Notes to Condensed Combined Financial Statements (unaudited)
Note 1: Description of the Business
Background and Nature of Operations
The accompanying condensed combined financial statements of Livent Corporation (“Livent”, “we”, “us”, "company" or “our”) include the historical accounts of the FMC Lithium segment ("Lithium Business") of FMC Corporation (“Parent” or “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”). Following a series of restructuring steps, on October 1, 2018, prior to the initial public offering (“IPO”) of Livent common stock, the Lithium Business was transferred from FMC to us, including substantially all of the historical revenues and expenses and assets and liabilities reported by FMC as part of its Lithium segment. Certain other assets and liabilities historically held by FMC were also transferred to us.
On October 15, 2018 (the "Separation Date"), we completed the IPO and sold
20 million
shares of Livent common stock at a price to the public of
$17.00
per share. Our common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “LTHM.” Immediately following the IPO, FMC owned
86.01%
of our outstanding common stock. Accordingly, we are considered a “controlled company” under the NYSE rules. Further details can be found in the final Prospectus ("Prospectus") included in our Registration Statement on Form S-1 originally filed with the Securities and Exchange Commission on October 12, 2018, as amended.
In connection with the IPO, we entered into certain agreements with FMC that govern various interim and ongoing relationships between the parties. These agreements include a separation and distribution agreement, a transition services agreement, a shareholders’ agreement, a tax matters agreement, a registration rights agreement, an employee matters agreement and a trademark license agreement.
As part of the Separation, we have incurred, among others, certain legal and professional fees which are recorded within "Separation-related costs" on the condensed combined statements of operations.
The Distribution
FMC has informed us that, following the IPO, it may make a tax-free distribution to its stockholders of all or a portion of its remaining equity interest in us, which may include one or more distributions effected as a dividend to all FMC stockholders, one or more distributions in exchange for FMC shares or other securities, or any combination thereof. We refer to any such potential distribution as the “Distribution.” FMC expects to effect the Distribution on March 1, 2019.
FMC has no obligation to pursue or consummate any further dispositions of its ownership interest in us, including through the Distribution, by any specified date or at all. If pursued, the Distribution would be subject to various conditions, including receipt of any necessary regulatory or other approvals, and the receipt of an opinion of counsel to the effect that such Distribution would be tax-free to FMC and its stockholders. The conditions to the Distribution may not be satisfied, FMC may decide not to consummate the Distribution even if the conditions are satisfied or FMC may decide to waive one or more of these conditions and consummate the Distribution even if all of the conditions are not satisfied.
Note 2: Basis of Presentation
The accompanying condensed combined 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 generally accepted accounting principles in the United States ("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 combined
LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
financial position at September 30, 2018 and December 31, 2017, the condensed combined results of operations for the three and nine months ended September 30, 2018 and 2017, and the condensed combined cash flows for the nine months ended September 30, 2018 and 2017. 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 combined financial statements and related notes included in the Prospectus.
Historically, Livent did not operate as an independent, standalone company. The accompanying condensed combined financial statements include 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 condensed combined financial statements, 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 standalone 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. Our Parent uses a centralized approach to the cash management and funds our operating and investing activities as needed. Accordingly, cash held by our Parent at the corporate level was not allocated to us for any of the periods presented. We reflect the cash generated by our operations and expenses paid by our Parent on our behalf as a component of “Net parent investment” on the condensed combined balance sheets, and as a net distribution to our Parent in our condensed combined statements of cash flows. Intracompany balances and accounts within Livent have been eliminated.
During the periods presented, 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 have been allocated from the Parent. These allocated costs are primarily related to certain governance and corporate functions such as finance, treasury, tax, human resources, legal, investor relations, and certain other costs. Where it is possible to specifically attribute such expenses to activities of Livent, these amounts have been charged or credited directly to Livent without allocation or apportionment. Allocation of other such expenses is based on a reasonable reflection of the utilization of the service provided to or benefits received by Livent during the periods presented on a consistent basis, such as, but not limited to, a relative percentage of headcount, tangible assets, 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 are included in “Corporate allocations” within the condensed combined statements of operations and are shown in detail within the following table.
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Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in Millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Livent shared service costs
(1)
|
$
|
1.6
|
|
|
$
|
1.2
|
|
|
$
|
4.6
|
|
|
$
|
3.9
|
|
FMC Corporate shared service costs allocated to Livent
(2)
|
0.9
|
|
|
0.2
|
|
|
1.9
|
|
|
1.8
|
|
Stock compensation expense
(3)
|
0.9
|
|
|
0.6
|
|
|
2.7
|
|
|
2.0
|
|
FMC Corporate expense allocation
(4)
|
2.2
|
|
|
2.8
|
|
|
6.5
|
|
|
7.8
|
|
Total Corporate allocations
|
$
|
5.6
|
|
|
$
|
4.8
|
|
|
$
|
15.7
|
|
|
$
|
15.5
|
|
____________________
|
|
(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
and
$2.0 million
and
$5.5 million
for the
three and nine
months ended
September 30, 2017
, respectively, of shared service costs historically allocated to and recorded within “Cost of sales” on the condensed combined statements of operations.
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(2)
|
Amounts represent the Parent’s Corporate shared service cost allocated to Livent.
