What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-04 · 141 added, 124 removed, 726 unchanged (27% of the section changed)

1 unchanged sentence

Consolidated Statements of Operations of Orion Engineered Carbons S.A.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

7 unchanged sentences

Restructuring expenses — 2,710 — 3,833

Income/(loss) from operations ( 12,879 ) 41,470 24,664 76,169

Income from operations 24,147 38,386 48,811 114,555

Interest and other financial expense, net 10,769 6,500 28,657 20,509

Reclassification of actuarial losses from AOCI 2,272 — 7,325 —

Income/(loss) from operations before income taxes and equity in earnings of affiliated companies ( 23,810 ) 33,904 1,724 62,160

Income from operations before income tax expense and equity in earnings of affiliated companies 11,106 31,886 12,830 94,046

Income tax expense/(benefit) 2,250 7,767 4,006 26,515

Equity in earnings of affiliated companies, net of tax 141 134 426 424

Net income/(loss) $ ( 17,780 ) $ 24,748 $ 253 $ 43,702

Net income $ 8,997 $ 24,253 $ 9,250 $ 67,955

Weighted-average shares outstanding (in thousands of shares):

7 unchanged sentences

Consolidated Statements of Comprehensive Income of Orion Engineered Carbons S.A.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

1 unchanged sentence

Net income/(loss) $ 8,997 $ 24,253 $ 9,250 $ 67,955

Other comprehensive income (loss), net of tax

Other comprehensive loss, net of tax

Foreign currency translation adjustments ( 3,620 ) ( 5,097 ) ( 27,060 ) ( 8,478 )

1 unchanged sentence

Unrealized net losses on cash flow hedges ( 1,133 ) ( 396 ) ( 3,399 ) ( 6,996 )

Gains/(losses) on defined benefit plans 1,595 ( 36 ) 3,442 17

Other comprehensive income (loss) 585 ( 9,255 ) ( 22,259 ) ( 9,964 )

Gains on defined benefit plans 990 121 4,432 138

Other comprehensive loss ( 3,829 ) ( 5,300 ) ( 26,087 ) ( 15,264 )

Comprehensive income/(loss) $ 5,168 $ 18,953 $ ( 16,838 ) $ 52,691

1 unchanged sentence

Consolidated Balance Sheets of Orion Engineered Carbons S.A.

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(In thousands, except share amounts)

46 unchanged sentences

Consolidated Statements of Cash Flows of Orion Engineered Carbons S.A.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

1 unchanged sentence

Cash flows from operating activities:

Net income/(loss) $ ( 17,780 ) $ 24,748 $ 253 $ 43,702

Net income $ 8,997 $ 24,253 $ 9,250 $ 67,955

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:

50 unchanged sentences

Balance at June 30, 2020 60,487,117 $ 85,323 $ ( 8,515 ) $ 64,128 $ 66,504 $ ( 56,621 ) $ 150,819

Net income — — — — 8,997 — 8,997

Other comprehensive loss, net of tax — — — — — ( 3,829 ) ( 3,829 )

Share based compensation — — — 1,182 — — 1,182

Balance at September 30, 2020 60,487,117 $ 85,323 $ ( 8,515 ) $ 65,311 $ 75,501 $ ( 60,449 ) $ 157,170

(In thousands, except per share amounts) Number of common shares Amount Treasury shares Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total equity

11 unchanged sentences

Balance at June 30, 2019 60,212,208 $ 85,032 $ ( 8,683 ) $ 61,403 $ 59,165 $ ( 29,592 ) $ 167,325

Net income — — — — 24,253 — 24,253

Other comprehensive loss, net of tax — — — — — ( 5,300 ) ( 5,300 )

Dividends paid - $ 0.20 per share — — — — ( 12,043 ) — ( 12,043 )

Share based compensation — — — 2,025 — — 2,025

Balance at September 30, 2019 60,212,208 $ 85,032 $ ( 8,683 ) $ 63,428 $ 71,375 $ ( 34,892 ) $ 176,260

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

13 unchanged sentences

The Company manufactures Specialty Carbon Black for a broad range of specialized applications such as polymers, printing systems and coatings applications.

The various production processes result in a wide range of different Specialty Carbon Black pigment grades with respect to their primary particle size, structure and surface area/surface chemistry.

The various production processes result in a wide range of different Specialty Carbon Black pigment grades with respect to their primary particle size, structure surface area and surface chemistry.

These parameters affect jetness, tinting strength, undertone, dispersibility, oil absorption, electrical conductivity and other characteristics.

1 unchanged sentence

Structure and specific surface area are the key factors in optimizing reinforcement properties in rubber polymers.

As of June 30, 2020, the Company operates 13 wholly owned production facilities in Europe, North and South America, Asia and South Africa and three sales companies and another nine holding companies and six service companies, as well as two former operating entities in Portugal and France (currently in dissolution).

As of September 30, 2020, the Company operates 13 wholly owned production facilities in Europe, North and South America, Asia and South Africa.

Additionally, the Company operates a joint venture with one production facility in Germany.

The Company's global presence enables it to supply Specialty Carbon Black customers as well as international customers in the tire and rubber industry with the full range of carbon black grades and particle sizes.

Sales activities are supported by sales and representative offices all around the globe.

