10-Q 1 livent09301910q.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________
 FORM 10-Q
_______________________________________________________________________
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2019
or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission File Number 001-38694
__________________________________________________________________________
LIVENT CORPORATION
(Exact name of registrant as specified in its charter)
__________________________________________________________________________ 
Delaware
 
82-4699376
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
2929 Walnut Street
Philadelphia, Pennsylvania
 
19104
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: 215-299-6000
__________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
LTHM
New York Stock Exchange
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS    YES  x   NO  o
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS SUBMITTED ELECTRONICALLY EVERY INTERACTIVE DATA FILE REQUIRED TO BE SUBMITTED PURSUANT TO RULE 405 OF REGULATION S-T DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO SUBMIT SUCH FILES)    YES  x    NO  o
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
 
o
  
ACCELERATED FILER
 
o
 
 
 
 
 
 
 
NON-ACCELERATED FILER
 
x
  
SMALLER REPORTING COMPANY
 
o
 
 
 
 
 
 
 
 
 
 
 
EMERGING GROWTH COMPANY
 
x
 
 
 
 
 
 
 
IF AN EMERGING GROWTH COMPANY, INDICATE BY CHECK MARK IF THE REGISTRANT HAS ELECTED NOT TO USE THE EXTENDED TRANSITION PERIOD FOR COMPLYING WITH ANY NEW OR REVISED FINANCIAL ACCOUNTING STANDARDS PROVIDED PURSUANT TO SECTION 13(A) OF THE EXCHANGE ACT.

 
 
x
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT)    YES  o    NO  x
As of September 30, 2019, there were 145,980,870 shares of Common Stock, $0.001 par value per share, outstanding.



LIVENT CORPORATION
Table of Contents
 
 
Page
No.


2


Glossary of Terms

When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:

AOCI
Accumulated other comprehensive income
ASC
Accounting Standards Codification, under U.S. GAAP
ASU
Accounting Standards Update, under U.S. GAAP
CERCLA
Comprehensive Environmental Response, Compensation and Liability Act
Distribution
On March 1, 2019, FMC made a tax-free distribution to its stockholders of all its remaining interest in Livent Corporation
EAETR
Estimated annual effective tax rate
Exchange Act
Securities and Exchange Act of 1934
EV
Electric vehicle
FASB
Financial Accounting Standards Board
FMC
FMC Corporation
FMC Plan
FMC Corporation Incentive Compensation and Stock Plan
IPO
Initial public offering
Lithium Business
Substantially all of the assets and liabilities of FMC's lithium business segment transferred to Livent in the Separation
Livent NQSP
Livent Non-Qualified Savings Plan, our deferred compensation plan
Livent Plan
Livent Corporation Incentive Compensation and Stock Plan
NYSE
New York Stock Exchange
RCRA
Resource Conservation and Recovery Act
Revolving Credit Facility
Livent's $400 million senior secured revolving credit facility
ROU asset
Right-of-use asset
RSU
Restricted stock unit
SEC
Securities and Exchange Commission
Securities Act
Securities Act of 1933
Separation Date
On October 15, 2018, Livent Corporation completed the IPO and sold 20 million shares of Livent common stock to the public at a price of $17.00 per share
Tax Act
Tax Cuts and Jobs Act
TMA
Tax Matters Agreement by and between Livent and FMC
TSA
Transition Services Agreement by and between Livent and FMC
U.S. GAAP
United States Generally Accepted Accounting Principles
VAT
Value-added tax


3



PART I - FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS

LIVENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
2019

2018
 
2019
 
2018
(in Millions, Except Per Share Data)
(Unaudited)
Revenue
$
97.7

 
$
112.0

 
$
310.0

 
$
322.7

Costs and expenses
 
 
 
 
 
 
 
Cost of sales
69.4

 
62.5

 
215.2

 
167.2

Gross margin
28.3

 
49.5

 
94.8

 
155.5

Selling, general and administrative expenses
10.2

 
4.7

 
29.2

 
12.7

Corporate allocations

 
5.6

 

 
15.7

Research and development expenses
0.9

 
0.9

 
2.5

 
2.9

Restructuring and other charges
0.9

 
0.4

 
4.8

 
2.7

Separation-related costs
2.5

 
2.4

 
5.4

 
2.4

Total costs and expenses
83.9

 
76.5

 
257.1

 
203.6

Income from operations before non-operating pension benefit and settlement charges and income taxes
13.8

 
35.5

 
52.9

 
119.1

Non-operating pension benefit and settlement charges

 
(0.4
)
 

 
(0.2
)
Income from operations before income taxes
13.8

 
35.9

 
52.9

 
119.3

Income tax (benefit)/expense
(4.2
)
 
5.9

 
2.5

 
19.1

Net income
$
18.0

 
$
30.0

 
$
50.4

 
$
100.2

Weighted average common shares outstanding - basic (1)
146.0

 
123.0

 
146.0

 
123.0

Net income per weighted average share - basic
$
0.12

 
$
0.24

 
$
0.35

 
$
0.81

Weighted average common shares outstanding - diluted (1)
146.5

 
123.0

 
146.4

 
123.0

Net income per weighted average share - diluted
$
0.12

 
$
0.24

 
$
0.34

 
$
0.81

____________________ 
(1)
For the prior periods presented, the weighted average shares outstanding for both basic and diluted earnings per share was calculated using 123.0 million shares of common stock outstanding, which was the number of shares issued to FMC in part in exchange for the asset contribution by FMC to us. Weighted average shares outstanding for the prior periods excludes the 23.0 million shares of common stock subsequently issued as part of the public offering and over-allotment option exercise. Refer to the discussion in Note 1 for further details.








The accompanying notes are an integral part of these condensed consolidated financial statements.

4


LIVENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
2019
 
2018
 
2019
 
2018
(in Millions)
(unaudited)
Net income
$
18.0

 
$
30.0

 
$
50.4

 
$
100.2

Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
Foreign currency adjustments:
 
 
 
 
 
 
 
Foreign currency translation loss arising during the period
(1.9
)
 
(1.8
)
 
(1.9
)
 
(3.0
)
Total foreign currency translation adjustments (1)
(1.9
)
 
(1.8
)
 
(1.9
)
 
(3.0
)
Derivative instruments:
 
 
 
 
 
 
 
Unrealized hedging gains, net of tax of less than $0.1, zero, $0.1 and zero
1.5

 

 
2.6

 

Reclassification of deferred hedging gains included in net income, net of tax of less than $0.1, zero, less than $0.1 and zero
(0.4
)
 

 
(1.1
)
 

Total derivative instruments gain, net of tax of less than $0.1, zero, $0.1 and zero
1.1

 

 
1.5

 

Other comprehensive loss, net of tax
(0.8
)
 
(1.8
)
 
(0.4
)
 
(3.0
)
Comprehensive income
$
17.2

 
$
28.2

 
$
50.0

 
$
97.2

____________________ 
(1)
Income taxes are not provided on the equity in undistributed earnings of our foreign subsidiaries since it is our intention that such earnings will remain invested in those subsidiaries indefinitely.































The accompanying notes are an integral part of these condensed consolidated financial statements.

5


LIVENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in Millions, Except Share and Par Value Data)
September 30, 2019

December 31, 2018
ASSETS
(unaudited)
Current assets
 
 
 
Cash and cash equivalents
$
23.3


$
28.3

Trade receivables, net of allowance of $0.1 in 2019 and $0.1 in 2018
86.8


141.4

Inventories, net
74.8


71.8

Prepaid and other current assets
68.7


59.8

Total current assets
253.6


301.3

Property, plant and equipment, net
385.9


275.7

Deferred income taxes
13.1


3.0

Right of use assets - operating leases, net
17.1

 

Other assets
87.1


80.0

Total assets
$
756.8

 
$
660.0

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable, trade and other
$
65.5


$
72.0

Accrued and other current liabilities
21.8

 
46.8

Operating lease liabilities - current
1.9

 

Income taxes
0.8


1.6

Total current liabilities
90.0

 
120.4

Long-term debt
90.1


34.0

Operating lease liabilities - long-term
15.6

 

Environmental liabilities
5.9

 
5.9

Deferred income taxes
2.2

 
2.5

Other long-term liabilities
11.1

 
9.3

Commitments and contingent liabilities (Note 15)


 

Equity
 
 
 
Common stock; $0.001 par value; 2 billion shares authorized; 146,083,411 and 146,000,000 shares issued; and 145,980,870 and 146,000,000 shares outstanding at September 30, 2019 and December 31, 2018, respectively
0.1

 
0.1

Capital in excess of par value of common stock
515.8

 
511.1

Retained earnings
76.3

 
25.9

Accumulated other comprehensive loss
(49.6
)
 
(49.2
)
Treasury stock, common, at cost; 102,541 and 0 shares at September 30, 2019 and December 31, 2018, respectively
(0.7
)
 

Total equity
541.9


487.9

Total liabilities and equity
$
756.8

 
$
660.0









The accompanying notes are an integral part of these condensed consolidated financial statements.