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(3)
|
Stock compensation expense represents the allocation of the Parent’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 both the
three and nine
months ended
September 30, 2018
and
2017
, respectively.
|
|
|
(4)
|
Represents the additional costs of the centralized functions of the Parent allocated to Livent.
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LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
FMC used a centralized approach to cash management and financing its operations. Historically, the majority of Livent’s cash was transferred to the Parent 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 standalone business separate from the Parent during the periods presented.
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, these condensed combined financial statements may not be indicative of Livent's future performance and do 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 during the periods presented.
Our Parent’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 our Parent’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 all periods presented on the condensed combined statements of operations 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
$0.21
for the three months ended
September 30, 2018
and
2017
, respectively, and
$0.81
and
$0.43
for the nine months ended
September 30, 2018
and
2017
, respectively.
In connection with our IPO, we issued
20.0 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. In accordance with ASC 260, the
20.0 million
shares issued in connection with the IPO will be 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.
Note 3: Summary of Significant Accounting Policies
Our accounting policies are set forth in detail in Note 3 to our annual combined financial statements for the years ended December 31, 2017 and 2016 included in the Prospectus.
Note 4: Recently Issued and Adopted Accounting Pronouncements and Regulatory Items
New accounting guidance and regulatory items
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.
The amendments in this ASU 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). We are evaluating the effect the guidance will have on our combined financial statements.
In March 2018, the FASB issued ASU No. 2018-05,
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118
("SAB 118"). This update amends several paragraphs in ASC 740,
Income Taxes
, that contain SEC guidance related to SAB 118, which was previously issued in December 2017 by the SEC. These amendments are effective upon inclusion in the codification. As discussed in our annual combined financial statements included in the Prospectus, we will continue to refine our calculations and finalize the accounting for the changes in tax law that occurred in December 2017 within the measurement period of up to one year. Refer to Note 12 for more information.
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 ("the 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, with early adoption permitted. We are evaluating the effect the guidance will have on our combined financial statements.
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 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), with early adoption permitted for fiscal years beginning after December 15, 2018. We are evaluating the effect the guidance will have on our combined 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,
LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
2019 effective date). When implemented, we will be required to recognize and measure leases using a modified retrospective approach, with optional practical expedients. We have established an overall project plan to support the implementation of the new lease standard. As part of our impact assessment, we have performed an initial scoping exercise and preliminarily determined our lease population. A framework for the embedded lease identification process has been developed and we are currently evaluating non-lease contracts for embedded lease considerations. Additionally, we are implementing a lease accounting software to assist in the quantification of the expected impact on the combined balance sheets and to facilitate the calculations of the related accounting entries and disclosures. We are in the process of assessing any potential impacts on our internal controls, business processes, and accounting policies related to both the implementation and ongoing compliance of the new guidance. We expect total assets and total liabilities will increase in the period of adoption, however, we do not expect the adoption to have a material impact.
Recently adopted accounting guidance
In May 2017, the FASB issued ASU No. 2017-09,
Stock Compensation - Scope of Modification Accounting
. This ASU provides guidance on which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The new standard is effective for fiscal years beginning after December 15, 2017 (i.e. a January 1, 2018 effective date). There was no impact to our combined financial statements upon adoption.
In March 2017, the FASB issued ASU No. 2017-07,
Compensation - Retirement Benefits (Topic 715): Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. This ASU provides requirements for the presentation and disclosure of net benefit cost on the financial statements. The service cost component of net benefit cost is required to be presented in the income statement line item where the associated compensation cost is reported, while the other components of net benefit cost are required to be presented outside of operating income. The new standard is effective for fiscal years beginning after December 15, 2017 (i.e. a January 1, 2018 effective date). We adopted this standard on a retrospective basis in the first quarter of 2018. As a result, we have reclassified “Non-operating pension expense and settlement charges” out of “Income from operations before interest expense, net and income taxes” and into “Income from operations before income taxes.” There was no impact to “Net income” on our condensed combined statements of operations.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers, Accounting Standards Codification Topic 606
. This standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This guidance replaced most existing revenue recognition guidance in U.S. GAAP. On January 1, 2018, we adopted ASU 2014-09 and its related amendments (collectively known as ASC 606) using the modified retrospective adoption method.
In order to adopt this standard, we performed an impact assessment by analyzing revenue transactions and arrangements that are representative of our revenue streams. Additionally, we assessed any potential impacts on our internal controls and processes related to both the implementation and ongoing compliance of the new guidance.
The standard impacted our disclosures including disclosures presenting further disaggregation of revenue. Refer to Note 5 for further information. Based on our assessment, there was no cumulative catchup effect of initially applying ASC 606 that required an adjustment to our retained earnings.
Utilizing the practical expedients and exemptions allowed under the modified retrospective method, ASC 606 was only applied to existing contracts (i.e. those for which we have remaining performance obligations) as of January 1, 2018, and new contracts entered into after January 1, 2018. ASC 606 was not applied to contracts that were completed prior to December 31, 2017. The adoption of ASC 606 had no impact on our financial position, results of operations or cash flows.
