

 

Source: Roskill

Note: Figures shown on an LCE basis. Market size figures exclude compounds used as feedstock in performance lithium compound production

(1)

Market size and share based on consumption

(2)

Other includes lithium mineral compounds

Lithium Carbonate

Lithium carbonate is primarily used in energy storage, glass and ceramics applications, and is also used as a feedstock in the production of lithium hydroxide and specialty lithium compounds. In energy storage applications, lithium carbonate’s use is limited to portable electronic devices and in EV applications that require lower energy density, such as lithium iron phosphate, lithium cobalt oxide and lower nickel content lithium nickel manganese cobalt oxide cathode materials. Lithium carbonate is an odorless, white powder of a specific particle size. Standard quality specifications for lithium carbonate include a minimum lithium carbonate

 

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concentration (as a percentage of weight) of 99.3% and maximum concentrations of sodium oxide, calcium oxide, sulfate, and iron oxide of 0.2%, 0.05%, 0.1% and 0.003%, respectively.

According to Roskill, our facility in Argentina is one of the lowest cost sources of lithium carbonate in the world. We consume almost all the lithium carbonate we produce internally, with minimal external sales.

Lithium Chloride

Lithium chloride is primarily used in the production of performance lithium compounds such as butyllithium and high purity lithium metal. Lithium chloride is also used in limited industrial applications such as air treatment. Lithium chloride is composed of free-flowing white crystals. Standard quality specifications for lithium chloride include a minimum lithium chloride concentration (as a percentage of weight) of 98.5% and maximum concentrations of water, potassium chloride, sodium chloride and calcium chloride of 0.6%, 0.5%, 0.6% and 0.02%, respectively.

Based on our cost position in the production of lithium carbonate, we believe that we are one of the lowest cost producers of lithium chloride in the world. We consume almost all the lithium chloride we produce internally, with minimal external sales.

Pricing of Base Lithium Compounds

There are no official price indices for base lithium compounds and most publicly available prices for base lithium compounds are estimates prepared by industry participants. We sell the majority of our products pursuant to long-term agreements at pre-negotiated prices, not spot prices, and the contracted price at which we sell our products typically differs materially from publicly available industry price estimates. In addition, the majority of our sales are of performance lithium compounds.

Electric Vehicles Are Expected To Be The Dominant Driver Of Demand For Lithium Compounds

According to Roskill, 1.2 million EVs were sold globally in 2017. Roskill forecasts the annual EV sales rate will accelerate to reach 19.6 million EVs sold by 2027 and, according to Bloomberg New Energy Finance, sales are expected to increase to 60.2 million EVs by 2040, representing a penetration rate of 55% of all vehicles sold annually. The primary drivers of this forecasted growth in EV sales are expected to be government policies (particularly in China), new regulations (particularly in Europe), and steadily increasing consumer adoption, as evidenced by a wider availability of EV models produced by OEM manufacturers.

 

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Governments have instituted incentives and other subsidies to support the development of EVs by automotive OEMs and to increase consumer adoption of EVs. According to Bloomberg New Energy Finance, China is the largest EV market, accounting for approximately 49% of global EV sales in 2017. China’s government has declared that the electric vehicle industry is of strategic importance over the long term. The “new energy” vehicle industry is one of ten industries targeted as a key effort to further the “Made in China” initiative by 2025. In addition to China, several other countries have also announced plans to phase out and eventually replace ICE vehicles with BEV models by 2040.

We believe the growth in the EV market in China has been aided by various incentive programs extended by the Chinese government to both automakers and consumers. In September 2017, China issued a New Energy Vehicles (including BEVs and PHEVs) credit mandate, which will become effective in 2019, and in 2018, the Chinese government adjusted its subsidy policy to favor BEVs that offer longer driving ranges.

In response to the changing government policies and incentives favoring EVs, OEMs have announced plans to expand EV lines in the future. The chart below summarizes EV production plans from many major OEMs.

 

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1 

Reflects announcements made through June 30, 2018

In addition to expanding their offering of EV models, automotive OEMs are focused on improving total energy density and reducing weight in batteries to increase the driving range of EVs. To achieve these improvements, EV battery manufacturers are increasingly using high nickel content cathode materials that contain less cobalt and more nickel, while the lithium content remains largely unchanged.

High nickel content cathode technologies include lithium nickel-cobalt-aluminum oxide (“NCA”) and lithium nickel-manganese-cobalt oxide containing 80% nickel (“NMC 811”). NCA cathodes are already used in leading BEV models, and automotive OEMs’ roadmaps for new BEV models indicate an increasing transition to NMC 811. According to Bloomberg New Energy Finance, the market share of high nickel content cathodes for passengers EVs is expected to increase to 85% in 2027 from 34% in 2017. Due to the underlying chemistry, battery-grade lithium hydroxide is required in the manufacturing of high nickel content cathode material, whereas lithium carbonate is used in lower energy density EV battery applications.

Over the next decade, EV adoption, particularly BEVs, is expected to be the dominant growth driver for demand of both lithium carbonate and battery-grade lithium hydroxide compounds. According to Roskill, 2017 demand for lithium compounds used in EVs accounted for approximately 52 kMT LCE, representing 25% of total demand for lithium compounds on an LCE basis. This demand is expected to grow to approximately 675 kMT LCE in 2027, representing 77% of total forecasted demand for lithium compounds on an LCE basis. Additionally, the evolution of EV battery technology to high nickel content cathodes is expected to further accelerate growth in battery-grade lithium hydroxide.

 

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Strong Growth Forecasted in EVs and EV Battery Demand for Lithium Compounds

 

 

Type of Vehicle

 

 

 

2017

Vehicles

(Millions)

 

 

 

2027

Vehicles

(Million)

 

 

 

10-Year

Vehicle

CAGR

 

 

 

2017 Lithium

Compound

Consumption

 

 

 

2027 Lithium

Compound

Consumption

 

 

 

10-Year

CAGR

 

Battery Electric

        Vehicle

 

0.8 15.5 34.3% 46 kMT 598 kMT 29.3%

Plug-in Hybrid

Electric Vehicle

 

0.4 4.1 25.7% 6 kMT 77 kMT 29.8%

 

Source: Roskill

Note: Consumption figures shown on an LCE basis and include both lithium hydroxide and lithium carbonate

Demand for Performance Lithium Compounds

According to Roskill, the global consumption of performance lithium compounds in 2017 was approximately 67 kMT LCE, representing 32% of total consumption of lithium compounds on an LCE basis. Roskill forecasts that this consumption is expected to grow to approximately 461 kMT LCE by 2027, representing 53% of total consumption of lithium compounds on an LCE basis. Demand for battery-grade lithium hydroxide is expected to be the primary driver of this growth.

 

LOGO

 

Source: Roskill

Electric Vehicles Expected to Drive Demand for Battery-Grade Lithium Hydroxide

According to Roskill, the market for battery-grade lithium hydroxide was approximately 20 kMT LCE in 2017, and is expected to grow at a CAGR of 35% through 2027 to 399 kMT LCE. The accelerating adoption of EVs, particularly BEVs, is expected to be the dominant driver of growth in demand for battery-grade lithium hydroxide over the next decade. As referenced above, substantial growth in EVs is expected as the electrification of the transportation market accelerates.

Grease Applications Expected to Drive Demand for Non-Battery Lithium Hydroxide

According to Roskill, the market for non-battery lithium hydroxide was approximately 14 kMT LCE in 2017, and is expected to grow at a CAGR of 2% through 2027 to approximately 17 kMT LCE. The primary

 

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driver of demand for non-battery lithium hydroxide is greases, where it is used to impart the desired performance properties of greases for automobile, aircraft, railcar, agricultural and other types of equipment applications.

According to Roskill, on a combined basis, the market for both battery-grade and non-battery lithium hydroxide is forecast to grow at a CAGR of 28% through 2027, reaching a total of 415 kMT LCE.

Polymers Expected to Drive Demand for Butyllithium

According to Roskill, the market for butyllithium was approximately 9 kMT LCE in 2017, and is expected to grow at a CAGR of 3% through 2027 to 13 kMT LCE. Butyllithium has been used for over 50 years as a catalyst for polymer production, including synthetic rubbers and thermoplastic elastomers. One of the fastest growing applications for synthetic rubber is in the production of “green” tires. Compared to traditional tires, “green” tires are more fuel efficient as they offer lower rolling resistance, better wet grip and reduced noise and wear resistance.

Alloys and Primary Batteries Expected to Drive Demand for High Purity Lithium Metal

According to Roskill, the market for high purity lithium metal was approximately 4 kMT LCE in 2017 and is expected to grow at a CAGR of 9% through 2027 to 10 kMT LCE. Growth in high purity lithium metal is being driven by light-weighting and fuel-efficiency trends in aerospace applications, as well as continued demand in primary batteries used in household, medical and military applications.

Demand for Base Lithium Compounds

According to Roskill, the global demand for base lithium compounds in 2017 was approximately 144 kMT LCE, representing 68% of total demand for lithium compounds on an LCE basis. Roskill forecasts that this demand is expected to grow to approximately 417 kMT LCE by 2027, representing 47% of total demand for lithium compounds on an LCE basis. Demand for lithium carbonate is expected to be the primary driver of this growth.

Global Forecasted Consumption of Base Lithium Compounds

 

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Source: Roskill

(1)

Includes other industrial base lithium products in other forms including ores and brines

Energy Storage Expected to Drive Demand for Lithium Carbonate

According to Roskill, the market for lithium carbonate was approximately 105 kMT LCE in 2017 and is expected to grow at a CAGR of 13% through 2027 to a total of approximately 367 kMT LCE. Lithium carbonate

 

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is the most commonly used lithium compound in terms of volume, largely due to the rapid growth over the last decade in portable electronic devices, which use lithium-based cathodes in their batteries. In addition, early generation EV batteries use lithium carbonate-based cathode chemistries.

Lithium carbonate growth is expected to be underpinned by increasing adoption rates of EVs including PHEVs, e-Buses, commercial vehicles, e-bikes and lower-performance passenger BEVs, as well as by emerging grid storage applications. In addition, lithium carbonate is increasingly used as a feedstock for battery-grade lithium hydroxide.

Total Demand for Lithium Compounds

According to Roskill, the market for all lithium compounds, on a combined basis, was approximately 212 kMT LCE in 2017 and is expected to grow at a CAGR of 15.3% through 2027 to a total of approximately 878 kMT LCE. Performance lithium compounds are expected to experience the fastest growth out of the two types, increasing share of the market from 32% in 2017 to 53% in 2027.

Global Forecasted Consumption for Lithium Compounds

 

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Source: Roskill

Supply of Lithium Compounds

According to Roskill, the global supply of all lithium compounds was 270 kMT LCE in 2017. Six producers, namely Livent, Albemarle Corporation, SQM, Tianqi, Jiangxi Ganfeng Lithium and Orocobre, accounted for approximately 86% of the total 2017 supply.

Production of Base Lithium Compounds from Mineral Deposits

Base lithium compounds are produced through the extraction and processing of two broad lithium bearing resources, brine and hard rock mineral deposits. According to Roskill, in 2017 brine deposits accounted for approximately 35% of production, with the remaining 65% coming from hard rock minerals. The chart below highlights some of the key characteristics when extracting lithium compounds from brine versus hard rock deposits.

