| Financial Instrument, Risk Management and Fair Value Measurements | 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, trade payables, derivatives 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 trade payables approximates their fair value due to their short term nature 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 currency and commodity spot and forward rates. Fair value is defined as 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 (exit price). The inputs used to measure fair value are classified into the following hierarchy: Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 - Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. Level 3 - Unobservable inputs for the asset or liability. The estimated fair value and the carrying amount of debt was $675.8 million and $242.3 million, respectively, as of March 31, 2023. Our 2025 Notes are classified as Level 2 in the fair value hierarchy. 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. 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 loss ("AOCL") 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 March 31, 2023, we had open foreign currency forward contracts in AOCL in a net after-tax gain position of $0.2 million designated as cash flow hedges of underlying forecasted sales and purchases. As of March 31, 2023 we had open forward contracts with various expiration dates to buy, sell or exchange foreign currencies with a U.S. dollar equivalent of approximately $32.4 million. A net after-tax gain of $0.2 million, representing open foreign currency exchange contracts, will be realized in earnings during the year ending December 31, 2023 if spot rates in the future are consistent with market rates as of March 31, 2023. 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 $112.2 million as of March 31, 2023. Fair Value of Derivative Instruments The following tables provide the gross fair value and net balance sheet presentation of our derivative instruments. The Company has open derivative cash flow hedge contracts with a liability position of less than $0.1 million as of December 31, 2022. March 31, 2023 Gross Amount of Derivatives (in Millions) Designated as Cash Flow Hedges Derivative assets Foreign exchange contracts $ 0.3 Total derivative assets (1) 0.3 Net derivative assets $ 0.3 Derivatives in Cash Flow Hedging Relationships The following tables summarize the gains related to our cash flow hedges and derivatives not designated as cash flow hedging instruments. (in Millions) Total Foreign Exchange Contracts Accumulated other comprehensive income, net of tax as of December 31, 2022 $ — Unrealized hedging gains, net of tax 0.2 Total derivatives instruments impact on comprehensive income, net of tax 0.2 Accumulated other comprehensive income, net of tax as of March 31, 2023 $ 0.2 (in Millions) Total Foreign Exchange Contracts Accumulated other comprehensive income, net of tax as of December 31, 2021 $ 0.2 Unrealized hedging gains, net of tax 0.1 Total derivatives instruments impact on comprehensive income, net of tax 0.1 Accumulated other comprehensive income, net of tax as of March 31, 2022 $ 0.3 Derivatives Not Designated as Cash Flow Hedging Instruments Location of Gain or (Loss) Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives (1) Three Months Ended March 31, (in Millions) 2023 2022 Foreign Exchange contracts Cost of sales (2) $ 2.1 $ (1.6) Total $ 2.1 $ (1.6) ____________________ 1. Amounts represent the gain or loss on the derivative instrument offset by the gain or loss on the hedged item. 2. A gain of $0.1 million related to intercompany loan hedges is included in Restructuring and other charges in the condensed consolidated statement of operations for the three months ended March 31, 2023. A loss of $0.1 million related to intercompany loan hedges is included in Restructuring and other charges in the condensed consolidated statement of operations for the three months ended March 31, 2022. Fair Value Measurements 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) March 31, 2023 Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Assets Investments in deferred compensation plan (1) $ 3.9 $ 3.9 $ — $ — Derivatives – Foreign exchange 0.3 — 0.3 — Total Assets $ 4.2 $ 3.9 $ 0.3 $ — Liabilities Deferred compensation plan obligation (2) $ 6.2 $ 6.2 $ — $ — Total Liabilities $ 6.2 $ 6.2 $ — $ — (in Millions) December 31, 2022 Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Assets Investments in deferred compensation plan (1) $ 3.1 $ 3.1 $ — — Total Assets $ 3.1 $ 3.1 $ — $ — Liabilities Deferred compensation plan obligation (2) $ 5.1 $ 5.1 $ — $ — Total Liabilities $ 5.1 $ 5.1 $ — $ — ____________________ 1. Balance is included in “Investments” 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 mark-to-market loss of $0.2 million was recorded for each of the three month periods ended March 31, 2023 and 2022 , related to the Livent common stock. The mark-to-market losses were recorded in "Selling, general and administrative expense" in the condensed consolidated statement of operations, with a corresponding offset to the deferred compensation plan obligation in the condensed consolidated balance sheets. 2. Balance is included in “Other long-term liabilities” in the condensed consolidated balance sheets. |