Integrated sales activities with key account managers and customer services are carried out in the United States, Brazil, South Korea and Germany and China.

The Company's global presence enables it to supply Specialty Carbon Black customers as well as international customers in the tire and rubber industry with the full range of carbon black grades.

Risks and Uncertainties

Our global operations expose us to risks associated with public health crises and outbreaks of epidemic, pandemic, or contagious diseases, such as the current outbreak of a novel strain of coronavirus (COVID-19).

The COVID-19 pandemic has negatively impacted the global economy and created significant volatility and disruption of financial markets.

We have experienced significant and unpredictable reductions in the demand for our products as a result of the COVID-19 pandemic and further economic uncertainty may cause additional delays, cancellation, or redirections of planned orders.

Policymakers around the globe have responded with fiscal and economic policy actions to support the economy.

The COVID-19 pandemic has negatively impacted the global economy.

We have experienced significant reductions in the demand for our products as a result of the COVID-19 pandemic and further economic uncertainty may cause additional delays, cancellation, or redirections of planned orders.

Policymakers around the globe have responded with fiscal, economic and public health policy actions to support the economy and contain the virus.

The ultimate magnitude and overall effectiveness of these actions remains uncertain.

15 unchanged sentences

In addition to the contractual fixed price the entity has to take variable considerations into account.

If the entity identified more than one separate performance obligation under step 2, it has to account for this contract as a multiple element arrangement resulting in an allocation of revenues to the obligations identified.

If the entity identified more than one separate performance obligation under step 2, it has to account for this contract as a multiple element arrangement resulting in an

allocation of revenues to the obligations identified.

If these conditions are satisfied, revenue from the sale of goods is recognized when control has been transferred to the buyer, either at a point in time, or over time.

51 unchanged sentences

2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Early adoption is permitted in any interim period following the issuance of ASU 2019-04 as long as the entity has adopted all of the

amendments in ASU No.

Early adoption is permitted in any interim period following the issuance of ASU 2019-04 as long as the entity has adopted all of the amendments in ASU No.

For entities that have adopted the amendments in update 2016-13, the amendments in ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

2 unchanged sentences

2017-12 as of the issuance date of ASU 2019-04, the effective date is as of the beginning of the first annual period beginning after the issuance of ASU 2019-04 (January 1, 2020 for Orion).

For those entities, early adoption is permitted, including adoption on any date on or after the issuance of ASU 2019-04.

For those entities, early

adoption is permitted, including adoption on any date on or after the issuance of ASU 2019-04.

The Company adopted ASU 2019-04 as of January 1, 2020.

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The vast majority of Orion’s lease contracts are concerning operational items such as rail cars, company cars, offices and office equipment.

The recorded right-of-use assets as of June 30, 2020 amounted to $ 28.9 million, and the corresponding lease liabilities amounted to $ 30.3 million, of which $ 7.2 million were recorded within other current liabilities and $ 23.2 million as other liabilities.

The recorded right-of-use assets as of September 30, 2020 amounted to $ 82.7 million, and the corresponding lease liabilities amounted to $ 84.2 million, of which $ 11.5 million was recorded within other current liabilities and $ 72.7 million as other liabilities.

The weighted remaining average minimum lease period is 17.0 years.

The undiscounted minimum lease payments are due in and reconcile to the discounted lease liabilities as follows:

June 30, 2020

September 30, 2020

(In thousands)

9 unchanged sentences

The weighted average discount rate applied to the lease liabilities is 5.7 %.

Finance lease costs were immaterial for the three and six months ended June 30, 2020 and June 30, 2019, respectively.

Operating lease costs for the three and six months ended June 30, 2020 amounted in total to $ 2.4 million and to $ 5.5 million, respectively, and were recorded as operating expenses under cost of sales, selling, general and administrative expenses and under research and development cost.

The operating lease costs for the three and six months ended June 30, 2019 recorded as operating expenses amounted in total to $ 2.7 million and $ 5.3 million, respectively, and were recorded under cost of sales, selling, general and administrative expenses and under research and development cost.

Cash paid for amounts included in the measurement of lease liabilities from operating leases was $ 2.1 million and $ 2.6 million for the three months June 30, 2020 and 2019, respectively, and $ 4.4 million and $ 5.2 million for the six months ended June 30, 2020 and 2019, respectively.

In September 2020, Orion commenced a district heating project with the utilities provider of its Cologne, Germany neighbor city of Hürth.

The power plant is operated by Orion on a finance lease basis over a period of 25 years.

During the third quarter of 2020 Orion recorded a right-of-use asset and a respective lease liability in an amount of $ 54.8 million.

Finance lease costs for the three and nine months ended September 30, 2020 amounted to $ 0.6 million and $ 0.9 million and were immaterial for the three and nine months ended September 30, 2019, respectively.

Operating lease costs for the three and nine months ended September 30, 2020 amounted in total to $ 2.9 million and $ 8.4 million, respectively, and were recorded as operating expenses under cost of sales, selling, general and administrative expenses and under research and development cost.

The operating lease costs for the three and nine months ended September 30, 2019 recorded as operating expenses amounted in total to $ 2.7 million and $ 8.0 million, respectively, and were recorded under cost of sales, selling, general and administrative expenses and under research and development cost.