 

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Major Types and Processing Characteristics of Lithium Bearing Deposits

 

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•  Lithium concentration level of 250 – 2,000 ppm

 

•  Primarily uses solar evaporation

 

•  Energy efficient

 

•  Low variable cost

 

•  Concentrated in Argentina, Bolivia and Chile with known deposits in China and U.S

 

•  Lithium oxide concentration level of 0.5% – 2.5%

 

•  Requires mining operations

 

•  Energy intensive beneficiation

 

•  High variable cost

 

•  Significant deposits in Australia, with known deposits globally including Canada and China

The capital investment and operating costs of brine and hard rock mineral deposits differ as a result of the characteristics outlined above. The initial capital investment required to start production from brine deposits is typically higher than those associated with hard rock mineral deposits due to their remote geographic location and the infrastructure required to concentrate lithium. However, once the infrastructure has been successfully built the operating costs of a brine deposit are lower than that of a hard rock mineral deposit. Consequently, brine operations typically occupy the lower half of the cost curve on an LCE basis. According to Roskill, in 2018 our brine operations in Argentina are the lowest cost lithium carbonate source globally.

 

LOGO

 

Source: Roskill

(1)

Mine production is not representative of refined lithium production levels

Production of Performance Lithium Compounds

Performance lithium compounds are produced through a chemical process that utilizes base lithium compounds, primarily lithium carbonate and lithium chloride, as an input. The majority of production capacity

 

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for performance lithium compounds is dedicated to producing either battery-grade or non-battery lithium hydroxide. According to Roskill, the global supply of total lithium hydroxide was 39 kMT LCE in 2017.

Future consumption of battery-grade and non-battery lithium hydroxide, according to Roskill, is projected to increase to 415 kMT LCE by 2027. To meet this demand, several producers, including both existing and new entrants, have announced projects to build additional lithium hydroxide supply. As a result of these announcements, Roskill forecasts that by 2027 the supply of total lithium hydroxide will reach approximately 420 kMT LCE.

Global Forecasted Supply/Demand for Lithium Hydroxide

 

 

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Source: Roskill

Following construction and commissioning of new hydroxide capacity, producers must prove that they can consistently supply product that meets the right physical and chemical properties required by customers. These properties vary, and as a result, process and application know how is important and is valued by customers. To ensure consistency of supply, producers undergo a rigorous product qualification process to ensure their battery-grade lithium hydroxide meets the chemistries that manufacturers of high nickel content cathode materials specify. This qualification process takes approximately twelve months after commissioning the facility, and we believe is often overlooked in forecasted supply figures. In addition, several of the announced supply projects are targeting production capacities that are larger than most existing production facilities. We believe that any delays in completing construction of these larger facilities, or a producer’s inability to manufacture product that meets physical and chemical properties required by customers, could have a material impact on the forecasted supply increase leading to an undersupplied market.

Lithium hydroxide producers with access to low cost lithium bearing feedstock generally have an advantaged cost structure compared to producers sourcing from third parties. In addition, brine producers generally have a lower lithium hydroxide cost structure than hard rock mineral producers, due to their lower cost lithium carbonate feedstock. According to Roskill, our lithium hydroxide operations were the lowest cost globally in 2017.

Total Supply and Demand of Lithium Compounds

Future consumption of all lithium compounds, according to Roskill, is projected to increase to 878 kMT LCE by 2027. To meet this demand, supply will need to increase by approximately 225% over the next 10 years. In response to this significant supply/demand gap, several producers, including both existing and new entrants,

 

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have announced projects to build additional base and performance lithium compound supply. As a result of these announcements, Roskill forecasts that by 2027 the supply of lithium compounds will reach approximately 898 kMT LCE.

Projected Base & Performance Lithium Compound Supply/Demand Balance Through 2027

 

 

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Source: Roskill

New entrants to the industry are expected to bring online approximately 260 kMT LCE of supply, representing 41% of the forecasted supply expansion through 2027. Historically, the industry has been challenged in bringing supply online within the announced timeframe and at full nameplate capacity. According to Roskill, between 2011 and 2016 mine capacity was forecasted to increase by approximately 350 kMT LCE, compared to the actual expansion achieved of approximately 110 kMT LCE. Roskill also estimates that the historical capacity utilization for the industry has rarely exceeded 75%. We believe these data points are a reflection of the significant challenges at each stage of the project development and production process, which are commonly underestimated in projected supply figures, and pose a risk to the effectiveness of new supply to meet demand. We also believe the complexities of producing performance lithium compounds are significantly higher than that of base lithium compounds. This is likely to result in new entrants focusing on the production of base lithium compounds, as they are not subject to the same physical and chemical performance characteristics as performance lithium compounds.

 

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BUSINESS

Our Business

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, 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 fast growing EV battery market, while continuing to maintain our position as a leading global producer of butyllithium and high purity lithium metal. With extensive global capabilities, over 60 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 vehicle electrification.

 

LOGO

We produce lithium compounds for use in applications that have specific 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 as a synthesizer 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.

Our revenue was $264.1 million and $347.4 million in 2016 and 2017, respectively, representing an annual growth rate of 32%, and $210.7 million for the six months ended June 30, 2018, representing a growth rate of 51% compared to June 30, 2017. We are a highly profitable business, generating net income of $47.1 million, $42.2 million and $70.2 million, cash from operating activities of $51.0 million, $58.3 million and $18.0 million and Adjusted EBITDA of $74.8 million, $126.1 million and $94.5 million in 2016 and 2017 and the six months ended June 30, 2018, respectively.

 

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LOGO

 

(1)

Company internal estimates

As a result of our focus on supplying performance lithium compounds for use in the rapidly growing EV market, we expect the shares of lithium hydroxide, energy storage and Asia as percentages of our total revenue by product, application and geography, respectively, to increase. We intend to maintain our leadership positions in other high performance markets such as greases and polymers.

We believe that we have earned a reputation as a leading supplier in the markets we serve, based on the performance of our products in our customers’ production processes and our ability to provide application know-how and technical support. In the EV market, we are one of a small number of lithium suppliers whose battery-grade lithium hydroxide has been qualified by customers for use in their cathode material production processes. Throughout our history, as end market application technologies have evolved, we have worked closely with our customers to understand their changing performance requirements and have developed products to address their needs.

 

LOGO

As a vertically integrated producer, we benefit from operating one of the lowest cost lithium mineral deposits in the world. We have been extracting lithium brine at our operations at the Salar del Hombre Muerto in Argentina for more than 20 years, and have been producing lithium compounds for over 60 years. Our operational history provides us with a deep understanding of the process to extract lithium compounds from brine. We have developed proprietary process knowledge that enables us to produce high quality, low impurity lithium carbonate and lithium chloride. We source the majority of our base lithium compounds for use in the production of performance lithium compounds from these low cost operations in Argentina. Our operations in Argentina are expandable, giving us the ability to increase our lithium carbonate and lithium chloride production to meet increasing demand. We also have the operational flexibility to procure lithium carbonate from third party suppliers as raw materials. This strategy allows us to manage our production requirements and raw material cost, creating opportunities to optimize profitability.

 

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We are one of a few lithium compound producers with global manufacturing capabilities. We use the majority of the lithium carbonate we produce in the production of battery-grade lithium hydroxide in the United States and China. We use the lithium chloride we produce in the production of butyllithium products in the United States, the United Kingdom, China and India, as well as in the production of high purity lithium metal in the United States. We have significant know-how and experience in the lithium hydroxide, butyllithium and high purity lithium metal production processes and product applications, which we believe provides us with a competitive advantage in these markets.

Our Market Opportunity

The trend of vehicle electrification is expected to be a significant growth catalyst for lithium compounds over the next decade and into the future. Roskill projects that EV sales will grow at a 32% CAGR through 2027, reaching 19.6 million vehicles in annual sales volume. In the long term, according to Bloomberg New Energy Finance, annual EV sales are expected to reach 60.2 million units in 2040, representing a penetration rate of 55% of all vehicles sold annually.

The growth forecasted in the EV market has resulted in a significant increase in current and expected future demand for battery-grade lithium compounds. According to Roskill, the total market consumption of lithium compounds is expected to reach 878 kMT by 2027, representing a 15.3% CAGR during the ten-year period. Demand from EV batteries is expected to represent 64% of the total consumption of lithium compounds and total 562 kMT in the same year.

As EV adoption accelerates, we anticipate battery manufacturers will increasingly move to using high nickel content cathode materials in the manufacture of EV batteries. High nickel content cathodes substantially improve the energy density of batteries, enabling longer driving ranges. Battery-grade lithium hydroxide is a critical component in the production of high nickel content cathode materials. According to Roskill, demand for battery-grade lithium hydroxide for use in EV applications is expected to grow at a CAGR of 44% through 2027, reaching 359 kMT when measured on an LCE basis.

As one of the leading producers of battery-grade lithium hydroxide for EV applications, we are well positioned to benefit from this growth. The battery-grade lithium hydroxide market for EV applications has significant barriers to entry, which include:

 

   

Complex process technology required to produce lithium compounds that meet customers’ evolving performance requirements;

 

   

Long timeline required to establish applications expertise, customer relationships and qualify products with customers; and

 

   

New capacity additions have long construction, commissioning and qualification timelines.

With over 20 years of experience in the production of lithium hydroxide, we have established ourselves as a reliable, high-quality supplier. Our manufacturing facilities have been qualified to produce performance lithium compounds for use in our customers’ battery materials manufacturing processes, resulting in the majority of our production capacity being contracted to customers under multi-year agreements.

Our goal is to maintain a leading market share in battery-grade lithium hydroxide, butyllithium and high purity lithium metal. For high nickel content cathode materials, we believe we are one of a small number of producers capable of consistently delivering battery-grade lithium compounds that meet performance standards demanded by our customers. We have announced a capacity expansion to produce approximately 55 kMT of lithium hydroxide annually by the end of 2025, of which 18.5 kMT was in production at the end of 2017.

Our Products

Our performance lithium compounds are frequently produced to meet specific customer application and performance requirements. We have developed our capabilities in producing performance lithium compounds

 

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through decades of interaction with our customers, and our products are key inputs into their production processes. Our customer relationships provide us with first-hand insight into our customers’ production objectives and future needs, which we in turn use to further develop our products.

 

 

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Other specialties include lithium phosphate, pharmaceutical-grade lithium carbonate, high purity lithium chloride and specialty organics. In addition to performance lithium compounds, we also produce lithium carbonate and lithium chloride, both of which we largely consume as feedstock in the process of producing our performance lithium compounds.

Our Strengths

Leading Global Producer of Performance Lithium Compounds

We are a leading producer of performance lithium compounds. In 2017, sales of performance lithium compounds accounted for 88% of our revenue. We have significant process, product and innovation capabilities, and enjoy a reputation as a reliable supplier with long-standing relationships. We are a leading supplier of battery-grade lithium hydroxide for EVs globally, and we are one of only two companies today that produce lithium hydroxide in multiple countries. Additionally, we are one of only two global producers of butyllithium with operations in multiple countries, and we are the only producer of high purity lithium metal in the Western Hemisphere.