Note 5: 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:
LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
|
|
|
|
|
|
|
|
|
(in Millions)
|
Three Months Ended September 30, 2018
|
|
Nine Months Ended September 30, 2018
|
North America
|
$
|
39.2
|
|
|
$
|
81.5
|
|
Latin America
|
0.4
|
|
|
1.4
|
|
Europe, Middle East & Africa
|
17.7
|
|
|
55.2
|
|
Asia Pacific
|
54.7
|
|
|
184.6
|
|
Total Revenue
|
$
|
112.0
|
|
|
$
|
322.7
|
|
The following table provides information about disaggregated revenue by major product category:
|
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|
|
|
|
|
|
|
(in Millions)
|
Three Months Ended September 30, 2018
|
|
Nine Months Ended September 30, 2018
|
Lithium Hydroxide
|
$
|
52.8
|
|
|
$
|
155.5
|
|
Butyllithium
|
26.3
|
|
|
75.5
|
|
High Purity Lithium Metal and Other Specialty Compounds
|
14.5
|
|
|
47.8
|
|
Lithium Carbonate and Lithium Chloride
|
18.4
|
|
|
43.9
|
|
Total Revenue
|
$
|
112.0
|
|
|
$
|
322.7
|
|
Our lithium hydroxide and butyllithium products are developed and sold to global and regional customers in the electronic vehicle, 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.
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
90
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 combined statements of operations. We record a liability until remitted to the respective taxing authority.
Variable Consideration
As a part of our customary business practice, we may offer sales incentives to our customers, such as volume discounts or rebates. Variable consideration given can differ by product. For all such contracts that include any variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occ
LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
ur. Although determining the transaction price requires significant judgment, we have significant historical experience with incentives provided to customers and estimating the expected consideration considering historical patterns of incentive payouts. These estimates are re-assessed each reporting period as required.
In addition to the variable consideration described above, in certain instances, we may require our customers to meet certain volume thresholds within their contract term. We estimate what amount of variable consideration should be included in the transaction price at contract inception and continually reassesses this estimation each reporting period to determine situations when the minimum volume thresholds will not be met. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. In those circumstances, we apply the guidance on breakage and estimate the amount of the shortfall and recognize it over the remaining performance obligations in the contract.
Right of Return
We warrant to our customers that our products conform to mutually agreed product specifications. This offering is accounted for as a right of return and the transaction price is adjusted for an estimate of expected returns. Per our historical experience, returns due to nonconformity are very uncommon; as such our adjustment to transaction price for our estimate of expected return is not material.
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 and contract liabilities from contracts with customers.
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|
|
|
|
|
|
|
|
|
|
(in Millions)
|
Balance as of December 31, 2017
|
|
Balance as of September 30, 2018
|
|
Increase (Decrease)
|
Receivables from contracts with customers, net of allowances
|
$
|
122.7
|
|
|
$
|
144.1
|
|
|
$
|
21.4
|
|
Contract liabilities: Advance payments from customers
|
1.8
|
|
|
—
|
|
|
(1.8
|
)
|
The amount of revenue recognized in the current period that was included in the opening contract liability balance is
$1.8 million
.
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 receivables represents our best estimate of the probable losses associated with potential customer defaults. We determine the allowance based on historical experience, current collection trends, and external business factors such as economic factors, including regional bankruptcy rates, and political factors.
Performance obligations
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
$14 million
for the remainder of
2018
,
$62 million
in
2019
, and
$49 million
in
2020
. These approximate revenues
LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
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.
Practical Expedients and Exemptions
We have elected the following practical expedients following the adoption of ASC 606:
|
|
a.
|
Costs of obtaining a contract:
We incur certain costs such as sales commissions which are incremental to obtaining the contract. We have taken the practical expedient of expensing such costs to obtain a contract, as and when they are incurred, as their expected amortization period is
one
year or less.
|
|
|
b.
|
Significant financing component:
We elected not to adjust the promised amount of consideration for the effects of a significant financing component if we expect, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be
one
year or less.
|
|
|
c.
|
Remaining performance obligations:
We elected not to disclose the aggregate amount of the transaction price allocated to remaining performance obligations for our contracts that are
one
year or less, as the revenue is expected to be recognized within one year. Additionally, we have elected not to disclose information about variable considerations for remaining, wholly unsatisfied performance obligations for which the criteria in paragraph 606-10-32-40 have been met.
|
|
|
d.
|
Shipping and handling costs
:
We elected to account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities (i.e., an expense) rather than as a promised service.
|
|
|
e.
|
Measurement of transaction price:
We have elected to exclude from the measurement of transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer.
|
Note 6: Intangible Assets, net
Our intangible assets consist of the following:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
(in Millions)
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Intangible assets subject to amortization
|
Patent
|
$
|
0.3
|
|
|
$
|
(0.2
|
)
|
|
$
|
0.1
|
|
|
$
|
0.3
|
|
|
$
|
(0.2
|
)
|
|
$
|
0.1
|
|
|
$
|
0.3
|
|
|
$
|
(0.2
|
)
|
|
$
|
0.1
|
|
|
$
|
0.3
|
|
|
$
|
(0.2
|
)
|
|
$
|
0.1
|
|
Amortization expense for the
three and nine
months ended
September 30, 2018
and
2017
was less than
$0.1 million
.
The estimated pre-tax amortization expense for each of the five years ending December 31,
2019
to
2023
is less than
$0.1 million
.
