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Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-08-04 · 131 added, 136 removed, 284 unchanged (48% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis summarizes the significant factors affecting our results of operations and financial condition during the three and six months ended June 30, 2020 and 2019 and should be read in conjunction with the information included under Item 1.

The following discussion and analysis summarizes the significant factors affecting our results of operations and financial condition during the three and nine months ended September 30, 2020 and 2019 and should be read in conjunction with the information included under Item 1.

Financial Statements and Supplementary Data (Unaudited) included elsewhere in this report.

31 unchanged sentences

The following table reconciles Contribution Margin and Contribution Margin per Metric Ton to gross profit:

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

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

2020 2019 2020 2019

26 unchanged sentences

The following table presents a reconciliation of Adjusted EBITDA to consolidated net income for each of the periods indicated:

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

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

2020 2019 2020 2019

(In millions) (In millions)

Net income/(loss) $ (17.8) $ 24.7 $ 0.3 $ 43.7

Add back income tax expense/(benefit) (5.9) 9.3 1.8 18.7

Net income $ 9.0 $ 24.3 $ 9.2 $ 68.0

Add back income tax expense 2.3 7.8 4.0 26.5

Add back equity in earnings of affiliated companies, net of tax (0.1) (0.1) (0.4) (0.4)

Income/(loss) from operations before income taxes and equity in earnings of affiliated companies (23.8) 33.9 1.7 62.2

Income from operations before income taxes and equity in earnings of affiliated companies 11.1 31.9 12.8 94.0

Add back interest and other financial expense, net 10.8 6.5 28.7 20.5

Reclassification of actuarial losses from AOCI 2.3 — 7.3 —

Earnings/(loss) before income taxes and finance income/costs (12.9) 41.5 24.7 76.2

Earnings before income taxes and finance income/costs 24.1 38.4 48.8 114.6

Add back depreciation, amortization and impairment of intangible assets and property, plant and equipment 24.0 22.0 69.7 71.5

3 unchanged sentences

Consulting fees related to Company strategy (2)

— (0.7) — 0.8

Extraordinary expense items related to COVID-19 (3)

8 unchanged sentences

$ 28.5 $ 38.1 $ 63.1 $ 113.8

(1) Restructuring expenses for the six months ended June 30, 2019 are related to our strategic realignment of our worldwide Rubber footprint.

(2) Consulting fees related to the Orion strategy include external consulting for establishing and executing Company strategies relating to Rubber footprint realignment, conversion to U.S.

(1) Restructuring expenses for the three and nine months ended September 30, 2019 are related to the strategic realignment of our global Rubber manufacturing footprint.

(2) Consulting fees related to the Orion strategy include external consulting for establishing and executing Company strategies relating to realigning the manufacturing footprint of our Rubber business, the conversion of our financial statements to U.S.

dollar and U.S.

GAAP, as well as costs relating to our assessment of feasibility for inclusion in certain U.S.

(3) Extraordinary expense items related to COVID-19 are costs incurred to address impacts associated with the global corona virus pandemic.

GAAP, and costs related to assessing feasibility for inclusion in certain U.S.

(3) Extraordinary expense items related to COVID-19 are costs incurred to address impacts associated with the global coronavirus pandemic.

These items include select production costs, expenses related to providing personal protection equipment and costs related to protective measures carried out at our facilities to ensure the safety of our employees, among other expenditures.

(4) Other adjustments in the three and six months ended June 30, 2020 mainly relate to legal fees associated with a dispute concerning intellectual property of $0.6 million and $0.8 million, respectively, and a non-income tax expense incurred during the construction phase of an asset in an amount of $0.5 million and $0.8 million, respectively.

The asset under construction is expected to qualify for certain non-income tax credits once operational, since such credits were applied to the predecessor machine.

This tax disadvantage cannot be capitalized as part of the project’s capital expenditure.

(4) Other adjustments in the three and nine months ended September 30, 2020 mainly relate to legal fees associated with a dispute concerning intellectual property of $1.0 million and $1.9 million, respectively;

severance costs of $1.8 million and $1.7 million, respectively;

and hurricane related costs of $0.8 million and $0.8 million, respectively.

These costs were offset by a non-income tax expense related settlement in the amount of $1.7 million.

Operating Results

Quarter and six months ended June 30, 2020 compared to quarter and six months ended June 30, 2019

Quarter and nine months ended September 30, 2020 compared to quarter and nine months ended September 30, 2019

The table below presents our historical results derived from our consolidated financial statements for the periods indicated.

Statement of operations data Three Months Ended June 30, Six Months Ended June 30,

Statement of operations data Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

7 unchanged sentences

Restructuring expenses 0.0 2.7 0.0 3.8

Income/(loss) from operations (12.9) 41.5 24.7 76.2

Income from operations 24.1 38.4 48.8 114.6

Interest and other financial expense, net 10.8 6.5 28.7 20.5

Reclassification of actuarial losses from AOCI 2.3 — 7.3 —

Income/(loss) from continuing operations before income tax expense and equity in earnings of affiliated companies (23.8) 33.9 1.7 62.2

Income from operations before income tax expense and equity in earnings of affiliated companies 11.1 31.9 12.8 94.0

Income tax expense/(benefit) 2.3 7.8 4.0 26.5

Equity in earnings of affiliated companies, net of tax 0.1 0.1 0.4 0.4

Net income/(loss) $ (17.8) $ 24.7 $ 0.3 $ 43.7

Net sales decreased by $196.4 million, or 49.2%, from $399.0 million ($139.3 million in our Specialty Carbon Black segment and $259.7 million in our Rubber Carbon Black segment) in the second quarter of 2019 to $202.6 million ($94.4 million in our Specialty Carbon Black segment and $108.3 million in our Rubber Carbon Black segment) in the second quarter of 2020.

Net sales decreased, driven primarily by lower volumes and, to a lesser extent, the effects of passing on lower feedstock costs to customers.

Net sales decreased overall by $245.1 million, or 31.3%, from $783.7 million in the six months ended June 30, 2019 to $538.7 million in the six months ended June 30, 2020, driven primarily by the decrease of net sales in the second quarter of 2020.