Positioned to Benefit from Substantial Growth in Electric Vehicles Sales

According to Bloomberg New Energy Finance, EV sales are expected to reach 60.2 million units in 2040, representing a penetration rate of 55% of all vehicles sold. Automotive OEMs have announced plans to introduce longer-range EV models using higher energy density batteries, and are increasingly doing so by moving to high nickel content cathode materials. This shift will increasingly require battery-grade lithium hydroxide in the production of cathode materials.

 

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As an existing, proven global producer of battery-grade lithium hydroxide, we are well positioned to benefit from this expected increase in lithium demand from EV growth. As one of the pioneers in the lithium industry, we have relationships throughout the lithium-ion battery value chain. Across the battery value chain, product performance requirements have continued to evolve since the first lithium-ion batteries were introduced in the early 1990’s. We have developed our application and materials knowledge by working with our customers over time to produce performance lithium compounds which meet evolving customer needs.

In May 2016, we announced plans to increase our annual lithium hydroxide production capacity to 30 kMT from 10 kMT by the end of 2019; we have successfully executed the first 8 kMT phase of this expansion on time and within budget and we were producing at an annualized rate of 18.5 kMT at the end of 2017. In February 2018, we announced an intention to expand annual lithium hydroxide production capacity to approximately 55 kMT by the end of 2025.

Majority of Future Sales Secured with Multi-Year Agreements

We believe our consistent performance and our clear commitment to expanding production capacity have made us a preferred supplier in our target markets and have allowed us to secure multi-year supply agreements. In 2017 and for the six months ended June 30, 2018 more than 60% and approximately 58%, respectively, of our revenue was generated from customers with whom we have long-term agreements with terms ranging from 2 to more than 5 years in length. Our customers consider securing long-term committed supply of performance lithium compounds to be critical to their future success. As our production of lithium hydroxide increases, we expect the portion of our total revenue generated under multi-year agreements to increase. We expect that all of our capacity expansions will be contracted with customers before we commence production.

Extensive Process Technology and Know-How

For over six decades, we have developed expertise and know-how in the production of lithium compounds. We have developed a proprietary lithium concentration and purification process for brine operations that significantly reduces the time to pump brine from the Salar to processing it into lithium carbonate or lithium chloride. This reduction in processing time compares favorably to a conventional solar evaporation process, while effectively removing impurities and providing increased process control.

We have consistently demonstrated the ability to produce lithium hydroxide that has the physical and chemical properties required by our customers. We have replicated these production capabilities across multiple manufacturing locations, and we have the ability to modify these properties as customer requirements evolve. In butyllithium, we formulate products to the specific requirements of each customer across multiple manufacturing locations.

Global Production Capabilities for Performance Lithium Compounds

Our global footprint includes seven production sites in five countries across four continents, including one site operated by a third party that produces lithium hydroxide for us exclusively. This geographic presence allows us to operate close to our customers in order to better meet their needs.

 

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In Argentina, we have produced lithium carbonate and lithium chloride for over 20 years. Our 2017 production of lithium carbonate was 50% higher than it was in 2013, and we plan to increase capacity through various expansion projects.

We have operated a lithium hydroxide facility in North Carolina for over 60 years and in 2017 we added lithium hydroxide capacity in China. We are one of only two lithium hydroxide producers with operations in more than one country, and believe we are uniquely positioned to add capabilities close to our customers in other regions. We operate butyllithium facilities in the United States, the United Kingdom, China and India. Given the challenges in handling, transporting and using butyllithium products, this close proximity to customer manufacturing facilities is a critical factor in the customer’s choice of supplier. We continue to add capacity in China as the Asia market for butyllithium grows. We are the only producer of high purity lithium metal in the Western Hemisphere. Our metal distillation technology has been improved upon since we adopted it in 2012. We are evaluating expansion of our lithium metal production capabilities as demand increases for our existing metal products, while also developing new metal products.

Low Cost Operations with Capability to Significantly Expand Capacity as Demand Grows

In 2017 and for the six months ended June 30, 2018, we generated an Adjusted EBITDA margin of 36% and 45%, respectively. Our Adjusted EBITDA margin is a function of our low cost position. According to Roskill, in 2018 we operate the lowest cost lithium carbonate and lithium hydroxide operations globally. We believe this leading cost position allows our company to operate profitably across varying market conditions. The low-cost position we enjoy means that we can continue to invest in expanding our production capacity as demand grows and have confidence that we will generate attractive financial returns on our investments.

 

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LOGO

 

Source: Roskill

 

(1)

Mine production capacity is not representative of refined lithium production levels.

At the Salar del Hombre Muerto, Argentina, we own mineral concession rights to extract lithium brine until the deposit has been depleted. We have also announced plans to expand production of lithium carbonate in Argentina to at least 60 kMT by the end of 2025, in addition to our announced plans to expand lithium hydroxide capacity to approximately 55 kMT by the same date.

Proven Management Team

Our management team is led by our President and CEO, Paul Graves, who has over 25 years of chemical and global capital markets experience, including since 2012 as Executive Vice President and CFO of FMC Corporation. He is supported by our Vice President and COO, Thomas Schneberger, who has over 25 years of chemical manufacturing experience, has been at FMC for 11 years, and has been in FMC’s lithium business since 2014. Our Vice President and CFO, Gilberto Antoniazzi, has more than 25 years of experience in FMC’s various businesses, including most recently as CFO of FMC Agricultural Solutions.

Culture of Safety and Sustainability

Safety is a core value of our business and a critical part of our value proposition. We believe our commitment to the safe operation of manufacturing facilities and product stewardship is part of what makes us a preferred supplier of performance lithium products. Our sustainability program is fully integrated across the business and progress in this area is reported annually.

Our Strategy

We believe that growth in EV sales will drive significant growth in demand for performance lithium compounds. We believe that we are well positioned to benefit from this trend thanks to our leading position and long-standing customer relationships. To fully capitalize on this opportunity, our strategy will involve investing in our assets, our technology capabilities and our people to ensure we can continue to meet our customers’ demands.

Expand our Production Capacities

In May 2016, we announced plans to increase our lithium hydroxide capacity to 30 kMT by the end of 2019. In February 2018, we announced our intention to expand our lithium hydroxide capacity to approximately 55 kMT by the end of 2025 at multiple locations. These expansions should ensure we have the capacity to meet customer demands globally, as they expand their own production networks around the globe.

 

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In addition, to support our lithium hydroxide expansion, we have announced plans to expand lithium carbonate production in Argentina from 15 kMT in 2017 to at least 60 kMT by the end of 2025, in four separate stages. We expect to consume substantially all of any incremental lithium carbonate produced internally or sourced externally in our lithium hydroxide operations.

We also continue to add butyllithium capacity at our China facility as demand in Asia continues to increase. For high purity lithium metal, we are evaluating expansion opportunities to align with the potential increase in demand for lithium metal as our customers develop next generation battery technologies.

Diversify our Sources of Supply

We continue to pursue additional sources of lithium carbonate, which may include further expansion in Argentina, acquisition and development of new resources, entering into long-term supply agreements with other producers or some combination thereof. We will continually assess new resources that offer the potential to provide alternative sources of lithium carbonate, and will look to invest in developing such resources where it makes sense to do so.

Expand our Application and Process Technology Capabilities

Our market position today is built upon our ability to consistently provide our customers with the products they need. To maintain this position, we are continuously investing in our application and process technologies. As we work with our customers to understand their evolving lithium needs, we will focus on improving our own abilities to adapt the properties of our products, whether physical or chemical, to meet those needs. This may require us to invest in and potentially acquire new capabilities, hire people or acquire new technical resources.

Develop Next Generation Lithium Compounds

We believe that the evolution of battery technologies will lead to the adoption of lithium-based applications in the anode and electrolyte within the battery. This evolution will require new forms of lithium to be produced, such as new lithium metal powders or printable lithium products. We will continue to invest in our research and development efforts to help us create new products, and will also invest with and partner alongside our customers to further their own research and development efforts.

Invest in Our People

Our business requires that we hire and retain the best research scientists, engineers and technical salesforce in our industry. We will continue to invest in our people through training and developing our employees to ensure we retain the best talent in the industry.

Product Manufacturing and Sales

We extract lithium used in our manufacturing processes from lithium brines in Salar del Hombre Muerto, Argentina. See “—Principal Properties.” The lithium extract is processed into lithium carbonate at our co-located manufacturing facility in Fenix, Argentina and into lithium chloride at our nearby manufacturing facility in Güemes, Argentina. For the year ended December 31, 2017, our Argentine operations extracted and processed approximately 15 kMT of lithium carbonate and 3 kMT of lithium chloride on an LCE basis. In 2017, we further expanded production of lithium carbonate at our Argentina facility through debottlenecking projects as well as announced plans to increase annual lithium carbonate production at this site to at least 60 kMT by the end of 2025. This increase in lithium carbonate capacity is intended to better supply our lithium hydroxide production units.

A portion of the lithium carbonate and lithium chloride from our Argentine operations is sold to customers for use in various applications such as electronics, EVs and air treatment.

 

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We process the remaining lithium carbonate into lithium hydroxide at our Bessemer City, North Carolina manufacturing facility and provide a portion of our lithium carbonate to a contract manufacturer in Jiangsu, China that processes it into lithium hydroxide for us using our proprietary technology pursuant to an exclusive contract under which we have substantial oversight over their operations. Lithium hydroxide is sold to customers primarily for use in advanced batteries in EVs as well as in performance greases.

Sales of lithium hydroxide accounted for approximately 45% and 26% of our total revenue for the years ended December 31, 2017 and 2016, respectively, with an estimated 53% of these sales for use in energy storage and an estimated 36% in specialty greases in fiscal year 2017. In June 2017, we started commercial sales from a new lithium hydroxide facility in Jiangsu, China and increased our annual lithium hydroxide production capacity by 8 kMT in 2017. We intend to increase our annual total capacity of lithium hydroxide to 30 kMT by the end of 2019 and to approximately 55 kMT by the end of 2025, consistent with an anticipated rise in global demand stemming from the continued growth in EVs.

We process a portion of the remaining lithium chloride from our Argentine operations into butyllithium, high purity lithium metal and several small specialty products at our Bessemer City manufacturing facility, which constitutes a small volume of sales, and we sell a portion of lithium chloride to contract manufacturers in China that process it into lithium metal. We then purchase the finished lithium metal from such contract manufacturers pursuant to supply agreements with them for use as a raw material. Our high purity lithium metal is generally sold to customers for use in alloys and energy storage solutions.

We process the lithium metal into butyllithium at our Bessemer City, North Carolina, Bromborough, United Kingdom, Zhangjiagang, China, and Patancheru, India manufacturing facilities. Butyllithium is a high performance lithium compound used in the polymer market as an initiator in the production of high performance synthetic rubbers and elastomers as well as in the fine chemical and pharmaceutical markets where it is used to synthesize high value-added products.