Note 7: Restructuring and Other Charges
The following table shows total restructuring and other charges included in the condensed combined statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in Millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Restructuring charges
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
$
|
2.4
|
|
|
$
|
3.2
|
|
Other charges
|
0.1
|
|
|
0.1
|
|
|
0.3
|
|
|
0.3
|
|
Total restructuring and other charges
|
$
|
0.4
|
|
|
$
|
0.4
|
|
|
$
|
2.7
|
|
|
$
|
3.5
|
|
In 2017, we began restructuring efforts at the manufacturing site located in Bessemer City, North Carolina. The objective of this restructuring plan was to optimize both the assets and cost structure by reducing certain production lines at the plant. The restructuring decision resulted primarily in shutdown costs which are reflected in the table below.
LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Charges
|
(in Millions)
|
Severance and Employee Benefits
(1)
|
|
Other Charges (Income)
(2)
|
|
Asset Disposal Charges
(3)
|
|
Total
|
Bessemer City restructuring
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
Three Months Ended September 30, 2018
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
Other items
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
0.3
|
|
Three Months Ended September 30, 2017
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
Bessemer City restructuring
|
$
|
—
|
|
|
$
|
1.9
|
|
|
$
|
0.5
|
|
|
$
|
2.4
|
|
Nine Months Ended September 30, 2018
|
$
|
—
|
|
|
$
|
1.9
|
|
|
$
|
0.5
|
|
|
$
|
2.4
|
|
|
|
|
|
|
|
|
|
Bessemer City Restructuring
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
2.2
|
|
|
$
|
2.7
|
|
Other items
|
—
|
|
|
0.5
|
|
|
—
|
|
|
0.5
|
|
Nine Months Ended September 30, 2017
|
$
|
—
|
|
|
$
|
1.0
|
|
|
$
|
2.2
|
|
|
$
|
3.2
|
|
____________________
|
|
(1)
|
Represents severance and employee benefit charges.
|
|
|
(2)
|
Primarily represents costs associated with demolition and other miscellaneous exit costs.
|
|
|
(3)
|
Primarily represents fixed asset write-offs which were or are to be abandoned.
|
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)
|
Balance at
12/31/16
|
Change in
reserves
(1)
|
Cash
payments
|
Other
|
Balance at
12/31/17
(2)
|
Change in
reserves
(1)
|
Cash
payments
|
Other
|
Balance at
9/30/18
(2)
|
Restructuring reserve
|
$
|
0.3
|
|
$
|
3.8
|
|
$
|
(0.9
|
)
|
$
|
(0.3
|
)
|
$
|
2.9
|
|
$
|
1.9
|
|
$
|
(0.8
|
)
|
$
|
—
|
|
$
|
4.0
|
|
Total
|
$
|
0.3
|
|
$
|
3.8
|
|
$
|
(0.9
|
)
|
$
|
(0.3
|
)
|
$
|
2.9
|
|
$
|
1.9
|
|
$
|
(0.8
|
)
|
$
|
—
|
|
$
|
4.0
|
|
____________________
|
|
(1)
|
Primarily related to facility shutdowns and other miscellaneous exit costs.
|
|
|
(2)
|
Included in “Accrued and other current liabilities” on the condensed combined balance sheets.
|
Other charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in Millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Environmental charges
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
Other charges
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
Environmental charges
Environmental charges represent charges associated with environmental remediation with respect to certain discontinued products. We have
one
environmental remediation site in Bessemer City, North Carolina.
LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
Note 8: Inventories, Net
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
(in Millions)
|
September 30, 2018
|
|
December 31, 2017
|
Finished goods
|
$
|
5.1
|
|
|
$
|
4.0
|
|
Work in process
|
41.2
|
|
|
34.3
|
|
Raw materials, supplies and other
|
3.4
|
|
|
12.2
|
|
First-in, first-out inventory
|
$
|
49.7
|
|
|
$
|
50.5
|
|
Less: Excess of first-in, first-out cost over last-in, first-out cost
|
(2.4
|
)
|
|
(0.9
|
)
|
Inventories, net
|
$
|
47.3
|
|
|
$
|
49.6
|
|
Note 9: 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
$6.6 million
and
$6.4 million
existed at
September 30, 2018
and
December 31, 2017
, respectively, a portion of which is included in “Accrued and other current liabilities” on the condensed combined balance sheets.
Although potential environmental remediation expenditures in excess of the reserves and estimated loss contingencies could be significant, the impact on our future combined 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, 2016
to
September 30, 2018
.
LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
|
|
|
|
|
(in Millions)
|
Total
|
Total environmental reserves at December 31, 2016
|
$
|
6.3
|
|
Provision
|
0.4
|
|
Spending
|
(0.3
|
)
|
Net change
|
$
|
0.1
|
|
Total environmental reserves at December 31, 2017
|
$
|
6.4
|
|
Provision
|
0.3
|
|
Spending
|
(0.1
|
)
|
Net change
|
$
|
0.2
|
|
Total environmental reserves at September 30, 2018
|
$
|
6.6
|
|
|
|
Environmental reserves, current
(1)
|
$
|
0.5
|
|
Environmental reserves, long-term
(2)
|
6.1
|
|
Total environmental reserves at September 30, 2018
|
$
|
6.6
|
|
____________________
|
|
(1)
|
These amounts are included within "Accrued and other current liabilities" on the condensed combined balance sheets.