Volume decreased by 113.5 kmt or 42.0% from 270.5 kmt (69.9 kmt in our Specialty Carbon Black segment and 200.6 kmt in our Rubber Carbon Black segment) in the second quarter of 2019 to 156.9 kmt (49.5 kmt in our Specialty carbon Black segment and 107.5 kmt in our Rubber Carbon Black segment) in the second quarter of 2020, with lower demand in both segments and in all regions, due to the effects of COVID-19 on the overall global economy.

Volume decreased by 141.2 kmt, or 26.5%, from 533.3 kmt in the six months ended June 30, 2019 to 392.0 kmt in the six months ended June 30, 2020, with lower demand in both segments and in all regions, due to the effects of COVID-19 on the overall global economy.

Net income $ 9.0 $ 24.3 $ 9.2 $ 68.0

Net sales decreased by $88.2 million, or 23.8%, from $370.2 million ($122.8 million in our Specialty Carbon Black segment and $247.4 million in our Rubber Carbon Black segment) in the third quarter of 2019 to $282.0 million ($103.6 million in our Specialty Carbon Black segment and $178.4 million in our Rubber Carbon Black segment) in the third quarter of 2020, driven primarily by the effects of passing on lower feedstock costs to customers and, to a lesser extent, lower volumes.

Net sales decreased by $333.2 million, or 28.9%, from $1,153.9 million in the nine months ended September 30, 2019 to $820.7 million in the nine months ended September 30, 2020, driven primarily by lower volumes and the effects of passing on lower feedstock costs to customers.

Volume decreased by 19.4 kmt or 7.6%, from 256.4 kmt (60.4 kmt in our Specialty Carbon Black segment and 196.0 kmt in our Rubber Carbon Black segment) in the third quarter of 2019 to 237.0 kmt (58.8 kmt in our Specialty carbon Black segment and 178.2 kmt in our Rubber Carbon Black segment) in the third quarter of 2020, with lower demand in both segments and in all regions, primarily driven by the global economic downturn, and rose 51.0% sequentially, as end markets partially recovered.

Volume decreased by 160.6 kmt, or 20.3%, from 789.7 kmt in the nine months ended September 30, 2019 to 629.1 kmt in the nine months ended September 30, 2020, with lower demand in both segments and in all regions, due to the effects of COVID-19 on the overall global economy.

Cost of sales and Gross profit

Cost of sales decreased by $126.3 million, or 42.8%, from $295.0 million in the second quarter of 2019 to $168.7 million in the second quarter of 2020, mainly as a result of lower volumes.

Cost of sales decreased by $167.2 million, or 28.7%, from $581.7 million in the six months ended June 30, 2019 to $414.5 million in the six months ended June 30, 2020.

The 26.5% decrease in volume in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 resulted in a decrease of cost of sales of 25.9%, or $150.4 million in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 while the remaining decrease is primarily related to changes in oil prices.

Gross profit decreased for reasons described above by $70.1 million, or 67.4% from $104.0 million ($44.4 million in our Specialty Carbon Black segment and $59.6 million in our Rubber Carbon Black segment) in the second quarter of 2019 to $33.9 million ($24.2 million in our Specialty Carbon Black segment and $9.7 million in our Rubber Carbon Black segment) in the second quarter of 2020.

Primarily as a result of the decrease in the second quarter of 2020, gross profit decreased by $77.9 million, or 38.5%, from $202.0 million in the six months ended June 30, 2019 to $124.1 million in the six months ended June 30, 2020 for reasons described above.

Cost of sales decreased by $68.6 million, or 25.3%, from $271.5 million in the third quarter of 2019 to $202.9 million in the third quarter of 2020, mainly as a result of lower volumes.

Cost of sales decreased by $235.8 million, or 27.6%, from $853.2 million in the nine months ended September 30, 2019 to $617.4 million in the nine months ended September 30, 2020, of which the 20.3% year over year volume decline drove $150.4 million of the decline and the balance of the decline primarily related to lower oil prices.

Gross profit decreased for reasons described above by $19.5 million, or 19.8% from $98.7 million ($41.4 million in our Specialty Carbon Black segment and $57.3 million in our Rubber Carbon Black segment) in the third quarter of 2019 to $79.2 million ($37.1 million in our Specialty Carbon Black segment and $42.1 million in our Rubber Carbon Black segment) in the third quarter of 2020.

Primarily as a result of declining economic activity in the second and third quarters of 2020, gross profit decreased by $97.4 million, or 32.4%, from $300.7 million in the nine months ended September 30, 2019 to $203.3 million in the nine months ended

September 30, 2020 for reasons described above.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $13.6 million, or 26.0%, from $52.1 million in the second quarter of 2019 to $38.5 million in the second quarter of 2020, driven primarily by lower freight costs due reductions in volumes as a result of the effects of COVID-19 on the overall global economy and countermeasures implemented to reduce our costs.

Selling, general and administrative expenses decreased by $24.6 million, or 22.9%, from $107.7 million in the six months ended June 30, 2019 to $83.1 million in the six months ended June 30, 2020, driven primarily by lower freight costs due to lower volumes as a result of the effects of COVID-19 on the overall global economy and countermeasures implemented to reduce our costs.

Selling, general and administrative expenses decreased by $6.5 million, or 13.1%, from $49.6 million in the third quarter of 2019 to $43.2 million in the third quarter of 2020, driven primarily by lower freight costs due to reductions in volumes as a result of the effects of COVID-19 on the overall global economy and countermeasures implemented to reduce our costs.

Selling, general and administrative expenses decreased by $31.1 million, or 19.8%, from $157.3 million in the nine months ended September 30, 2019 to $126.2 million in the nine months ended September 30, 2020, driven primarily by lower freight costs due to decreased volumes as a result of the effects of COVID-19 on the overall global economy and cost reduction initiatives.

Research and development costs

R&D expenses decreased by $0.5 million from $4.9 million in the second quarter of 2019 to $4.4 million in the second quarter of 2020 driven by the timing of expenditures for individual development of programs.

R&D expenses decreased by $0.6 million, from $10.0 million in the six months ended June 30, 2019 to $9.4 million in the six months ended June 30, 2020 driven by the timing of expenditures for individual development of programs.

R&D expenses increased by $2.6 million from $4.8 million in the third quarter of 2019 to $7.4 million in the third quarter of 2020 driven by the timing of expenditures for individual development of programs.