The chart below presents a breakdown of our revenue by product type and category for the years ended December 31, 2017 and 2016:

 

Revenue Breakdown

 

Product Category

  

Product

   2017     2016  

Performance Lithium

   Lithium Hydroxide      45     26
   Butyllithium      26     32
   High Purity Lithium Metal and Other Specialty Products      17     18

Base Lithium

   Lithium Carbonate and Lithium Chloride      12     24

The chart below presents a breakdown of our capacity and production by product type and category as of and for the years ended December 31, 2017 and 2016:

 

Capacity and Production Breakdown

 

Product Category

  

Product

   2017      2016  
          Capacity     Production      Capacity      Production  

Performance Lithium

   Lithium Hydroxide      18,500 (1)       13,057        10,000        7,692  
   Butyllithium      3,265       2,218        3,265        2,175  
   High Purity Lithium Metal (2)      250       101        250        152  

Base Lithium

   Lithium Carbonate (3)      16,000       15,153        16,000        12,563  
   Lithium Chloride (3)      9,000       4,501        9,000        6,468  

 

All figures presented in product basis metric tons.

 

(1)

Capacity indicated is as of December 31, 2017, and reflects an expansion of capacity that came on-line in the second half of 2017.

 

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(2)

Excludes other specialty product capacities and production.

 

(3)

Represents theoretical capacity for lithium carbonate and lithium chloride, although combined production of both products is lower and limited by the total capacity of lithium brine production. Lithium brine production was approximately 18,000 MT on an LCE basis for 2017 and 2016, resulting in the total production shown in the chart.

Sales and Marketing

We work with our customers to define their product needs, provide ongoing technical support and work to ensure that our customers are able to produce consistent, quality end-products without increased processing costs. As a result, we have forged strong relationships with our customers, who rely upon our deep reservoir of technical expertise. This close partnership with our customers allows us to expand our output and production alongside our customers’ needs, rather than in anticipation of broader market needs.

We market our products primarily through our own sales organization and we also make use of independent distributors and sales representatives. Our sales and support staff are strategically located in Charlotte, North Carolina, Bromborough, United Kingdom, Bangalore, India, Tokyo, Japan and Shanghai, China.

Our Customers

Our customers demand very specific product performance characteristics, particularly from our battery-grade lithium hydroxide and butyllithium. Our products require a high level of manufacturing and technical expertise and undergo a stringent prequalification process before they are sold to customers. Our customers rely on our products for their high performance. For many we are one of only a few suppliers of performance lithium compounds, as many of our customers are unable or unwilling to adjust to alternate supply sources that may jeopardize the functionality of their end products and processes.

In 2017, we sold our lithium products to approximately 400 customers in approximately 37 countries, and approximately 77% of our sales were to customers outside of the United States. One customer accounted for approximately 14% of our total revenue in 2017. Our ten largest customers accounted in aggregate for approximately 45% of our revenue in 2017. The following table shows the geographical breakdown of our revenue for 2017 and 2016:

 

Revenue breakdown

   2017     2016  

Asia Pacific

     59     58

North America

     23     25

EMEA

     17     16

Latin America

     1     1

In 2017 and for the six months ended June 30, 2018, more than 60% and approximately 58%, respectively, of our revenue was generated from customers with whom we have long-term agreements with terms ranging from 2 to more than 5 years in length, including all sales to our largest customer and nine of our ten largest customers. A significant portion of the remaining 2017 sales were to customers with whom our relationship has not changed materially during the past five years. BEV automakers and battery and cathode manufacturers consider secure supply of high performance battery-grade lithium hydroxide as critical to their future success. These agreements generally specify an annual minimum purchase commitment at either a set price (usually reset annually) in a given year or within a pre-negotiated price range. For instance, approximately 79% of our expected lithium hydroxide production in 2019 is under contract, affording us meaningful visibility into future production demand and revenue.

Raw Materials

Lithium

Our primary raw material is lithium, which we extract through solar evaporation and a proprietary process from naturally occurring lithium-rich brines located in the Andes Mountains of Argentina, which are believed to

 

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be one of the world’s most significant and lowest cost sources of lithium. We process the brine into lithium carbonate at our co-located manufacturing facility in Fenix, Argentina and into lithium chloride at our nearby manufacturing facility in Güemes, Argentina.

Our mineral concession rights with respect to Salar del Hombre Muerto were granted to us pursuant to Argentine mining law and are valid until the deposit is depleted of all minerals. See “—Argentine Law and Regulation” and “—Principal Properties—Mineral Concession Rights” for additional information.

We also purchase lithium carbonate from other sources from time to time, and we continually look to diversify our lithium sources. For example, in October 2016, we entered into a long-term supply agreement with Nemaska Lithium Shawinigan Transformation Inc. (“Nemaska”), a subsidiary of Nemaska Lithium Inc. based in Quebec, Canada. We purchased approximately 1.4 kMT of lithium carbonate from a third-party supplier in 2016. We did not purchase any lithium carbonate in 2017 from third-party suppliers.

Water

Our Argentine operations require fresh water. We have water rights for the supply of fresh water from the Trapiche aquifer, from which water is pumped through a battery of wells to our facilities. Our water use is managed in a sustainable and environmentally sensitive manner, and we and the Catamarca province regularly monitor the water and salinity levels of the aquifer. We have only once had to temporarily suspend water extraction, which was due to a dispute with the Catamarca province, and our access to our water source was quickly restored. See “Risk Factors—Risks Relating to Our Operations—Our lithium extraction and production operations in Argentina expose us to specific political, financial and operational risks.” We also regularly evaluate supplemental supplies of fresh water. For instance, our local operating subsidiary, Minera del Altiplano (“MdA”), is in the process of designing a water pipeline to the nearby Los Patos River basin and has filed initial construction permits and an application for water concessions from this source in 2018. We are planning to secure additional water rights in connection with our planned expansion of our Argentine operations.

In October 2015, MdA entered into a trust agreement with the Catamarca province that was amended in 2018. Under the amended trust agreement, MdA is obligated to pay an amount equal to 1.2% of its annual sales determined using MdA’s average invoice price, which payment obligations are fully reflected in our financial statements, in lieu of any water use fees.

Energy

Our Argentine operations rely on a steady source of energy. In 2015, we completed construction of a 135 kilometer natural gas pipeline from Pocitos, within the Salta province, to our Fenix facilities at Salar del Hombre Muerto, which eliminated our reliance on natural gas shipments by truck. This pipeline is governed by various agreements between MdA and Recursos Energeticos y Mineros Salta, S.A., or REMSA, a local natural gas distributor, including a subdistribution agreement providing for contracted capacity through 2027. We are in discussions to increase our contracted capacity in advance of our needs for all phases of our expansion plans and may need to invest in additional infrastructure to support this expansion. REMSA has no obligation to provide us the additional capacity on a timely basis or at all. If we cannot obtain such additional capacity, we would need to secure alternative arrangements to meet the increased energy needs of the planned expansion and such alternative arrangements may be less cost effective.

MdA also has a natural gas supply contract with Pluspetrol providing for the supply of natural gas for our Fenix manufacturing facility. This supply agreement expires in April 2019 and is typically renewed on an annual basis. We also have a purchase agreement with YPF SA for the supply of diesel fuel and gasoline to our Fenix and Güemes manufacturing facilities, pursuant to which we submit monthly purchase orders.

Other raw materials

We purchase raw materials and chemical intermediates for use in our production processes, including materials for use in our production of the proprietary absorbent used to selectively extract lithium from our brine in Argentina, soda ash, or sodium carbonate, for use in our production of lithium carbonate, and lithium metal for

 

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our production of butyllithium. In 2017, costs of major raw materials represented 11% of our total revenues. Major raw materials include soda ash, solvents, butyl chloride, hydrochloric acid, quicklime and caustic soda. We generally satisfy our requirements through spot purchases and medium- or long-term contractual relationships. In general, where we have limited sources of raw materials, we have developed contingency plans to minimize the effect of any interruption or reduction in supply, such as sourcing from other suppliers or maintaining safety stocks.

Temporary shortages of raw materials may occasionally occur and cause temporary price increases. For example, we have had past regional interruptions in raw material supply, notably in China. In recent years, these shortages have not resulted in any material unavailability of raw materials. However, the continuing availability and price of raw materials are affected by many factors, including domestic and world market and political conditions, as well as the direct or indirect effect of governmental regulations. During periods of high demand, our raw materials are subject to significant price fluctuations, and such fluctuations may have an adverse impact on our results of operations. The impact of any future raw material shortages on our business as a whole or in specific geographic regions, including China, or in specific business lines cannot be accurately predicted.

Seasonality

Our operations in Argentina are seasonally impacted by weather, including varying evaporation rates and amounts of rainfall during different seasons. These changes impact the concentration in large evaporation ponds and can have an impact on the downstream processes to produce lithium carbonate and lithium chloride. Our operations team continuously measures pond concentrations and models how they will change based on operating decisions. Our processes use proprietary and traditional technologies to minimize the variation of concentrations at the inlet to our plants. In 2017, there were no unexpected impacts from these seasonal factors.

Backlog

Our products are generally delivered upon receipt of orders or requests from customers, or shortly thereafter. Accordingly, we do not believe that our backlog as of any date is meaningfully indicative of revenue for any future period.

Research and Development

We incurred approximately $3 million in research and development expense for both the years ended December 31, 2017 and 2016. We also incurred $2.7 million and $1.9 million in costs related to our technology center for the years ended December 31, 2017 and 2016, which are accounted for within cost of sales. We are researching new specialty applications of our performance lithium compounds in a range of industries and applications. This effort could lead to new products and services for our existing and potential customers.

Our primary research and development facility is located in Bessemer City, North Carolina.

Competition

We sell our performance lithium compounds worldwide. Most markets for lithium compounds are global, with significant growth occurring in Asia, driven primarily by the development and manufacture of lithium-ion batteries. The market for lithium compounds also faces some barriers to entry, including access to an adequate and stable supply of lithium, technical expertise and development lead time. According to Roskill, we are one of six producers, including SQM, Albemarle, Tianqi, Orocobre and Jiangxi Ganfeng Lithium, that accounted for approximately 85% of the global supply of lithium compounds as measured by LCE. Both Albemarle and SQM recently entered into agreements with Chilean regulators to expand their annual lithium extraction efforts in Chile by an additional 135 kMT by 2021 and by 72 kMT by 2019, respectively. Tianqi recently announced an intention to invest an additional $525 million to expand its refining capabilities with the goal of quadrupling its

 

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annual output of lithium carbonate by 2021. Orocobre has announced that it is increasing production from its brine source in Argentina. We expect additional capacity to be added by new and existing producers over time. We believe our lithium brines in Salar del Hombre Muerto, Argentina, considered by the industry to be one of the lowest cost source of lithium, provide us with a distinct competitive advantage against these current or future entrants.

We compete by providing advanced technology, high product quality, reliability, quality customer and technical service, and by operating in a cost-efficient manner. We believe we are a leading provider of battery-grade lithium hydroxide in EV battery applications and of performance greases and benefit from low production costs and a history of efficient capital deployment. We also believe we are one of only two global suppliers of butyllithium. Our primary competitor for performance lithium compounds is Albemarle Corporation. We are the only producer of high purity lithium metal in the Western Hemisphere and enjoy competitive advantages from our vertically integrated manufacturing approach and low production costs. Our primary competitors within the lithium metal product category include Jiangxi Ganfeng Lithium and other Chinese producers.

Employees

As of June 30, 2018, we employed approximately 750 people, with approximately 275 people in our domestic operations and 475 people in our foreign operations. We believe we have a good relationship with our employees.