6


LIVENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
 
Nine Months Ended September 30,
2019
 
2018
 (in Millions)
(unaudited)
Cash provided by operating activities:
 
 
 
Net income
$
50.4

 
$
100.2

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
15.5

 
13.1

Restructuring and other charges
2.6

 
2.7

Separation-related charges
1.4

 

Deferred income taxes
(10.4
)
 
(5.1
)
Pension and other post-retirement benefits

 
0.5

Share-based compensation
3.3

 
3.4

Change in excess of FIFO cost over LIFO cost

 
1.5

Change in investments in trust fund securities
(0.1
)
 

Changes in operating assets and liabilities:
 
 
 
Trade receivables, net
53.5

 
(23.0
)
Inventories
(3.6
)
 
0.2

Accounts payable, trade and other
(6.2
)
 
(9.6
)
Changes in deferred compensation
0.5

 

Advance payments from customers

 
(1.8
)
Change in due to related party
(23.7
)
 

Income taxes
(0.8
)
 
(3.0
)
Change in prepaid and other current assets and other assets
(15.0
)
 
(6.0
)
Change in accrued and other current liabilities and other long-term liabilities
(2.5
)
 
(10.6
)
Cash provided by operating activities
64.9

 
62.5

Cash required by investing activities:
 
 
 
Capital expenditures(1)
(120.5
)
 
(43.4
)
Investments in trust fund securities
(0.4
)
 

Other investing activities
(4.5
)
 
(3.6
)
Cash required by investing activities
(125.4
)
 
(47.0
)
Cash provided/(used) by financing activities:
 
 
 
Proceeds from issuance of long-term debt
165.5

 

Payments of long-term debt
(109.5
)
 

Payments of financing fees
(0.1
)
 

Net change in net parent investment

 
(3.1
)
Cash provided/(used) by financing activities
55.9

 
(3.1
)
Effect of exchange rate changes on cash and cash equivalents
(0.4
)
 
1.1

(Decrease)/increase in cash and cash equivalents
(5.0
)
 
13.5

Cash and cash equivalents, beginning of period
28.3

 
1.2

Cash and cash equivalents, end of period
$
23.3

 
$
14.7

Supplemental Disclosure for Cash Flow:
 
 
 
Cash payments for income taxes, net of refunds (2)
 
$
37.1

 
$
27.2

Cash payments for interest, net (1)
$
2.6

 
$

Cash payments for Separation-related charges
$
8.7

 
$
4.5

Accrued capital expenditures
$
7.4

 
$
5.3

Operating lease right-of-use assets and lease liabilities recorded upon adoption of ASC 842
$
16.1

 
$

____________________
(1)
All of the interest related to our Revolving Credit Facility was capitalized for the three and nine months ended September 30, 2019.
(2)
Nine months ended September 30, 2019 includes $16.9 million related to reimbursement paid to FMC for 2018 income taxes paid by FMC on Livent's behalf pursuant to the TMA.
The accompanying notes are an integral part of these condensed consolidated financial statements.

7


LIVENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)

(in Millions Except Per Share Data)
Net Parent Investment
 
Common Stock, $0.001 Per Share Par Value
 
Capital In Excess of Par
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Treasury Stock
 
Total
Balance, December 31, 2017
$
431.0

 
$

 
$

 
$

 
$
(45.6
)
 
$

 
$
385.4

Net income
32.2

 

 

 

 

 

 
32.2

Foreign currency translation adjustments

 

 

 

 
2.5

 

 
2.5

Net change in net parent investment
12.4

 

 

 

 

 

 
12.4

Balance, March 31, 2018
$
475.6

 
$

 
$

 
$

 
$
(43.1
)
 
$

 
$
432.5

Net income
38.0

 

 

 

 

 

 
38.0

Foreign currency translation adjustments

 

 

 

 
(3.7
)
 

 
(3.7
)
Net change in net parent investment
(3.3
)
 

 

 

 

 

 
(3.3
)
Balance, June 30, 2018
$
510.3

 
$

 
$

 
$

 
$
(46.8
)
 
$

 
$
463.5

Net income
30.0

 

 

 

 

 

 
30.0

Foreign currency translation adjustments

 

 

 

 
(1.8
)
 

 
(1.8
)
Net change in net parent investment
(12.2
)
 

 

 

 

 

 
(12.2
)
Balance, September 30, 2018
$
528.1

 
$

 
$

 
$

 
$
(48.6
)
 
$

 
$
479.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
$

 
$
0.1

 
$
511.1

 
$
25.9

 
$
(49.2
)
 
$

 
$
487.9

Net income

 

 

 
16.9

 

 

 
16.9

Stock compensation plans

 

 
1.2

 

 

 

 
1.2

Net hedging losses, net of income tax

 

 

 

 
(0.1
)
 

 
(0.1
)
Foreign currency translation adjustments

 

 

 

 
1.0

 

 
1.0

Balance, March 31, 2019
$

 
$
0.1

 
$
512.3

 
$
42.8

 
$
(48.3
)
 
$

 
$
506.9

Net income

 

 

 
15.5

 

 

 
15.5

Stock compensation plans

 

 
2.4

 

 

 

 
2.4

Net hedging gains, net of income tax

 

 

 

 
0.5

 

 
0.5

Foreign currency translation adjustments

 

 

 

 
(1.0
)
 

 
(1.0
)
Purchases of treasury stock - deferred compensation plan

 

 

 

 

 
(0.7
)
 
(0.7
)
Balance, June 30, 2019
$

 
$
0.1

 
$
514.7

 
$
58.3

 
$
(48.8
)
 
$
(0.7
)
 
$
523.6

Net income

 

 

 
18.0

 

 

 
18.0

Stock compensation plans

 

 
1.1

 

 

 

 
1.1

Net hedging gains, net of income tax

 

 

 

 
1.1

 

 
1.1

Foreign currency translation adjustments

 

 

 

 
(1.9
)
 

 
(1.9
)
Balance, September 30, 2019
$

 
$
0.1

 
$
515.8

 
$
76.3

 
$
(49.6
)
 
$
(0.7
)
 
$
541.9





The accompanying notes are an integral part of these condensed consolidated financial statements.

8


LIVENT CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1: Description of the Business
Background and Nature of Operations
The accompanying condensed consolidated financial statements of Livent Corporation (“Livent”, “we”, “us”, "company" or “our”) include the historical accounts of the lithium business segment ("Lithium Business") of FMC Corporation (“FMC”), a publicly traded company incorporated in Delaware (United States). Livent manufactures lithium for use in a wide range of lithium products, which are used primarily in energy storage, specialty polymers and chemical synthesis applications. We serve a diverse group of markets. Our product offerings are primarily inorganic and generally have few cost-effective substitutes. A major growth driver for lithium in the future will be the rate of adoption of electric vehicles.
Most markets for lithium chemicals are global with significant growth occurring both in Asia and North America, primarily driven by the development and manufacture of lithium-ion batteries. We are one of the primary producers of performance lithium compounds.
The Separation
On March 31, 2017, FMC publicly announced a plan to separate Livent into a publicly traded company (the “Separation”). Prior to the completion of the initial public offering ("IPO") on October 15, 2018, we were a wholly owned subsidiary of FMC, and all of our outstanding shares of common stock were owned by FMC. Following a series of restructuring steps, on October 1, 2018, prior to the IPO of Livent common stock, FMC transferred to us substantially all of the assets and liabilities of its Lithium Business. In exchange, we issued to FMC all 123 million shares of our common stock.
On October 15, 2018 (the "Separation Date"), we completed the IPO and sold 20 million shares of Livent common stock to the public at a price of $17.00 per share. On November 8, 2018, the underwriters exercised, in full, their option (the "Over-allotment Option Exercise") to purchase an additional 3 million shares of our common stock, the closing of which was completed on November 13, 2018. Our common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “LTHM.”
Net proceeds from the sale of 23 million shares of our common stock issued in connection with the IPO and Over-allotment Option Exercise were approximately $369 million, after deducting underwriting discounts and commissions. The net proceeds from the offering, after payment of financing fees and other IPO related costs, were subsequently distributed to FMC. Immediately following the IPO and Over-allotment Option Exercise, FMC owned approximately 84% of our outstanding common stock. Accordingly, we were considered a “controlled company” under the NYSE rules.
Pursuant to generally accepted accounting principles in the United States ("U.S. GAAP"), costs incurred associated with Separation-related activities are expensed as incurred. For the Livent Separation, these costs primarily consist of legal, accounting, professional advisory and other transaction fees associated with the preparation and execution of Separation-related activities. Livent generally expects to continue to incur such separation related costs up to one year from the Separation Date or until such time an orderly separation and transition of various functions and processes is in place.
The Distribution
On March 1, 2019, FMC completed its previously announced spin-off distribution of 123 million shares of common stock of Livent as a pro rata dividend on shares of FMC common stock outstanding at the close of business on the record date of February 25, 2019 (the “Distribution”). Each share of FMC common stock received 0.935301 shares of Livent common stock in the distribution. Immediately prior to the distribution, FMC owned 123 million shares of Livent common stock, representing approximately 84% of the outstanding shares of Livent common stock. Effective upon the distribution, FMC no longer owns any shares of Livent common stock and we are no longer considered a "controlled company" under the NYSE rules.

Note 2: Principal Accounting Policies and Related Financial Information
The accompanying condensed consolidated financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by U.S. GAAP have been condensed or omitted from these interim financial statements. The financial statements included in this report reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of our condensed consolidated financial position at September 30, 2019 and December 31, 2018, the condensed consolidated results of operations for the three and nine months ended September 30, 2019 and 2018, and the condensed consolidated cash flows for the nine months ended September 30, 2019 and 2018. The unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the full year. These statements, therefore, should be read in conjunction with the annual consolidated and combined financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the "2018 Annual Report on Form 10-K").