|
|
|
(2)
|
These amounts are included in "Environmental liabilities" on the condensed combined balance sheets.
|
Note 10: Property, Plant and Equipment, Net
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
(in Millions)
|
September 30, 2018
|
|
December 31, 2017
|
Property, plant and equipment
|
$
|
442.7
|
|
|
$
|
407.2
|
|
Accumulated depreciation
|
(191.0
|
)
|
|
(186.5
|
)
|
Property, plant and equipment, net
|
$
|
251.7
|
|
|
$
|
220.7
|
|
Note 11: Debt
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in Millions)
|
September 30, 2018
|
|
|
|
|
Interest Rate Percentage
|
|
Maturity
Date
|
|
September 30, 2018
|
|
December 31, 2017
|
Revolving Credit Facility
(1)
|
4.9%
|
|
2023
|
|
$
|
—
|
|
|
$
|
—
|
|
Total long-term debt
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
____________________
|
|
(1)
|
As of
September 30, 2018
, there were
no
letters of credit outstanding under our Revolving Credit Facility.
|
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.
Amounts under the Revolving Credit Facility may be borrowed, repaid and re-borrowed from time to time until the final maturity date of the Revolving Credit Facility, which will be the fifth anniversary of the Revolving Credit Facility’s effective date. Voluntary
LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
prepayments and commitment reductions under the Revolving Credit Facility are permitted at any time without any prepayment premium upon proper notice and subject to minimum dollar amounts.
Revolving loans under the Credit Agreement will bear interest at a floating rate, which will be a base rate or a Eurodollar rate equal to the London interbank offered rate for the relevant interest period, plus, in each case, an applicable margin based on our leverage ratio, as determined in accordance with the provisions of the Credit Agreement. The base rate will be the greatest of: the rate of interest announced publicly by Citibank, N.A. in New York City from time to time as its “base rate”; the federal funds effective rate plus
0.5%
; and a Eurodollar rate for a one-month interest period plus
1%
. Each Borrower on a joint and several basis is required to pay a commitment fee quarterly in arrears on the average daily unused amount of each Lender’s revolving credit commitment at a rate equal to an applicable percentage based on the leverage ratio, as determined in accordance with the provisions of the Credit Agreement. The applicable margin and the commitment fee are subject to adjustment as provided in the Credit Agreement.
The Borrowers’ present and future domestic material subsidiaries (the “Guarantors”) will guarantee the obligations of the Borrowers under the Revolving Credit Facility. The obligations of the Borrowers and the Guarantors are secured by all of the present and future assets of the Borrowers and the Guarantors, including the Borrowers’ facility and real estate in Bessemer City, North Carolina, subject to certain exceptions and exclusions as set forth in the Credit Agreement and other security and collateral documents.
The Credit Agreement contains certain affirmative and negative covenants that are binding on the Borrowers and their subsidiaries, including, among others, restrictions (subject to exceptions and qualifications) on the ability of the Borrowers and their subsidiaries to create liens, to undertake fundamental changes, to incur debt, to sell or dispose of assets, to make investments, to make restricted payments such as dividends, distributions or equity repurchases, to change the nature of their businesses, to enter into transactions with affiliates and to enter into certain burdensome agreements.
Fees incurred to secure the Revolving Credit Facility have been deferred and will be amortized over the term of the arrangement.
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). Under the Revolving Credit Facility, we must maintain a leverage ratio of no more than
3.50
to
1.00
and a minimum interest coverage ratio of at least
3.50
to
1.00
, each as measured as of the end of each fiscal quarter. We were in compliance with all covenants at September 30, 2018.
Note 12: Income Taxes
Taxable income and/or loss generated by our U.S. operations have been included in the U.S. consolidated federal and state income tax returns of FMC with all income tax payments made by the Parent to the taxing authorities. The majority of the accrued U.S. federal, state, and foreign income tax balances are treated as settled with FMC as of the end of each year. Therefore, they are included in “Net parent investment” in the condensed combined balance sheets. FMC has allocated income taxes to Livent in the accompanying condensed combined financial statements as if we were held in a separate corporation which filed separate income tax returns. FMC believes the assumptions underlying the allocation of income taxes on a separate return basis are reasonable. However, the amounts allocated for income taxes in the accompanying condensed combined financial statements are not necessarily indicative of the actual amount of income taxes that would have been recorded had we been held within a separate stand-alone entity.
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.
LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
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.