None of our employees are represented by collective bargaining agreements, other than our Argentine employees. To date, we have not faced any material work stoppages. We cannot predict, however, the outcome of future contract negotiations or the effect any future work stoppage may have on our results of operations. The collective bargaining agreement governing the relationship with our Argentine employees is negotiated annually with respect to salary and every other year for other matters. We also utilize approximately 60 independent contractors in our facility in Patancheru, India pursuant to a manufacturing services agreement that expires in 2022.

Principal Properties

We lease executive offices in Philadelphia, Pennsylvania and we operate six manufacturing facilities in five countries in addition to our lithium extraction operations in Salar del Hombre Muerto, Argentina. We also have six facilities in five countries to support our sales, marketing, research and development and other administrative needs.

We believe our facilities are in good operating condition. The table below details our property portfolio:

 

Location

 

Function

 

Leased/Owned

United States

   

Philadelphia, Pennsylvania

  Corporate Headquarters   Subleased

Bessemer City, North Carolina

  Manufacturing and Research   Owned

Charlotte, North Carolina

  Sales and Administrative   Leased

South America

   

Fenix, Argentina (Salar del Hombre Muerto)

  Lithium Extraction and Manufacturing   Owned

Güemes, Argentina

  Manufacturing   Owned

Catamarca, Argentina

  Administrative   Leased

Salta, Argentina

  Administrative   Owned

Pocitos, Salta, Argentina

  Transfer Station   Land use right so long as we have our mining concession

 

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Location

 

Function

 

Leased/Owned

Europe

   

Bromborough, United Kingdom

  Manufacturing and Sales   Leased

Asia Pacific

   

Zhangjiagang, China

  Manufacturing   Land use right & building ownership

Shanghai, China

  Sales and Administrative   Subleased

Tokyo, Japan

  Sales   Subleased

Patancheru, India

  Manufacturing   Leased

Singapore

  Operations and Administrative   Subleased

Salar del Hombre Muerto

We conduct our Argentine operations through MdA, our local operating subsidiary. We extract lithium from naturally occurring lithium-rich brines in Salar del Hombre Muerto, an area covering approximately 600 square kilometers in a region of the Andes Mountains of northwest Argentina known as the “lithium triangle.” This area of the Central Andes is within an arid plateau with numerous volcanic peaks and salt flats known as “salars” and is the principal lithium-bearing region of South America.

Salar del Hombre Muerto consists of evaporite deposits formed within an isolated basin depression. Fault-bounded bedrock hills occur within and along the margins of the salar basin, subdividing the Salar del Hombre Muerto into two separate sub-basins (eastern and western), each with different evaporite sediment compositions. The eastern sub-basin is dominated by borate evaporites, whereas the western sub-basin is relatively free of clastic sediment (such as sand, silts and clays) and is dominated by halite (sodium chloride) evaporite deposits.

We performed initial geological investigations of the Salar del Hombre Muerto in the early 1990s, prior to development of our lithium production facilities. We commenced commercial extraction operations in Salar del Hombre Muerto in 1998. Lithium extract is processed into lithium carbonate at our co-located manufacturing facility in Fenix, Argentina and into lithium chloride at our nearby manufacturing facility in Güemes, Argentina. These facilities were opened in conjunction with the commencement of our extraction operations and are in good working condition. MdA owns these facilities. We use natural gas and diesel to generate electricity, which is the principal source of power at our facilities. From time to time, we experience interruptions in the supply of electricity, but we do not believe these interruptions materially impact our operations.

Brine containing approximately 600 ppm lithium is pumped from saltwater aquifers using extraction wells. The brine is then diverted to an evaporation pond system. We have also developed a proprietary lithium concentration and purification process for brine operations that significantly reduces the time from pumping brine from the Salar to processing it into lithium carbonate or lithium chloride. This reduction in processing time compares favorably to a conventional solar evaporation process, while effectively removing impurities and providing increased process control. During evaporation, other minerals, such as sodium, potassium and magnesium, which are typically contained in brine, are concentrated and removed through processing. The resulting lithium chloride brine from the terminal pond of the system is then routed to our processing plants.

We access our extraction sites and nearby manufacturing facilities by local roadway, which is a suitable transportation alternative. We transport the brine extract from our Fenix facility by truck to our Güemes facility for processing. We then transport the processed lithium carbonate and lithium chloride by truck to ports in Argentina and Chile, where it is shipped by vessel to our manufacturing facilities and customers.

For the year ended December 31, 2017, our Argentine operations extracted and processed approximately 15 kMT of lithium carbonate and 3 kMT of lithium chloride.

In 2017, we expanded production of lithium carbonate at these facilities through debottlenecking projects as well as announced plans to more than triple lithium carbonate production at this site to at least 60 kMT per year by the end of 2025. To date, we have invested approximately $         million in the construction, upkeep and expansion of our facilities.

 

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Mineral concession rights

MdA holds title to mineral concession rights for its extraction activities in Salar del Hombre Muerto. These mineral concession rights cover an area of approximately 327 square kilometers and are granted to MdA pursuant to the Argentine Mining Code. See “Argentine Law and Regulation” for more information. Pursuant to the Argentine Mining Code, MdA’s mineral concession rights are valid until the deposit is depleted of all minerals. The concession rights may be rescinded if we fail to pay fees or do not actively extract minerals for a period lasting more than four years.

In 1991, MdA entered into an ongoing agreement, for so long a time as our mineral concession is valid, with the Argentine federal government and the Catamarca province in connection with the development of the Salar del Hombre Muerto exploration site. Following legislative and constitutional reforms in 1993 and 1994, the Argentine federal government assigned all of its rights and obligations under the agreement to the Catamarca province. Today, the agreement governs limited matters relating to our production activities, including: (i) an obligation for the province to indemnify us for any claim from third parties related to the Salar del Hombre Muerto property, interprovincial border conflicts, exploration, development, exploitation or other claims that may affect our mining claims, (ii) a requirement that our Argentine operations utilize a certain percentage of local labor, (iii) a permanent cap in MdA’s provincial and municipal tax rates, (iv) an obligation to provide the Catamarca province with other minerals that MdA extracts but elects not to exploit commercially; (v) an obligation to supply Argentina’s domestic market demand for lithium compounds; and (vi) an exemption from paying water fees (although we pay other obligations under a trust agreement, see “—Raw Materials—Water”). The agreement also grants to the Catamarca province an immaterial minority ownership stake in MdA, which enables the province to receive certain dividends (which are applied to reduce royalty payments, as described below) and to appoint two of MdA’s eight member Board of Directors and one of MdA’s three member audit committee. The term of the agreement expires when MdA ceases to extract and produce lithium compounds from Salar del Hombre Muerto.

MdA is required to pay the Catamarca province an immaterial semi-annual “canon” fee pursuant to the Argentine Mining Code and royalties equal to 3% of the pithead value of the minerals extracted by MdA pursuant to the Argentine Mining Investment Law and Catamarca provincial law. Total payments to the Catamarca province equaled $3.3 million and $2.1 million for the years ended December 31, 2017 and 2016, respectively. Under an amendment to its long term agreement with Catamarca entered into in 2018, and contingent upon the receipt of certain required permits, MdA will instead pay the Catamarca province a monthly contribution and royalty payment. Together, the contribution and royalty amount will equal 2% of sales of products in a given month measured at the higher of MdA’s average invoice price or an average international price for similar products, net of tax. Under the amendment, MdA also agreed to (1) an annual corporate social responsibility (“CSR”) budget equal to 0.3% of its annual sales calculated in a manner consistent with the contribution and royalty agreements described above and (2) an amendment of its payment obligations under its trust agreement with the Catamarca province, as described in “—Raw Materials—Water.” Royalty payments to the province are netted to give effect to any dividends it receives as a result of its ownership stake in MdA. Total payments to the Catamarca province, including water trust and CSR payments, would have been approximately $6.5 million and $4.6 million for the years ended December 31, 2017 and 2016 had the amendment described above been in effect for such periods.

A portion of the territory governed by our concession rights is subject to a longstanding border dispute between Catamarca and the adjacent Salta province. The border dispute has not impacted our operations for the 21 years we have been operating in Argentina and we do not expect that it will impact our operations going forward. We estimate the total area in dispute represents approximately 7.6% of our concession (approximately 25 square kilometers). We do not view this as material, especially considering that the area in question is largely at the fringe of the salar, where the deposits are not as thick and the grade of lithium concentration is much lower.

Although to date the Salta province has not commenced any judicial actions against us, the Salta province claims that it is entitled to royalties from us for the minerals extracted within the small portion of our concession

 

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that falls within the disputed territory, although under Argentine law we cannot be charged duplicate royalties for the same minerals. In addition, the Salta province has granted and may grant mineral concessions in the disputed territory to other parties, although to date Catamarca authorities have not permitted any others to extract lithium from within the boundaries of our concession. The provinces of Catamarca and Salta are currently negotiating an agreement relating to the border dispute and the provinces have indicated they are working to reach an agreement that will not impact our royalty obligations.

The maps below show the location of our principal extraction operations and the area covered by our mineral concession rights:

 

LOGO

   LOGO
Figure 1: Location of Salar del Hombre Muerto    Figure 2: Brine production well locations

Reserves

We have not generated any estimate of the proven or probable lithium reserves at our site in Salar del Hombre Muerto, Argentina that complies with Industry Guide 7. At present, we have no plans to conduct exploration activities at the Salar del Hombre Muerto or to take other steps to establish reserves. There is no assurance that a commercially viable mineral deposit exists at the Salar del Hombre Muerto to support future production. See “Risk Factors—Risks Relating to Our Operations—We have not established ‘proven’ or ‘probable’ reserves, as defined by the SEC under Industry Guide 7, through the completion of a feasibility study for the minerals that we produce.”

Intellectual Property

We generally rely on patent, trade secret and trademark laws of the United States and certain other countries in which our products are produced or sold, as well as nondisclosure and confidentiality agreements, to protect our intellectual property rights.

Protection of our proprietary processes, methods and compounds and other technology is important to our business. We own a number of U.S. and foreign patents, patent applications and trademarks relating to our product pipeline. We do not believe that the loss of any individual or combination of related trademarks, licenses or patents would have a material adverse effect on our overall business. The duration of our patents depends on their respective jurisdictions.

 

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Argentine Law and Regulation

We are subject to various regulatory requirements in Argentina under the Argentine Mining Code, the Argentine Mining Investment Law and certain federal and provincial regulations, including with respect to environmental compliance. In addition, the relationship between us, MdA and the Catamarca provincial government is regulated through a contractual framework. See “—Principal Properties—Mineral concession rights” for more information.

The Argentine Mining Code, which sets forth the rights and obligations of both mining companies and their workers, is the principal regulatory framework under which we conduct our operations in Argentina. Under Section 7 of the Argentine Mining Code, minerals derived from Argentine land belong to the provinces or the federal state, depending on where they are found. However, the provinces themselves are not permitted to exploit or extract such resources. Instead, the provinces regulate and administer the granting of mining rights to third parties.

The Argentine Mining Code establishes two basic means of granting title to mining property: the exploration permit and the mining concession, both of which convey valid mining title in Argentina. Any entity or individual person may apply for either type of permit, and there are no separate restrictions imposed on foreign legal entities or individuals to apply for mining property in Argentina.