R&D expenses increased by $1.9 million, from $14.8 million in the nine months ended September 30, 2019 to $16.8 million in the nine months ended September 30, 2020 driven by the timing of expenditures for individual development of programs.

Other expenses, net

Other expenses, net, which comprises other operating income and other operating expenses, decreased from $4.5 million in the second quarter of 2019 to $3.8 million in the second quarter of 2020 driven by the timing of expenditures in the second quarter of 2019.

Other expenses, net which comprises other operating income and other operating expenses, amounted to $7.0 million in the six months ended June 30, 2020 and 2019, respectively, unchanged year over year.

In the six months ended June 30, 2020, other operating income amounted to $3.9 million and included, among other items, a gain related to the release of bonus accruals.

Other operating expenses in the six months ended June 30, 2020 amounted to $10.9 million, comprised primarily of $3.6 million of EPA-related expenses and $2.7 million of COVID-19 related expenses.

In the six months ended June 30, 2019, other operating income amounted to $1.3 million.

Other operating expenses in the six months ended June 30, 2019 amounted to $8.3 million, comprised primarily of $1.5 million consulting fees related to Company strategy, EPA-related expenses of $1.4 million as well as allowances and asset disposal expenses.

Other expenses, net, which comprises other operating income and other operating expenses, increased from $3.2 million in the third quarter of 2019 to $4.5 million in the third quarter of 2020 driven by the timing of expenditures in the third quarter of 2019.

Other expenses, net which comprises other operating income and other operating expenses, were $11.5 million and $10.2 million for the nine months ended September 30, 2020 and 2019, respectively, and included in particular EPA-related expenses, COVID-19 related expenses and severance cost.

In the nine months ended September 30, 2020, other operating income amounted to $6.8 million and included, among other items, a gain related to the release of bonus accruals as well as a sales tax reimbursement of $2.5 million following a successful ruling in our favor and an other non-income tax expense related indemnification in an amount of $1.7 million.

Other operating expenses in the nine months ended September 30, 2020 amounted to $18.3 million, comprised primarily of $5.1 million of EPA-related expenses, $3.5 million of COVID-19 related expenses, litigation and severance cost of $1.9 million and $1.8, respectively, and charges for bad debt allowances of $1.4 million.

In the nine months ended September 30, 2019, other operating income amounted to $1.6 million.

Other operating expenses in the nine months ended September 30, 2019 amounted to $11.8 million, comprised primarily of $0.8 million consulting fees related to Company strategy, EPA-related expenses of $3.0 million as well as allowances and asset disposal expenses.

Restructuring expenses/(income), net

In the six months ended June 30, 2019, restructuring expenses amounted to $1.1 million and related to follow-up expenses associated with the strategic repositioning of the Rubber business footprint.

In the nine months ended September 30, 2019, restructuring expenses amounted to $3.8 million and related to follow-up expenses associated with the strategic repositioning of the Rubber business footprint.

Those activities in the fiscal years 2016 to 2019 generated annualized savings of approximately $16 million per year on a consolidated basis since the end of fiscal year 2018 from the facility shutdown in Ambès, France, the facility consolidations in Seoul, South Korea, the related headcount reductions, and to a lesser extent, to operational efficiencies.

These anticipated savings came essentially in full from our Rubber segment.

Income/(loss) from operations

Income from operations decreased by $54.3 million from $41.5 million in the second quarter of 2019 to a loss from operations of $12.9 million in the second quarter of 2020, due to the effects of COVID-19 on the overall global economy and carbon black demand.

Income from operations decreased by $51.5 million, or 67.6%, from $76.2 million in the six months ended June 30, 2019 to $24.7 million in the six months ended June 30, 2020.

The decrease year over year in the six months ended June 30, 2020 is primarily due to lower volumes related to the impact of COVID-19 during the second quarter of 2020.

Income from operations

Income from operations decreased by $14.2 million from $38.4 million in the third quarter of 2019 to a loss from operations of $24.1 million in the third quarter of 2020, primarily driven by lower end market demand due to the global economic downturn.

Income from operations decreased by $65.7 million, or 57.4%, from $114.6 million in the nine months ended September 30, 2019 to $48.8 million in the nine months ended September 30, 2020.

The decrease year over year in the nine months ended September 30, 2020 is primarily due to lower volumes related to the impact of COVID-19 during the third quarter of 2020.

Interest and other financial expense, net

Interest and other financial expense, net comprises interest and other financial income and interest and other financial expenses and increased by $0.7 million from $7.6 million in the second quarter of 2019 to $8.3 million in the second quarter of 2020, reflecting the impact of bolstering our cash position by drawing under our ancillary lines of credit and RCF.

Interest and other financial expense, net comprises interest and other financial income and interest and other financial expenses and increased by $4.3 million from $6.5 million in the third quarter of 2019 to $10.8 million in the third quarter of 2020, reflecting the impact of bolstering our cash position by drawing under our ancillary lines of credit and RCF.

Interest and other financial expense, net comprises interest and other financial income and interest and other financial expenses.

Interest and other financial expense, net amounted to $17.9 million in the six months ended June 30, 2020 compared to $14.0 million in the six months ended June 30, 2019.

Interest and other financial expense, net in the six months ended June 30, 2020 included, among other items, $7.2 million of interest expenses, $1.0 million of amortization of capitalized transaction costs, $0.9 million of interest expenses on pension obligations and $7.3 million of net foreign currency revaluation related expenses.

Interest and other financial expense, net in the six months ended June 30, 2019 amounted to $14.0 million and included, among other items, $8.5 million of interest expenses, $1.1 million amortization of capitalized transaction costs, $0.9 million of interest expenses on pension obligations and $0.8 million of net foreign currency revaluation related expenses.

Interest and other financial expense, net amounted to $28.7 million in the nine months ended September 30, 2020 compared to $20.5 million in the nine months ended September 30, 2019.

Interest and other financial expense, net in the nine months ended September 30, 2020 included, among other items, $11.0 million of interest expenses for our Term Loan Facilities, $1.5 million of amortization of capitalized transaction costs, $0.9 million of interest expenses on pension obligations and $12.4 million of net foreign currency revaluation related expenses.