The below chart provides a reconciliation between our reported effective tax rate and the EAETR of our continuing operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2018
|
|
2017
|
(in Millions)
|
Before Tax
|
Tax
|
Effective Tax Rate %
|
|
Before Tax
|
Tax
|
Effective Tax Rate %
|
Income from operations before income taxes
|
$
|
35.9
|
|
$
|
5.9
|
|
16.4
|
%
|
|
$
|
33.2
|
|
$
|
7.7
|
|
23.2
|
%
|
Discrete items:
|
|
|
|
|
|
|
|
Separation related charges
(1)
|
$
|
2.4
|
|
$
|
0.5
|
|
|
|
$
|
—
|
|
$
|
—
|
|
|
Currency remeasurement
(2)
|
1.5
|
|
(0.1
|
)
|
|
|
0.6
|
|
0.3
|
|
|
Other discrete items
(3)
|
0.3
|
|
0.1
|
|
|
|
0.1
|
|
0.1
|
|
|
Tax only discrete items
(4)
|
—
|
|
1.5
|
|
|
|
—
|
|
0.3
|
|
|
Total discrete items
|
$
|
4.2
|
|
$
|
2.0
|
|
|
|
$
|
0.7
|
|
$
|
0.7
|
|
|
Income from operations before income taxes, before discrete items
|
$
|
40.1
|
|
$
|
7.9
|
|
|
|
$
|
33.9
|
|
$
|
8.4
|
|
|
Estimated Annualized Effective Tax Rate (EAETR)
(5)
|
|
|
19.7
|
%
|
|
|
|
24.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
(in Millions)
|
Before Tax
|
Tax
|
Effective Tax Rate %
|
|
Before Tax
|
Tax
|
Effective Tax Rate %
|
Income from operations before income taxes
|
$
|
119.3
|
|
$
|
19.1
|
|
16.0
|
%
|
|
$
|
69.3
|
|
$
|
16.2
|
|
23.4
|
%
|
Discrete items:
|
|
|
|
|
|
|
|
Separation related charges
(1)
|
$
|
2.4
|
|
$
|
0.5
|
|
|
|
$
|
—
|
|
$
|
—
|
|
|
Currency remeasurement
(2)
|
4.2
|
|
0.3
|
|
|
|
0.4
|
|
0.1
|
|
|
Other discrete items
(3)
|
2.3
|
|
0.5
|
|
|
|
3.2
|
|
1.2
|
|
|
Tax only discrete items
(4)
|
—
|
|
6.5
|
|
|
|
—
|
|
0.7
|
|
|
Total discrete items
|
$
|
8.9
|
|
$
|
7.8
|
|
|
|
$
|
3.6
|
|
$
|
2.0
|
|
|
Income from operations before income taxes, before discrete items
|
$
|
128.2
|
|
$
|
26.9
|
|
|
|
$
|
72.9
|
|
$
|
18.2
|
|
|
Estimated Annualized Effective Tax Rate (EAETR)
(5)
|
|
|
21.0
|
%
|
|
|
|
25.0
|
%
|
___________________
|
|
(1)
|
See Note 2 for more information on separation related charges.
|
|
|
(2)
|
Represents transaction gains or losses for currency remeasurement offset by associated hedge gains or losses, which are accounted for discretely in accordance with U.S. GAAP. Certain transaction gains or losses for currency remeasurement are not taxable, while offsetting hedge gains or losses are taxable.
|
|
|
(3)
|
During the three and nine months ended September 30, 2018, other discrete items were materially comprised of other miscellaneous restructuring charges, comprised primarily of asset disposal charges within Livent as a result of restructuring our operations at the manufacturing site located in Bessemer City, North Carolina.
|
|
|
(4)
|
For the nine months ended September 30, 2018 and 2017, tax only discrete items are comprised of the tax effect of currency remeasurement associated with foreign statutory operations, changes in realizability of certain deferred tax assets, changes in uncertain tax liabilities and related interest, excess tax benefits associated with share-based compensation, and changes in prior year estimates of subsidiary tax liabilities.
|
|
|
(5)
|
The primary drivers for the decrease in the third quarter effective tax rate for 2018 as compared to 2017 are shown in the table above. The remaining change was due to the change in mix of earnings in lower taxing jurisdictions, a reduced tax rate for earnings in the U.S., offset with the effect of the global intangible low-taxed income (GILTI) provisions of the Act.
|
Tax Cuts and Jobs Act of 2017
On December 22, 2017, the Act was enacted in the United States. Effective January 1, 2018, the Act, among other things, reduces the U.S. federal corporate tax rate from 35% to 21%, creates new provisions related to foreign source earnings, and eliminates the deduction for domestic production activities. As a result, a tax benefit in the amount of
$1.3 million
was recorded for the remeasurement of the Livent U.S. deferred tax balances as of December 31, 2017. The Act also requires companies to pay a one-
LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
time transition tax on the cumulative earnings and profits of certain foreign subsidiaries that were previously not repatriated and therefore not taxed for U.S. income tax purposes. Taxes due on the one-time transition tax are payable as of December 31, 2017 and may be paid to the tax authority over eight years. The transition tax expense of
$12.4 million
was recorded based on post-1986 earnings and profits (“E&P”) allocated to the Lithium Business. For the nine months ended September 30, 2018 we have recorded an additional tax expense of
$0.6 million
to adjust the liability of the onetime transition tax. This liability is recorded consistent with current U.S. accrued income tax payable and will be settled with FMC. As a result, this liability is included in FMC’s “Net parent investment” in the condensed combined balance sheets.
In December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses situations where the accounting is incomplete for the income tax effects of the Act. SAB 118 directs taxpayers to consider the impact of the Act as “provisional” when the company does not have the necessary information available, prepared or analyzed (including computations) to finalize the accounting for the change in tax law. Companies are provided a measurement period of up to one year to obtain, prepare, and analyze information necessary to finalize the accounting for provisional amounts or amounts that cannot be estimated as of December 31, 2017. We will continue to refine our calculations as additional analysis is completed related to the Act. Additional information that may affect our provisional amounts would include further clarification and guidance on how the IRS will implement tax reform, including guidance with respect to executive compensation and transition tax, further clarification and guidance on how state taxing authorities will implement tax reform and the related effect on our state income tax returns, completion of the FMC 2017 tax return filings, and the potential for additional guidance from the SEC or the FASB related to tax reform. The accounting is expected to be finalized during the fourth quarter of 2018.