9


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

The income tax amounts in the unaudited condensed combined financial statements have been calculated based on a separate return methodology and presented as if our operations were separate taxpayers in the respective jurisdictions. We file United States (U.S.) federal income tax returns as well as various state, local and non-U.S. jurisdictions. Certain of these income tax returns will be filed on a consolidated or combined basis with FMC through the Separation Date. From the Separation Date onwards, we will file as an independent public company. Please refer to Note 9, Income Taxes, for a further discussion of this matter.
Reclassifications
Certain prior year amounts have been reclassified for comparative purposes.
Basis of Presentation Prior to the Separation
Historically, Livent did not operate as an independent, stand-alone company. Prior to the Separation, the combined financial statements included the operations, financial position, and cash flows of Livent, as carved out from the historical consolidated financial statements of FMC using both specific identification and the allocation methodologies described below. We believe the assumptions underlying the pre-Separation period included in the condensed consolidated statement of operations for the three and nine months ended September 30, 2018, including the assumptions regarding allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by Livent. However, these shared expenses may not represent the amounts that would have been incurred had Livent operated autonomously or independently from FMC. Actual costs that would have been incurred if Livent had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions in various areas such as information technology and infrastructure.
Net parent investment represents FMC’s historical investment in us, the net effect of transactions with and allocations from FMC. As an operating segment of FMC, we did not own or maintain separate bank accounts, except for certain foreign jurisdictions, where we were required to maintain separate accounts, and as required in preparation for the Separation. FMC uses a centralized approach to the cash management and funded our operating and investing activities as needed. Accordingly, cash held by FMC at the corporate level was not allocated to us for any of the periods presented. In periods prior to the Separation we reflected the cash generated by our operations and expenses paid by FMC on our behalf as a component of “Net parent investment” on the combined balance sheets, and as a net distribution to FMC in our combined statements of cash flows. Intercompany balances and accounts within Livent have been eliminated.
In the pre-Separation period included in the condensed consolidated statement of operations for the three and nine months ended September 30, 2018, Livent functioned as part of the larger group of businesses controlled by FMC and, accordingly, utilized centralized functions, such as facilities and information technology, of FMC to support its operations. Accordingly, a portion of the shared service costs were historically allocated to Livent. FMC also performed certain corporate functions for Livent. The corporate expenses related to Livent were allocated from FMC. These allocated costs were primarily related to certain governance and corporate functions such as finance, treasury, tax, human resources, legal, investor relations, and certain other costs. Where it was possible to specifically attribute such expenses to activities of Livent, these amounts were charged or credited directly to Livent without allocation or apportionment. Allocation of other such expenses was based on a reasonable reflection of the utilization of the service provided to or benefits received by Livent on a consistent basis, such as, but not limited to, a relative percentage of headcount, tangible assets, third-party sales, cost of goods sold or segment operating profit, defined by FMC as segment revenue less operating expenses. The aggregate costs allocated for these functions to Livent was included in “Corporate allocations” within the condensed consolidated statements of operations and are shown in detail within the following table.
(in Millions)
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
Livent shared service costs (1)
$
1.6

 
$
4.6

FMC Corporate shared service costs allocated to Livent (2)
0.9

 
1.9

Stock compensation expense (3)
0.9

 
2.7

FMC Corporate expense allocation (4)
2.2

 
6.5

Total Corporate allocations
$
5.6

 
$
15.7

____________________
(1)
Represents Livent’s portion of shared service costs historically allocated to Livent. These do not include $2.1 million and $6.4 million for the three and nine months ended September 30, 2018 of shared service costs historically allocated to and recorded within “Cost of sales” on the condensed consolidated statements of operations.
(2)
Amounts represent FMC’s Corporate shared service cost allocated to Livent.

10


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

(3)
Stock compensation expense represents the allocation of FMC’s Corporate stock compensation expense and the costs specifically identifiable to Livent employees. These amounts exclude the previously allocated portion included within Livent's shared service costs of $0.2 million and $0.6 million for the three and nine months ended September 30, 2018.
(4)
Represents the additional costs of the centralized functions of FMC allocated to Livent.

FMC used a centralized approach to cash management and financing its operations. Historically, the majority of Livent’s cash was transferred to FMC on a daily basis. This arrangement is not reflective of the manner in which Livent would have been able to finance its operations had it been a stand-alone business separate from FMC.
Additionally, the assets and liabilities assigned from FMC have been deemed attributable to, and reflective of the historical operations of, Livent; however, the amounts recorded may not be representative of the amounts that would have been incurred had Livent been an entity that operated independently of FMC. Consequently, the pre-Separation period included in the condensed consolidated statement of operations for the three and nine months ended September 30, 2018 may not be indicative of Livent's future performance and does not necessarily reflect what its results of operations, financial position and cash flows would have been had Livent operated as a separate entity apart from FMC.
FMC’s debt and related interest expense have not been allocated to us for any of the periods presented since we are not the legal obligor of the debt, and FMC’s borrowings were not directly attributable to us.
Earnings per share
The weighted average common shares outstanding for both basic and diluted earnings per share for the condensed consolidated financial statements for the three and nine months ended September 30, 2018 was calculated in accordance with ASC 260, Earnings Per Share (ASC 260), using 123.0 million shares of common stock outstanding, which reflects the number of shares held by FMC prior to the IPO. This results in both basic and diluted earnings per share of $0.24 and $0.81 for the three and nine months ended September 30, 2018.
Basis of Presentation After the Separation
The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2019 are comprised of the results of operations, comprehensive income, financial position, equity and cash flows for periods after the Separation, which reflects Livent's operation as an independent public company. The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2018 are comprised of the results of operations, comprehensive income, and cash flow amounts for the period prior to the Separation (see above), which includes allocations for direct costs and indirect costs attributable to the operations of the Lithium Business.
Basis of consolidation. The accompanying consolidated financial statements are presented on a consolidated basis and include all of the accounts and operations of Livent and its majority-owned subsidiaries. The financial statements reflect the financial position, results of operations and cash flows of Livent in accordance with U.S. GAAP. All significant intercompany accounts and transactions are eliminated in consolidation.
Leases. We adopted ASC 842 and elected the modified retrospective transition method which required an application date of January 1, 2019. Under the modified retrospective transition method, all prior period disclosures continue to be in accordance with ASC 840.
The Company determines if an arrangement is a lease at the inception of the contract. Our operating leases are included in Operating lease right-of-use ("ROU") assets, Operating lease liabilities - current, and Operating lease liabilities - long term in the condensed consolidated balance sheets. The operating lease ROU assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit interest rate, we utilize an estimated incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. In determining the discount rate used in the present value calculation, the Company has elected to apply the portfolio approach for leases provided the leases commenced at or around the same time. This election allows the Company to account for leases at a portfolio level provided that the resulting accounting at this level would not differ materially from the accounting at the individual lease level. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The Company has elected not to separate lease and non-lease components and accounts for each separate lease component and non-lease component associated with that lease component as a single lease component. Operating lease ROU assets include all contractual lease payments and initial direct costs incurred less any lease incentives. Facility leases generally only contain lease

11


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

expense and non-component items such as taxes and pass through charges. Additionally, we have elected not to apply the recognition requirements of ASC 842 to leases which have a lease term of less than one year at the commencement date.
Most of the Company's leases for corporate facilities contain terms for renewal and extension of the lease agreement. The exercise of lease renewal options is generally at the Company’s sole discretion. The Company includes the lease extensions when it is reasonably certain we will exercise the extension. The Company’s lease agreements do not contain any material variable lease payments, material residual value guarantees or any material restrictive covenants. We currently do not have any finance leases. See Note 15 for information on related disclosures regarding leases.
Deferred compensation plan. FMC has a deferred compensation plan, in which highly compensated Lithium Business employees were eligible to participate prior to the IPO. In 2019, all existing account balances of Livent employee participants under the FMC deferred compensation plan were transferred to the Livent Non-Qualified Saving Plan ("Livent NQSP") deferred compensation plan. We have established a trust fund administered by a third party to provide funding for benefits payable under the Livent NQSP to which highly compensated Livent employees can elect to defer part of their compensation. The assets held in the trust consist of money market investments, a managed portfolio of equity securities and Livent common stock. For each reporting period, the Company records a net mark-to-market adjustment to Selling, general & administrative expense in our condensed consolidated statements of operations for the investments in the trust fund and the corresponding obligation to participants in the Livent NQSP. The money market investments and equity securities assets are included in Other assets in the accompanying condensed consolidated balance sheets. The investments in Livent common stock under the Livent NQSP are included in Treasury stock on our condensed consolidated balance sheets. The deferred compensation obligation to participants is included in Other long-term liabilities on our condensed consolidated balance sheets. See Note 14 and Note 16 for additional details on the Livent NQSP deferred compensation plan.
There were no other significant changes to our accounting policies that are set forth in detail in Note 2 to our annual consolidated and combined financial statements in Part II, Item 8 of our 2018 Annual Report on Form 10-K.
Note 3: Recently Issued and Adopted Accounting Pronouncements and Regulatory Items
New accounting guidance and regulatory items
In March 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2019-01, Codification Improvements to Leases (Topic 842): Amendments to the FASB Accounting Standards Codification. The amendments in this ASU contain improvements and clarifications of certain guidance in Topic 842. The new amendments are effective for fiscal years beginning after December 15, 2019 (i.e. a January 1, 2020 effective date), with early adoption permitted for fiscal years beginning after December 15, 2018. We are evaluating the effect the guidance will have on our condensed consolidated financial statements and do not expect material impact.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in this update affect a variety of Topics in the Codification and represent changes to clarify, correct errors in, or improve the Codification. Subsequently, in May 2019 the FASB issued ASU No. 2019-05, Financial Instruments - Credit Losses ( Topic 326) Targeted Transition Relief. The amendments in this Update provide entities with targeted transition relief that is intended to increase comparability of financial statement information for some entities that otherwise would have measured similar financial instruments using different measurement methodologies. The new amendments are effective for the fiscal years beginning after December 15, 2019 (i.e. a January 1, 2020 effective date). We are evaluating the effect the guidance will have on our condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 remove the disclosure requirements related to transfers between Level 1 and Level 2 and the valuation processes for Level 3 measurements in Topic 820. Additional disclosures under this Topic are related to Level 3 fair value measurements related to changes in unrealized gains and losses and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The new amendments are effective for the fiscal years beginning after December 15, 2019 (i.e. a January 1, 2020 effective date). We are evaluating the effect the guidance will have on our condensed consolidated financial statements and do not expect material impact.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses. The update is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a

12


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

reporting entity at each reporting date. The new standard is effective for fiscal years beginning after December 15, 2019 (i.e. a January 1, 2020 effective date). We are evaluating the effect the guidance will have on our condensed consolidated financial statements.
Recently adopted accounting guidance
In August 2018, the FASB issued ASU No. 2018-15, Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new standard is effective for fiscal years beginning after December 15, 2019 (i.e. a January 1, 2020 effective date) with early adoption permitted in any interim period. We elected to early adopt ASU 2018-15 effective July 1, 2019, using the prospective transition method. The adoption did not have a material impact on our condensed consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This new standard permits a company to reclassify the income tax effects of the change in the U.S federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances as well as other income tax effects related to the application of the Tax Cuts and Jobs Act ("Tax Act") within accumulated other comprehensive income (“AOCI”) to retained earnings. There are also new required disclosures such as a description of the accounting policy for releasing income tax effects from AOCI as well as certain disclosures in the period of adoption if a company elects to reclassify the income tax effects. The new standard is effective for fiscal years beginning after December 15, 2018 (i.e. a January 1, 2019 effective date), and interim periods within those fiscal years. The adoption did not have a material impact on our condensed consolidated financial statements other than a reclassification of certain income tax effects.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815). This ASU amends and simplifies existing hedge accounting guidance and allows for more hedging strategies to be eligible for hedge accounting. In addition, the ASU amends disclosure requirements and how hedge effectiveness is assessed. The new standard is effective for fiscal years beginning after December 15, 2018 (i.e. a January 1, 2019 effective date), with early adoption permitted in any interim period after issuance of this ASU. The adoption did not have a material impact on our condensed consolidated financial statements.
In February 2016, the FASB issued its new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize for all leases (with the exception of short-term leases) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e. a January 1, 2019 effective date). Our total assets and total liabilities increased approximately $16 million in the period of adoption, however, the adoption did not have a material impact on our results of operations or cash flows.