Interest and other financial expense, net in the nine months ended September 30, 2019 amounted to $20.5 million and included, among other items, $11 million of interest expenses for our Term Loan Facilities, $1.6 million amortization of capitalized transaction costs, $0.9 million of interest expenses on pension obligations and $1.2 million of net foreign currency revaluation related expenses.

Reclassification of actuarial losses from AOCI

The actuarial losses associated with our 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.

Income/(loss) from continuing operations before income tax expense and equity in earnings of affiliated companies

Income from operations before income taxes and equity in earnings of affiliated companies decreased by $57.7 million from $33.9 million in the second quarter of 2019 to a loss from operations before income taxes of $23.8 million in the second quarter of 2020, due to the effects of COVID-19 on the overall global economy.

Income from operations before income tax expense and equity in earnings of affiliated companies decreased by $60.4 million, or 97.2%, from $62.2 million in the six months ended June 30, 2019 to $1.7 million in the six months ended June 30, 2020, due to the effects of COVID-19 on the overall global economy in the second quarter of 2020.

Income from operations before income tax expense and equity in earnings of affiliated companies

Income from operations before income taxes and equity in earnings of affiliated companies decreased by $20.8 million from $31.9 million in the third quarter of 2019 to a loss from operations before income taxes of $11.1 million in the third quarter of 2020, due to the effects of COVID-19 on the overall global economy.

Income from operations before income tax expense and equity in earnings of affiliated companies decreased by $81.2 million, or 86.4%, from $94.0 million in the nine months ended September 30, 2019 to $12.8 million in the nine months ended September 30, 2020, due to the effects of COVID-19 on the overall global economy in the third quarter of 2020.

Income tax expense/(benefit)

Income taxes decreased by $15.2 million from $9.3 million in the second quarter of 2019 to tax income of $5.9 million in the second quarter of 2020, as a result of decreased income before taxes.

Income tax expense amounted to $1.8 million in the six months ended June 30, 2020 compared to $18.7 million in the six months ended June 30, 2019, as a result of decreased income before taxes.

In the six months ended June 30, 2020, the impact of discrete tax items included discrete tax expense of $0.5 million, primarily due to tax return filings and other prior year adjustments and an unfavorable deferred tax expense of $0.7 million due to 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 more than 87% for the six months ended June 30, 2020.

Income taxes decreased by $5.5 million from $7.8 million in the third quarter of 2019 to tax income of $2.3 million in the third quarter of 2020, as a result of decreased income before taxes.

Income tax expense amounted to $4.0 million in the nine months ended September 30, 2020 compared to $26.5 million in the nine months ended September 30, 2019, as a result of decreased income before taxes.

In the nine months ended September 30, 2020, the impact of discrete tax items included discrete tax expense of $0.4 million, primarily due to tax return filings and other prior year adjustments and a deferred tax gain of $0.4 million due to 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 more than 30.2% for the nine months ended September 30, 2020.

The estimated annual tax rate is 30.2% for 2020.

1 unchanged sentence

Income Taxes to the unaudited condensed consolidated financial statements.

In the six months ended June 30, 2019, the effective tax rate of 30.0% deviated from our estimated annual effective tax rate of 30.1% in particular due to a net discrete tax expense of $0.3 million.

In the nine months ended September 30, 2019, the effective tax rate of 28.1% deviated from our estimated annual effective tax rate of 30.6% in particular due to a net discrete tax gain of $2.5 million.

For details regarding this deviation see Note M.

1 unchanged sentence

Equity in earnings of affiliated companies, net of tax

Equity in earnings of affiliated companies represents the equity income from our German JV, which was comparable in the six months ended June 30, 2020 and the six months ended June 30, 2019.

Net income/(loss)

Net income decreased by $42.5 million from $24.7 million in the second quarter of 2019 to $17.8 million in the second quarter of 2020, reflecting all the items described above.

Our net income in the six months ended June 30, 2020 amounted to $0.3 million, a decrease of $43.4 million, reflecting all the factors described above.

Equity in earnings of affiliated companies represents the equity income from our German JV, which was comparable in the nine months ended September 30, 2020 and the nine months ended September 30, 2019.

Net income decreased by $15.3 million from $24.3 million in the third quarter of 2019 to $9.0 million in the third quarter of 2020, reflecting all the items described above.

Our net income in the nine months ended September 30, 2020 amounted to $9.2 million, a decrease of $58.7 million, reflecting all the factors described above.

Contribution Margin and Contribution Margin per Metric Ton (Non-GAAP Financial Measures)

Contribution Margin decreased by $69.1 million, or 48.2%, from $143.4 million in the second quarter of 2019 to $74.3 million in the second quarter of 2020, primarily due to lower volumes, partially offset by favorable base price increases in the Rubber segment, in particular.

Contribution Margin per Metric Ton decreased by 10.7%, from $530.3 per Metric Ton for the second quarter of 2019 to $473.6 per Metric Ton in the second quarter of 2020.

Contribution Margin decreased by $73.5 million, or 26.3%, from $279.7 million in the six months ended June 30, 2019 to $206.2 million in the six months ended June 30, 2020.

The decrease of $73.5 million year over year is primarily attributable to the decrease in Contribution Margin in the second quarter of 2020 in an amount of $69.1 million.

Contribution Margin per Metric Ton increased by 0.3%, from $524.6 per Metric Ton in the six months ended June 30, 2019 to $525.9 per Metric Ton in the six months ended June 30, 2020.

Contribution Margin decreased by $17.2 million, or 12.7%, from $135.4 million in the third quarter of 2019 to $118.2 million in the third quarter of 2020, primarily due to less volume, unfavorable mix and the effects of passing through lower feedstock costs, partially offset by base price increases.

Contribution Margin per Metric Ton decreased by 5.6%, from $527.9 per Metric Ton for the third quarter of 2019 to $498.6 per Metric Ton in the third quarter of 2020.

Contribution Margin decreased by $90.7 million, or 21.9%, from $415.1 million in the nine months ended September 30, 2019 to $324.3 million in the nine months ended September 30, 2020, primarily due to less volume, unfavorable mix and the effects of passing through lower feedstock costs, partially offset by base price increases.

Contribution Margin per Metric Ton decreased by 1.9%, from $525.6 per Metric Ton in the nine months ended September 30, 2019 to $515.6 per Metric Ton in the nine months ended September 30, 2020.

