Recently Issued and Adopted Accounting Pronouncements and Regulatory Items

12 Months Ended

Dec. 31, 2021

Accounting Standards Update and Change in Accounting Principle [Abstract]

Recently Issued and Adopted Accounting Pronouncements and Regulatory Items

Recently Issued and Adopted Accounting Pronouncements and Regulatory Items

New Accounting guidance and regulatory items

In April 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The amendments in this ASU provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. An entity may optionally elect to apply the amendments effective in the first interim period that includes or is subsequent to March 12, 2020 through December 31, 2022. The FASB also issued ASU No. 2021-01, Reference Rate Reform (Topic 848). The amendments in this ASU provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU affect the guidance in ASU No. 2020-04 and are effective for all entities as of March 12, 2020 through December 31, 2022. We do not expect the adoption to have a material impact on our consolidated financial statements.

Recently adopted accounting guidance

As of January 1, 2021, Livent early adopted Accounting Standards Update No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"). ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion model. As compared with current U.S. GAAP, when following ASU 2020-06, more convertible debt instruments will be reported as a single liability instrument and the interest rate of more convertible debt instruments will be closer to the coupon interest rate. ASU 2020-06 also aligns the consistency of diluted Earnings Per Share ("EPS") calculations for convertible instruments by requiring that (1) an entity use the if-converted method and (2) share settlement be included in the diluted EPS calculation for both convertible instruments and equity contracts when those contracts include an option of cash settlement or share settlement. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Livent elected to early adopt ASU 2020-06 on January 1, 2021, using the full retrospective method.

Prior to adoption, under Accounting Standards Codification 470-20, Debt with Conversion and Other Options ("ASC 470-20"), the Company had separately accounted for the liability and equity components of its 4.125% Convertible Senior Notes Due 2025 (the "2025 Notes"), which may be settled entirely or partially in cash upon conversion, in a manner that reflected the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the 2025 Notes was that the equity component was required to be included in the additional paid-in capital section of stockholders’ equity on the consolidated balance sheet, and the value of the equity component was treated as original issue discount for purposes of accounting for the debt component of the 2025 Notes. As a result, prior to the adoption of ASU 2020-06, the Company was required to record a greater amount of non-cash interest expense as a result of the amortization of the discounted carrying value of the 2025 Notes to their face amount over the term of the 2025 Notes. Because the Company intends to settle in cash the principal outstanding under its 2025 Notes, the Company previously could elect to use the treasury stock method when calculating their potential dilutive effect, if any. ASU 2020-06 now requires the Company to use the if-converted method for EPS. For the full retrospective method of adoption, the accounting change was recognized as an adjustment to the balance of retained earnings, additional paid-in capital, long-term debt and deferred income taxes in the consolidated balance sheet as of December 31, 2020, the year in which the 2025 Notes were issued. Interest expense, loss from operations before income taxes, income tax benefit, net loss and loss per share were also adjusted in the consolidated statement of operations for the year ended December 31, 2020. Non-cash adjustments to reconcile net loss to cash provided by operating activities, including deferred income taxes and deferred financing fee amortization were also adjusted in the consolidated statement of cash flows for the year ended December 31, 2020. See Note 11 and Note 14 for further details.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The amendments in this ASU simplified the accounting for income taxes by removing certain exceptions to the general principle in Topic 740. The amendments also contain improvements and clarifications of certain guidance in Topic 740. The new amendments are effective for fiscal years beginning after December 15, 2020 (i.e. a January 1, 2021 effective date), with early adoption permitted. The adoption did not have a material impact on our consolidated financial statements.