Cash paid for amounts included in the measurement of lease liabilities from operating leases was $ 2.6 million and $ 2.3 million for the three months September 30, 2020 and 2019, respectively, and $ 7.0 million and $ 7.6 million for the nine months ended September 30, 2020 and 2019, respectively.

Cash paid for finance leases was immaterial during the same periods.

In addition to the above, we entered into a forward-starting lease agreement in October 2016, for a district heating facility in Cologne, Germany, where we plan to operate the equipment to generate the required heat energy.

The lessor, the public utility of our neighbor city and its agents, is currently constructing the facilities at our location, with the lease scheduled to commence by the end of 2020 after construction is completed.

The lease agreement will have a total of approximately $ 35 million in undiscounted future lease payments over a 20 -year term.

In May 2020, after a building permit was obtained by the lessor, we entered into a forward-starting lease agreement for a new warehouse at our facility in Cologne, Germany.

In addition to the above, Orion entered into a forward-starting lease agreement in May 2020 for a new warehouse at our facility in Cologne, Germany.

The lessor, a logistics and distribution service provider, is currently constructing the warehouse at our location, with the lease scheduled to commence by the end of 2020 after construction is completed.

1 unchanged sentence

Inventories, net of obsolete, unmarketable and slow-moving reserves are as follows:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(In thousands)

6 unchanged sentences

Accounts Receivable

The company had the following accounts receivable as of June 30, 2020 and December 31, 2019:

June 30, 2020 December 31, 2019

The company had the following accounts receivable as of September 30, 2020 and December 31, 2019:

September 30, 2020 December 31, 2019

(In thousands)

9 unchanged sentences

Foreign currency translation effects 106 295

Allowance for credit losses as of June 30, $ ( 6,379 ) $ ( 5,594 )

Allowance for credit losses as of September 30, $ ( 7,955 ) $ ( 5,348 )

Debt and Other Obligations

The company had the following debt arrangements in place as of June 30, 2020 and December 31, 2019:

June 30, 2020 December 31, 2019

The company had the following debt arrangements in place as of September 30, 2020 and December 31, 2019:

September 30, 2020 December 31, 2019

(In thousands)

15 unchanged sentences

Dollars of $ 358.0 million and a term loan facility denominated in Euros of € 399.0 million with both having an original maturity date of July 25, 2021 (the “Term Loans”).

Initial interest was calculated based on three-month EURIBOR (for the Euro denominated loan), or three-month USD-LIBOR (for the USD denominated loan) plus a 3.75 % - 4.00 % margin depending on leverage ratio.

For both EURIBOR and USD-LIBOR a floor of 1.0 % applied.

2 unchanged sentences

In the years 2015 to 2017 Orion executed several voluntary repayments totaling € 56.0 million and $ 58.0 million.

After several amendments to the Credit Agreement, dated as of July 25, 2014, among the Company, Orion Engineered Carbons Holdings GmbH, Orion Engineered Carbons Bondco GmbH, Orion Engineered Carbons GmbH, OEC Finance US LLC, the revolving borrowers named therein, the guarantors named on the signature page thereto, the lenders named therein, and Goldman Sachs Bank USA as administrative agent, as amended (the Credit Agreement”), Orion repriced the Term Loans during the years 2016 to 2018, achieving a

significant reduction of both interest margins to currently 2.00 % for the U.S.

Dollar term loan and 2.25 % for the Euro term loan.

6 unchanged sentences

In connection with the repricing described above further transaction costs of $ 0.7 million in 2018 and $ 3.5 million equivalent in 2017 and $ 2.1 million equivalent in 2016 were incurred and directly expensed.

For the three and six months ended June 30, 2020, an amount of $ 0.3 million and $ 0.7 million equivalent, respectively, related to capitalized transaction costs was amortized and recognized as finance costs in this regard (prior year:

For the three and nine months ended September 30, 2020, an amount of $ 0.4 million and $ 1.1 million equivalent, respectively, related to capitalized transaction costs was amortized and recognized as finance costs in this regard (prior year:

$ 0.4 million and $ 1.1 million equivalent, respectively).

9 unchanged sentences

An unrealized loss of $ 2.2 million remains within other comprehensive income until it is recycled through profit and loss upon divestment of the hedged item.

The carrying value of the Term Loans as of June 30, 2020 includes their nominal amounts plus accrued unpaid interest less deferred debt issuance costs of $ 5.4 million (December 31, 2019:

The carrying value of the Term Loans as of September 30, 2020 includes their nominal amounts plus accrued unpaid interest less deferred debt issuance costs of $ 5.3 million (December 31, 2019:

$ 6.1 million).

3 unchanged sentences

Interest is calculated based on EURIBOR (for EUR drawings), and USD-LIBOR (for USD drawings) plus 2.5 % - 3.0 % margin (depending on leverage ratio).

Transaction costs in the amount of $ 3.3 million originally incurred in connection with the RCF were recorded as deferred expenses and amortized as finance costs on a straight-line basis over the term of the facility (until July 25, 2019).

Transaction costs of $ 3.3 million originally incurred in connection with the RCF were recorded as deferred expenses and amortized as finance costs on a straight-line basis over the term of the facility (until July 25, 2019).

An amendment to the Credit Agreement entered into on May 5, 2017 (i) reduced the commitment fee paid on the unused commitments from 40 % of the Applicable Rate (as defined in the Credit Agreement) to 35 % of the Applicable Rate, (ii) extended the maturity date for the RCF to April 25, 2021 and (iii) increased the aggregate amount of revolving credit commitments to € 175.0 million.