Adjusted EBITDA (Non-GAAP Financial Measure)

Adjusted EBITDA decreased by $56.3 million, or 78.7%, from $71.5 million in the second quarter of 2019 to $15.2 million in the second quarter of 2020, primarily due to lower volume, partially offset by lower fixed costs and base price increases in the Rubber segment, in particular.

Adjusted EBITDA decreased by $57.0 million, or 41.9%, from $136.1 million in the six months ended June 30, 2019 to $79.1 million in the six months ended June 30, 2020, mainly reflecting the COVID-19 impacts of the second quarter of 2020.

Adjusted EBITDA decreased by $13.1 million, or 19.2%, from $68.1 million in the third quarter of 2019 to $55.0 million in the third quarter of 2020, primarily due to lower volume and less favorable mix, partially offset by base price increases primarily in the Rubber segment.

Adjusted EBITDA decreased by $70.1 million, or 34.3%, from $204.1 million in the nine months ended September 30, 2019 to $134.1 million in the nine months ended September 30, 2020, mainly reflecting the COVID-19 impacts of the third quarter of 2020.

2019 Compared to 2018

The comparison of the three and six months ended June 30, 2019 and the three and six months ended June 30, 2018 can be found in our quarterly report filed as Exhibit to Form 6-K for the six months ended June 30, 2019 located within “ Part I, Item 2.

The comparison of the three and nine months ended September 30, 2019 and the three and nine months ended September 30, 2018 can be found in our quarterly report filed as Exhibit to Form 6-K for the nine months ended September 30, 2019 located within “ Part I, Item 2.

Management’s Discussions and Analysis — Operating Results” , which is incorporated by reference herein.

4 unchanged sentences

The table below presents our segment results derived from our audited consolidated financial statements for the periods indicated.

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

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

2020 2019 2020 2019

19 unchanged sentences

2020 Compared to 2019

Three months ended June 30, 2020 compared to three months ended June 30, 2019

Lower volumes drove a decline in net sales of the Specialty Carbon Black segment by $44.9 million, or 32.2%, from $139.3 million in the second quarter of 2019 to $94.4 million in the second quarter of 2020.

Volume of the Specialty Carbon Black segment decreased by 20.4 kmt, or 29.2%, from 69.9 kmt in the second quarter of 2019 to 49.5 kmt in the second quarter of 2020.

All regions were down.

Gross profit of the Specialty Carbon Black segment decreased by $20.2 million, or 45.5%, from $44.4 million in the second quarter of 2019 to $24.2 million in the second quarter of 2020, as well as a result of lower volumes.

Adjusted EBITDA of the Specialty Carbon Black segment decreased by $14.6 million, or 46.9%, from $31.0 million in the second quarter of 2019 to $16.5 million in the second quarter of 2020, primarily due to lower volumes, partially offset by mix.

Adjusted EBITDA margin decreased 480 basis points to 17.5% in the second quarter of 2020 compared to 22.3% in the second quarter of 2019.

Six months ended June 30, 2020 compared to six months ended June 30, 2019

Net sales of the Specialty Carbon Black segment decreased by $56.7 million, or 20.9%, from $270.9 million in the six months ended June 30, 2019 to $214.2 million in the six months ended June 30, 2020, primarily due to lower volumes.

Volume of the Specialty Carbon Black segment decreased by 26.0 kmt, or 19.5%, from 133.8 kmt in the six months ended June 30, 2019 to 107.8 kmt in the six months ended June 30, 2020.

All regions were down.

Gross profit of the Specialty Carbon Black segment decreased by $21.9 million, or 25.5%, from $85.8 million in the six months ended June 30, 2019 to $63.9 million in the six months ended June 30, 2020, mainly due to lower volumes and foreign exchange rate translation effects, partially offset by a positive product mix.

Adjusted EBITDA of the Specialty Carbon Black segment decreased by $15.9 million, or 26.3%, from $60.4 million in the six months ended June 30, 2019 to $44.5 million in the six months ended June 30, 2020, reflecting primarily the decrease in gross profit and slightly increased fixed costs year over year.

Three months ended September 30, 2020 compared to three months ended September 30, 2019

Net sales of the Specialty Carbon Black segment decreased by $19.2 million, or 15.6%, from $122.8 million in the third quarter of 2019 to $103.6 million in the third quarter of 2020, primarily due to the pass through of lower feedstock costs and lower volumes.

Specialty Carbon Black segment volumes decreased by 1.6 kmt, or 2.6%, from 60.4 kmt in the third quarter of 2019 to 58.8 kmt in the third quarter of 2020, primarily in North America and EMEA, and rose 18.8%, sequentially, as end markets partially recovered.

Gross profit of the Specialty Carbon Black segment decreased by $4.2 million, or 10.3%, from $41.4 million in the third quarter of 2019 to $37.1 million in the third quarter of 2020, as well as a result of lower volumes.

Adjusted EBITDA of the Specialty Carbon Black segment decreased by $3.5 million, or 11.6%, from $30.0 million in the third quarter of 2019 to $26.5 million in the third quarter of 2020, primarily due to lower volumes and overhead absorption, partially offset by foreign currency translation.

Adjusted EBITDA margin increased 110 basis points to 25.5% in the third quarter of 2020 compared to 24.4% in the third quarter of 2019.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

Net sales of the Specialty Carbon Black segment decreased by $75.9 million, or 19.3%, from $393.7 million in the nine months ended September 30, 2019 to $317.8 million in the nine months ended September 30, 2020, primarily due to lower volumes and the effects of passing on lower feedstock costs to customers, partially offset by favorable product mix.

Specialty Carbon Black segment volumes decreased by 27.6 kmt, or 14.2%, from 194.2 kmt in the nine months ended September 30, 2019 to 166.6 kmt in the nine months ended September 30, 2020, primarily in North America and EMEA, and rose 14.4%, sequentially, as end markets partially recovered.

Gross profit of the Specialty Carbon Black segment decreased by $26.1 million, or 20.5%, from $127.2 million in the nine months ended September 30, 2019 to $101.1 million in the nine months ended September 30, 2020, mainly due to lower volumes, partially offset by favorable product mix and base price increases.