Exploration permits grant their holders the right to freely explore for minerals within the boundaries of the territory covered by that permit as well as to request the mining concession for any discoveries within the covered territory. Exploration permits are valid for a finite period of time, which varies in accordance with the size of the areas covered by the permit. After an exploration permit has been issued, and new minerals have been discovered in the area covered by the exploration permit, its recipient may commence the procedures of obtaining a mining concession for the covered territory. Mining concessions may be also be obtained without the applicant first holding an exploration permit, provided that the covered area is free of other concession claims.

Once a mining concession is granted, the recipient owns all in-place mineral deposits within the boundaries of the territory covered by the concession. Mining concessions are freely tradable by the title holder and can be sold, leased or otherwise transferred to third parties. Two requirements must be met to keep a mining concession in good standing: (i) the concession holder must make regular payments of a semi-annual fee known as a canon; and (ii) the concession holder must file and perform an initial five year expenditure plan. In addition, prior to commencing mining activities, the concession holder must submit environmental impact studies, which must be renewed at least every two years, for approval by the relevant environmental authorities.

In addition to the Argentine Mining Code, we are also subject to the Argentine Mining Investment Law. The Argentine Mining Investment Law offers specific financial incentives to mining investors, including a 30 year term fiscal stability of national, provincial and municipal tax rates; a deduction from income tax for prospecting, exploration and feasibility study expenditures; a refund of Value Added Tax fiscal credits resulting from exploration works; accelerated depreciation of fixed assets; duty free importation of fixed assets to be used in the mining production process; and a 3% cap on royalties payable out of production to the province where the deposit is located.

Environmental Compliance

We are subject to and incur substantial capital and operating costs to comply with, numerous foreign, U.S. federal, state and local environmental, health and safety laws and regulations, including those governing employee health and safety, the composition of our products, the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the usage and availability of water, the cleanup of contaminated properties (including the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, in the U.S., and similar foreign and state laws) and the reclamation of our mines, brine extraction operations and certain other assets at the end of their useful life.

 

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Our business and our customers are subject to significant requirements under the European Community Regulation for the Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”). REACH imposes obligations on European Union manufacturers and importers of chemicals and other products into the European Union to compile and file comprehensive reports, including testing data, on each chemical substance, and perform chemical safety assessments. Additionally, substances of high concern, as defined under REACH, are subject to an authorization process. Authorization may result in restrictions in the use of products by application or even in banning of the product. REACH regulations impose significant additional responsibilities and costs on chemical producers, importers, downstream users of chemical substances and preparations, and the entire supply chain. Our manufacturing presence and sales activities in the European Union may result in increases in the costs of raw materials we purchase and the products we sell. Increases in the costs of our products could result in a decrease in their overall demand; additionally, customers may seek products that are not regulated by REACH, which could also result in a decrease in the demand of certain products subject to the REACH regulations.

In June 2016, modifications to the Toxic Substances Control Act in the U.S. were signed into law, requiring chemicals to be assessed against a risk-based safety standard and for the elimination of unreasonable risks identified during risk evaluation. Other pending initiatives potentially will require toxicological testing and risk assessments of a wide variety of chemicals, including chemicals used or produced by us. These initiatives include the Voluntary Children’s Chemical Evaluation Program, and High Production Volume Chemical Initiative in the U.S., as well as new initiatives in Asia and other regions. These assessments may result in heightened concerns about the chemicals involved and additional requirements being placed on the production, handling, labeling or use of the subject chemicals. Such concerns and additional requirements could also increase the cost incurred by our customers to use our chemical products and otherwise limit the use of these products, which could lead to a decrease in demand for these products.

Liabilities associated with the investigation and cleanup of hazardous substances and wastes, as well as personal injury, property damages or natural resource damages arising from the release of, or exposure to, such hazardous substances and wastes, may be imposed in many situations without regard to violations of laws or regulations or other fault, and may also be imposed jointly and severally. Such liabilities may be imposed on entities that formerly owned or operated the property affected by the hazardous substances and wastes, entities that arranged for the disposal of the hazardous substances and wastes at the affected property, and entities that currently own or operate such property. Our Bessemer City, North Carolina facility is currently undergoing investigation and remediation of contamination pursuant to a Resource Conservation and Recovery Act Part B corrective action permit. In addition, we currently have, and may in the future incur, liability as a potentially responsible party with respect to third party locations under CERCLA or state and foreign equivalents, including potential joint and several liability requiring us to pay in excess of our pro rata share of remediation costs. Accruals for these matters are included in the environmental reserve discussed below.

We use and generate hazardous substances and wastes in our operations and may become subject to claims and substantial liability for personal injury, property damage, wrongful death, loss of production, pollution and other environmental damages relating to the release of such substances into the environment. In addition, some of our current properties are, or have been, used for industrial purposes, which could contain currently unknown contamination that could expose us to governmental requirements or claims relating to environmental remediation, personal injury and/or property damage. Depending on the frequency and severity of such incidents, it is possible that the Company’s revenues, operating costs, insurability and relationships with customers, employees and regulators could be impaired.

We record accruals for environmental matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. It is possible that new information or future developments could require us to reassess our potential exposure related to environmental matters. We may incur significant costs and liabilities in order to comply with existing environmental laws and regulations. It is also possible that other developments, such as increasingly strict environmental laws, regulations and orders of regulatory agencies, as well as claims for damages to property and the environment or injuries to employees and other persons resulting from our current or past operations, could result in substantial costs and liabilities in the future.

 

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Climate change

The potential physical impacts of climate change on our operations are highly uncertain, and would be particular to the geographic circumstances in areas in which we operate. These may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperatures. These changes may have a material adverse effect on our operations, including brine production and transportation of raw materials.

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 us with new or expanded business opportunities. We provide solutions to companies pursuing alternative fuel products and technologies (such as renewable fuels, gas-to-liquids and others), emission control technologies (including mercury emissions), alternative transportation vehicles and energy storage technologies and other similar solutions. As demand for, and legislation mandating or incentivizing the use of, alternative fuel technologies that limit or eliminate greenhouse gas emissions increase, we continue to monitor the market and offer solutions where we have appropriate technology.

Legal Proceedings

We are involved in legal proceedings from time to time in the ordinary course of our business, including with respect to workers’ compensation matters. Based on information currently available and established reserves, we have no reason to believe that the ultimate resolution of any known legal proceeding will have a material adverse effect on our financial position, liquidity or results of operations. However, there can be no assurance that the outcome of any such legal proceeding will be favorable, and adverse results in certain of these legal proceedings could have a material adverse effect on our financial position, results of operations in any one reporting period, or liquidity.

 

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MANAGEMENT

Executive Officers

The following table sets forth information regarding the executive officers of Livent as of            , 2018:

 

Name

   Age   

Position

Paul W. Graves

   47    President, Chief Executive Officer and Director

Gilberto Antoniazzi

   51    Vice President and Chief Financial Officer

Thomas Schneberger

   47    Vice President and Chief Operating Officer

Sara Ponessa

   47    Vice President, General Counsel and Secretary

Board of Directors

The following table sets forth information regarding the current directors of Livent and persons who will become directors of Livent immediately prior to this offering:

 

Name

   Age   

Position

Pierre R. Brondeau

   60    Chairman and Director

Paul W. Graves

   47    President, Chief Executive Officer and Director

Robert C. Pallash

   66    Director

G. Peter D’Aloia

   73    Director

Michael F. Barry

   60    Director

Steven T. Merkt

   51    Director

Andrea E. Utecht

   69    Director

The following sets forth certain biographical information with respect to our executive officers, directors and nominees for director.

Paul W. Graves, President, Chief Executive Officer and Director

Mr. Graves currently serves as our President, Chief Executive Officer and Director, positions he has held since May 2018. Prior to serving as Livent’s Chief Executive Officer, Mr. Graves served as Executive Vice President and Chief Financial Officer of FMC from 2012 to 2018. Mr. Graves previously served as managing director and partner in the Investment Banking Division at Goldman Sachs Group in Hong Kong, where he was the co-head of Natural Resources for Asia (excluding Japan). In that capacity, he was responsible for managing the company’s Pan-Asian Natural Resources Investment business. Mr. Graves also served as Global Head of Agricultural Investment Banking and Global Head of Chemical Investment Banking for Goldman Sachs, which he joined in 2000. Mr. Graves previously held finance and auditing roles of increasing responsibility at Ernst & Young, British Sky Broadcasting Group, ING Barings and J. Henry Schroder & Co. Mr. Graves’s in-depth knowledge of the lithium business, his experience as FMC’s Chief Financial Officer and his financial expertise enables him to offer valuable insights to our Board of Directors.

Gilberto Antoniazzi, Vice President and Chief Financial Officer

Mr. Antoniazzi currently serves as our Vice President and Chief Financial Officer, a position he has held since May 2018. From 2013 to 2018, he was the Chief Financial Officer for FMC’s Agricultural Solutions business segment. Earlier in his career, Mr. Antoniazzi held leadership and executive positions of increasing responsibility at FMC, including Chief Financial Officer for the Latin America Region from July 2004 to September 2013, and Finance Director for the Europe, Middle East & Africa Region from January 2000 to June 2004. Mr. Antoniazzi joined FMC in 1993. He has significant international experience including assignments in Argentina, Belgium, Brazil and Turkey.

 

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Thomas Schneberger, Vice President and Chief Operating Officer

Mr. Schneberger currently serves as our Vice President and Chief Operating Officer, a position he has held since May 2018. Prior to serving as Livent’s Chief Operating Officer, Mr. Schneberger served as Vice President and Global Business Director of FMC’s lithium business segment from 2014 to 2018. Prior to this position, Mr. Schneberger served as Vice President and Global Business Director for FMC’s former Alkali Chemicals division from early 2013 to late 2014. Mr. Schneberger also served as FMC’s Global Sustainability Director from 2011 to early 2013, where he led the successful development and implementation of FMC’s corporate sustainability strategy. Prior to joining FMC, Mr. Schneberger held leadership positions at General Chemical and Rhodia in engineering, manufacturing, process safety, business development, sales and marketing. He has significant cross cultural experience through managing several global businesses and living in France and Mexico.

Sara Ponessa, Vice President, General Counsel and Secretary

Ms. Ponessa currently serves as our Vice President, General Counsel and Secretary. Prior to serving as Livent’s General Counsel, Ms. Ponessa served as senior business counsel for FMC’s lithium business, and was responsible for managing all legal affairs for the lithium business from 2014 to 2018. Prior to her position with FMC Lithium, she served as business counsel to FMC’s former Alkali Chemicals and Peroxygens divisions. Prior to joining FMC, she worked as senior counsel for AstraZeneca from 2006 to 2012, vice president and risk management and compliance section manager for Wilmington Trust Company from 2003 to 2006, and a legal associate with Saul Ewing LLP from 1999 to 2003. Ms. Ponessa is a former commissioner with the Philadelphia Human Relations Commission, and currently serves on the board of Philadelphia VIP, which provides volunteer legal services for low-income families.