13


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

Note 4: Revenue Recognition
Disaggregation of revenue
We disaggregate revenue from contracts with customers by geographical areas and by product categories.
The following table provides information about disaggregated revenue by major geographical region:
(in Millions)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
North America (1)
$
22.7

 
$
22.5

 
$
57.1

 
$
65.5

Latin America

 
0.1

 
1.0

 
0.4

Europe, Middle East & Africa
12.8

 
17.7

 
45.7

 
55.2

Asia Pacific (1)
62.2

 
71.7

 
206.2

 
201.6

Total Revenue
$
97.7

 
$
112.0

 
$
310.0

 
$
322.7

(1)
During the three months ended September 30, 2019, countries with sales in excess of 10% of combined revenue consisted of Japan, the United States and China and totaled $39.6 million, $22.8 million and $13.4 million, respectively. During the three months ended September 30, 2018, countries with sales in excess of 10% of combined revenue consisted of Japan, the United States and China and totaled $32.9 million, $21.4 million and $26.6 million, respectively. During the nine months ended September 30, 2019, countries with sales in excess of 10% of combined revenue consisted of Japan, the United States and China and totaled $131.4 million, $56.6 million, and $46.3 million, respectively. During the nine months ended September 30, 2018, countries with sales in excess of 10% of combined revenue consisted of Japan, the United States and China and totaled $70.9 million, $63.7 million and $94.9 million, respectively.

For the three months ended September 30, 2019, one customer accounted for approximately 26% of total revenue and our 10 largest customers accounted in aggregate for approximately 63% of our revenue. For the three months ended September 30, 2018 one customer accounted for approximately 15% of total revenue and our 10 largest customers accounted in aggregate for approximately 56% of our revenue. For the nine months ended September 30, 2019, two customers accounted for approximately 30% and 10% of total revenue, respectively and our 10 largest customers accounted in aggregate for approximately 61% of our revenue. For the nine months ended September 30, 2018, one customer accounted for approximately 10% of total revenue and our 10 largest customers accounted in aggregate for approximately 51% of our revenue. A loss of any material customer could have a material adverse effect on our business, financial condition and results of operations.

The following table provides information about disaggregated revenue by major product category:
(in Millions)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Lithium Hydroxide
$
52.9

 
$
52.8

 
$
178.2

 
$
155.5

Butyllithium
25.6

 
26.3

 
77.2

 
75.5

High Purity Lithium Metal and Other Specialty Compounds
11.7

 
14.5

 
38.8

 
47.8

Lithium Carbonate and Lithium Chloride
7.5

 
18.4

 
15.8

 
43.9

Total Revenue
$
97.7

 
$
112.0

 
$
310.0

 
$
322.7


Our lithium hydroxide and butyllithium products are developed and sold to global and regional customers in the EV, polymer and specialty alloy metals market. Lithium hydroxide products are used in advanced batteries for hybrid electric, plug-in hybrid, and all-electric vehicles as well as other products that require portable energy storage such as smart phones, tablets, laptop computers, and military devices. Lithium hydroxide is also sold into grease applications for use in automobiles, aircraft, railcars and agricultural and other types of equipment. Butyllithium products are primarily used as polymer initiators and in the synthesis of pharmaceuticals. High purity lithium metal and other specialty compounds include lithium phosphate, pharmaceutical-grade lithium carbonate, high purity lithium chloride and specialty organics. Additionally, we sell whatever lithium carbonate and lithium chloride we do not use internally to our customers for various applications.



14


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

Sale of goods
Revenue from product sales is recognized when (or as) we satisfy a performance obligation by transferring the promised goods to a customer, that is, when control of the good transfers to the customer. The customer is then invoiced at the agreed-upon price with payment terms generally ranging from 30 to 180 days.
In determining when the control of goods is transferred, we typically assess, among other things, the transfer of risk and title and the shipping terms of the contract. The transfer of title and risk typically occurs either upon shipment to the customer or upon receipt by the customer. As such, we typically recognize revenue when goods are shipped based on the relevant incoterm for the product order, or in some regions, when delivery to the customer’s requested destination has occurred. When we perform shipping and handling activities after the transfer of control to the customer (e.g., when control transfers prior to delivery), they are considered fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized. For FOB shipping point terms, revenue is recognized at the time of shipment since the customer gains control at this point in time.
We record amounts billed for shipping and handling fees as revenue. Costs incurred for shipping and handling are recorded as costs of sales. 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 condensed consolidated statements of operations. We record a liability until remitted to the respective taxing authority.
Contract asset and contract liability balances
We satisfy our obligations by transferring goods and services in exchange for consideration from customers. The timing of performance sometimes differs from the timing the associated consideration is received from the customer, thus resulting in the recognition of a contract liability. We recognize a contract liability if the customer’s payment of consideration is received prior to completion of our related performance obligation.
The following table presents the opening and closing balances of our receivables, net of allowances. As of September 30, 2019 and December 31, 2018, there were no contract liabilities from contracts with customers.
(in Millions)
September 30, 2019

Balance as of December 31, 2018

Increase (Decrease)
Receivables from contracts with customers, net of allowances
$
86.8

 
$
141.4

 
$
(54.6
)

The balance of receivables from contracts with customers listed in the table above represents the current trade receivables, net of allowance for doubtful accounts. The allowance for doubtful accounts represents our best estimate of the probable losses associated with potential customer defaults. We determine the allowance based on historical experience, current collection trends, and external business factors such as economic factors, including regional bankruptcy rates, and political factors.
Performance obligations
At contract inception, we assess the goods and services promised in our contracts with customers and identify a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, we consider all the goods or services promised in the contract, whether explicitly stated or implied based on customary business practices. Based on our evaluation, we have determined that our current contracts do not contain more than one single performance obligation. Revenue is recognized when (or as) the performance obligation is satisfied, which is when the customer obtains control of the good or service.
Periodically, we may enter into contracts with customers which require them to submit a forecast of non-binding purchase obligations to us. These forecasts are typically provided by the customer to us in good faith, and there are no penalties or obligations if the forecasts are not met. Accordingly, we have determined that these are optional purchases and do not represent material rights and are not considered as unsatisfied (or partially satisfied) performance obligations for the purposes of this disclosure.
Occasionally, we may enter into multi-year take or pay supply agreements with customers. The aggregate amount of revenue expected to be recognized related to these contracts’ performance obligations that are unsatisfied or partially satisfied is approximately $8 million for the remainder of 2019 and $49 million in 2020. These approximate revenues do not include amounts of variable consideration attributable to contract renewals or contract contingencies. Based on our past experience with the customers under these arrangements, we expect to continue recognizing revenue in accordance with the contracts as we transfer control of the product to the customer (refer to the sales of goods section for our determination of transfer of control). However, in the case a shortfall of volume purchases occurs, we will recognize the amount payable by the customer over the remaining performance obligations in the contract.

15


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

Note 5: Inventories, Net
Inventories consisted of the following:
 (in Millions)
September 30, 2019
 
December 31, 2018
Finished goods
$
17.4

 
$
22.2

Work in process
44.0

 
36.6

Raw materials, supplies and other
14.9

 
14.5

First-in, first-out inventory
76.3

 
73.3

Less: Excess of first-in, first-out cost over last-in, first-out cost
(1.5
)
 
(1.5
)
Inventories, net
$
74.8

 
$
71.8


Note 6: Property, Plant and Equipment, Net
Property, plant and equipment consisted of the following:
(in Millions)
September 30, 2019
 
December 31, 2018
Property, plant and equipment
$
583.8

 
$
468.8

Accumulated depreciation
(197.9
)
 
(193.1
)
Property, plant and equipment, net
$
385.9

 
$
275.7


Note 7: Restructuring and Other Charges
In 2017, we began restructuring efforts at our manufacturing site located in Bessemer City, North Carolina. The objective of this restructuring plan is to optimize both the assets and cost structure by reducing certain production lines at the plant. The restructuring decision resulted primarily in shutdown costs. In the second quarter of 2019 we incurred severance-related costs pursuant to corporate management changes. The following table shows total restructuring and other charges included in the condensed consolidated statements of operations:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in Millions)
2019
 
2018
 
2019
 
2018
Restructuring charges:
 
 
 
 
 
 
 
Demolition and exit charges (1)
$

 
$

 
$

 
$
1.9

Asset disposal charges (2)

 
0.3

 

 
0.5

Other charges:
 
 
 
 
 
 
 
Corporate severance-related costs (3)

 

 
3.5

 

Environmental remediation (4)
0.1

 
0.1

 
0.3

 
0.3

Other (5)
0.8

 

 
1.0

 

Total restructuring and other charges
$
0.9

 
$
0.4

 
$
4.8

 
$
2.7

___________________ 
(1) Primarily represents costs associated with demolition and other miscellaneous exit costs.
(2) Primarily represents fixed asset write-offs which were or are to be abandoned.
(3) Represents severance costs and stock-based compensation expense for accelerated vesting related to corporate management changes.    
(4) Costs associated with environmental remediation with respect to certain discontinued products. There is one environmental remediation site in Bessemer City, North Carolina. See Note 8 for more details.
(5) Includes legal fees related to IPO securities litigation incurred in the three and nine months ended September 30, 2019. See Note 15 for more details.