Adjusted EBITDA of the Specialty Carbon Black segment decreased by $19.4 million, or 21.4%, from $90.4 million in the nine months ended September 30, 2019 to $71.0 million in the nine months ended September 30, 2020, mainly driven by the decrease in gross profit.

2019 Compared to 2018

Management’s Discussions and Analysis — Operating Results” , which is incorporated by reference herein.

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2020 Compared to 2019

Three months ended June 30, 2020 compared to three months ended June 30, 2019

Net sales of the Rubber Carbon Black segment decreased by $151.5 million, or 58.3%, from $259.7 million in the second quarter of 2019 to $108.3 million in the second quarter of 2020, primarily due to lower volumes and, to a much lesser extent, the pass through of lower feedstock costs to customers, partially offset by base price increases.

Volume of the Rubber Carbon Black segment decreased by 93.1, or 46.4%, from 200.6 kmt in the second quarter of 2019 to 107.5 kmt in the second quarter of 2020.

All regions were down.

Volumes were down primarily due to COVID-19, but also reflect our commercial strategy as part of 2019 contract negotiations to emphasize raising price over volume.

Gross profit of the Rubber Carbon Black segment decreased by $49.9 million, or 83.7%, from $59.6 million in the second quarter of 2019 to $9.7 million in the second quarter of 2020, driven by lower volumes, partially offset by base price increases.

Adjusted EBITDA of the Rubber Carbon Black segment decreased by $41.7 million, or 103.0%, from $40.5 million in the second quarter of 2019 to $(1.2) million in the second quarter of 2020, primarily driven by lower volume and the unfavorable impact on margins of lower feedstock costs, partially offset by lower freight costs and fixed costs.

Six months ended June 30, 2020 compared to six months ended June 30, 2019

Net sales of the Rubber Carbon Black segment decreased by $188.4 million, or 36.7%, from $512.9 million in the six months ended June 30, 2019 to $324.5 million in the six months ended June 30, 2020, primarily due to lower volumes and, to a much lesser extent, the pass through of lower feedstock costs to customers, somewhat offset by base price increases.

Volume of the Rubber Carbon Black segment decreased by 115.2 kmt, or 28.8%, from 399.4 kmt in the six months ended June 30, 2019 to 284.2 kmt in the six months ended June 30, 2020, continuing the sharp decline in sales volumes that emerged in mid-March as tire and auto manufacturing plants closed due to COVID-19.

Three months ended September 30, 2020 compared to three months ended September 30, 2019

Net sales of the Rubber Carbon Black segment decreased by $69.0 million, or 27.9%, from $247.4 million in the third quarter of 2019 to $178.4 million in the third quarter of 2020, primarily driven by the pass through of lower feedstock costs to customers and, to a lesser extent, the broad-based volume slowdown across all regions and markets, partially offset by base price increases.

Rubber Carbon Black segment volumes decreased by 17.8, or 9.1%, from 196.0 kmt in the third quarter of 2019 to 178.2 kmt in the third quarter of 2020 primarily driven by the COVID-19 induced global economic downturn which impacted demand from tire customers.

The year over year volume decline also partially reflected the impact of our commercial strategy during 2019 contract negotiations which emphasized raising price over volume.

Volume rose 65.9% sequentially, reflecting partial end market recovery.

Gross profit of the Rubber Carbon Black segment decreased by $15.3 million, or 26.7%, from $57.3 million in the third quarter of 2019 to $42.1 million in the third quarter of 2020, driven by lower volumes and the impact of passing through lower feedstock costs, partially offset by base price increases.

Adjusted EBITDA of the Rubber Carbon Black segment decreased by $9.6 million, or 25.1%, from $38.1 million in the third quarter of 2019 to $28.5 million in the third quarter of 2020, primarily driven by lower volume, the impact of passing through lower feedstock costs and unfavorable mix, partially offset by price increases.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

Net sales of the Rubber Carbon Black segment decreased by $257.3 million, or 33.8%, from $760.2 million in the nine months ended September 30, 2019 to $502.9 million in the nine months ended September 30, 2020, primarily due to lower volumes and, to a lesser extent, the pass through of lower feedstock costs to customers, somewhat offset by base price increases.

Rubber Carbon Black segment volumes decreased by 133.0 kmt, or 22.3%, from 595.4 kmt in the nine months ended September 30, 2019 to 462.5 kmt in the nine months ended September 30, 2020, primarily reflecting the impact on demand of the COVID-19 induced global economic downturn.

Lower volumes also reflected the impact of a deliberate Rubber commercial strategy as part of 2019 contract negotiations to emphasize raising price over volume.

Gross profit of the Rubber Carbon Black segment decreased by $56.0 million, or 48.2%, from $116.2 million in the six months ended June 30, 2019 to $60.2 million in the six months ended June 30, 2020, primarily as a result of the decrease in gross profit of $49.9 million in the second quarter of 2020.

Adjusted EBITDA of the Rubber Carbon Black segment decreased by $41.1 million, or 54.4%, from $75.7 million in the six months ended June 30, 2019 to $34.5 million in the six months ended June 30, 2020, reflecting the development of gross profit partially offset by lower freight cost.

Gross profit of the Rubber Carbon Black segment decreased by $71.3 million, or 41.1%, from $173.5 million in the nine months ended September 30, 2019 to $102.3 million in the nine months ended September 30, 2020, primarily as a result of lower sales volumes.

Adjusted EBITDA of the Rubber Carbon Black segment decreased by $50.7 million, or 44.6%, from $113.8 million in the nine months ended September 30, 2019 to $63.1 million in the nine months ended September 30, 2020, reflecting the development of gross profit partially offset by lower freight costs.

2019 Compared to 2018

Management’s Discussions and Analysis — Operating Results” , which is incorporated by reference herein.

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The tables below present our historical cash flows derived from our unaudited consolidated financial statements for the periods indicated.

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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Cash and cash equivalents at the end of the period $ 97.5 $ 56.0 $ 97.5 $ 56.0

Net cash provided by operating activities for the second quarter 2020 amounted to $85.7 million and consisted primarily of a consolidated loss for the period of $17.8 million offset by adjustments primarily for depreciation of $21.9 million and cash inflows from changes in operating assets and liabilities, including changes in net working capital, of $82.3 million, primarily related to changes in Net Working Capital.

Net cash used in investing activities for the second quarter 2020 amounted to $38.5 million.