For the nine months ended September 30, 2018, we did not record an additional adjustment to the remeasurement of our US deferred tax position.
Note 13: Pensions and Other Postretirement Benefits
Certain of our employees participate in certain funded defined benefit pension and other domestic postretirement plans sponsored by FMC (the “Benefit Plans”), which include participants from FMC’s other business. FMC had
one
defined benefit pension plan specifically designated for Livent employees that was terminated in 2017. Refer to the U.K. Plan discussion below. The majority of qualifying employees participate in the FMC-sponsored pension plans that are accounted for by Livent as multi-employer plans are not included within the condensed combined balance sheets.
For the
three and nine
months ended
September 30, 2018
, we recorded net annual periodic pension
benefit
of
$0.4 million
and
costs
of
$0.5 million
, respectively. For the
three and nine
months ended
September 30, 2017
, we recorded net annual periodic pension
benefit
of
$0.2 million
and
$0.9 million
. respectively. These include pension costs allocated through the Parent’s shared service cost allocation of
$0.9 million
for both the nine months ended September 30, 2018 and 2017, respectively.
U.S. Plan
We did not record an asset or liability in the condensed combined balance sheets to recognize the funded status of the U.S. Plan. Instead, we recorded net periodic pension cost for the U.S. Plan. This net expense represents an approximation of our portion of the Parent’s net periodic pension cost of the U.S. Plan. Livent's portion of the Parent’s net annual periodic pension cost was allocated based on Livent employees’ relative participation in the plan.
U.K. Plan
The U.K. Plan, which was a legal obligation of the Livent United Kingdom legal entity, is included in these condensed combined financial statements up through the period of plan termination as described in the following sentences.
In 2016, FMC made a
$20.7 million
payment into our U.K. Plan in order to annuitize the remaining pension obligation. This action removed all future funding requirements for the U.K. Plan. In October 2017, FMC completed the buy-out of the annuity, completing the plan termination and relieving FMC of the pension liability for the U.K. Plan. The termination resulted in a settlement charge of
$32.5 million
recorded during the three months ended December 31, 2017.
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(in Millions)
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Three Months Ended September 30,
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|
Nine Months Ended September 30,
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2018
|
|
2017
|
|
2018
|
|
2017
|
Interest cost
|
$
|
—
|
|
|
$
|
0.2
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|
|
$
|
—
|
|
|
$
|
0.5
|
|
Expected return on plan assets
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.4
|
)
|
Amortization of net actuarial and other (gain) loss
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.7
|
|
Net periodic benefit cost (income)
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
As a result of the U.K. Plan termination as discussed above, there were
no
contributions made in 2018. Additionally, we did
no
t make any voluntary contributions to the U.K. Plan during the
nine
months ended
September 30, 2017
.
Note 14: Accumulated other comprehensive loss
Summarized below is the roll forward of accumulated other comprehensive loss, net of tax.
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(in Millions)
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Foreign currency adjustments
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Pension and other postretirement benefits
(1)
|
|
Total
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Accumulated other comprehensive loss, net of tax at December 31, 2017
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$
|
(45.6
|
)
|
|
$
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—
|
|
|
$
|
(45.6
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)
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2018 Activity
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|
Other comprehensive income (loss) before reclassifications
|
(3.0
|
)
|
|
—
|
|
|
(3.0
|
)
|
Accumulated other comprehensive loss, net of tax at September 30, 2018
|
$
|
(48.6
|
)
|
|
$
|
—
|
|
|
$
|
(48.6
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)
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(in Millions)
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Foreign currency adjustments
|
|
Pension and other postretirement benefits
(1)
|
|
Total
|
Accumulated other comprehensive loss, net of tax at December 31, 2016
|
$
|
(50.3
|
)
|
|
$
|
(26.3
|
)
|
|
$
|
(76.6
|
)
|
2017 Activity
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
4.7
|
|
|
(2.5
|
)
|
|
2.2
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
0.6
|
|
|
0.6
|
|
Accumulated other comprehensive loss, net of tax at September 30, 2017
|
$
|
(45.6
|
)
|
|
$
|
(28.2
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)
|
|
$
|
(73.8
|
)
|
____________________
(1) See Note 13 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 combined statements of operations for each of the periods presented.