Pierre R. Brondeau, Chairman and Director

Mr. Brondeau will serve as Livent’s Chairman and is the Chairman and Chief Executive Officer of FMC. Mr. Brondeau joined FMC as President and Chief Executive Officer in January 2010 and became its Chairman in October 2010. Prior to joining FMC, Mr. Brondeau served as President and Chief Executive Officer at Dow Advanced Materials Division until his retirement in September 2009. Prior to Dow’s acquisition of Rohm and Haas Company in April 2009, he was President and Chief Operating Officer of Rohm and Haas from May 2008. Mr. Brondeau held numerous executive positions during his tenure at Rohm and Haas from 1989 through May 2008. He is also a member of the board of directors of TE Connectivity. Until March 2016, Mr. Brondeau served on the board of directors of Marathon Oil Corporation. Mr. Brondeau’s current role as CEO and Chairman of FMC, where he was responsible for the Lithium Division, and his former senior executive positions in the chemical industry, make him an important contributor to the Board of Directors.

Robert C. Pallash, Director

Mr. Pallash has served as a director at FMC since 2008. From January 2008 to December 2013, Mr. Pallash served as President, Global Customer Group and Senior Vice President of Visteon Corporation, an automotive parts manufacturer. From August 2005 to January 2008, Mr. Pallash was Senior Vice President, Asia Customer Group for Visteon. He joined Visteon in September 2001 as Vice President, Asia Pacific. Visteon filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code in May 2009 and emerged from bankruptcy in October 2010. Prior to joining Visteon, Mr. Pallash served as President of TRW Automotive Japan from 1999 to September 2001. Until December 2013, Mr. Pallash served on the board of directors of Halla Climate Controls in South Korea, a majority-owned subsidiary of Visteon Corporation. Mr. Pallash’s international experience, particularly in Asia where the Company seeks to grow its business, and his automotive industry experience enable him to bring significant value as a member of the Board of Directors.

 

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G. Peter D’Aloia, Director

Mr. D’Aloia has served as a director at FMC since 2002. Mr. D’Aloia served as Managing Director and a member of the board of directors of Ascend Performance Materials Holdings, Inc. from June 1, 2009 to March 31, 2017. From February 2000 until June 2008, Mr. D’Aloia served as Senior Vice President and Chief Financial Officer of Trane, Inc. (formerly American Standard Companies, Inc.). Prior to that, he was employed by Honeywell (formerly AlliedSignal Inc.), a diversified industrial company, most recently serving as Vice President–Strategic Planning and Business Development. He spent 28 years with AlliedSignal Inc. in diverse management positions, including Vice President–Taxes, Vice President and Treasurer, Vice President and Controller, and Vice President and Chief Financial Officer for the Engineered Materials sector. He is a member of the board of directors of Wabco Holdings, Inc. and served on the board of directors of ITT Inc. until May 2017. Mr. D’Aloia’s significant financial and business experience resulting from senior executive and financial roles in large manufacturing operations, and service as a director of other public companies, make him highly qualified to be a director of the Company.

Michael F. Barry, Director

Mr. Barry has served as the Chief Executive Officer and President of Quaker Chemical Corporation since October 2008 and Chairman of the Board since May 2009. He has held leadership and executive positions of increasing responsibility since joining Quaker in 1998, including Senior Vice President and Managing Director–North America from January 2006 to October 2008; Senior Vice President and Global Industry Leader–Metalworking and Coatings from July to December 2005; Vice President and Global Industry Leader–Industrial Metalworking and Coatings from January 2004 to June 2005; and Vice President and Chief Financial Officer from 1998 to August 2004. Mr. Barry currently serves as a director of Rogers Corporation. Mr. Barry’s significant chemical and industrial experience makes him a valuable contributor to the Board of Directors.

Steven T. Merkt, Director

Mr. Merkt currently serves as the President of the Transportation Solutions segment at TE Connectivity Ltd., one of the world’s largest suppliers of connectivity and sensor solutions to the automotive and commercial vehicle marketplaces. Since joining the company in 1989, Mr. Merkt has held various leadership positions in general management, operations, engineering, marketing, supply chain, and new product launches. He was appointed to his current position in August 2012, after serving as President of TE’s Automotive business. Mr. Merkt also serves on the board of directors for the Isonoma Foundation. Mr. Merkt’s experience, particularly in the automotive and commercial vehicle sectors, makes him a valuable contributor to the Board of Directors.

Andrea E. Utecht, Director

Ms. Utecht has served as Executive Vice President, General Counsel and Secretary of FMC since January 2011. She joined FMC in July 2001 as Chief Legal Officer and served as FMC’s Vice President, General Counsel and Secretary since January 2002. Prior to joining FMC, Ms. Utecht was Senior Vice President, Secretary and General Counsel of ATOFINA Chemicals, Inc. (now known as Arkema Inc.). She was with ATOFINA and its predecessor companies for 20 years, including three years as Vice President for acquisitions and divestitures. Ms. Utecht’s legal experience and intimate knowledge of the lithium business make her a significant contributor to the Board of Directors.

Controlled Company Exception

After the completion of this offering, FMC will continue to hold more than a majority of the voting power of our common stock eligible to vote in the election of our directors. As a result, we will be a “controlled company” within the meaning of the NYSE corporate governance standards. Under these NYSE corporate governance standards, a company of which more than 50% of the voting power is held by an individual, group or

 

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another company is a “controlled company” and may elect not to comply with certain corporate governance standards, including the requirements (1) that a majority of our Board of Directors consist of independent directors, (2) that our Board of Directors have a Compensation and Organization Committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities and (3) that our Board of Directors have a Nominating and Corporate Governance Committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. For at least some period following this offering, we intend to utilize these exemptions. As a result, immediately following this offering we do not expect that our Compensation and Organization Committee or Nominating and Corporate Governance Committee will be comprised entirely of independent directors. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of these corporate governance requirements. In the event that we cease to be a “controlled company” and our common stock continues to be listed on the NYSE, we will be required to comply with these provisions within the applicable transition periods.

Board Structure and Compensation of Directors

Following completion of this offering, our Board of Directors will have seven members, consisting of Mr. Graves, our President and Chief Executive Officer, four other officers and directors of FMC, and two directors who are not affiliated with FMC. Messrs. Pallash, D’Aloia, Barry and Merkt will be “independent directors” under the listing standards of the NYSE. Messrs. Barry and Merkt, who are not affiliated with FMC, were selected by FMC following an extensive search and review by FMC of these individuals’ experience, qualifications, attributes, skills and independence from both companies.

Our directors will be divided into three classes serving staggered three-year terms. Class I, Class II and Class III directors will serve until our annual meetings of stockholders in 2019, 2020 and 2021, respectively.

 

  (1)

Our Class I directors will be Messrs. Barry and Merkt, and their terms will expire at the first annual meeting of stockholders to be held following the completion of this offering.

 

  (2)

Our Class II directors will be Mr. Graves and Ms. Utecht, and their terms will expire at the second annual meeting of stockholders to be held following the completion of this offering

 

  (3)

Our Class III directors will be Messrs. Brondeau, D’Aloia and Pallash, and their terms will expire at the third annual meeting of stockholders to be held following the completion of this offering.

At each annual meeting of stockholders, directors will be elected to succeed the class of directors whose terms have expired. This classification of our Board of Directors could have the effect of increasing the length of time necessary to change the composition of a majority of the Board of Directors. In general, at least two annual meetings of stockholders will be necessary for stockholders to effect a change in a majority of the members of the Board of Directors.

All of our non-employee directors will receive an annual retainer of $        , or a pro rata amount for any portion of a year served. The retainer will be paid in quarterly installments in cash, unless the director elects to receive all or part of it in restricted stock units. Restricted stock units paid in respect of the annual retainer are subject to forfeiture on a pro rata basis if the director does not serve for the full year in respect of which the retainer is paid. The forfeiture condition will be waived in the event of a change in control of the Company or if the director’s service ceases due to his or her death or disability. Each director who chairs a Committee will be paid an additional $         per year, except the chairman of the Compensation and Organization Committee, who will be paid an additional $         per year, and the chairman of the Audit Committee, who will be paid an additional $         per year. Audit Committee members will also receive an additional $         per year.

Directors who are also full-time officers or employees of the Company will receive no additional compensation for serving as directors.

 

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Board Committees

Audit Committee

After the completion of the offering, the members of our Audit Committee will be Messrs. Barry, Merkt and D’Aloia. Mr. Barry will be the chairman of our Audit Committee. Each of the members of our Audit Committee meets the requirements for independence under the current NYSE listing standards and SEC rules and regulations. Each member of our Audit Committee is financially literate, and our Board of Directors has determined that each is an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. This designation does not impose on them any duties, obligations or liabilities that are greater than are generally imposed on members of our Audit Committee and our Board of Directors. Our Audit Committee is directly responsible for, among other things:

 

   

reviewing the effectiveness and adequacy of our internal controls;

 

   

reviewing the annual report, proxy statement and periodic SEC filings and ensuring that our financial reports fairly represent our operations;

 

   

reviewing the effectiveness, scope and performance of activities of the independent registered public accounting firm and the internal auditor function;

 

   

reviewing significant changes in accounting policies;

 

   

selecting the independent registered public accounting firm and confirming its independence;

 

   

reviewing potentially significant litigation;

 

   

reviewing federal income tax issues;

 

   

reviewing our policies with respect to risk assessment and risk management;

 

   

reviewing with management our earnings releases;

 

   

monitoring our compliance with legal and regulatory requirements; and

 

   

pre-approving audit and non-audit services provided by the independent registered public accounting firm.

Compensation and Organization Committee

The Compensation and Organization Committee will be comprised of three directors. So long as FMC beneficially owns more than a majority of the voting power of our outstanding common stock and we remain a “controlled company”, we will not be required to have a Compensation and Organization Committee comprised entirely of independent directors. Within one year of FMC beneficially owning less than a majority of the voting power of our outstanding common stock, and in accordance with applicable transition periods, each of the three directors on the Compensation and Organization Committee will be required to be independent under the listing standards of the NYSE and the Company’s independence guidelines. After completion of the offering, the Compensation and Organization Committee will be comprised of Messrs. Brondeau (chair), Pallash and Merkt. Our Compensation and Organization Committee is responsible for, among other things:

 

   

reviewing and approving compensation policies and practices for senior executives;

 

   

reviewing and approving corporate goals and objectives relevant to the compensation of the Chief Executive Officer and the other executive officers;

 

   

reviewing as necessary our compensation programs, policies and practices with respect to risk assessment;

 

   

reviewing performance and establishing the total compensation for the Chief Executive Officer and other senior executives;

 

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administering our incentive compensation and stock plan;

 

   

reviewing compensation disclosure for inclusion in SEC filings;

 

   

reviewing significant organizational changes and management succession planning;

 

   

recommending to the Board of Directors candidates for officers of the Company;

 

   

reviewing the terms of employment agreements, severance agreements, change in control agreements and other compensatory arrangements for senior executives;

 

   

overseeing evaluation of management performance and development; and

 

   

reviewing executive stock ownership guidelines and overseeing clawback, hedging and pledging policies.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee will be comprised of three directors. So long as FMC beneficially owns more than a majority of the voting power of our outstanding common stock and we remain a “controlled company”, we will not be required to have a Nominating and Corporate Governance Committee comprised entirely of independent directors. Within one year of FMC beneficially owning less than a majority of the voting power of our outstanding common stock, and in accordance with applicable transition periods, each of the three directors on the Nominating and Corporate Governance Committee will be required to be independent under the listing standards of the NYSE and the Company’s independence guidelines. After completion of the offering, the Nominating and Corporate Governance Committee will be comprised of Ms. Utecht (chair) and Messrs. Barry and D’Aloia. Our Nominating and Corporate Governance Committee is responsible for, among other things:

 

   

reviewing and recommending candidates for director;

 

   

recommending Board of Directors meeting formats and processes;

 

   

overseeing corporate governance, including an annual review of governance principles;

 

   

reviewing and approving director compensation policies, including the determination of director compensation;

 

   

overseeing Board of Directors and committee evaluation procedures;

 

   

determining director independence; and

 

   

recommending whether to accept or reject a director resignation or take other action, where a director has failed to receive a majority of votes cast in an uncontested director election.