16


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

Roll forward of restructuring reserve
The following table shows a roll forward of restructuring reserve that will result in cash spending. These amounts exclude asset retirement obligations.
(in Millions)
Restructuring Reserve Total (2)
Balance December 31, 2017
$
2.9

Change in reserves (1)
1.9

Cash payments
(1.2
)
Balance December 31, 2018
$
3.6

Cash payments
(0.2
)
Balance September 30, 2019
$
3.4

____________________ 
(1)
Primarily related to facility shutdowns and other miscellaneous exit costs.
(2)
Included in “Accrued and other current liabilities” on the condensed consolidated balance sheets.

17


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

Note 8: Environmental Obligations
We are subject to various federal, state, local and foreign environmental laws and regulations that govern emissions of air pollutants, discharges of water pollutants, and the manufacture, storage, handling and disposal of hazardous substances, hazardous wastes and other toxic materials and remediation of contaminated sites. We are also subject to liabilities arising under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and similar state laws that impose responsibility on persons who arranged for the disposal of hazardous substances, and on current and previous owners and operators of a facility for the clean-up of hazardous substances released from the facility into the environment. We are also subject to liabilities under the Resource Conservation and Recovery Act (“RCRA”) and analogous state laws that require owners and operators of facilities that have treated, stored or disposed of hazardous waste pursuant to a RCRA permit to follow certain waste management practices and to clean up releases of hazardous substances into the environment associated with past or present practices.
Environmental liabilities consist of obligations relating to waste handling and the remediation and/or study of sites at which we are alleged to have released or disposed of hazardous substances. As of the periods presented, the Bessemer City site located in North Carolina is the only site for which we have a reserve. We have provided reserves for potential environmental obligations that we consider probable and for which a reasonable estimate of the obligation can be made. Accordingly, total reserves of $6.4 million existed at September 30, 2019 and December 31, 2018, a portion of which is included in “Accrued and other current liabilities” on the condensed consolidated balance sheets.
Although potential environmental remediation expenditures in excess of the reserves and estimated loss contingencies could be significant, the impact on our future consolidated financial results is not subject to reasonable estimation due to numerous uncertainties concerning the nature and scope of possible contamination, identification of remediation alternatives under constantly changing requirements, selection of new and diverse clean-up technologies to meet compliance standards, and the timing of potential expenditures. The liabilities arising from potential environmental obligations that have not been reserved for at this time may be material to any one quarter’s or year’s results of operations in the future. However, we believe any liability arising from such potential environmental obligations is not likely to have a material adverse effect on our liquidity or financial condition as it may be satisfied over many years.
The table below is a roll forward of our total environmental reserves from December 31, 2017 to September 30, 2019.
(in Millions)
Total
Total environmental reserves at December 31, 2017
$
6.4

Change in reserve (1)
0.2

Cash payments
(0.2
)
Total environmental reserves at December 31, 2018
$
6.4

Change in reserve (1) 
0.3

Cash payments
(0.3
)
Total environmental reserves at September 30, 2019
$
6.4

Environmental reserves, current (2)
0.5

Environmental reserves, long-term (3)
5.9

Total environmental reserves at September 30, 2019
$
6.4

__________________
(1)
These amounts are included within "Restructuring and other" on the condensed consolidated statements of operations.
(2)
These amounts are included within "Accrued and other current liabilities" on the condensed consolidated balance sheets.
(3)
These amounts are included in "Environmental liabilities" on the condensed consolidated balance sheets.

Note 9: Income Taxes
We determine our interim tax provision using an estimated annual effective tax rate methodology (“EAETR”) in accordance with U.S. GAAP. The EAETR is applied to the year-to-date ordinary income, exclusive of discrete items. The tax effects of discrete items are then included to arrive at the total reported interim tax provision. The determination of the EAETR is based upon a number of estimates, including the estimated annual pretax ordinary income in each tax jurisdiction in which we operate. As our projections of ordinary income change throughout the year, the EAETR will change period-to-period. The tax effects of discrete items are recognized in the tax provision in the period they occur in accordance with U.S. GAAP. Depending on various factors, such as the item’s significance in relation to total income and the rate of tax applicable in the jurisdiction to which it relates, discrete items in any quarter can materially impact the reported effective tax rate. As a global enterprise, our tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, as well as other factors. As a result, there can be significant volatility in interim tax provisions.

18


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Income tax (benefit)/expense
$
(4.2
)
 
$
5.9

 
$
2.5

 
$
19.1

Effective income tax rate
(30.4
)%
 
16.4
%
 
4.7
%
 
16.0
%
For the three and nine months ended September 30, 2019, income taxes were determined in accordance with Livent's status as an independent public company. For the three and nine months ended September 30, 2018, income taxes prior to the Separation were determined in accordance with the separate return method.
The effective income tax rate for the three and nine months ended September 30, 2019, was primarily driven by tax benefits of $8.5 million and $10.2 million, respectively, for tax impacts associated with fluctuations in foreign currency remeasurement in Argentina. For the three and nine months ended September 30, 2018, these tax benefits were $1.7 million and $5.7 million, respectively.


Note 10: Debt
Long-term debt
Long-term debt consists of the following:
 
September 30, 2019
 
 
 
 
 
Interest Rate
Percentage
 
Maturity
Date
 
September 30, 2019
 
December 31, 2018
(in Millions)
LIBOR borrowings
 
Base rate borrowings
 
 
 
 
 
 
Revolving Credit Facility (1)
4.0%
 
6.0%
 
2023
 
$
90.1

 
$
34.0

Total long-term debt (2)
 
 
 
 
 
 
$
90.1

 
$
34.0

______________________________
(1)
As of September 30, 2019 and December 31, 2018, there were $10.3 million in letters of credit outstanding under our Revolving Credit Facility and available funds under this facility were $299.6 million and $355.7 million, respectively.
(2)
As of September 30, 2019 and December 31, 2018, the Company had no debt maturing within one year.
Revolving Credit Facility
On September 28, 2018, we entered into a credit agreement among us, our subsidiary, FMC Lithium USA Corp., as borrowers (the “Borrowers”), certain of our wholly owned subsidiaries as guarantors, 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. See Note 10, Part II, Item 8 of our 2018 Annual Report on Form 10-K for more information.
Covenants
Among other restrictions, our Revolving Credit Facility contains financial covenants applicable to Livent and its consolidated subsidiaries related to leverage (measured as the ratio of debt to adjusted earnings) and interest coverage (measured as the ratio of adjusted earnings to interest expense). We were in compliance with all covenants at September 30, 2019.

19


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

Note 11: Stock-based Compensation
Livent Corporation Incentive Compensation and Stock Plan
Effective March 5, 2019, Livent registered 2,000,000 shares of Livent common stock which were authorized for issuance pursuant to awards under the Livent Corporation Incentive Compensation and Stock Plan (the "Livent Plan"). As of September 30, 2019, the total shares of Livent common stock authorized for issuance under the Livent Plan is 6,290,000. Refer to Note 12 to our annual consolidated and combined financial statements in the Company's 2018 Annual Report on Form 10-K, Part II, Item 8 for further information about the Livent Plan.
Conversion of FMC Corporation Incentive Compensation and Stock Plan ("FMC Plan") Awards
FMC has a share-based compensation plan, in which Lithium Business employees were eligible to participate prior to the IPO. Effective March 1, 2019 (the "Distribution Date") each outstanding FMC equity award pursuant to the FMC Plan held by a Lithium Business employee was converted into a Livent equity award ("Converted Award") pursuant to the Livent Plan. The number of Livent shares subject to each Converted Award (and in the case of stock options, the exercise price of the award) was adjusted to preserve the aggregate intrinsic value of the original FMC Plan award as measured before and after the conversion, subject to rounding. Each such Converted Award remains subject to the same terms and conditions (including vesting and payment schedules) as were applicable immediately prior to the above described conversion, except that the Converted Awards held by Lithium Business employees are not subject to any performance-based vesting conditions. Additionally, each outstanding award of FMC RSUs held by FMC employees and issued prior to 2019 will be converted into Adjusted FMC RSUs which will vest in both FMC and Livent common stock shares, subject to the same terms and conditions as were applicable immediately prior to the conversion.
Stock Compensation
We recognized the following stock compensation expense for awards under the Livent Plan:
(in Millions)
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Stock option expense, net of taxes of $0.1 and $0.4
$
0.3

 
$
1.4

Restricted stock expense, net of taxes of $0.1 and $0.6
0.6

 
2.3

Total stock compensation expense, net of taxes of $0.2 and $1.0 (1)
$
0.9

 
$
3.7

____________________ 
(1)
Gross stock compensation charges of $1.0 million, zero and $0.1 million were recorded to "Selling, general and administrative expenses", "Restructuring and other charges", and "Separation-related costs", respectively, in our condensed consolidated statements of operations for the three months ended September 30, 2019 and $3.3 million, $1.2 million and $0.2 million were recorded to "Selling, general and administrative expenses", "Restructuring and other charges", and "Separation-related costs", respectively, for the nine months ended September 30, 2019.
Stock Options
The grant date fair values of the stock options granted in the nine months ended September 30, 2019, were estimated using the Black-Scholes option valuation model, the key assumptions for which are listed in the table below. The expected volatility assumption is based on the historical volatility of a group of twelve of our publicly traded peers that operate in the specialty chemical sector and five companies that have recently been spun off from larger publicly traded companies. The expected life represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on U.S. Treasury securities with terms equal to the expected timing of stock option exercises as of the grant date. The dividend yield assumption reflects anticipated dividends on Livent's common stock. Livent stock options granted in the nine months ended September 30, 2019 will cliff vest on the third anniversary of the grant date and expire ten years from the date of grant.