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Details about Accumulated Other Comprehensive Loss Components
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Amounts Reclassified from Accumulated Other Comprehensive Loss
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Affected Line Item in the Condensed Combined Statements of Operations
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Three Months Ended September 30,
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|
Nine Months Ended September 30,
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(in Millions)
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|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
Pension and other postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized net actuarial and other losses
|
|
$
|
—
|
|
|
$
|
(0.2
|
)
|
|
$
|
—
|
|
|
$
|
(0.7
|
)
|
|
Non-operating pension benefit and settlement charges
|
Total before tax
|
|
$
|
—
|
|
|
$
|
(0.2
|
)
|
|
$
|
—
|
|
|
$
|
(0.7
|
)
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
Provision for income taxes
|
Total reclassifications for the period
|
|
$
|
—
|
|
|
$
|
(0.2
|
)
|
|
$
|
—
|
|
|
$
|
(0.6
|
)
|
|
Amount included in net income
|
Note 15: Commitments and Contingencies
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, resulting 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. Based on information currently available and established reserves, we have no reason to believe that the ultimate resolution of
LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
known contingencies will have a material adverse effect on the combined financial position, liquidity or results of operations. However, 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 combined financial position, results of operations in any one reporting period, or liquidity.
Note 16: Segment Information
Our operations are similar in geography, nature of products we provide, and type of customers we serve. As we earn substantially all of our revenues through the sale of lithium products we have concluded that we have
one
operating segment for reporting purposes. Refer to Note 5 for revenues by geographic area for the
three and nine
months ended
September 30, 2018
.
Countries with sales in excess of 10% of combined revenue in either period consisted of China, the U.S. and Japan. Sales for the
three
months ended
September 30, 2018
for China, the U.S., and Japan totaled
$26.6 million
,
$38.2 million
, and
$16.0 million
, respectively, while sales for the
three
months ended
September 30, 2017
totaled
$17.9 million
,
$21.5 million
, and
$24.3 million
, respectively. Sales for the
nine
months ended
September 30, 2018
for China, the U.S., and Japan totaled
$94.9 million
,
$80.1 million
, and
$53.9 million
, respectively, while sales for the
nine
months ended
September 30, 2017
totaled
$31.1 million
,
$60.0 million
, and
$66.9 million
, respectively.
For the
three and nine
months ended
September 30, 2018
, one customer accounted for approximately
15%
and
10%
, respectively, of total revenue while for the
three and nine
months ended
September 30, 2017
the same customer accounted for approximately
11%
and
14%
, respectively, of total revenue. Our ten largest customers accounted in aggregate for approximately
56%
and
51%
of our revenue for the
three and nine
months ended
September 30, 2018
and approximately
49%
and
45%
for the
three and nine
months ended
September 30, 2017
, respectively. A loss of any material customer could have a material adverse effect on our business, financial condition and results of operations.
Note 17: 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 combined balance sheets:
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(in Millions)
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September 30, 2018
|
|
December 31, 2017
|
Prepaid and other current assets
|
|
|
|
Argentina government receivable
(1)
|
$
|
8.7
|
|
|
$
|
13.5
|
|
Tax related items including value added tax receivables
|
4.9
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|
|
3.6
|
|
Other receivables
|
15.1
|
|
|
6.5
|
|
Prepaid expenses
|
4.8
|
|
|
8.3
|
|
Other current assets
|
1.9
|
|
|
0.7
|
|
Total
|
$
|
35.4
|
|
|
$
|
32.6
|
|
|
|
|
|
|
|
|
|
|
(in Millions)
|
September 30, 2018
|
|
December 31, 2017
|
Other assets
|
|
|
|
Argentina government receivable
(1)
|
$
|
37.5
|
|
|
$
|
34.0
|
|
Advance to contract manufacturers
|
12.9
|
|
|
10.0
|
|
Capitalized software, net
|
1.8
|
|
|
2.2
|
|
Prepayment associated with long-term supply agreements
|
10.0
|
|
|
10.0
|
|
Tax related items
|
4.7
|
|
|
5.1
|
|
Other assets
|
4.7
|
|
|
5.6
|
|
Total
|
$
|
71.6
|
|
|
$
|
66.9
|
|
LIVENT CORPORATION
Notes to Condensed Combined Financial Statements (unaudited) — (Continued)
____________________
|
|
(1)
|
We have various subsidiaries that conduct business within Argentina. At
September 30, 2018
and
December 31, 2017
,
$37.8 million
and
$38.1 million
, respectively, of outstanding receivables due from the Argentina government, which primarily represent export tax and export rebate receivables, were 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.
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(in Millions)
|
September 30, 2018
|
|
December 31, 2017
|
Accrued and other current liabilities
|
|
|
|
Restructuring reserves
|
$
|
4.0
|
|
|
$
|
2.9
|
|
Accrued payroll
|
8.3
|
|
|
7.9
|
|
Environmental reserves, current
|
0.5
|
|
|
0.5
|
|
Other accrued and other current liabilities
|
4.9
|
|
|
10.0
|
|
Total
|
$
|
17.7
|
|
|
$
|
21.3
|
|
|
|
|
|
|
|
|
|
|
(in Millions)
|
September 30, 2018
|
|
December 31, 2017
|
Other long-term liabilities
|
|
|
|
Asset retirement obligations
|
$
|
0.2
|
|
|
$
|
0.2
|
|
Contingencies related to uncertain tax positions
|
7.7
|
|
|
7.9
|
|
Self-insurance reserves
|
1.8
|
|
|
1.7
|
|
Other long-term liabilities
|
0.6
|
|
|
0.9
|
|
Total
|
$
|
10.3
|
|
|
$
|
10.7
|
|
Note 18: Subsequent Events
There were no material subsequent events that required recognition or additional disclosure in the accompanying condensed combined financial statements, other than as described in Note 1 related to the IPO.