6 unchanged sentences

(ii) increased the aggregate amount of revolving credit commitments in Euro by € 75.0 million to € 250.0 million, and

(iii) reduced revolving credit interest expense by way of a new pricing grid that entitles an initial margin of 0.019 when the Company's leverage ratio is between 2.25 x and 1.75 x (formerly 2.5 % w hen leverage ratio was < 2.30 x);

during the second quarter of 2020 the margin was 2.15 % as the Company’s leverage ratio was between 2.75 x and 2.25 x.

As of June 30, 2020 the leverage ratio increased to levels greater than 2.75 x which will lead to an increase of the margin by another 25 bps to 2.40 % effective after provision of the quarterly compliance certificate to the administrative agent under the Credit Agreement.

(iii) reduced revolving credit interest expense by way of a revised pricing grid with lower Applicable Rates (credit spreads).

As of September 30, 2020, the Company’s net leverage ratio was 3.4 x, which corresponds to an Applicable Margin of 2.70 %.

All other terms of the Credit Agreement relating to the RCF remained substantially unchanged, including the commitment fee, which remains at 35 % of applicable margin.

As of June 30, 2020, $ 44.8 million was drawn under the RCF while $ 44.9 million in

borrowings under ancillary facilities further reduced the overall amount available under the RCF.

As of September 30, 2020, no RCF borrowings, as defined in the Credit Agreement, had been drawn, while $ 74.6 million in borrowings under ancillary facilities reduced the overall amount available under the RCF.

For further details see Note F.

During the three and six months ended June 30, 2020, transaction costs of $ 0.2 million and $ 0.3 million, respectively, were amortized (prior year:

During the three and nine months ended September 30, 2020, transaction costs of $ 0.2 million and $ 0.5 million, respectively, were amortized (prior year:

$ 0.1 million and $ 0.5 million, respectively).

Unamortized transaction costs that were incurred in conjunction with the RCF in July 2014, the amendment on May 30, 2017 and the amendment on April 2, 2019, amount to $ 3.1 million as of June 30, 2020.

Unamortized transaction costs that were incurred in conjunction with the RCF in July 2014, the amendment on May 30, 2017 and the amendment on April 2, 2019, amount to $ 3.0 million as of September 30, 2020.

Unamortized transaction costs as of December 31, 2019 amounted to $ 3.4 million and were incurred in conjunction with the RCF in July 2014 and the amendment on May 30, 2017.

Orion has fully drawn its uncommitted local credit lines in Korea of $ 39.5 million (as of December 31, 2019:

zero ) and Brazil amounting to $ 1.1 million (as of December 31, 2019:

Orion has also established ancillary credit facilities by converting the commitments of select lenders under the € 250 million RCF into bilateral credit agreements (usually overdraft facilities).

As of September 30, 2020, the Company had fully drawn its uncommitted local credit lines in Korea of $ 40.6 million and Brazil amounting to $ 1.4 million.

Neither facility had any borrowings as of December 31, 2019.

The Company had also established ancillary credit facilities by converting the commitments of select lenders under the € 250 million RCF into bilateral credit agreements (usually overdraft facilities).

Borrowings under ancillary lines reduce availability under the RCF but do not count toward debt drawn under the RCF for the purposes of determining whether the financial covenant under the Credit Agreement must be tested.

As of June 30, 2020, the ancillary facilities had $ 44.9 million (as of December 31, 2019:

As of September 30, 2020, the ancillary facilities had $ 74.6 million (as of December 31, 2019:

$ 28.6 million) outstanding.

The general terms of these ancillary credit facilities are linked to the terms in the RCF.

During the quarter ended June 30, 2020 the Company established two additional ancillary facilities in an aggregate amount of € 40 million (bringing the number of banks included in the RCF bank group with whom ancillary facilities have been established to six out of the ten banks and amounting to € 170 million).

By establishing such ancillary credit facilities the Company is able to borrow 100 % of its revolver capacity (currently composed of 68 % ancillary credit facilities as of June 30, 2020, with 32 % additional RCF commitments) without violating its sole financial covenant.

Using exchange rates applicable for the quarter ended June 30, 2020, the € 250 million RCF amounted to approximately $ 280 million.

During the second quarter 2020 the Company established two additional ancillary facilities in an aggregate amount of € 40 million (bringing the number of RCF banks with whom ancillary facilities have been established to six out of ten banks and total ancillary borrowings to € 170 million).

As of September 30, 2020, the Company had converted 68 % of its RCF into ancillary capacity, resulting in an ability to borrow the full amount of commitments under the RCF at any net leverage level.

Using exchange rates applicable for the quarter ended September 30, 2020, the € 250 million RCF amounted to approximately $ 293 million.

(d) Covenant Compliance

3 unchanged sentences

The FLLR is not allowed to exceed 5.5 x TTM EBITDA and is tested each quarter RCF utilization exceeds 35 %, as defined in the Credit Agreement (the “Covenant Trigger”).

Notably, not all debt counts toward RCF utilization for purposes of calculating the Covenant Trigger, namely, term debt, debt drawn under ancillary credit facility lines and debt drawn under any uncommitted local lines of credit are excluded.