20


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)


The following table contains Black Scholes valuation assumptions for Livent Plan stock option grants. 
 
Nine Months Ended September 30, 2019
 
Granted 2/27/19
 
Granted 7/1/19
Expected dividend yield
—%
 
—%
Expected volatility
20.07%
 
21.0%
Expected life (in years)
6.50
 
6.50
Risk-free interest rate
2.55%
 
1.86%
The weighted-average grant date fair value of options granted during the nine months ended September 30, 2019 was $3.26 per share.
The following summary shows stock option activity for the Livent Plan for the nine months ended September 30, 2019:
 
Number of Options Granted But Not Exercised
 
Weighted-Average Remaining Contractual Life
(in Years)
 
Weighted-Average Exercise Price Per Share
 
Aggregate Intrinsic Value (in Millions)
Outstanding December 31, 2018
716,256

 
9.8 years
 
$
16.99

 
$

Granted
62,360

 
 
 
$
11.99

 


Forfeited
(62,557
)
 
 
 
$
13.70

 
 
Converted FMC awards
946,161

 
 
 
 
 
 
Outstanding September 30, 2019
1,662,220

 
6.6 years
 
$
12.44

 
$
0.2

Exercisable at September 30, 2019
474,781

 
4.1 years
 
$
8.36

 
$
0.2

As of September 30, 2019, we had total remaining unrecognized compensation cost related to unvested stock options of $2.8 million which will be amortized over the weighted-average remaining requisite service period of approximately 2.8 years.
Restricted Stock Unit Awards
The grant date fair value of RSUs under the Livent Plan is based on the market price per share of Livent's common stock on the date of grant, and the related compensation cost is amortized to expense on a straight-line basis over the vesting period during which the employees perform related services, which for the RSUs granted during the nine months ended September 30, 2019, is cliff vesting 3 years following the grant date.
The following table shows RSU activity of the Livent Plan for the nine months ended September 30, 2019:
 
Restricted Stock Units
 
Number of
awards
 
Weighted-Average Grant Date Fair Value
Nonvested December 31, 2018
249,786

 
$
16.94

Granted
212,000

 
$
11.63

Vested
(111,204
)
 
$
11.79

Forfeited
(27,764
)
 
$
12.51

Converted FMC awards
311,387

 


Nonvested September 30, 2019
634,205

 
$
12.72

As of September 30, 2019, the Livent Plan had total remaining unrecognized compensation cost related to unvested RSUs of $4.8 million which will be amortized over the weighted-average remaining requisite service period of approximately 2.4 years.



21


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

Note 12: Equity
As of September 30, 2019 and December 31, 2018, we had 2 billion shares of common stock authorized. The following is a summary of changes in Livent's common stock issued and outstanding:
 
Issued
 
Treasury
 
Outstanding
Balance at December 31, 2018
146,000,000

 

 
146,000,000

Adjusted FMC RSU awards (1)
2,807

 

 
2,807

Livent RSU awards
80,604

 

 
80,604

Purchases of Treasury Stock - deferred compensation plan

 
(102,541
)
 
(102,541
)
Balance at September 30, 2019
146,083,411

 
(102,541
)
 
145,980,870

________________
(1) See Note 11 for more information on Adjusted FMC RSU awards held by FMC employees.
Summarized below is the roll forward of accumulated other comprehensive loss, net of tax.
(in Millions)
Foreign Currency Adjustments
 
Derivative Instruments (1)
 
Total
Accumulated other comprehensive loss, net of tax at December 31, 2018
$
(48.0
)
 
$
(1.2
)
 
$
(49.2
)
Other comprehensive income before reclassifications
(1.9
)
 
2.6

 
0.7

Amounts reclassified from accumulated other comprehensive income

 
(1.1
)
 
(1.1
)
Accumulated other comprehensive (loss)/gain, net of tax at September 30, 2019
$
(49.9
)
 
$
0.3

 
$
(49.6
)
(in Millions)
Foreign Currency Adjustments
 
Total
Accumulated other comprehensive loss, net of tax at December 31, 2017
$
(45.6
)
 
$
(45.6
)
Other comprehensive loss before reclassifications
(3.0
)
 
(3.0
)
Accumulated other comprehensive loss, net of tax at September 30, 2018
$
(48.6
)
 
$
(48.6
)
____________________
(1) See Note 14 for more information.
Reclassifications of accumulated other comprehensive loss
The table below provides details about the reclassifications from accumulated other comprehensive loss and the affected line items in the condensed consolidated statements of operations for the period presented.
Details about Accumulated Other Comprehensive Loss Components
 
Amounts Reclassified from Accumulated Other Comprehensive Loss (1)
 
Affected Line Item in the Condensed Combined Statements of Operations
(in Millions)
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
 
 
Derivative instruments
 
 
 
 
 
 
Foreign currency contracts
 
$
(0.4
)
 
$
(1.1
)
 
Costs of sales
Total before tax
 
(0.4
)
 
(1.1
)
 
 
Amount included in net income (2)  
 
$
(0.4
)
 
$
(1.1
)
 
 
____________________
(1) No amounts were reclassified from accumulated other comprehensive loss for the three and nine months ended September 30, 2018.
(2) Provision for income taxes related to the reclassification was less than $0.1 million for the three and nine months ended September 30, 2019.
Dividends
For the three and nine months ended September 30, 2019 and September 30, 2018, we paid no dividends. We do not expect to pay any dividends in the foreseeable future.

22


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

Note 13: Earnings Per Share
Earnings per common share ("EPS") is computed by dividing net income by the weighted average number of common shares outstanding during the period on a basic and diluted basis.
Our potentially dilutive securities include potential common shares related to our stock options and restricted stock units granted in connection with the Livent Plan. See Note 12 to our annual consolidated and combined financial statements in Part II, Item 8 of our 2018 Annual Report on Form 10-K for more information. Diluted earnings per share (“Diluted EPS”) considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect. Diluted EPS excludes the impact of potential common shares related to our stock options in periods in which the option exercise price is greater than the average market price of our common stock for the period.
The weighted average common shares outstanding for both basic and diluted earnings per share for the condensed consolidated financial statements for the three and nine months ended September 30, 2018 was calculated, in accordance with ASC 260, Earnings Per Share (ASC 260), using 123.0 million shares of common stock outstanding, which reflects the number of shares held by FMC prior to the IPO. In connection with our IPO, we issued 20 million shares of our common stock to the public at a public offering price of $17.00 per share. The IPO closed on October 15, 2018. On November 13, 2018 the Company closed on the sale of an additional 3 million shares of its common stock pursuant to the Over-allotment Option Exercise. In accordance with ASC 260, the 23 million shares issued in connection with the IPO are included in earnings per share calculations for periods subsequent to the closing of the IPO and are not included in the earning per share calculations for periods prior to the closing of the IPO.
Earnings applicable to common stock and common stock shares used in the calculation of basic and diluted earnings per share are as follows:
(in Millions, Except Share and Per Share Data)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Net income
$
18.0

 
$
30.0

 
$
50.4

 
$
100.2

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
146.0

 
123.0

 
146.0

 
123.0

Weighted average additional shares assuming conversion of potential common shares
0.5

 

 
0.4

 

Weighted average common shares outstanding - diluted
146.5

 
123.0

 
146.4

 
123.0

 
 
 
 
 
 
 
 
Basic earnings per common share:
 
 
 
 
 
 
 
Net income per weighted average share - basic
$
0.12

 
$
0.24

 
$
0.35

 
$
0.81

Diluted earnings per common share:
 
 
 
 
 
 
 
Net income per weighted average share - diluted
$
0.12

 
$
0.24

 
$
0.34

 
$
0.81


Anti-dilutive stock options
For the three and nine months ended September 30, 2019, options to purchase 1,547,070 and 1,006,532 shares of our common stock at an average exercise price of $12.97 and $15.21 per share, respectively, were anti-dilutive and not included in the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the common stock for the three and nine months ended September 30, 2019. The Company had no stock options outstanding for the three and nine months ended September 30, 2018.
Additional dilution - the FMC Plan
FMC has a share-based compensation plan, in which Lithium Business employees were eligible to participate prior to the IPO. Effective March 1, 2019 (the "Distribution Date") each outstanding FMC equity award pursuant to the FMC Plan held by a Lithium Business employee was converted into a Livent equity award ("Converted Award") pursuant to the Livent Plan. The number of Livent shares subject to each Converted Award (and in the case of stock options, the exercise price of the award) was adjusted to

23


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

preserve the aggregate intrinsic value of the original FMC Plan award as measured before and after the conversion, subject to rounding. Additionally, each outstanding award of FMC RSUs held by FMC employees and issued prior to 2019 was converted into Adjusted FMC RSUs which will vest in both FMC and Livent common stock shares, subject to the same terms and conditions as were applicable immediately prior to the conversion. See Note 11 for more information on the FMC Plan. There were 0.4 million and 0.3 million incremental shares related to the Converted Awards and Adjusted FMC RSUs that were included for diluted earnings per share for the three and nine months ended September 30, 2019, respectively.