It comprises capital expenditure projects mainly related to preservation and overhaul projects as well as expenditures associated with our efforts to meet the EPA requirements in the U.S.

in an amount of $12.9 million.

Net cash used in financing activities for the second quarter 2020 amounted to $12.8 million.

$10.8 million, net, were used for repayments of current borrowing and $2.0 million were used for regular debt repayment.

Net cash provided by operating activities in the six months ended June 30, 2020 amounted to $90.6 million and consisted of a consolidated profit for the period of $0.3 million, adjustments primarily for depreciation of $45.7 million and cash inflows from changes in operating assets and liabilities of $43.9 million, primarily related to changes in Net Working Capital.

Net cash used in investing activities in the six months ended June 30, 2020 amounted to $89.4 million comprised of $53.8 million capital expenditure for maintenance and overhaul projects and expenditures associated as well as $35.6 million environmental improvements of our U.S.

Net cash provided by operating activities for the third quarter 2020 amounted to $1.7 million and consisted primarily of a consolidated profit for the period of $9.0 million, adjustments primarily for depreciation of $24.0 million and cash outflows from changes in Net Working Capital of $27.7 million.

Net cash used in investing activities for the third quarter 2020 amounted to $30.9 million.

This line item includes capital expenditures mainly related to preservation and overhaul projects and expenditures associated with our efforts to meet the EPA requirements in the United States of $9.0 million.

Net cash used in financing activities for the third quarter 2020 amounted to $20.9 million, of which $18.8 million, net, was used for repayments of current borrowings and $2.1 million was used for regular debt repayment.

Net cash provided by operating activities in the nine months ended September 30, 2020 amounted to $92.4 million and consisted of a consolidated profit for the period of $9.2 million, adjustments primarily for depreciation of $69.7 million and cash inflows from changes in operating assets and liabilities of $16.2 million, primarily related to changes in Net Working Capital.

Net cash used in investing activities in the nine months ended September 30, 2020 amounted to $120.3 million comprised o$75.8 million capital expenditure for maintenance and overhaul projects and expenditures associated as well as $44.5 million environmental improvements of our U.S.

based facilities to address the EPA requirements.

Net cash provided by financing activities in the six months ended June 30, 2020 amounted to $81.7 million.

Cash inflows during the six months of $99.0 million are related to local bank loan facilities to bolster the liquidity of the Company in light of the current COVID-19 uncertainties while cash outflows were used for regular debt repayment of $4.0 million and a $12.0 million dividend payment in the first quarter of 2020.

Net cash provided by operating activities for the second quarter 2019 amounted to $48.0 million and consisted primarily of a consolidated profit for the period of $24.7 million, adjustments primarily for depreciation of $25.4 million and cash outflows from changes in operating assets and liabilities of $7.8 million.

Net cash used in investing activities for the second quarter 2019 amounted to $38.4 million.

Net cash provided by financing activities in the nine months ended September 30, 2020 amounted to $60.9 million.

Cash inflows during the nine months of $80.2 million were related to a combination of net drawings under local bank loan facilities and the Company’s revolver to bolster the liquidity of the Company in light of the current COVID-19 uncertainties while cash outflows were used for regular debt repayment of $6.1 million and a $12.0 million dividend payment in the first quarter of 2020 as well as $1.2 million tax payments for equity settled stock compensation plans .

Net cash provided by operating activities for the third quarter 2019 amounted to $68.5 million and consisted primarily of a consolidated profit for the period of $24.3 million, adjustments primarily for depreciation of $22.0 million million and cash inflows from changes in operating assets and liabilities of $12.8 million.

Net cash used in investing activities for the third quarter 2019 amounted to $34.5 million.

It comprises capital expenditure projects mainly related to preservation and overhaul projects as well as expenditures associated with our efforts to meet the EPA requirements in the U.S.

Net cash used in financing activities for the second quarter 2019 amounted to $17.2 million.

$2.0 million were used for regular debt repayment, $12.0 million were used for dividend payments and $6.5 million were used for taxes paid for shares issued under net settlement feature.

Cash inflow, net, of $5.1 million are related to local short-term financing facilities.

Net cash provided by operating activities for the six months ended June 30, 2019 amounted to $74.1 million and consisted primarily of a consolidated profit for the period of $43.7 million, adjustments primarily for depreciation of $49.5 million and cash outflows from changes in operating assets and liabilities of $27.8 million.

Net cash used in investing activities for the six months ended June 30, 2019 amounted to $60.9 million.

Net cash used in financing activities for the third quarter 2019 amounted to $29.5 million.

$25.2 million was used for repayments of current borrowing as well as $2.0 million regular debt repayment.

In addition, $12.0 million was used for dividend payments.

Cash inflow of $9.7 million are related to local short term financing facilities.

Net cash provided by operating activities for the nine months ended September 30, 2019 amounted to $142.7 million and consisted primarily of a consolidated profit for the period of $68.0 million, adjustments primarily for depreciation of $71.5 million and cash outflows from changes in operating assets and liabilities of 15.0 million.

Net cash used in investing activities for the nine months ended September 30, 2019 amounted to 95.3 million.

It comprises capital expenditure projects mainly related to preservation and overhaul projects as well as expenditures associated with our efforts to meet the EPA requirements in the U.S.

Net cash used in financing activities for the six months ended June 30, 2019 amounted to $16.8 million.

$4.0 million were used for regular debt repayment, $23.9 million were used for dividend payments and $6.5 million were used for taxes paid for shares issued under net settlement feature.

Cash inflow, net, of $19.4 million are related to local short-term financing facilities.

Net cash used in financing activities for the nine months ended September 30, 2019 amounted to $46.3 million.

$36.0 million was used for dividend payments and as well as $6.0 million regular debt repayment.

In addition, Our local short term financing activities for nine months ended September 30, 2019 are shown gross as cash inflow of $88.4 million and cash outflow of $84.5 million.

Sources of Liquidity

Our principal sources of liquidity are the net cash generated (i) from operating activities, primarily driven by our operating results and changes in working capital requirements, and (ii) from financing activities, primarily driven by, borrowing amounts available under our committed multicurrency, senior secured RCF, and related ancillary facilities as well as various uncommitted local credit lines and, from time to time, term loan borrowings.