FLLR, Consolidated First Lien Debt and Consolidated Adjusted EBITDA have the meanings given to them in the Credit Agreement.

6 unchanged sentences

Level 1 — Unadjusted quoted market prices in active markets for identical assets or liabilities that the entity can access at the measurement date.

in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves), and market-corroborated inputs.

Level 2 — Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices such as quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves), and market-corroborated inputs.

Level 3 — Unobservable inputs for the asset or liability.

For financial assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period.

The following table shows the fair value measurement at June 30, 2020 and December 31, 2019.

The following table shows the fair value measurement at September 30, 2020 and December 31, 2019.

All measurements are based on observable inputs such as interest rates and are classified as Level 2 within the fair value hierarchy:

Fair Value Hierarchy June 30, 2020 December 31, 2019

Fair Value Hierarchy September 30, 2020 December 31, 2019

(In thousands)

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Net periodic defined benefit pension benefit costs include the following:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

5 unchanged sentences

Service costs were recorded within income from operations under selling, general and administrative expenses, interest cost in interest and other financial expense, net.

The actuarial losses associated with the pension obligations recorded in prior years in accumulated other comprehensive income exceeding 10 % of the defined benefit obligation are recorded ratably over the current year through profit and loss separately from income from operations and amounted to $ 5.1 million in the six months ended June 30, 2020.

There are also defined contribution pension plans in Germany and the United States for which our Group companies make regular contributions to off-balance sheet pension funds managed by third party insurance companies.

3 unchanged sentences

On an annual basis since 2015, the Company has implemented a long-term incentive plan ("LTIP") which grants awards to employees and officers selected by the Compensation Committee of the Board of Directors (the “Compensation Committee”).

PSU awards are earned based on achievement against one or more performance metrics established by the Compensation Committee in respect of a specified performance period.

Performance-based Restricted Stock Unit (PSU) awards are earned based on achievement against one or more performance metrics established by the Compensation Committee in respect of a specified performance period.

Earned PSUs range from zero to a specified maximum percentage of a participant’s target award based on the performance of applicable performance metrics, and are subject to vesting terms based on continued employment.

1 unchanged sentence

Once earned and vested, PSUs were settled in one common share per vested PSU (or, at the Company’s election, cash equal to the fair market value thereof).

There is no exercise price.

There was no exercise price.

The first vesting period ran through March 31, 2018 (the “2015 Plan”).

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The following table provides detail as to expenses recorded within operating income with respect to stock-based compensation:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

6 unchanged sentences

29 96 297 360

323 538 594 538

Total expenses

1 unchanged sentence

Due to lowered expectations for EBITDA and ROCE for the full year 2020 and upcoming year 2021, performance conditions of the 2018 Plan and the 2019 Plan are no longer expected to be met.

As a result, expenses recorded in prior years for the 2018 Plan and the 2019 Plan were partly reversed for the six months ended June 30, 2020.

The following table summarizes the activity of our PSUs for the six months ended June 30, 2020:

As a result, expenses recorded in prior years for the 2018 Plan and the 2019 Plan were partly reversed for the nine months ended September 30, 2020.

The following table summarizes the activity of our PSUs for the nine months ended September 30, 2020:

Period granted Performance period

2 unchanged sentences

outstanding at

June 30, PSUs expected to vest Weighted average grant date fair value

September 30, PSUs expected to vest Weighted average grant date fair value

2017 2017 - 2019 418,252 — ( 40,087 ) ( 378,165 ) — — — $ 24.89

1 unchanged sentence

2019 2019 - 2021 229,727 — — — ( 4,349 ) 225,378 108,459 $ 11.48

2020 2020 - 2022 — 288,244 — — — 288,244 268,783 $ 11.60

Total 2020 1,003,745 288,244 ( 40,087 ) ( 378,165 ) ( 8,709 ) 865,028 550,318

The following table summarizes the activity of our RSUs for the six months ended June 30, 2020:

The following table summarizes the activity of our RSUs for the nine months ended September 30, 2020:

Period granted Vesting period RSUs outstanding January 1, RSUs granted Performance based adjustment RSUs settled RSUs forfeited RSUs

outstanding at

June 30, RSUs expected to vest Weighted average grant date fair value

September 30, RSUs expected to vest Weighted average grant date fair value

Sign-on RSUs:

1 unchanged sentence

2019 2019 - 2021 45,257 — — — — 45,257 45,257 $ 15.89

2019 & 2020 Plan:

2019 2019 - 2021 128,447 — — — ( 4,348 ) 124,099 121,770 $ 14.74

2020 2020 - 2022 — 161,269 — — — 161,269 155,825 $ 12.51

Total 2020 197,582 161,269 — — ( 4,348 ) 354,503 346,730

Certain members of our Board of Directors receive compensation in form of restricted shares (“RSs”) in accordance with the 2014 Non-employee Director Plan.

Under this plan no RSs are currently outstanding.

At June 30, 2020, we had unrecognized compensation cost of $ 4.5 million, based on the target amounts, related to unvested PSUs, RSUs and RSs, which is expected to be recognized over a weighted average period of 1.2 years.

The closing price of the Company's shares and therefore the intrinsic value of one PSU or RSU outstanding was $ 10.59 as of June 30, 2020, $ 21.41 as of June 30, 2019 and $ 30.85 as of June 30, 2018.