Note 14: Financial Instruments, Risk Management and Fair Value Measurements

Our financial instruments include cash and cash equivalents, trade receivables, other current assets, investments held in trust fund, accounts payable, and amounts included in accruals meeting the definition of financial instruments. Investments in the Livent NQSP deferred compensation plan trust fund are considered Level 1 investments based on readily available quoted prices in active markets for identical assets. The carrying value of cash and cash equivalents, trade receivables, other current assets, and accounts payable approximates their fair value and are considered Level 1 investments. Our other financial instruments include the following:
Financial Instrument
 
Valuation Method
 
 
 
Foreign exchange forward contracts
 
Estimated amounts that would be received or paid to terminate the contracts at the reporting date based on current market prices for applicable currencies.
The estimated fair value of our foreign exchange forward contracts have been determined using standard pricing models which take into account the present value of expected future cash flows discounted to the balance sheet date. These standard pricing models utilize inputs derived from, or corroborated by, observable market data such as interest rate yield curves and currency and commodity spot and forward rates. In addition, we test a subset of our valuations against valuations received from the transaction's counterparty to validate the accuracy of our standard pricing models. Accordingly, the estimates presented may not be indicative of the amounts that we would realize in a market exchange at settlement date and do not represent potential gains or losses on these agreements.
The estimated fair value of our debt approximates the carrying amount and was $90.1 million and $34.0 million as of September 30, 2019 and December 31, 2018, respectively.
Use of Derivative Financial Instruments to Manage Risk
We mitigate certain financial exposures connected to currency risk through a program of risk management that includes the use of derivative financial instruments. We enter into foreign exchange forward contracts to reduce the effects of fluctuating foreign currency exchange rates.
We formally document all relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes relating derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. We also assess both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. If we determine that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting with respect to that derivative prospectively.
Foreign Currency Exchange Risk Management
We conduct business in many foreign countries, exposing earnings, cash flows, and our financial position to foreign currency risks. The majority of these risks arise as a result of foreign currency transactions. The primary currencies for which we have exchange rate exposure are the Euro, the British pound, the Chinese yuan, the Argentine peso, and the Japanese yen. We currently do not hedge foreign currency risks associated with the Argentine peso due to the limited availability and the high cost of suitable derivative instruments. Our policy is to minimize exposure to adverse changes in currency exchange rates. This is accomplished through a controlled program of risk management that could include the use of foreign currency debt and forward foreign exchange contracts. We also use forward foreign exchange contracts to hedge firm and highly anticipated foreign currency cash flows, with an objective of balancing currency risk to provide adequate protection from significant fluctuations in the currency markets.

24


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

Concentration of Credit Risk
Our counterparties to derivative contracts are primarily major financial institutions. We limit the dollar amount of contracts entered into with any one financial institution and monitor counterparties’ credit ratings. We also enter into master netting agreements with each financial institution, where possible, which helps mitigate the credit risk associated with our financial instruments. While we may be exposed to credit losses due to the nonperformance of counterparties, we consider this risk remote.

Accounting for Derivative Instruments and Hedging Activities
Cash Flow Hedges
We recognize all derivatives on the balance sheet at fair value. On the date we enter into the derivative instrument, we generally designate the derivative as a hedge of the variability of cash flows to be received or paid related to a forecasted transaction (cash flow hedge). We record in Accumulated Other Comprehensive Income ("AOCI") changes in the fair value of derivatives that are designated as and meet all the required criteria for, a cash flow hedge. We then reclassify these amounts into earnings as the underlying hedged item affects earnings. In contrast we immediately record in earnings changes in the fair value of derivatives that are not designated as cash flow hedges.
As of September 30, 2019, we had open foreign currency forward contracts in AOCI in a net after-tax gain position of $0.3 million designated as cash flow hedges of underlying forecasted sales and purchases. At September 30, 2019 we had open forward contracts with various expiration dates to buy, sell or exchange foreign currencies with a U.S. dollar equivalent of approximately $25 million.
Approximately $0.3 million of net after-tax gain, representing open foreign currency exchange contracts, will be realized in earnings during the three months ending December 31, 2019 if spot rates in the future are consistent with market rates as of September 30, 2019. The actual effect on earnings will be dependent on the actual spot rates when the forecasted transactions occur. We recognize derivative gains and losses in the “Costs of sales” line in the condensed consolidated statements of operations.

Derivatives Not Designated As Cash Flow Hedging Instruments
We hold certain forward contracts that have not been designated as cash flow hedging instruments for accounting purposes. Contracts used to hedge the exposure to foreign currency fluctuations associated with certain monetary assets and liabilities are not designated as cash flow hedging instruments and changes in the fair value of these items are recorded in earnings.
We had open forward contracts not designated as cash flow hedging instruments for accounting purposes with various expiration dates to buy, sell or exchange foreign currencies with a U.S. dollar equivalent of approximately $58 million at September 30, 2019.
Fair Value of Derivative Instruments
The following tables provide the gross fair value and net balance sheet presentation of our derivative instruments:
 
September 30, 2019
 
Gross Amount of Derivatives
(in Millions)
Designated as Cash Flow Hedges
Derivatives
 
Foreign exchange contracts
$
0.4

Total derivative assets (1)
0.4

Net derivative assets (2)
$
0.4


25


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)



December 31, 2018

Gross Amount of Derivatives
(in Millions)
Designated as Cash Flow Hedges
Derivatives

Foreign exchange contracts
$
(1.3
)
Total derivative liabilities (3)
(1.3
)
Net derivative liabilities
$
(1.3
)
____________________
(1) Balance is included in "Prepaid and other current assets" in the condensed consolidated balance sheets.
(2) Total derivative liability is less than $0.1 million as of September 30, 2019.
(3) Balance is included in “Accrued and other current liabilities” in the condensed consolidated balance sheets.

The following tables summarize the gains or losses related to our cash flow hedges and derivatives not designated as cash flow hedging instruments.
Derivatives in Cash Flow Hedging Relationships
(in Millions)
Total Foreign Exchange Contracts
Accumulated other comprehensive loss, net of tax at December 31, 2018
$
(1.2
)
Unrealized hedging gains, net of tax
0.3

Reclassification of deferred hedging gains, net of tax (1)
(0.4
)
Total derivative instrument impact on comprehensive income, net of tax
(0.1
)
Accumulated other comprehensive loss, net of tax at March 31, 2019
$
(1.3
)
Unrealized hedging gains, net of tax
0.8

Reclassification of deferred hedging gains, net of tax (1)
(0.3
)
Total derivative instrument impact on comprehensive income, net of tax
0.5

Accumulated other comprehensive loss, net of tax at June 30, 2019
$
(0.8
)
Unrealized hedging gains, net of tax
1.5

Reclassification of deferred hedging gains, net of tax (1)
(0.4
)
Total derivative instrument impact on comprehensive income, net of tax
1.1

Accumulated other comprehensive gain, net of tax at September 30, 2019
$
0.3

____________________
(1)
Amounts are included in “Cost of sales” on the condensed consolidated statements of operations.

Derivatives Not Designated as Cash Flow Hedging Instruments
 
Location of Loss
Recognized in Income on Derivatives
Amount of Pre-tax Gain (Loss) 
Recognized in Income on Derivatives (1)
(in Millions)
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Foreign exchange contracts
Cost of sales
$
0.1

 
$
(0.9
)
Total
 
$
0.1

 
$
(0.9
)
____________________
(1)
Amounts represent the gain or loss on the derivative instrument offset by the gain or loss on the hedged item. Prior to the Separation, derivative instruments were under FMC's hedging program for the three and nine months ended September 30, 2018.



26


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)


Fair-Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are defined as buyers or sellers in the principle or most advantageous market for the asset or liability that are independent of the reporting entity, knowledgeable and able and willing to transact for the asset or liability.

Fair-Value Hierarchy
We have categorized our assets and liabilities that are recorded at fair value, based on the priority of the inputs to the valuation technique, into a three-level fair-value hierarchy. The fair-value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets and liabilities fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair-value measurement of the instrument.

Recurring Fair Value Measurements
The following tables present our fair-value hierarchy for those assets and liabilities measured at fair-value on a recurring basis in our condensed consolidated balance sheets.
 
(in Millions)
September 30, 2019
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets
 
 
 
 
 
 
 
Derivatives – Foreign exchange (1)
$
0.4

 
$

 
$
0.4

 
$

Investments in deferred compensation plan (2)
1.5

 
1.5

 

 

Total Assets
$
1.9

 
$
1.5

 
$
0.4

 
$

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Deferred compensation plan obligation (3)
$
2.2

 
$
2.2

 
$

 
$

Total Liabilities
$
2.2

 
$
2.2

 
$

 
$


(in Millions)
December 31, 2018

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)
Liabilities







Derivatives – Foreign exchange (1)
$
1.3

 
$

 
$
1.3

 
$

Total Liabilities
$
1.3

 
$

 
$
1.3

 
$

____________________
(1)
See the Fair Value of Derivative Instruments table within this Note for classifications on our condensed consolidated balance sheets.
(2)
Balance is included in “Other assets” in the condensed consolidated balance sheets. Livent NQSP investments in Livent common stock are recorded as "Treasury stock" in the condensed consolidated balance sheets and carried at historical cost. A market-to-market gain of less than $0.1 million and $0.1 million related to the Livent common stock was recorded in "Selling, general and administrative expense" in the condensed consolidated statements of operations for the three and nine months ended September 30, 2019, respectively, with a corresponding offset to the deferred compensation plan obligation in the condensed consolidated balance sheets.
(3)
Balance is included in “Other long-term liabilities” in the condensed consolidated balance sheets.


27


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

Note 15: Commitments and Contingencies
Contingencies
We are a party to various legal proceedings, including those noted in this section.  Livent records reserves for estimated losses from contingencies when information available indicates that a loss is probable and the amount of the loss, or range of loss, can be reasonably estimated. As additional information becomes available, management adjusts its assessments and estimates. Legal costs are expensed as incurred.
In addition to the legal proceedings noted below, we have certain contingent liabilities arising in the ordinary course of business.  Some of these contingencies are known but are so preliminary that the merits cannot be determined, or if more advanced, are not deemed material based on current knowledge; and some are unknown - for example, claims with respect to which we have no notice or claims which may arise in the future from products sold, guarantees or warranties made, or indemnities provided.  Therefore, we are unable to develop a reasonable estimate of our potential exposure of loss for these contingencies, either individually or in the aggregate, at this time.  There can be no assurance that the outcome of these contingencies will be favorable, and adverse results in certain of these contingencies could have a material adverse effect on the consolidated financial position, results of operations in any one reporting period, or liquidity.