Our principal sources of liquidity are the net cash generated (i) from operating activities, primarily driven by our operating results and changes in working capital requirements, and (ii) from financing activities, primarily driven by borrowing amounts available under our committed multicurrency, senior secured RCF, and related ancillary facilities, various uncommitted local credit lines and, from time to time, term loan borrowings.

Our RCF allows the conversion of revolver capacity to ancillary line capacity.

Because ancillary lines are bilateral agreements directly with individual bank group participants, borrowings under such lines reduce overall RCF availability but do not count towards the 35% RCF utilization test governing our financial covenant.

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

While we continue to closely monitor our working capital management and capital spending in light of continuing uncertainties in the global economy, we anticipate that cash on hand and cash provided by operating activities and borrowings will be sufficient to pay our operating expenses, satisfy debt service obligations and fund any capital expenditures for the foreseeable future.

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.

We expect cash on hand and cash provided by operating activities and borrowings will be sufficient to pay our operating expenses, satisfy debt service obligations and fund capital expenditures for the foreseeable future.

Net Working Capital (Non-GAAP Financial Measure)

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The following tables set forth the principal components of our Net Working Capital as of the dates indicated.

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(In millions)

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Based on 2020 Net Working Capital requirements and normalized business activities, we estimate that a $10 per barrel movement in the Brent crude oil price correlates to a movement in our Net Working Capital of approximately $27 million to $30 million within about a two to three month period.

Our Net Working Capital decreased from $221.1 million as of December 31, 2019 to $190.5 million as of June 30, 2020, primarily due to lower volumes and oil prices.

Our Net Working Capital increased from $221.1 million as of December 31, 2019 to $235.1 million as of September 30, 2020, primarily due to lower volumes and oil prices.

Capital Expenditures (Non-GAAP Financial Measure)

We define Capital Expenditures as cash paid for the acquisition of intangible assets and property, plant and equipment as shown in the consolidated financial statements.

Our Capital Expenditures amounted to $60.9 million in the six months ended June 30, 2019 and $89.4 million in the six months ended June 30, 2020.

Our Capital Expenditures amounted to $95.3 million in the nine months ended September 30, 2019 and $120.3 million in the nine months ended September 30, 2020.

We plan to finance our Capital Expenditures with cash generated by our operating activities.

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Commitments and Contingencies ” for further details regarding the EPA settlement.

Capital Expenditures in the six months ended June 30, 2020 amounted to $89.4 million and were mainly comprised of maintenance and overhaul projects including $35.6 million expenditures associated with our efforts to commence environmental investments required to address the EPA requirements in the United States.

Capital Expenditures in the six months ended June 30, 2019 amounted to $60.9 million and were mainly composed of preservation and overhaul projects and in an amount of $12.9 million for expenditures associated with our efforts for investments required to address the EPA requirements in the United States.

Capital Expenditures in the nine months ended September 30, 2020 amounted to $120.3 million and were mainly comprised of maintenance and overhaul projects including $44.5 million expenditures associated with our efforts to commence environmental investments required to address the EPA requirements in the United States.

Capital Expenditures in the nine months ended September 30, 2019 amounted to $95.3 million and were mainly comprised of preservation and overhaul projects and $28.2 million in expenditures related to investments required to address the EPA requirements in the United States.

Contractual Obligations

The following table sets forth our contractual obligations as of June 30, 2020:

The following table sets forth our contractual obligations as of September 30, 2020:

Less than 1 year 1-3 years 4-5 years More than 5 years Total

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108.8 77.5 — — 186.4

Operating leases (7)

Lease obligations (7)

11.5 21.3 18.5 40.9 92.3

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(2) Represents the obligation under the RCF.

As of June 30, 2020, total drawing was $89.7 million either through our RCF or related ancillary facilities.

As of September 30, 2020, total drawing was $74.6 million either through our RCF or related ancillary facilities.

The RCF can be drawn up to a total amount of €250.0 million (USD equivalent:

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(7) Represents current leases, for forward-starting leases see “ Note C.

(8) This amount does not reflect the Company’s obligations under its existing pension arrangements, which as of June 30, 2020 amounted to $71.2 million (non-current) and $0.9 million (current) (see “ Note H.

(8) This amount does not reflect the Company’s obligations under its existing pension arrangements, which as of September 30, 2020 amounted to $74.6 million (non-current) and $0.9 million (current) (see “ Note H.

Employee Benefit Plans ” with regard to pension provisions and post-retirement benefits included in the unaudited financial statements).

The level of performance bonds, guarantees and letters of credit required for carbon black oil purchasing could increase as a result of increasing oil prices or other factors .

As of June 30, 2020 Orion Engineered Carbons GmbH had entered into eight guarantees from various financial institutions amounting to $14.9 million compared with five guarantees amounting to $11.4 million as of December 31, 2019.

Neither of these guarantees reduce the utilization limit of the current RCF.

Orion also had entered during the second quarter of 2020 into four guarantees issued by UniCredit AG amounting to $0.3 million that reduce financing headroom under the RCF.

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

Borrowings under our Credit Agreement are at variable rates of interest based on USD-LIBOR or EURIBOR rates.

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The announcement indicates that LIBOR will not continue to exist on the current basis.

We are unable to predict the effect of any changes to LIBOR, the establishment and success of any alternative reference rates, or any other reforms to LIBOR or any replacement of LIBOR that may be enacted in the United Kingdom or elsewhere.

We are unable to predict the effect of any changes to LIBOR, the

establishment and success of any alternative reference rates, or any other reforms to LIBOR or any replacement of LIBOR that may be enacted in the United Kingdom or elsewhere.

Such changes, reforms or replacements relating to LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, derivatives or other financial instruments or extensions of credit held by us.

Off-Balance Sheet Arrangements

As of June 30, 2020, we did not have any off-balance sheet arrangements.

As of September 30, 2020, we did not have any off-balance sheet arrangements.

Note Regarding Forward-Looking Statements

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Quantitative and Qualitative Disclosures About Market Risk

Information about market risks for the period ended June 30, 2020 does not differ materially from that discussed under Item 7A of our 2019 Form 10-K.

Information about market risks for the period ended September 30, 2020 does not differ materially from that discussed under Item 7A of our 2019 Form 10-K.

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 2. Management’s Discussion and Analysis