Total intrinsic value of PSUs and RSUs amounted to $ 8.2 million and $ 18.5 million as of June 30, 2020 and June 30, 2019, respectively.

Certain members of our Board of Directors receive compensation in the form of restricted shares (“RSs”) in accordance with the 2014 Non-employee Director Plan.

Under this plan 88,488 RSs are currently outstanding.

At September 30, 2020, we had unrecognized compensation cost of $ 7.8 million, based on the target amounts, related to unvested PSUs, RSUs and RSs, which is expected to be recognized over a weighted average period of 1.3 years.

The closing price of the Company's shares and therefore the intrinsic value of one PSU or RSU outstanding was $ 12.51 as of September 30, 2020, $ 16.71 as of September 30, 2019 and $ 32.10 as of September 30, 2018.

Total intrinsic value of PSUs and RSUs amounted to $ 15.3 million, $ 22.6 million and $ 51.2 million as of September 30, 2020, September 30, 2019 and September 30, 2018, respectively.

The following table lists the inputs to the valuation model used for calculating the grant date fair values under the 2020, 2019, 2018 and 2017 Plans:

2017 Plan 2018 Plan 2019 Plan PSU

2017 Plan 2018 Plan 2019 Plan PSU 2020 Plan PSU

Expected term (in years) 3 3 3 3

4 unchanged sentences

Risk-free interest rate (%) 1.45 % 1.46 % 1.83 % 0.14 %

Model used Monte Carlo Monte Carlo Monte Carlo

Model used Monte Carlo Monte Carlo Monte Carlo Monte Carlo

Weighted average fair value of PSUs granted $ 24.89 $ 39.24 $ 11.48 $ 11.60

7 unchanged sentences

Stock-based compensation expense is comprised of the following line items:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Actual forfeitures are recorded as they occur.

For the six months ended June 30, 2020 expenses recorded in prior years for 2018 and 2019 Plan were partly reversed as the performance condition for the EBITDA and ROCE metrics are no longer expected to be met.

For the nine months ended September 30, 2020 expenses recorded in prior years for 2018 and 2019 Plan were partly reversed as the performance condition for the EBITDA and ROCE metrics are no longer expected to be met.

Restructuring Expenses

Details of restructuring activities and the related reserves for June 30, 2020 were as follows:

Details of restructuring activities and the related reserves for September 30, 2020 were as follows:

expenses Demolition and

13 unchanged sentences

Provision at June 30, 2020 $ 2,373 $ 75 $ 75 $ 49 $ 2,572

Orion's reserves for restructuring are reflected in accrued liabilities on the Consolidated Balance Sheets while the expenses related to the Company’s effort to restructure its Rubber segment in particular in the years 2016 and 2018 .

Charges — — — — —

Cost charged against liabilities (assets) — — — — —

Cash paid ( 814 ) — ( 48 ) — ( 862 )

Foreign currency translation adjustment 107 3 3 2 116

Provision at September 30, 2020 $ 1,666 $ 79 $ 30 $ 51 $ 1,826

Orion's reserves for restructuring of its Rubber segment in the years 2016 and 2018 are reflected in accrued liabilities on the Consolidated Balance Sheets .

Accumulated Other Comprehensive Income/(Loss)

Comprehensive income (loss) combines net income (loss) and other comprehensive income items, which are reported as components of stockholders’ equity in the accompanying Consolidated Balance Sheets.

Changes in each component of AOCI, net of tax, are as follows for the three months ended June 30, 2020 and 2019.

Changes in each component of AOCI, net of tax, are as follows for the three months ended September 30, 2020 and 2019.

Currency Translation Adjustments Hedging Activities Adjustments Pension and Other Postretirement Benefit Liability Adjustment Total

13 unchanged sentences

Balance at June 30, 2020 $ ( 35,722 ) $ ( 13,152 ) $ ( 7,747 ) $ ( 56,621 )

Other comprehensive income (loss) before reclassifications ( 3,503 ) ( 1,284 ) — ( 4,787 )

Income tax effects before reclassifications ( 117 ) 294 — 178

Amounts reclassified from AOCI — — 2,272 2,272

Income tax effects on reclassifications — — ( 919 ) ( 919 )

Currency translation AOCI — ( 209 ) ( 364 ) ( 573 )

Balance at September 30, 2020 $ ( 39,342 ) $ ( 14,350 ) $ ( 6,757 ) $ ( 60,449 )

Currency Translation Adjustments Hedging Activities Adjustments Pension and Other Postretirement Benefit Liability Adjustment Total

9 unchanged sentences

Balance at June 30, 2019 $ ( 14,031 ) $ ( 12,747 ) $ ( 2,814 ) $ ( 29,592 )

The amounts reclassified out of AOCI and into the Consolidated Statement of Operations for the three and six months ended June 30, 2020 and 2019 are as follows:

Other comprehensive income (loss) before reclassifications ( 4,706 ) ( 1,412 ) — ( 6,118 )

Income tax effects before reclassifications ( 391 ) 551 — 160

Currency translation AOCI — 537 121 658

Balance at September 30, 2019 $ ( 19,128 ) $ ( 13,071 ) $ ( 2,693 ) $ ( 34,892 )

The amounts reclassified out of AOCI and into the Consolidated Statement of Operations for the three and nine months ended September 30, 2020 and 2019 are as follows:

Affected Line Item in the Consolidated

Statements of Operations Three Months Ended June 30, Six Months Ended June 30,

Statements of Operations Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

4 unchanged sentences

Total after tax $ 1,354 $ — $ 4,726 $ —

The amounts recorded in prior years in AOCI exceeding 10 % of the defined benefit obligation are recorded ratably as reclassification of actuarial losses over the current year through profit and loss separately from income from operations and amounted to $ 5.1 million for the six months ended June 30, 2020.