IPO Securities Litigation
Beginning on May 13, 2019, purported stockholders of the Company filed putative class action complaints in the Pennsylvania Court of Common Pleas, Philadelphia County, and in the U.S. District Court for the Eastern District of Pennsylvania, in connection with the Company’s October 2018 IPO. On August 20, 2019, the actions then pending in federal court were consolidated under the caption, Nikolov v. Livent Corp., et al., No. 19-cv-02218. In an order entered on September 23, 2019, the actions then pending in state court were consolidated under the caption, In re Livent Corporation Securities Litigation, No. 2019-0501229. The operative complaints in both actions assert claims against the Company and certain of its current and former executives and directors. The complaints also name as defendants the underwriters in the IPO and FMC Corporation, whom the Company is generally obligated to indemnify. The complaints allege generally that the offering documents for the IPO failed to adequately disclose certain information related to Livent’s business and prospects, in purported violation of Sections 11, 12(a)(2), and 15 of the Securities Act. The complaints seek unspecified damages and other relief on behalf of all persons and entities who purchased or otherwise acquired Livent common stock pursuant and/or traceable to the IPO offering documents. On October 11, 2019, defendants filed preliminary objections in the state court seeking to dismiss that action in its entirety. Defendants have until November 18, 2019, to move to dismiss the federal action. At this point, a range of reasonably possible losses, if any, cannot be estimated by the Company.
Nemaska arrangement
In October 2016, we entered into a long-term supply agreement (the “Agreement”) with Nemaska Lithium Shawinigan Transformation Inc. (“Nemaska”), a subsidiary of Nemaska Lithium Inc. based in Quebec, Canada. Pursuant to the Agreement, Nemaska is to provide lithium carbonate to us from an electrochemical plant that is under construction. Since completion of the project financing had significantly delayed the construction of its electrochemical plant, Nemaska had reported that it was not in a position to start delivering lithium carbonate according to the schedule in the Agreement.
To enforce our right to supply under the Agreement, in July 2018, we filed for arbitration before the International Chamber of Commerce (in accordance with the Agreement’s terms). In an attempt to resolve the dispute, the parties actively negotiated a revised schedule as well as arrangements to see that (in spec) lithium carbonate be nonetheless supplied to us from alternative sources under the responsibility of Nemaska, with a view to providing us with product while minimizing Nemaska’s exposure until its electrochemical plant is in operation.
On September 25, 2018, the parties agreed to suspend the arbitration process under the expectation that the parties would agree on arrangements regarding alternative supply sources and an amended and restated supply agreement to reflect such alternative arrangements. On February 15, 2019 we received written notice from Nemaska that it was terminating the Agreement. Livent disagrees that Nemaska has the right to terminate the Agreement. Since we received Nemaska’s termination notice, we have resumed our previously suspended arbitration and intend to vigorously pursue our claims. However, there can be no assurance that we will prevail in arbitration.



28


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

Leases
All of our leases are operating leases and the Company has no short-term leases as of September 30, 2019. We have operating leases for corporate offices, manufacturing facilities, and land. Our leases have remaining lease terms of 2 years to 15 years. Quantitative disclosures about our leases are summarized in the table below.
(in Millions)
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Lease Cost
 
 
 
Operating lease cost (1)
$
0.5

 
$
1.5

Variable lease cost (1)

 
0.1

Sublease income
(0.1
)
 
(0.2
)
Total lease cost (1)
$
0.4

 
$
1.4

Other information
 
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Cash paid for operating leases
$
0.4

 
$
1.1

_____________________________
(1)
Lease expense is classified as "Selling, general and administrative expenses" in our condensed consolidated statements of operations.

As of September 30, 2019, our operating leases had a weighted average remaining lease term of 11.6 years and a weighted average discount rate of 4.4%.

The table below presents a maturity analysis of our operating lease liabilities for each of the next five years and a total of the amounts for the remaining years.
(in Millions)
 
Undiscounted cash flows
Remainder of 2019
 
$
0.4

2020
 
2.1

2021
 
2.2

2022
 
2.1

2023
 
2.1

Thereafter
 
13.6

       Total future minimum lease payments
 
22.5

Less: Imputed interest
 
(5.0
)
       Total
 
$
17.5


Under ASC 840, as of December 31, 2018, the Company's future minimum lease payments under non-cancelable operating leases for the five years ending December 31, 2019 through 2023 and thereafter were as follows: $1.7 million, $1.9 million, $1.8 million, $1.7 million, $1.6 million and $10.2 million, respectively.




29


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)

Note 16: Supplemental Information
The following tables present details of prepaid and other current assets, other assets, accrued and other current liabilities, and other long-term liabilities as presented on the condensed consolidated balance sheets:
(in Millions)
September 30, 2019
 
December 31, 2018
Prepaid and other current assets
 
 
 
Argentina government receivable (1)
$
8.4

 
$
8.8

Tax related items
12.3

 
4.1

Other receivables
6.0

 
6.2

Prepaid expenses
4.8

 
8.4

Bank Acceptance Drafts (2)
32.8

 
29.1

Derivative asset
0.4

 

Other current assets
4.0

 
3.2

Total
$
68.7

 
$
59.8


(in Millions)
September 30, 2019

December 31, 2018
Other assets
 
 
 
Argentina government receivable (1)
$
47.4

 
$
41.5

Advance to contract manufacturers (3)
16.1

 
15.3

Investments in deferred compensation plan
1.5

 

Capitalized software, net
1.2

 
1.4

Prepayment associated with long-term supply agreements
10.0

 
10.0

Tax related items (4)
4.9

 
6.2

Other assets
6.0

 
5.6

Total
$
87.1

 
$
80.0

____________________
(1)
We have various subsidiaries that conduct business within Argentina. At September 30, 2019 and December 31, 2018, $38.0 million of outstanding receivables due from the Argentina government, which primarily represent export tax and export rebate receivables, was denominated in U.S. dollars. As with all outstanding receivable balances we continually review recoverability by analyzing historical experience, current collection trends and regional business and political factors among other factors.
(2)
Bank Acceptance Drafts are a common Chinese finance note used to settle trade transactions. Livent accepts these notes from Chinese customers based on criteria intended to ensure collectability and limit working capital usage.
(3)
We record deferred charges for certain contract manufacturing agreements which we amortize over the term of the underlying contract.
(4)
Represents an offsetting non-current deferred asset of $2.6 million and $3.2 million, respectively, relating to specific uncertain tax positions and other tax related items.

30


LIVENT CORPORATION
Notes to the Condensed Consolidated Financial Statements (unaudited) — (Continued)


(in Millions)
September 30, 2019
 
December 31, 2018
Accrued and other current liabilities
 
 
 
Restructuring reserves
$
3.4

 
$
3.6

Due to related party (1)

 
23.8

Accrued payroll
6.3

 
8.5

Derivative liabilities

 
1.3

Environmental reserves, current
0.5

 
0.5

Other accrued and other current liabilities
11.6

 
9.1

Total
$
21.8

 
$
46.8

(in Millions)
September 30, 2019
 
December 31, 2018
Other long-term liabilities
 
 
 
Asset retirement obligations
$
0.2

 
$
0.2

Contingencies related to uncertain tax positions (2)
5.4

 
6.0

Self-insurance reserves
2.3

 
2.4

Deferred compensation plan obligations
2.2

 

Other long-term liabilities
1.0

 
0.7

Total
$
11.1

 
$
9.3

____________________
(1)
At December 31, 2018, we had obligations to FMC for amounts due under the TSA of $2.3 million, $16.9 million related to income taxes payable to certain tax jurisdictions and payments made by FMC on Livent's behalf related to the Separation steps of $4.6 million. These obligations were settled during the first quarter of 2019.
(2)
At September 30, 2019 and December 31, 2018, we have recorded a liability for uncertain tax positions of $3.0 million and a $2.9 million indemnification liability to FMC for assets where the offsetting uncertain tax position is with FMC.

Note 17: Subsequent Events
There were no material subsequent events that required recognition or additional disclosure in the accompanying condensed consolidated financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Statement under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995: We and our representatives may from time to time make written or oral statements that are “forward-looking” and provide other than historical information, including statements contained in Item 2 of this Form 10-Q, in our other filings with the SEC, or in reports to our stockholders.
In some cases, we have identified forward-looking statements by such words or phrases as “will likely result,” “is confident that,” “expect,” “expects,” “should,” “could,” “may,” “will continue to,” “believe,” “believes,” “anticipates,” “predicts,” “forecasts,” “estimates,” “projects,” “potential,” “intends” or similar expressions identifying “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including the negative of those words and phrases. Such forward-looking statements are based on our current views and assumptions regarding future events, future business conditions and the outlook for the company based on currently available information. These forward-looking statements may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. These factors include, among other things, the risk factors listed in Part I, Item 1A "Risk Factors" of our 2018 Annual Report on Form 10-K and Part II, Item 1A of our Q1 2019 and Q2

31


2019 Form 10-Qs. You should specifically consider the numerous risks outlined under "Risk Factors." We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.
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 and specifically decline to undertake any obligation to publicly revise or update any of these forward-looking statements after the date of this Form 10-Q to conform our prior statements to actual results, revised expectations or to reflect the occurrence of anticipated or unanticipated events.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Our condensed consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We have described our accounting policies in Note 2 to our consolidated and combined financial statements included in Part II, Item 8 of our 2018 Annual Report on Form 10-K.
We have reviewed these accounting policies, identifying those that we believe to be critical to the preparation and understanding of our condensed consolidated financial statements. We have reviewed these critical accounting policies with the Audit Committee of our Board of Directors. Critical accounting policies are central to our presentation of results of operations and financial condition 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.
The following is a list of those accounting policies that we have deemed most critical to the presentation and understanding of our results of operations and financial condition. See the “Critical Accounting Policies” section included within "Management's Discussion and Analysis of Financial Condition and Results of Operations" within Part II, Item 7 of our 2018 Annual Report on Form 10-K for a detailed description of these policies and their potential effects on our results of operations and financial condition.
Revenue recognition and trade receivables