Executive Committee

The Executive Committee will be comprised of three directors. After completion of the offering, the Executive Committee will be comprised of Messrs. Brondeau (chair), Graves and D’Aloia. The primary responsibility of our Executive Committee will be to act in place of the Board of Directors when the full Board of Directors is not in session.

Sustainability Committee

The Sustainability Committee will be comprised of three directors. After the completion of the offering, the Sustainability Committee will be comprised of Messrs. Pallash (chair) and Brondeau and Ms. Utecht. The principal responsibilities of the Sustainability Committee, among other things, are to:

 

   

Monitor the Company’s sustainability program, including program development and advancement, goals and objectives, and progress toward achieving those objectives, as well as the following subprograms:

 

   

Employee occupational safety and health, and process safety programs;

 

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Environmental responsibility; and

 

   

Programs with regard to the American Chemistry Council’s Responsible Care initiative.

Code of Business Conduct and Ethics

In connection with this offering, our Board of Directors will adopt a code of business conduct and ethics that applies to all of our employees, officers and directors, including our executive and senior financial officers. Upon completion of this offering, the full text of our code of business conduct and ethics will be posted on the investor relations section of our website. We intend to disclose future amendments to our code of business conduct and ethics, or any waivers of such code, on our website or in public filings.

Compensation and Organization Committee Interlocks and Insider Participation

None of our executive officers has served as a member of a compensation committee (or if no committee performs that function, the board of directors) of any other entity that has an executive officer serving as a member of our Board of Directors.

Related Person Transaction Approval Policy

Prior to the completion of this offering, our Board of Directors will adopt a written policy with respect to the review, approval or ratification of related party transactions. Under this policy, “related parties” are defined to include executive officers and directors of the Company and their immediate family members, a stockholder owning in excess of 5% of the Company (or its controlled affiliates), and entities in which any of the foregoing have a substantial ownership interest or control. With respect to any transaction where a related party receives a benefit in excess of a de minimis amount of $5,000 (when aggregated with all similar transactions), the policy requires that the transaction be pre-approved (or, if less than $120,000, ratified) by the Audit Committee and disclosed where required by SEC rules.

Notwithstanding the foregoing, in the case of an ordinary course of business transaction between the Company and an entity of which a director of the Company is an executive officer or significant stockholder of the entity, provided the director does not otherwise have a material interest in the transaction, the policy provides a different standard for the review and approval of transactions that involve payments in any year to or from the Company in excess of either: (i) 1% of the Company’s annual consolidated revenue for the most recently completed fiscal year or (ii) the greater of $1 million or 1% of the other entity’s consolidated revenue for the most recently completed fiscal year. If the transaction does not exceed the above-mentioned thresholds (and the director does not have a material interest in the transaction), the transaction will be reviewed by the Nominating and Corporate Governance Committee as part of its review of director independence. If the director does have a material interest in the transaction, regardless of whether the above-mentioned thresholds are exceeded, the transaction must be approved or ratified by the Audit Committee in accordance with the preceding paragraph.

In the event of an ordinary course of business transaction that exceeds the above-mentioned thresholds where the director does not have a material interest, the transaction is not required to be pre-approved by the Audit Committee. Instead, the Audit Committee will review the transaction as soon as possible and will determine whether to either ratify or disallow the transaction. In the case of any such transaction associated with prospective directors, review and approval by the Audit Committee must occur prior to the director’s election. After approval or ratification, in each case the director will provide updated information at least annually on the aggregate payments involved in the transaction. This information will be reviewed by the Nominating and Corporate Governance Committee in connection with its review of directors’ independence. If the aggregate amounts involved in the transaction exceed the thresholds noted above, the Audit Committee shall be required again to review and ratify the transaction.

This policy does not apply to transactions available to all employees generally and transactions involving solely matters of executive compensation.

 

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The transactions described in the section “Certain Relationships and Related Party Transactions—Relationship with FMC” (collectively, the “FMC Contemplated Transactions”) will be entered into prior to the adoption of our related person transaction approval policy and therefore will not be approved under the policy. In addition, following the completion of this offering, (i) amendments, modifications, terminations, extensions, or exercises of discretion outside the ordinary course of business, with respect to the agreements constituting FMC Contemplated Transactions, (ii) negotiation, execution, modification, termination or extension, or exercises of discretion outside the ordinary course of business, with respect to any new agreements with FMC (“New Agreements”) and (iii) the assertion, handling or resolution of any disputes arising under the agreements related to the FMC Contemplated Transactions or any New Agreements, in each case involving amounts that will or may be expected to exceed $120,000, will be reviewed and approved by our directors that are unaffiliated with FMC. Any executive officer of the Company who is also an officer, director or employee of FMC may participate in these activities provided that he or she does so solely on behalf of the Company and under the direction of, and subject to the approval of, our independent directors that are unaffiliated with FMC. Any director of the Company who is also an officer, director or other affiliate of FMC may participate in these activities provided that he or she does so solely on behalf of FMC or its affiliates, as applicable, and provided that our independent directors have received advance notice of his or her participation.

 

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EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth certain information concerning the compensation paid by FMC to our named executive officers in respect of our fiscal year ended December 31, 2017, whom we refer to as our “NEOs”.

2017 SUMMARY COMPENSATION TABLE

 

Name and Principal

Position

  Year     Salary
($)
    Bonus
($)
    Stock
Awards
($)(1)(2)
    Option
Awards
($)(1)
    Non-Equity
Incentive Plan
Compensation
($)(3)
    Nonqualified
Deferred
Compensation
Earnings
($)
    All Other
Compensation
($)(4)
    Total
($)
 

Paul Graves

    2017       697,138       —         681,964       291,135       1,338,535       —         196,893       3,205,665  

President and Chief Executive Officer

    2016       678,456       —         1,996,480       308,935       753,100       —         222,922       3,959,893  

Gilberto Antoniazzi

    2017       260,000       160,000 (5)      39,016       39,040       166,103       —         12,381       676,540  

Vice President and Chief Financial Officer

                 

Thomas Schneberger

    2017       313,061       —         186,969       93,193       453,302       —         15,004       1,061,529  

Vice President and Chief Operating Officer

                 

 

(1)

The amounts in these columns reflect the grant date fair value of stock unit and option awards with respect to shares of FMC common stock granted by FMC to our NEOs under the FMC Corporation Incentive Compensation and Stock Plan (“FMC ICSP”), in each case, calculated in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. See Note 13 to the Combined Financial Statements contained in this prospectus for the assumptions used in the valuations that appear in these columns.

(2)

The amounts reported in this column for 2017 reflect grants of restricted stock units (“RSUs”) and/or performance-based restricted stock units (“PRSUs”) granted by FMC to our NEOs under the FMC ICSP in 2017. The RSUs granted in 2017 are subject to time-based vesting conditions and will cliff-vest on the third anniversary of the date of grant. The PRSUs granted in 2017 will vest between 0% and 200% of the target number of FMC shares based on achievement of the applicable relative total shareholder return (“TSR”) performance goal compared to an FMC peer group composed of 54 companies (consisting of all of the companies included in the S&P 1500 Composite Chemical Index, plus select additional FMC chemical company peers) measured over a three-year performance period (2017-2019), subject to the NEO’s continuous service through the end of the three-year performance period. Achievement of the TSR performance goal is calculated with respect to (i) 25% of the PRSU award for each of the three calendar years during the performance period (i.e., 25% for each of 2017, 2018 and 2019) and (ii) the remaining 25% of the PRSU award for the cumulative three-year performance period (i.e., 25% for the 2017-2019 period). The amounts for PRSUs reflected in the table above for 2017 were calculated based on the probable outcome of the performance goal as of the grant date (i.e., target performance). The grant date fair value of the maximum number of FMC shares that may be earned under the PRSUs granted in 2017 to Messrs. Graves and Schneberger is $775,537 and $186,209, respectively (Mr. Antoniazzi was not granted PRSUs in 2017).

(3)

The amounts reported in this column for 2017 reflect amounts earned by our NEOs under the FMC ICSP, which were earned based on (a) achievement of (i) annual financial performance measures in respect of 2017 (weighted 70%)—i.e., adjusted earnings and cash out flow (as well as additional measures addressed below for Messrs. Antoniazzi and Schneberger)—and (ii) annual non-financial performance measures specific to each NEO in respect of 2017 (weighted 30%) (“Annual Incentive Awards”) and (b) FMC’s achievement of a relative TSR performance goal for the 2015-2017 performance period applicable to long-term cash incentive awards previously granted by FMC to Messrs. Antoniazzi and Schneberger under the FMC ICSP (“Cash LTI Awards”). For Messrs. Antoniazzi and Schneberger, the annual financial performance measures underlying the Annual Incentive Awards also included a business-unit measure of earnings before interest and tax, which (i) related to FMC Agricultural Solutions for Mr. Antoniazzi and (ii) related to FMC’s lithium business for Mr. Schneberger. The amounts in this column for 2017 for Messrs. Graves, Antoniazzi and Schneberger reflect Annual Incentive Awards of $763,435, $166,103 and $300,842, respectively, and Cash LTI Awards of $575,100, $0 and $152,460, respectively.

(4)

The amounts reported in this column for 2017 for our NEOs reflect the following:

 

  (a)

For Mr. Graves, includes: (i) FMC’s matching contribution to the FMC Corporation Savings and Investment Plan ($10,800); (ii) FMC’s matching contribution to the FMC Corporation Non-Qualified Savings and Investment Plan ($47,210); (iii) FMC’s core contributions to the FMC Corporation Qualified Savings and Investment Plan ($13,500) and the FMC Corporation Non-Qualified Savings and Investment Plan ($59,012); and (iv) dividends paid on unvested RSUs ($37,154). The amount in this column also includes the aggregate incremental cost of the following benefits provided by FMC to Mr. Graves during 2017: financial planning, executive long-term disability insurance, a golf club membership and reserved parking.

 

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  (b)

For Mr. Antoniazzi, includes: (i) FMC’s matching contribution to the FMC Corporation Savings and Investment Plan ($10,800); and (ii) dividends paid on unvested RSUs ($1,581).

 

  (c)

For Mr. Schneberger, includes: (i) FMC’s matching contribution to the FMC Corporation Savings and Investment Plan ($10,800); and (ii) dividends paid on unvested RSUs ($4,204).

 

(5)