The amounts recorded in prior years in AOCI exceeding 10 % of the defined benefit obligation are recorded ratably as reclassification of actuarial losses over the current year through profit and loss separately from income from operations and amounted to $ 7.3 million for the nine months ended September 30, 2020.

Earnings Per Share

2 unchanged sentences

The following table reflects the income and share data used in the basic and diluted EPS computations:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

15 unchanged sentences

The development of deferred tax assets and liabilities relates to changes in temporary differences and tax loss carry forwards.

Income tax receivables decreased from $ 17.9 million at December 31, 2019 to $ 11.7 million at June 30, 2020 due to tax refunds received from tax authorities.

Income taxes payable increased from $ 14.2 million at December 31, 2019 to $ 15.3 million at June 30, 2020 mainly due to the current tax expense for the period ended June 30, 2020, less payments to the tax authorities.

Income tax expense for the six months ended June 30, 2020 amounted to $ 1.8 million compared to $ 18.7 million for the six months ended June 30, 2019, reflecting the income in these periods.

Income tax benefit for the three months ended June 30, 2020 amounted to $ 5.9 million compared to the income tax expense of $ 9.3 million for the three months ended June 30, 2019, reflecting the income in these periods.

For the six months ended June 30, 2020, the impact of discrete tax items included discrete tax expense of $ 0.5 million, due to tax return filings and deferred tax expense of $ 0.7 million due to the revaluation of realizability of certain deferred tax assets.

The discrete tax items compared to the low income from operations before taxes resulted in an effective tax rate of 87.4 % for the six months ended June 30, 2020.

Income tax receivables decreased from $ 17.9 million at December 31, 2019 to $ 10.1 million at September 30, 2020 due to tax refunds received from tax authorities.

Income taxes payable increased from $ 14.2 million at December 31, 2019 to $ 19.6 million at September 30, 2020 mainly due to the current tax expense for the period ended September 30, 2020, less payments to the tax authorities.

Income tax expense for the nine months ended September 30, 2020 amounted to $ 4.0 million compared to $ 26.5 million for the nine months ended September 30, 2019, reflecting the income in these periods.

Income tax expense for the three months ended September 30, 2020 amounted to $ 2.3 million compared to $ 7.8 million for the three months ended September 30, 2019, reflecting the income in these periods.

For the nine months ended September 30, 2020, the impact of discrete tax items included discrete tax expense of $ 0.4 million, due to tax return filings and deferred tax gain of $ 0.4 million due to the revaluation of realizability of certain deferred tax assets.

The discrete tax items compared to the low income from operations before taxes resulted in an effective tax rate of 30.2 % for the nine months ended September 30, 2020.

The estimated annual tax rate is 30.2 % for 2020.

For the three months ended June 30, 2020, the impact of discrete tax items included a net discrete tax expense of $ 1.2 million primarily due to tax return filings and other prior year adjustments, offset by the favorable deferred tax gain of $ 0.2 million due to the reassessment of recoverability of deferred tax assets.

Therefore, the effective tax rate of 24.85 % for the three months ended June 30, 2020 deviated from the estimated annual tax rate of 28.91 % for 2020.

For the six months ended June 30, 2019, the impact of discrete tax items included a net discrete tax expense of $ 0.3 million and is primarily due to tax return filings and other prior year adjustments.

Therefore the effective tax rate of 30.0 % for the six months ended June 30, 2019 deviated from the estimated annual tax rate of 29.6 % for 2019.

For the three months ended June 30, 2019, the impact of discrete tax items included a net discrete tax gain of $ 0.7 million and is primarily due to tax return filings and other prior year adjustments.

Therefore the effective tax rate of 27.3 % for the three months ended June 30, 2019 deviated from the estimated annual tax rate of 29.6 % for 2019.

For the three months ended September 30, 2020, the impact of discrete tax items included a net discrete tax gain of $ 0.1 million primarily due to tax return filings and other prior year adjustments, and deferred tax gain of $ 1.0 million due to the reassessment of recoverability of deferred tax assets.

Therefore, the effective tax rate of 20.0 % for the three months ended September 30, 2020 deviated from the estimated annual tax rate of 30.2 % for 2020.

For the nine months ended September 30, 2019, the impact of discrete tax items included a net discrete tax gain of $ 2.5 million and is primarily due to the release of a tax accrual as conclusion of a tax audit without findings, offset by tax return filings and other prior year adjustments.

Therefore, the effective tax rate of 28.1 % for the nine months ended September 30, 2019 deviated from the estimated annual tax rate of 30.6 % for 2019.

For the three months ended September 30, 2019, the impact of discrete tax items included a net discrete tax gain of $ 2.6 million and is primarily due to the release of a tax accrual as conclusion of a tax audit without findings.

Therefore, the effective tax rate of 24.3 % for the three months ended September 30, 2019 deviated from the estimated annual tax rate of 30.6 % for 2019.

Commitments and Contingencies

1 unchanged sentence

To safeguard the supply of raw materials, contractual purchase commitments under long-term supply agreements for raw materials, primarily oil and gas, are in place with the following maturities:

Maturity June 30, 2020

Maturity September 30, 2020

(In thousands)

33 unchanged sentences

While the construction at Orange has been completed according to schedule despite COVID-19 related impacts, the construction at the Ivanhoe facility has been subject to COVID-19-related delays, and as a result we have declared force majeure with respect to the EPA CD and requested an extension of the timeline for completion of installations.

The EPA has not confirmed our extension request, at this time.

We continue to provide the EPA regular updates.

The EPA has not confirmed our extension request but has deferred judgment on it at this time.

In line with EPA’s respective request, Orion continues to provide regular updates to the EPA on the Ivanhoe installation works timeline and respective COVID-19 related impacts and mitigation measures.

Under the EPA CD, Orion can choose either its Belpre or Borger facilities as the next site for installation of pollution control equipment with comparable effectiveness.

3 unchanged sentences

will require capital expenditures in an approximate range between $ 230 million to $ 270 million of which approximately $ 107 million has been spent to date.

To narrow this range, the Company pursues further scope design and estimation efforts.

However, the actual total capital expenditures we might need to incur in order to fulfill the requirements of the EPA CD remain uncertain.

To narrow this range, the Company is pursuing further scope design and estimation efforts.

However, the actual total capital expenditures we might need to incur to fulfill the requirements of the EPA CD remain uncertain.

The EPA CD allows some flexibility for Orion to choose among different technology solutions for reducing emissions and the locations where these solutions are implemented.

14 unchanged sentences

Pledges and guarantees

The Company has pledged the majority of its assets (amongst others shares in affiliates, bank accounts and receivables) within the different regions excluding China serving as collateral under the Credit Agreement.

The Company has pledged the majority of its assets (amongst others shares in affiliates, bank accounts and receivables) within the different regions excluding China as collateral under the Credit Agreement.

The current principal amounts of the outstanding term loans under the Credit Agreement are $ 278.6 million (U.S.

Dollar Term Loan), and € 373.6 million (Euro Term Loan).

As of June 30, 2020 Orion Engineered Carbons GmbH has five guarantees issued by Euler Hermes S.A.

with a total volume of $ 9.6 million (as of December 31, 2019 three guarantees by Euler Hermes S.A.

of $ 9.2 million);

one guarantee issued by Liberty Mutual Insurance with a volume of $ 3.1 million ( December 31, 2019:

none) and one guarantee insurance issued by Deutsche Bank AG with a volume of $ 2.2 million ( one guarantee issued by Deutsche Bank AG with a volume of $ 2.2 million as of December 31, 2019).

None of these guarantees reduce RCF utilization available.

Orion also has four guarantees issued by UniCredit AG amounting to $ 0.3 million that reduce RCF utilization available.

As of September 30, 2020 the Company had seven guarantees totaling $ 15.6 million issued by various financial institutions.

Financial Information by Segment

4 unchanged sentences

The following table shows the percent of revenue recognized in each of the Company’s reportable segment:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

6 unchanged sentences

Adjustment items are not allocated to the individual segments as they are managed on a group basis.

Segment reconciliation for the three months ended June 30, 2020 and 2019:

Segment reconciliation for the three months ended September 30, 2020 and 2019:

Rubber Specialties Corporate Total segments

22 unchanged sentences

Net income/(loss) $ 24,253

Segment reconciliation for the six months ended June 30, 2020 and 2019:

Segment reconciliation for the nine months ended September 30, 2020 and 2019:

Rubber Specialties Corporate Total segments

23 unchanged sentences

The sales information noted above relates to external customers only.

‘Corporate and other’ includes income and expense that cannot be directly allocated to the business segments or are managed on corporate level and includes finance income and expenses, taxes and items with less bearing on the underlying core business.

Income from operations before income taxes and finance costs of the segment 'Corporate and other' comprises the following:

Three Months Ended June 30, Six Months Ended June 30,

‘Corporate’ includes income and expense that cannot be directly allocated to the business segments or are managed on corporate level and includes finance income and expenses, taxes and items with less bearing on the underlying core business.

Income from operations before income taxes and finance costs of the segment 'Corporate' comprises the following:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

8 unchanged sentences

Related Parties

As of June 30, 2020 related parties include one associate of Orion that is accounted for using the equity method, namely "Deutsche Gasrusswerke" (DGW) and one principal owner of more than 10%.

As of September 30, 2020 related parties include one associate of Orion that is accounted for using the equity method, namely "Deutsche Gasrusswerke" (DGW) and one principal owner of more than 10%.

Related parties include key management personnel having authority and responsibility for planning, directing and monitoring the activities of the Company directly or indirectly and their close family members.

In the normal course of business Orion from time to time receives services from, or sells products to, related unconsolidated parties, in transactions that are either not material or approved in accordance with our Related Party Transaction Approval Policy.

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(In thousands)

1 unchanged sentence

Trade payables to DGW KG $ 9,142 $ 17,671

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements