What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-18 compared with 2020-02-20 · 423 added, 493 removed, 989 unchanged (48% of the section changed)

Financial Statements and Supplementary Data

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Orion Engineered Carbons S.A.

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Income Taxes – Uncertain Tax Positions

Description of the Matter The Company operates in various countries and fiscal jurisdictions which are each subject to their respective local and distinct tax regulations and recognizes uncertain tax positions as described in Note P of the consolidated financial statements.

Auditing the Company´s recognition and measurement of uncertain tax positions was complex due to significant estimates and judgment made by management in the assessment of the related tax matters.

The Company´s estimates and judgment involve the interpretation of tax legislation, the evaluation of the risk of incorrect application of tax legislation and the evaluation of the applicability of tax case law and previous tax audit outcomes to current tax positions.

Auditing the Company´s recognition and measurement of uncertain tax positions was complex due to significant estimates and degree of judgment made by management in the assessment of the related tax matters.

The Company´s estimates and judgment involve the interpretation of local tax legislations, the evaluation of the risk of incorrect application of tax legislation, the evaluation of the applicability of tax case law, and the assessment of outcomes from previous tax audits in connection with current tax positions.

Given the complexity and the subjective nature of the assessment of uncertain tax positions, evaluating management´s estimates relating to the determination of the uncertain tax positions requires extensive audit effort and a high degree of auditor judgment.

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This included testing controls over the completeness of uncertain tax positions and management’s review of the estimates and judgments described above.

To test the recognition and measurement of the Company’s uncertain tax positions, we performed audit procedures that included, among others, assessing management’s methodology and the completeness and clerical accuracy of underlying data used by the Company in its analysis.

To test the recognition and measurement of the Company’s uncertain tax positions, we performed audit procedures that included, among others, assessing management’s methodology as well as the completeness and mathematical accuracy of underlying data used by the Company in its analysis.

We involved our tax professionals to assist with our procedures.

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We tested the consistency of the Company’s estimates and judgments in determining its tax positions with relevant jurisdictional income tax regulation, applicable tax case law, previous tax audit outcomes and other relevant information.

We also evaluated the adequacy of the Company’s financial statement disclosures related to these tax matters.

We also evaluated the Company’s financial statement disclosures related to these tax matters.

/s/Tobias Schlebusch /s/Titus Zwirner

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Reclassification of actuarial losses from AOCI 9,916 — —

Income from operations before income taxes and equity in earnings of affiliated companies 119,579 167,663 84,049

Income from operations before income tax expense and equity in earnings of affiliated companies 25,795 119,579 167,663

Income tax expense 8,132 33,216 46,944

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Diluted $ 0.30 $ 1.42 $ 1.99

Dividends per share $ 0.80 $ 0.80 $ 0.77

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

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Net income $ 18,156 $ 86,920 $ 121,310

Other comprehensive income (loss), net of tax

Other comprehensive loss, net of tax

Foreign currency translation adjustments ( 14,262 ) ( 1,632 ) ( 10,096 )

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Gains/(losses) on defined benefit plans 2,513 ( 8,358 ) 134

Other comprehensive income (loss) ( 14,734 ) ( 14,308 ) 12,628

Other comprehensive loss ( 14,343 ) ( 14,734 ) ( 14,308 )

Comprehensive income $ 3,813 $ 72,186 $ 107,002

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Cash and cash equivalents $ 64,869 $ 63,726

Accounts receivable, net of reserve for doubtful accounts

Accounts receivable, net of expected credit losses

of $ 5,794 and $ 6,632 234,796 212,565

Other current financial assets 3,630 11,347

Inventories 164,799 183,629

Inventories, net 141,461 164,799

Income tax receivables 11,249 17,924

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Other liabilities 106,131 40,701

Commitments and contingencies Note R — —

Commitments and contingencies Note S — —

Total non-current liabilities 884,036 786,171

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Foreign currency transactions ( 4,900 ) 1,052 2,782

Reclassification of actuarial losses from AOCI 9,916 — —

Other operating non-cash items 118 1,813 1,165

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Increase/(decrease) in tax liabilities 16,398 ( 7,254 ) 4,843

Increase/(decrease) in other assets and liabilities that cannot be allocated to investing or financing activities ( 14,497 ) ( 48,707 ) 26,666

Increase/(decrease) in other assets and liabilities ( 2,320 ) ( 14,497 ) ( 48,707 )

Net cash provided by operating activities $ 125,278 $ 231,507 $ 121,985

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Cash flows from financing activities:

Proceeds from borrowings $ — $ — $ 11,890

Payments for debt issue costs — ( 1,721 ) ( 741 )

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Taxes paid for shares issued under net settlement feature ( 1,202 ) ( 6,475 ) ( 4,741 )

Net cash used in financing activities $ ( 68,612 ) $ ( 43,768 ) $ ( 68,497 )

Net cash provided by/(used in) financing activities $ 13,543 $ ( 68,612 ) $ ( 43,768 )

Increase (decrease) in cash, cash equivalents and restricted cash $ ( 6,118 ) $ 7,047 $ ( 9,839 )

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Consolidated Statements of Changes in Stockholders’ Equity of Orion Engineered Carbons S.A.

(In thousands, except per share amounts) Number of common shares Amount Treasury shares Addi-tional

(In thousands, except per share amounts) Number of common shares Amount Treasury shares Additional

capital Retained

earnings Accumulated other compre-hensive loss Total equity

As at January 1, 2017 59,320,214 $ 83,770 $ ( 3,773 ) $ 139,399 $ ( 146,761 ) $ ( 17,948 ) $ 54,687

As of January 1, 2018 59,320,214 $ 83,770 $ ( 3,773 ) $ 102,529 $ ( 81,901 ) $ ( 5,320 ) $ 95,305

Net income — — — — 121,310 — 121,310

Other comprehensive income, net of tax — — — — — 12,628 12,628

Other comprehensive loss, net of tax — — — — — ( 14,308 ) ( 14,308 )

Distributions from additional paid-in capital — — — ( 47,665 ) — — ( 47,665 )

$ 0.80 per share

Share buyback ( 206,501 ) — ( 4,926 ) — — — ( 4,926 )

Share based compensation — — — 8,680 — — 8,680

As at December 31, 2017 59,320,214 83,770 ( 3,773 ) 102,529 ( 81,901 ) ( 5,320 ) 95,305

Issuance of stock under equity compensation plans 404,785 484 16 — — — 500

As of December 31, 2018 59,518,498 84,254 ( 8,683 ) 63,544 39,409 ( 19,628 ) 158,896

Net income — — — — 86,920 — 86,920

Other comprehensive loss, net of tax — — — — — ( 14,734 ) ( 14,734 )

Distributions from additional paid-in capital — — — ( 47,665 ) — — ( 47,665 )

$ 0.80 per share

Share buyback ( 206,501 ) — ( 4,926 ) — — — ( 4,926 )

Dividends paid - $ 0.80 per share — — — — ( 48,033 ) — ( 48,033 )

Share based compensation — — — 2,018 — — 2,018

Issuance of stock under equity compensation plans 705,649 778 168 — — — 946

As at December 31, 2018 59,518,498 84,254 ( 8,683 ) 63,544 39,409 ( 19,628 ) 158,896

As of December 31, 2019 60,224,147 85,032 ( 8,515 ) 65,562 78,296 ( 34,362 ) 186,013

Net income — — — — 18,156 — 18,156

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Issuance of stock under equity compensation plans 262,970 291 — — — — 291

As at December 31, 2019 60,224,147 $ 85,032 $ ( 8,515 ) $ 65,562 $ 78,296 $ ( 34,362 ) $ 186,013

As of December 31, 2020 60,487,117 $ 85,323 $ ( 8,515 ) $ 68,502 $ 84,407 $ ( 48,705 ) $ 181,013

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

Significant Accounting Policies

Orion’s audited consolidated financial statements comprise Orion and its subsidiaries (the “Orion Group”, or the “Group” or the “Company”).

Orion’s audited consolidated financial statements are comprised of Orion Engineered Carbons S.A.

and its subsidiaries (“Orion”, “Company”, “we”, and “our”).

The Company's fiscal year comprises the period from January 1, 2020 to December 31, 2020.

The Company’s audited consolidated financial statements are prepared in US Dollars, the presentation currency of the Company.

Except where stated otherwise, all figures are presented in thousands of US Dollars.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Adoption of accounting standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) .

Under the amendments in ASU 2016-02, lessees are required to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis;

and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term for all leases (with the exception of short-term leases) at the commencement date.

This guidance is effective for fiscal years beginning after December 15, 2018 including interim periods within those fiscal years.

Early adoption is permitted.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842):

Targeted Improvements , to provide an additional (and optional) transition method with which to adopt ASU 2016-02.

In July 2018, the FASB also issued ASU 2018-10, Codification Improvements to Topic 842, Leases , to clarify the codification more generally and/or to correct unintended application of guidance.

More recently, in March 2019, the FASB issued ASU No.

2019-01, Leases (Topic 842):

Codification Improvements , which was also issued to clarify the codification more generally and/or to correct unintended application of guidance.

ASU 2019-01 clarifies transition disclosure requirements upon adoption of Topic 842.

We adopted ASUs 2016-02, 2018-11, 2018-10 and 2019-01 (“Lease ASUs”) as of January 1, 2019 using the optional transition method under ASU 2018-11 that allows for a cumulative-effect adjustment in the period of adoption without restating prior periods.

Orion elected the practical expedients upon transition to retain the lease classification and initial direct costs for any leases that existed prior to adoption of the standard.

As a result of adopting these Lease ASUs we recorded additional lease assets and liabilities of approximately $ 30 million and $ 31 million on our condensed consolidated balance sheet as of March 31, 2019.

Additionally, upon adoption of ASU 2016-02 we de-recognized one asset previously recorded under build-to-suit accounting and its associated liability of $ 29 million.

A right-of-use asset will be capitalized upon subsequent commencement of the lease.

Refer to Note C.

Leases for further information about adoption of Topic 842.

In October 2018, the FASB issued ASU No.

2018-16, Derivatives and Hedging (Topic 815):

Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes .

The amendments in the update permit use of the OIS rate based on SOFR as a U.S.

benchmark interest rate.

Including the OIS rate based on SOFR as an eligible benchmark interest rate during the early stages of the marketplace transition will facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk management and accounting purposes.

The new standard is required to be adopted concurrently with the amendments in ASU 2017-12, and early adoption is permitted if an entity has already adopted ASU 2017-12.

The Company adopted ASU 2018-16 concurrently with ASU 2017-12 as of January 1, 2019.

The adoption of this guidance did not have a significant impact on the Company's financial statements.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement , that modifies the disclosure requirements for fair value measurements made in accordance with Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits.

The new guidance removes requirements to disclose the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements.

The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The Company early adopted ASU 2018-13 as of January 1, 2019.

The adoption of this guidance did not have an impact on the Company's financial statements.

In February 2018, the FASB issued ASU No.

2018-02, Income Statement - Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which allows for the elimination of the stranded income tax effects resulting from the enactment of the Tax Cuts and Jobs Act through a reclassification from accumulated other comprehensive income to retained earnings.

The standard is effective for fiscal years beginning after December 15, 2018.

Early adoption is permitted.

The Company adopted ASU 2018-02 as of January 1, 2019.

The adoption of this guidance did not have an impact on the Company's financial statements.

In August 2017, the FASB issued ASU No.

2017-12, Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities , that amends the hedge accounting recognition and presentation requirements under hedge accounting.

The new standard will make more financial and non-financial hedging strategies eligible for hedge accounting, amends the presentation and disclosure requirements, and simplifies how companies assess effectiveness.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those years, and early adoption is permitted.

The Company adopted ASU 2017-12 as of January 1, 2019.

The adoption of this guidance did not have a material impact on the Company's financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses .

The new guidance requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

The new standard is effective for fiscal years beginning after December 15, 2019, including all interim periods within those years, and early adoption is permitted for fiscal years beginning after December 15, 2018.

The Company adopted ASU 2016-13 as of January 1, 2019.

The adoption of this guidance and recognition of a loss allowance at an amount equal to lifetime expected credit losses for trade receivables was immaterial and did not result in a transition adjustment on retained earnings.

Principles of consolidation

The consolidated financial statements include all subsidiaries indirectly or directly controlled by Orion.

Entities are consolidated from the date Orion obtains control, which generally is the acquisition date, and are deconsolidated when control is lost.

Control is achieved when Orion is exposed, or has the right, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Orion re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of these three elements of control.

Orion consolidated financial statements are prepared in accordance with uniform accounting policies.

Income and expenses, intercompany profits and losses, and receivables and liabilities between consolidated subsidiaries are eliminated.

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S.

requires management to make certain estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period.

Actual results could differ from those estimates.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S.

GAAP”) and are prepared in US Dollars, the presentation currency of the Company.

The consolidated financial statements include the accounts of Orion and its wholly-owned subsidiaries and majority-owned and controlled U.S.

subsidiaries.

Additionally, Orion considers consolidation of entities over which control is achieved through means other than voting rights, of which there were none in the periods presented.

Intercompany transactions have been eliminated in consolidation.

Use of estimates and assumptions

We make estimates and use judgments and assumptions in the preparation of our consolidated financial statements that affect the timing and amount of assets, liabilities, equity, revenues and expenses recorded and disclosed.

The more significant estimates and judgments relate to revenue recognition, asset impairment, income taxes, inventories, goodwill, pension benefits, and environmental liabilities.

Actual outcomes could differ from our estimates, resulting in changes in revenues or costs that could have a material impact on the Company’s results of operations, financial position, or cash flows.

Foreign currency translation

Foreign currency transactions are measured at the exchange rate at the date of initial recognition.

Any gains or losses resulting from the valuation of foreign currency monetary assets and liabilities using the currency exchange rates as at the reporting date are recognized in other expenses, net.

Other operating income from currency translation amounted to zero in 2019, $ 0.3 million in 2018 and $ 0.1 million in 2017.

Other operating expenses from currency translation amounted to zero in 2019, $ 0.1 million in 2018 and zero in 2017.

Currency exchange differences relating to financing activities are recognized in interest and other financial income and interest and other financial expense.

The assets and liabilities of foreign operations with functional currencies different from the presentation currency U.S.

dollars are translated using closing rates as at the reporting date.

Income and expense items are translated at average monthly exchange rates for the respective period.

The translation of equity is performed using historical exchange rates.

The overall foreign currency impact from translating the statement of financial position and income statement of all the foreign entities is recognized in accumulated other comprehensive income (loss) ("AOCI").

Revenue and income recognition

OEC recognizes revenue when or as it satisfies a performance obligation by transferring a good or a service to a customer.

The functional currency of the majority of the Company’s foreign subsidiaries is the local currency in which the subsidiary operates.

The results of operations for foreign subsidiaries are translated from these functional currencies into U.S.

dollars using the average monthly currency exchange rates.

Assets and liabilities are translated into U.S.

dollars using exchange rates at the balance sheet dates, and we record the resulting foreign currency translation adjustments as a separate component of Accumulated other comprehensive loss in equity.

Foreign currency transaction gains and losses are recorded, as incurred, as Interest and other financial expense, net in the consolidated statements of operations.

Revenue recognition

The Company recognizes revenue when a performance obligation has been satisfied by transferring a good or a service to a customer.

Revenue is only recognized when control is transferred to the customer.

The amount of consideration we receive and revenue we recognize is based upon the terms stated in the sales contract, which may contain variable consideration such as discounts or rebates.

The amount of revenue, the transaction price, is contractually specified between the parties and is measured at the amount expected to be received less value-added tax, if applicable, and any trade discounts and volume rebates granted.

We also give our customers a limited right to return product that has been damaged, does not satisfy their specifications, or other specific reasons.

Payment terms on product sales to our customers typically range from 30 to 90 days.

Although certain exceptions exist where standard payment terms are exceeded, these instances are infrequent and do not exceed one year.

Revenue is recognized according to the five-step model proscribed in ASC 606.

Under the first step, the entity has to identify the contract entered with a customer granting the right to receive goods or service in exchange for consideration.

The second step requires the identification of distinct performance obligations within a contract.

The transaction price of the arrangement is defined in Step 3 of ASC 606.

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

Although certain exceptions exist where standard payment terms are exceeded, these instances are infrequent and do not exceed one year and therefore we do not consider there to be a significant financing component associated with the contract.

Shipping and handling costs incurred in connection with the satisfaction of performance obligations are accounted for as fulfillment activities and recorded as sales revenue.

Shipping and handling costs are expensed in the period incurred and included in Cost of sales within the Consolidated Statements of Operations.

The Company records a provision for warranty costs, based on historical trends of warranty costs incurred as a percentage of sales, which management has determined to be a reasonable estimate of the probable losses to be incurred for warranty claims in a period.

The Company derives substantial majority of revenues by selling carbon black to industrial customers for further processing.

Revenue recognition and measurement is governed by the following principles.

The amount of revenue, the transactions price, is

contractually specified between the parties and is measured at the amount expected be received less value-added tax and any trade discounts and volume rebates granted.

Discounts and volume rebates are accounted for as estimates of variable consideration and deducted from revenue.

With respect to the sale of goods, sales are recognized at the point in time control over the good transfers to the customer.

The timing of the transfer of control varies depending on the individual terms of the sales agreement.

Shipping and handling costs incurred in connection with the satisfaction of performance obligations are accounted for as fulfillment activities rather than separate performance obligations.

Interest income is recognized using the effective interest method.

Cost of sales

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Research and development costs include salaries, equipment and material expenditures, and contractor fees and are expensed as incurred.

Our business operations are global in nature, and we are subject to taxes in numerous jurisdictions.

Tax laws and tax rates vary substantially in these jurisdictions and are subject to change based on the political and economic climate in those countries.

We file our tax returns in accordance with our interpretations of each jurisdiction’s tax laws.

Significant judgment is required in determining our worldwide provision for income taxes and recording the related tax assets and liabilities.

In the ordinary course of our business, there are operational decisions, transactions, facts and circumstances, and calculations which make the ultimate tax determination uncertain.

Furthermore, our tax positions are periodically subject to challenge by taxing authorities throughout the world.

We have recorded reserves for taxes and associated interest and penalties that may become payable in future years as a result of audits by tax authorities.

Any significant impact as a result of changes in underlying facts, law, tax rates, tax audit, or review could lead to adjustments to our income tax expense, our effective tax rate, and/or our cash flow.

Current income tax receivables and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities.

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A designation for short-term or long-term restricted cash is made based on the expected time of release or distribution.

Cash, cash equivalents and restricted cash for December 31, 2019 and 2018 reconciles as follows:

Cash, cash equivalents and restricted cash are as follows:

(In thousands)

Cash and cash equivalents $ 64,869 $ 63,726

Restricted cash included in other assets and liabilities 4,505 4,588

Restricted cash included in current and non-current assets 2,996 4,505

Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 67,865 $ 68,231

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Accounts and notes receivables

Trade receivables are recorded at the invoiced amount and generally do not bear interest.

Orion monitors and evaluates collectability of receivables on an ongoing basis and considers whether an allowance for doubtful accounts is necessary.

Trade receivables in China may at certain times be settled with the receipt of bank issued non-interest bearing notes.

Accounts receivable are amounts due from customers for merchandise sold or services performed in the ordinary course of business and are carried at transaction price net of allowance for credit losses.

Generally, interest is not charged on past due amounts.

We monitor and evaluate collectability of receivables on an ongoing basis and consider whether an allowance for credit loss is necessary.

Allowance for credit losses is measured using historical loss rates for the respective risk categories and incorporating forward-looking estimates.

The corresponding expense for the credit loss allowance is reflected in Selling, general and administrative expenses.

Accounts receivable are charged off when the accounts are deemed to no longer be collectible.

Accounts receivables in China may at certain times be settled with the receipt of bank issued non-interest-bearing notes.

Financial instruments

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Such valuation takes into account the ability of the financial counterparty to perform and the Company’s own credit risk.

The Company uses derivative financial instruments primarily for purposes of hedging the exposures to fluctuations in foreign currency exchange rates, which exist as part of its ongoing business operations.

The Company uses derivative financial instruments primarily for purposes of hedging the exposures to fluctuations in foreign currency exchange and interest rates, which exist as part of its ongoing business operations.

Orion does not enter into derivative contracts for speculative purposes, nor does it hold or issue any derivative contracts for trading purposes.

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Where the Company has a legal right to offset derivative settlements under a master netting agreement with a counterparty, derivatives with that counterparty are presented on a net basis.

The changes in the fair value of derivatives are recorded in either earnings or AOCI, depending on whether or not the instrument is designated as part of a hedge transaction and, if designated as part of a hedge transaction, the type of hedge transaction.

The changes in the fair value of derivatives are recorded in Interest and other financial expense, net in the Statement of Operations or AOCI, depending on whether the instrument is designated as part of a hedge transaction and, if designated as part of a hedge transaction, the type of hedge transaction.

The gains or losses on derivative instruments reported in AOCI are reclassified to earnings in the period in which earnings are affected by the underlying hedged item.

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Although these derivatives are not designated as hedges, the Company believes that such instruments are closely correlated with the underlying exposure, thus managing the associated risk.

The Company records in earnings the gains or losses from changes in the fair value of derivative instruments that are not designated as hedges.

The Company records the gains or losses from changes in the fair value of derivative instruments that are not designated as hedges in Interest and other financial expense, net in the Statement of Operations.

Cash movements associated with these instruments are presented in the Consolidated Statements of Cash Flows as Cash Flows from Operating Activities because the derivatives are designed to mitigate risk to the Company’s cash flow from operations.

The cash flows related to the principal amount of outstanding debt instruments are presented in the Cash Flows from Financing Activities section of the Consolidated Statements of Cash Flows.

Concentrations of credit risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations.

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents, accounts receivable, derivative instruments and undrawn amounts under the Revolving Credit Facility.

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand, demand deposits with financial institutions, and short-term liquid investments with an initial maturity date of less than three months.

Our cash in demand deposit accounts may exceed federally insured limits and could be negatively impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets.

Credit risk is mitigated as we place the cash mainly with our defined core banks which are major financial institutions enjoying investment grade long-term credit ratings.

To date, we have not experienced a loss or diminished access to cash in our demand deposit accounts.

Accounts receivable

Our trade accounts receivable are subject to concentrations of credit risk with customers primarily in our Rubber Carbon Black segment.

During 2019, sales to our ten largest customers within our Rubber Carbon Black segment accounted for approximately 66.1 % of

total consolidated segment revenues.

Sales to our ten largest customers within our Specialty Carbon Black segment accounted for approximately 27.7 % of total consolidated segment revenues (alternatively, our top ten customers represent 52.7 % of total Company's sales volume).

A default in payment, a material reduction in purchases from these or any other large customers, or the loss of a large customer or customer groups could have a material adverse impact on our financial condition, results of operations and liquidity.

In addition, trade receivables are subject to concentrations of credit risk with customers of specific industries which can be affected by a downturn in the economy.

We estimate the receivables for which we do not expect full collection based on historical collection rates and ongoing evaluations of the creditworthiness of our customers including considerations of future macroeconomic expectations.

An allowance is recorded in our consolidated financial statements for these estimated amounts.

The concentration of customer credit risk is mitigated by the size and diversity of the customer base as well as its geographic dispersion.

Derivative instruments

By using derivative instruments, Orion is subject to credit risk.

If a counterparty fails to fulfill its performance obligations under a derivative contract, Orion’s credit risk will equal the fair value of the derivative.

Generally, when the fair value of a derivative contract is positive, the counterparty owes Orion, thus creating a payment risk for Orion.

The Company minimizes counterparty credit (or repayment) risk by entering into transactions with major financial institutions enjoying investment grade long-term credit ratings.

No significant concentration of credit risk existed as of December 31, 2019.

Undrawn amounts under the Revolving Credit Facility

The Company has a € 175.0 million syndicated Revolving Credit Facility, originally dated July 25, 2014, in place to cover short-term Working Capital requirements.

The Revolving Credit Facility syndicate is comprised of ten national and international banks.

Currently a major part of the Revolving Credit Facility is still undrawn.

If a Revolving Credit Facility lender fails to fulfill its performance obligations (especially with respect to making funds available) under the credit agreement, Orion’s credit risk comprises a potential cash shortage/refinancing risk amounting to the respective bank's commitment amount.

With regard to the allocation of the total Revolving Credit Facility amount of € 175.0 million to the ten major financial institutions (highest single commitment is € 24.0 million), all with investment grade long-term credit ratings, there is no significant concentration of credit risk as of December 31, 2019.

Inventories are stated at the lower of cost or net realizable value.

The cost of inventories (raw materials, consumables and supplies) that have a similar nature or use is assigned by using the weighted average cost method.

Amounts are removed from inventory using the average cost.

Inventory is reviewed for both potential obsolescence and potential declines in net realizable value periodically.

In this review, assumptions are made about the future demand for, and market value of, the inventory and based on these assumptions the amount of any obsolete, slow moving, or overvalued inventory is estimated.

Orion writes down the value of these inventories by an amount equal to the difference between the cost of the inventory and its estimated net realizable value.

The Company has an investment in DGW (Kommanditgesellschaft Deutsche Gasrußwerke GmbH & Co) and DGW GmbH (Kommanditgesellschaft Deutsche Gasrußwerke GmbH & Co) that is determined to not be a Variable Interest Entity and is accounted for using the equity method.

The equity method is used to account for investments in affiliates in which the Company has the ability to exert significant influence over the affiliates’ operating and financial policies.

We value inventory at the lower of cost or net realizable value, with cost determined utilizing the average cost method.

We periodically evaluate the net realizable value of inventories based primarily upon their age, but also upon assumptions of future usage in production, customer demand and market conditions.

Inventories have been reduced to the lower of cost or net realizable value by allowances for slow moving or obsolete goods.

If actual circumstances are less favorable than those projected by management in its evaluation of the net realizable value of inventories, additional write-downs may be required.

The Company has an investment in DGW (Kommanditgesellschaft Deutsche Gasrußwerke GmbH & Co) and DGW GmbH (Kommanditgesellschaft Deutsche Gasrußwerke GmbH & Co) which is accounted for using the equity method as the Company has the ability to exert significant influence over the affiliates’ operating and financial policies.

Intangible assets and goodwill

The Company records tangible and intangible assets acquired and liabilities assumed in business combinations under the acquisition method of accounting.

We record tangible and intangible assets acquired and liabilities assumed in business combinations under the acquisition method of accounting.

Amounts paid for an acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition.

We use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination.

The determination of the fair value of intangible assets requires the use of significant judgment with regard to assumptions used in the valuation model.

The Company estimates the fair value of identifiable acquisition-related intangible assets principally based on projections of cash flows that will arise from these assets.

We estimate the fair value of identifiable acquisition-related intangible assets principally based on projections of cash flows that will arise from these assets.

The projected cash flows are discounted to determine the fair value of the assets at the dates of acquisition.

Acquisition-related costs are expensed as incurred and included in other expenses, net.

When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

This includes the separation of embedded derivatives in host contracts by the acquiree.

Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date.

Goodwill is comprised of the purchase price of business acquisitions in excess of the fair value assigned to the net tangible and identifiable intangible assets acquired (being the excess of the aggregate of i) the consideration transferred, ii) the amount recognized for non-controlling interest and iii) any previous interest held over the net assets acquired, over the fair value of the identifiable assets acquired and liabilities assumed).

At the date of acquisition the goodwill is allocated to those reporting units that are expected to benefit from the synergies of the combination even if no other assets or liabilities of the acquiree are assigned to that reporting unit.

Intangible assets acquired separately are recognized initially at cost.

The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition.

Intangible assets with finite useful lives, which are comprised of trademarks, customer relationships and developed technologies, are amortized over their estimated useful lives and, if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, tested for impairment, see below in this note under “Impairment test“.

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least once a year.

The useful lives of intangible assets are also re-assessed once a year.

Technology and patents (including capitalized development costs), trademarks and other intangible assets are amortized straight line over a useful life of 15 years.

Other intangible assets are amortized straight line over a useful life of 3 to 10 years.

Customer relationships acquired in business combinations in 2011 from Evonik and in 2018 from SN2A are amortized over their useful life.

The useful life is estimated on the basis of contractual arrangements and historical values and is approximately 8 and 15 years, respectively.

The amortization amount is based on the economic life and the probability of continuing the customer relationship in the form of a churn rate.

Impairment of Long-lived Assets and other intangible assets with finite useful lives

The Company assesses long-lived assets such as property, plant and equipment and other intangible assets with finite useful lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, an asset group or reporting units (“RU's”) may not be recoverable.

Definite-lived intangible assets, which are comprised of trademarks, customer relationships and developed technologies, are amortized over their estimated useful lives and are reviewed for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets.

Goodwill is comprised of the purchase price of business acquisitions in excess of the fair value assigned to the net tangible and identifiable intangible assets acquired.

Goodwill is not amortized and is subject to impairment testing annually, or when events or changes in the business environment indicate that the carrying value of the reporting unit may exceed its fair value.

Intangible assets with finite useful lives, which are comprised of trademarks, customer relationships and developed technologies, are amortized on a straight line basis over their estimated useful lives of 3 - 15 years.

The useful lives of intangibles related to customer relationships acquired in business combinations are estimated on the basis of contractual arrangements and the probability of a continuing relationship.

If events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable, it is tested for impairment, see below in this note under “Impairment test“.

The useful lives of intangible assets with finite useful lives are re-assessed annually.

Asset Impairment

Intangible Assets and Goodwill

Intangible assets with finite lives are reviewed for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets.

Goodwill is tested for impairment at the reporting unit level annually or more frequently if triggering events occur or as deemed necessary.

A reporting unit, for the purpose of the impairment test, is at or below the operating segment level, and constitutes a business for which discrete financial information is available and regularly reviewed by segment management.

Specialty Carbon Black and Rubber Carbon Black which are considered separate reporting units, carried our goodwill balances as of December 31, 2020.

Our annual measurement date for testing impairment is as of September 30, 2020.

For the purpose of the goodwill impairment test, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, an additional quantitative evaluation is performed.

Alternatively, we may elect to proceed directly to the quantitative goodwill impairment test.

If based on the quantitative evaluation the fair value of the reporting unit is less than its carrying amount, a goodwill impairment loss would result.

The goodwill impairment loss would be the amount by which the carrying value of the reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit.

The fair value of a reporting unit is based on discounted estimated future cash flows.

The fair value is also benchmarked against the value calculated from a market approach using the guideline public company method.

The assumptions used to estimate fair value include management’s best estimates of future growth rates, operating cash flows, capital expenditures and discount rates over an estimate of the remaining operating period at the reporting unit level.

Based on our most recent annual goodwill impairment test performed as of September 30, 2020, the fair values of the Specialty Carbon Black and Rubber Carbon Black reporting units were in excess of their carrying values.

Long-lived Assets

The Company assesses long-lived assets such as property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Long-lived assets to be held and used are assessed for possible impairment by comparing their carrying values with their associated undiscounted, future net cash flows.

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An impairment loss may not be reversed if the fair value of the impaired asset or asset group increases subsequently.

Impairment of goodwill

Goodwill represents the excess of the purchase price over the net amount of identifiable assets acquired and liabilities assumed in a business combination measured at fair value.

Goodwill is not amortized, but instead tested for impairment annually in the fourth quarter based on September 30 actual results, as well as whenever there are events or changes in circumstances (triggering events) which suggest that the carrying amount exceeds the fair value.

Impairment of goodwill is tested at the reporting unit level.

A reporting unit is an operating segment or one level below an operating segment (referred to as a component).

A component of an operating segment is required to be identified as a reporting unit if the component is a business for which discrete financial information is available and segment management regularly reviews its operating results.

At the date of the annual impairment test Orion had two reporting units to which the goodwill was allocated.

Goodwill impairment test was performed at the level of the two reporting units, Rubber Carbon Black and Specialty Carbon Black representing the two operating segments.

These two reporting units were defined as Orion has the possibility to switch capacities as well as products between its various locations.

Goodwill impairment is recorded only after performing a qualitative impairment test indicates a potential impairment.

If the carrying amount of the reporting units to which the goodwill is allocated exceeds the reporting unit's fair value an impairment loss is recorded.

An impairment loss is the excess of the reporting units carrying amount over its fair value.

Property, plant and equipment

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Expenditures for repairs and maintenance are charged to expenses as incurred.

Expenditures for major renewals and betterments, which significantly extend the useful lives of the existing property, plant and equipment, are capitalized and depreciated.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use (“ROU”) asset and a lease liability for all leases with terms greater than 12 months and also requires disclosures by lessees and lessors about the amount, timing and uncertainty of cash flows arising from leases.

Leases with terms of 12 month or less (i.e., short-term leases) were allowed to be exempted from Topic 842 through a recognition and measurement exemption, if elected.

Orion does not have any short-term leases.

Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs;

hereinafter, the collection of lease guidance is referred to as “ASC 842.”

A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.

Under ASC 842, leases are either finance leases or operating leases.

The Company mainly acts as a lessee in operating leases.

Operating leases are all leases that do not qualify as finance leases (leases where, in accordance with the contractual terms, the lessee substantially bears all the risks and rewards of ownership of the asset).

Leases are recorded as assets by discounting the minimum future lease payments while this discounted minimum obligation is recorded as the associated lease liability.

On January 1, 2019, we adopted ASC 842 using the modified retrospective transition method.

Results for the reporting period beginning January 1, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with our historical accounting under ASC 840, Leases.

Upon adoption of ASC 842, we increased our total assets and liabilities due to the recording of operating lease ROU assets and operating lease liabilities of approximately $ 30 million and $ 31 million, respectively, as of January 1, 2019.

These increases did not have a material impact on our results of operations or cash flows.

For all leases that commenced before the effective date of ASC 842, we elected to apply the permitted “practical expedients” to not reassess the following:

(1) whether any expired or existing contracts contain leases;

(2) the lease classification for any expired or existing leases;

and (3) initial direct costs for any existing leases.

Expenditures for major renewals and improvements, which significantly extend the useful lives of the existing property, plant and equipment, are capitalized and depreciated.

Asset retirement obligations

Orion estimates incremental costs for special handling, removal and disposal of materials that may or will give rise to conditional asset retirement obligations (“ARO”) and then discounts the expected costs back to the current year using a credit adjusted risk free rate.

Orion recognizes ARO liabilities and costs when the timing and/or settlement can be reasonably estimated.

The ARO reserves were $ 1.7 million and $ 2.9 million as of December 31, 2020 and 2019, respectively, and are included in Accrued liabilities (current) and Other Liabilities (non-current) on the Consolidated Balance Sheets.

We determine if an arrangement is a lease at inception of a contract.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

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We have lease agreements which require payments for lease and non-lease components and have elected to account for these as a single lease component related to our other operating facilities.

Under ASC 840, if certain conditions were met certain lease assets were recorded as asset-under-construction during the construction phase (“build-to-suit accounting”).

Under ASC 842, these assets are de-recognized;

as such, upon adoption of ASC 842 we de-recognized one asset previously recorded under build-to-suit accounting and its associated liability of $ 29 million.

A right-of-use asset will be capitalized upon subsequent commencement of the lease.

Leases with an initial term of 12 months or less are not recorded on the Balance Sheet and lease expense is recognized in the Consolidated Statements of Operations on a straight-line basis over the lease term.

Please see Note C.

Leases for additional information.

Asset retirement obligations

Orion recognizes ARO liabilities and costs when the timing and/or settlement can be reasonably estimated.

The ARO reserves were $ 2.9 million and $ 2.4 million at December 31, 2019 and 2018, respectively, and are included in Accrued liabilities (current) and Other Liabilities (non-current) on the Consolidated Balance Sheets.

Pension provisions

Pension provisions are measured in accordance with the projected unit credit method (Topic ASC 715).

Pension benefit plans

Our defined benefit pension obligations are measured in accordance with the projected unit credit method.

The calculations and the resulting amounts recorded in our consolidated financial statements are affected by assumptions including the discount rate, expected long-term rate of return on plan assets, the annual rate of change in compensation for plan-eligible employees, mortality tables, and other factors.

We evaluate the assumptions used on an annual basis.

The Company recognizes the total actuarial gains or losses recorded in accumulated other comprehensive income exceeding 10% of the defined benefit obligation in the following year through profit and loss separately from its income from operations.

Defined contribution obligations arise from commitments and state pension schemes (statutory pension insurance).

The Company accounts for its contributions to a defined contribution plan on an accrual basis.

We account for our contributions to a defined contribution plan on an accrual basis.

An asset or liability may result from advance payments or payments due, respectively, to a defined contribution fund.

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The overarching principle focuses on whether an equity relationship is created through the award.

Orion classified its awards as equity settled.

Orion classifies its awards as equity settled.

Once earned and vested, certain awards can be settled in one share of Company common stock per vested award (or, at the Company’s election, cash equal to the fair market value thereof).

Certain awards are settled for cash at fair market value to cover wage taxes or as a substitute for share transfer restrictions.

When the terms of an equity-settled award are modified, the minimum expense recognized is the expense had the terms not been modified, if those original terms of the award are met.

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Environmental provisions

Environmental provisions are distinct obligations that arise from the improper operation of an asset and obligations from the normal operation of an asset (asset retirement).

Environmental obligations are recognized when there is a legal obligation to restore a site, the damage has already occurred, it is likely that restorations will be incurred and the costs can be reasonably estimated.

Changes in environmental legislation are not taken into account until they are enacted.

When a single liability amount cannot be reasonably estimated, but a range can be reasonably estimated, the amount that reflects the best estimate is accrued within that range or as for other provisions the low end of the range if no estimate within the range is better.

Environmental provisions are usually recognized immediately in profit or loss.

We accrue for environmental remediation costs and other obligations when it is probable that a liability has been incurred and we can reasonably estimate the amount.

The amount accrued reflects our assumptions about remediation requirements at the contaminated site, the nature of the remedy, the outcome of discussions with regulatory agencies and other potentially responsible parties at multi-party sites, and the number and financial viability of other potentially responsible parties.

We do not reduce its estimated liability for possible recoveries from insurance carriers.

Proceeds from insurance carriers are recorded when realized by either the receipt of cash or a contractual agreement.

We determine the timing and amount of any liability based upon assumptions regarding future events.

Inherent uncertainties exist in such evaluations primarily due to unknown conditions and other circumstances, changing governmental regulations and legal standards regarding liability, and evolving technologies.

We adjust these liabilities periodically as remediation efforts progress or as additional technical or legal information becomes available.

Restructuring expenses

A restructuring is a program that is planned and controlled by management and materially changes either the scope of a business or the manner in which the business is conducted.

Orion accounts for a provision for restructuring costs when there is a formal plan and the details of the restructuring have been communicated to those affected by the plan.

Costs are allocated to the following cost types;

termination benefits, costs to terminate a contract and costs to close or consolidate facilities or to relocate employees.

The different cost types contain separate recognition criteria.

A provision for costs associated with an exit or disposal activity shall be measured initially and recorded at its fair value in the period in which the liability is incurred.

Recent Accounting Pronouncements Not Yet Adopted

In January 2020, the FASB issued ASU No.

2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) .

The amendments in this update clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815.

The amendments in this update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

The Company is currently evaluating the potential impact the adoption of this standard will have on its financial statements.

Restructuring expenses could include both termination benefits and asset write downs.

We estimate accruals for termination benefits based on various factors including length of service, contract provisions, local legal requirements, projected final service dates, and salary levels.

We also analyze the carrying value of long-lived assets and record estimated accelerated depreciation through the anticipated end of the useful life of the assets affected by the restructuring or record an asset impairment.

In all likelihood, this accelerated depreciation will result in reducing the net book value of those assets to zero at the date operations cease.

While we believe that changes to our estimates are unlikely, the accuracy of our estimates depends on the successful completion of numerous actions.

Changes in our estimates could increase our restructuring costs to such an extent that it could have a material impact on the Company’s results of operations, financial position, or cash flows.

Other events, such as negotiations with unions and works councils, may also delay the resulting cost savings.

Concentrations of credit risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations.

Credit risk is mitigated as we place the cash mainly with our defined core banks which are major financial institutions with investment grade long-term credit ratings.

Our trade accounts receivable are subject to concentrations of credit risk with customers primarily in our Rubber Carbon Black segment.

During 2020, sales to our ten largest customers within our Rubber Carbon Black segment accounted for approximately 66% of total consolidated segment sales.

Sales to our ten largest customers within our Specialty Carbon Black segment accounted for approximately 25% of total consolidated segment sales.

Sales to our top ten customers on a total consolidated basis accounted for approximately 39% of our consolidated net sales.

In addition, trade receivables are subject to concentrations of credit risk with customers of specific industries which can be affected by a downturn in the economy.

An allowance is recorded in our consolidated financial statements for these estimated amounts.

The concentration of customer credit risk is mitigated by the size and diversity of the customer base as well as its geographic dispersion.

If a counterparty fails to fulfill its performance obligations under a derivative contract, our exposure will equal the fair value of the derivative.

Generally, when the fair value of a derivative contract is positive, the counterparty owes the Company, thus creating a payment risk for the Company.

We minimize counterparty credit or repayment risk by entering into these transactions with major financial institutions of investment grade credit rating.

See Note K-” Financial Instruments and Fair Value Measurements” for additional information on our derivative contracts.

If an RCF lender fails to fulfill its performance obligations, with respect to making funds available, under the credit agreement, Orion’s credit risk comprises a potential cash shortage/refinancing risk amounting to the respective bank's commitment amount.

With regard to the allocation of the total RCF amount all the lenders ins the syndicate carry investment grade long-term credit ratings.

See Note H-” Debt and Other Obligations” for additional information on our revolving credit facility

We believe there is no significant concentration of risk as of December 31 ,2020.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU No.

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This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

The Company adopted this guidance as of January 1, 2021.

The adoption of this guidance will not have a material impact on the Company's financial statements.

In November 2019, the FASB issued ASU No.

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For entities that have adopted ASU 2016-13, the amendments in ASU 2019-11 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 after the issuance of ASU No.

2019-11 as long as the entity has adopted the amendments in ASU No.

The Company is currently evaluating the potential impact the adoption of this standard will have on its financial statements.

In May 2019, the FASB issued ASU No.

2019-05, Financial Instruments - Credit Losses (Topic 326) .

The amendments in this ASU provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost , with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments - Overall , applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326.

For entities that have adopted the amendments in ASU No.

2016-13, the amendments in ASU No.

2019-05 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 after the issuance of ASU No.

2019-05 as long as the entity has adopted the amendments in ASU No.

The adoption of this guidance will not have a significant impact on the Company's financial statements.

In April 2019, the FASB issued ASU No.

2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments .

The updates contained in this ASU provide clarification and correction to ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities , ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , and ASU 2017-12, Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities , and is intended to improve the Codification or correct its unintended application.

The amendments in ASU No.

2019-04 related to ASU No.

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 No.

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 No.

2019-04 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 after issuance of ASU No.

2019-04 as long as the entity has adopted the amendments in ASU No.

For entities that have adopted the amendments in ASU No.

2017-12 as of the issuance date of ASU No.

2019-04, the effective date is as of the beginning of the first annual period beginning after the issuance of ASU No.

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 No.

The adoption of this guidance will not have a significant impact on the Company's financial statements.

Early adoption is permitted in any interim period after the issuance of ASU 2019-11 as long as the entity has adopted the amendments in ASU No.

The Company adopted ASU 2019-11 as of January 1, 2020.

The adoption of this guidance did not have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU No 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20):

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Entities will apply the amendments retrospectively.

The adoption of this guidance will not have a significant impact on the Company's financial statements.

The Company adopted ASU No 2018-14 as of January 1, 2020.

The adoption of this guidance did not have a significant impact on the Company's financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Measurement of Financial Losses on Credit Instruments.

The standard introduces a new "expected loss" impairment model that applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables and other financial assets.

Entities are required to estimate expected credit losses over the life of financial assets and record an allowance against the assets’ amortized cost basis to present them at the amount expected to be collected.

The new standard is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted.

The Company adopted this standard on January 1, 2020.

The adoption of this standard did not materially impact the Company’s consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04).

The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022.

The Company is currently evaluating the potential impact the adoption of this standard will have on its financial statements.

In January 2020, the FASB issued ASU No.

2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) .

The amendments in this update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

The Company is currently evaluating the potential impact the adoption of this standard will have on its financial statements.

Orion has entered into lease contracts as a lessee and is not acting as a lessor.

On January 1, 2019, Orion adopted Topic 842 (Leases).

Orion adopted ASUs 2016-02, 2018-11, 2018-10 and 2019-01 (“Lease ASUs”) using the optional transition method under ASU 2018-11 that allows for a cumulative-effect adjustment in the period of adoption without restating prior periods.

Orion elected the optional practical expedient upon transition to retain the lease classification and initial direct costs for any leases that existed prior to adoption of the standard.

We have not recorded an adjustment to retained earnings due to materiality.

In addition, the adoption did not materially impact our consolidated net income and had no impact on our cash flows.

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

The recorded right-of-use assets as of December 31, 2019 amounted to $ 27.5 million, and the corresponding lease liabilities amounted to $ 29.1 million, of which $ 7.6 million were recorded within other current liabilities and $ 21.5 million as other liabilities.

The vast majority of Orion’s lease contracts are for operating lease assets such as rail cars, company cars, offices and office equipment.

The recorded right-of-use assets as of December 31, 2020 amounted to $ 85.6 million, and the corresponding lease liabilities amounted to $ 86.6 million, of which $ 12.1 million were recorded within other current liabilities and $ 74.5 million as other liabilities in our Consolidated Balance Sheets.

The weighted remaining average minimum lease period is 20.6 years.

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

December 31, 2020

(In thousands)

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The weighted average discount rate applied to the lease liabilities is 4.01 %.

Finance lease costs were immaterial for the year ended December 31, 2019, with segregated depreciation expenses of the right-of-use assets in the amount of $ 0.5 million, and interest on lease liabilities of $ 0.1 million.

Operating lease costs amounted in total to $ 12.5 million for the year ended December 31, 2019 and were recorded as operating expenses 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 $ 8.6 million for the year ended December 31, 2019 and was immaterial for finance leases during the same period.

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, are currently constructing the facilities at our location, with the lease scheduled to commence by the end of 2020 after construction is completed.

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 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 years ended December 31, 2020 and 2019 were $ 2.3 million and $ 0.6 million, respectively, and aggregated depreciation expenses of the right-of-use assets were $ 1.4 million, and $ 0.5 million, respectively.

Interest on lease liabilities of $ 0.9 million and $ 0.1 million were recorded for the years ended December 31, 2020 and 2019, respectively.

Cash paid for amounts included in the measurement of lease liabilities from finance leases was $ 1.9 million and $ 0.6 million for the years ended December 31, 2020 and 2019, respectively.

Operating lease costs for the years ended December 31, 2020 and 2019 amounted in total to $ 11.6 million and $ 12.5 million, respectively, and were recorded as operating expenses 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 $ 8.1 million and $ 8.6 million for the years ended December 31, 2020 and 2019, respectively,

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 in 2021 after construction is completed.

The lease agreement will have a total of approximately $ 6 million in undiscounted future lease payments over the 10-year term of the lease.

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

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

(In thousands)

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In the periods ended December 31, 2020, 2019 and 2018, $ 9.0 million, $ 6.0 million and $ 1.9 million, respectively, were recognized as an expense for damaged and lost inventories.

As of December 31, 2019 and 2018, reserves to adjust inventories net realizable value in the amount of $ 1.4 million and $ 2.4 million, respectively, were recognized on raw materials, consumables and supplies and on finished goods.

Property, Plant and Equipment, and right-of-use assets

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Net property, plant and equipment $ 610,530 $ 534,054

Depreciation expense was $ 75.3 million, $ 78.2 million and $ 77.0 million for fiscal years 2019, 2018 and 2017, respectively.

Property, plant and equipment figures include remeasurements due to the finalization of purchase price accounting in the third quarter of 2019 for the acquisition of SN2A (see Note H.

Business Combination, Goodwill and Intangible Assets ).

Right-of-use assets' cost price amounts to $ 36.1 million as at December 31, 2019.

With accumulated depreciation of $ 8.5 million, the net carrying amount is $ 27.5 million at December 31, 2019.

Depreciation expense for fiscal year 2019 equals accumulated depreciation, since right-of-use assets were first recognized in 2019.

Depreciation expense was $ 81.0 million, $ 75.3 million and $ 78.2 million for fiscal years ending December 31, 2020, 2019 and 2018, respectively.

Property, plant and equipment amounts include remeasurements due to the finalization of purchase price accounting in the third quarter of 2019 related to the acquisition of SN2A (see Note I.

Business Combinations, Goodwill and Intangible Assets ).

The value of right-of-use assets as of December 31, 2020 was $ 101.5 million.

With accumulated depreciation of $ 15.8 million, the net carrying amount is $ 85.6 million as of December 31, 2020.

Depreciation expense for right-of-use assets was $ 7.3 million and $ 8.5 million for fiscal years 2020 and 2019 , respectively.

Prepaid and other assets

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Total $ 47,408 $ 44,452 $ 2,956 $ 41,059 $ 37,358 $ 3,701

Miscellaneous other receivables in the financial year are mainly related to VAT ($ 21.5 million and $ 15.7 million as at December 31, 2019 and 2018, respectively), advance payments ($ 1.2 million and $ 5.3 million as at December 31, 2019, 2018, respectively), down payments ($ 3.1 million and $ 4.3 million as at December 31, 2019 and 2018, respectively), refundable environmental taxes prepaid ($ 3.2 million and $ 5.9 million as at December 31, 2019 and 2018, respectively) and guarantee deposits ($ 1.4 million and $ 1.7 million as at December 31, 2019 and 2018, respectively).

Prepaid expenses mainly include other unamortized transaction costs of $ 3.4 million and $ 2.4 million as at December 31, 2019 and 2018, respectively, (of which $ 2.8 million and $ 1.8 million, respectively, is non-current) incurred in connection with the revolving credit facility that has not been drawn by the respective reporting dates.

Miscellaneous other receivables were primarily VAT ($ 23.0 million and $ 21.5 million as at December 31, 2020 and 2019, respectively), advance payments ($ 2.9 million and $ 1.2 million as of December 31, 2020, and 2019, respectively), down payments ($ 2.3 million and $ 3.1 million as of December 31, 2020 and 2019, respectively), refundable environmental taxes prepaid ($ 0.9 million and $ 3.2 million as of December 31, 2020 and 2019, respectively) and guarantee deposits ($ 1.4 million and $ 1.4 million as of December 31, 2020 and 2019, respectively).

Prepaid expenses primarily include other unamortized transaction costs of $ 3.0 million and $ 3.4 million as of December 31, 2020 and 2019, respectively, (of which $ 2.3 million and $ 2.8 million, respectively, are non-current) incurred in connection with the revolving credit facility that has not been drawn by the respective reporting dates.

Accounts Receivable

The company accounts receivable are as follows:

(In thousands)

Accounts receivable $ 240,590 $ 219,197

Expected credit losses ( 5,794 ) ( 6,632 )

Accounts receivable, net of expected credit losses $ 234,796 $ 212,565

The company allowance for credit losses are as follows:

(In thousands)

Allowance for credit losses as of January 1, $ ( 6,632 ) $ ( 5,081 )

Credit loss expense ( 3,965 ) ( 3,703 )

Credit loss income and utilization 4,924 1,209

Foreign currency translation effects ( 120 ) 943

Allowance for credit losses as of December 31, $ ( 5,794 ) $ ( 6,632 )

Debt and Other Obligations

The company had the following debt arrangements in place as of December 31, 2019 and 2018:

The company arrangements are as follows:

(In thousands)

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Deferred debt issuance costs-term loan ( 3,676 ) ( 4,733 )

( 4,733 ) ( 6,266 )

Other long-term debt and obligations — —

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Total $ 738,444 $ 666,671

(1) According to ASU 2015-03, adopted on January 1, 2016, the Company presents debt issuance costs related to a recognized liability as a direct deduction from the carrying amount of that liability.

(a) Term Loan

On July 25, 2014, Orion entered into a refinancing of its indebtedness.

The initial term loan credit facility in USD of $ 895.0 million was allocated to a term loan facility denominated in USD of $ 358.0 million and a term loan facility denominated in Euro of € 399.0 M 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.

In 2014, Orion entered into an $ 895.0 million term loan credit facility (“Credit Agreement”), which was allocated to a term loan facility denominated in U.S.

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 U.S.

dollar denominated loan) plus a 3.75 % - 4.00 % margin depending on the Company’s net leverage ratio.

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

At least 1.0 % of the principal amount is required to be repaid per annum.

Orion may make additional voluntary repayments.

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 Orion repriced its EUR- and USD-denominated outstanding term loans during the years 2016 to 2018 and achieved a significant reduction of both interest margins to currently 2.00 % for the USD term loan and 2.25 % for the Euro term loan.

The margin is no longer linked to Orion's net leverage ratio.

In addition the EURIBOR and USD-LIBOR floors were reduced to 0.00 %.

Moreover the duration of both term loans were extended by another 3 years resulting in a new maturity date of July 25, 2024 (previously July 25, 2021).

Other provisions of this credit agreement remained unchanged.

Transaction costs incurred directly in connection with the incurrence of the Euro and U.S.

Dollar denominated term loans, thereby reducing their carrying amount, are amortized as finance costs over the term of the loans.

Transaction costs incurred in connection with the modifications of the term loan in the years 2016 to 2018 were directly expensed as incurred as the modified terms were not substantially different.

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.

In 2019, an amount of $ 1.4 million equivalent related to capitalized transaction costs was amortized and recognized as finance costs in this regard (prior year:

$ 1.4 million equivalent).

On May 11, 2018, Orion entered into a $ 235.0 million cross currency swap to virtually convert its US dollar liabilities into EUR as part of a new hedging approach.

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.

In addition, the interest margin is no longer linked to Orion's net leverage ratio and the EURIBOR and USD-LIBOR floors were eliminated.

The duration of both Term Loans was extended to July 25, 2024.

Other provisions of the Credit Agreement relating to the Term Loans remained unchanged.

Transaction costs incurred directly in connection with the Term Loans reduce their carrying amount and are amortized as finance costs over the term of the loans.

Transaction costs incurred in connection with the subsequent modifications of the Term Loan were directly expensed as incurred as the modified terms were not substantially different.

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

For the years ended December 31, 2020, 2019 and 2018 an amount of $ 1.4 million , $ 1.4 million and $ 1.4 million , respectively, related to capitalized transaction costs was amortized and recognized as finance costs in this regard.

In May 2018, Orion entered into a $ 235.0 million cross currency swap to synthetically convert its U.S.

dollar liabilities into euro liabilities.

This swap transaction impacts both principal and interest payments associated with debt service and results in a further annual interest payments savings of approximately $ 4.7 million.

The swap became effective on May 15, 2018 and will expire on July 25, 2024, in line with maturity of the term loan.

A portion of the USD-denominated term loan was designated as a hedge of the net investment in a foreign operation to reduce the Company's foreign currency exposure.

Since January 1, 2015 the Company had designated $ 180.0 million of the total USD-denominated term loan held by a Germany based subsidiary as the hedging instrument to hedge the change in net assets of a US subsidiary, which is held by a Germany based subsidiary, to manage foreign currency risk.

As part of our financial risk strategy, on December 30, 2020, we exited $ 38.0 million and $ 30 million in cross currency swaps, with maturity dates of 2024 and 2021, respectively, at a loss of approximately $ 6.3 million.

A portion of the U.S.

dollar-denominated term loan was designated as a hedge of the net investment in a foreign operation to reduce the Company's foreign currency exposure.

Since January 1, 2015 the Company had designated $ 180.0 million of the total U.S.

dollar-denominated term loan held by a Germany based subsidiary as the hedging instrument to hedge the change in net assets of a U.S.

subsidiary, which is held by a Germany based subsidiary, to manage foreign currency risk.

Due to the new hedging approach and the new cross currency swap as described above, hedge accounting for the net investment hedge was discontinued on May 15, 2018.

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 as at December 31, 2019 includes the nominal amount of the Term Loans plus accrued unpaid interest less deferred debt issuance costs - term loan of $ 6.1 million (December 31, 2018:

The carrying value of the Term Loans as of December 31, 2020 includes the nominal amount of the Term Loans plus accrued unpaid interest less deferred debt issuance costs - term loan of $ 5.2 million (December 31, 2019:

$ 6.1 million).

(b) Revolving credit facility

To generally safeguard the Company’s liquidity, the Company has entered into a revolving credit facility (“RCF”).

As part of July 25, 2014 refinancing the then-existing revolving facility was replaced by a € 115.0 million multicurrency revolving credit facility with an original maturity date July 25, 2019.

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).

The RCF has not been drawn on the respective reporting dates while certain local ancillary facilities reduced the available commitment.

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

The 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 revolving credit facility to April 25, 2021 and (iii) increased the aggregate amount of revolving credit commitments to € 175.0 million.

To fund operating activities and generally safeguard the Company’s liquidity, the Company has entered into an RCF.

In 2014, the Company entered into a € 115.0 million multicurrency revolving credit facility with an original maturity date of July 25, 2019.

Interest is calculated based on EURIBOR (for euro drawings), and USD-LIBOR (for U.S.

Dollar 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).

An amendment to the RCF entered into in May 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.

All other terms of the Credit Agreement remained unchanged.

Additional Transaction costs in conjunction with the RCF in the amount of $ 2.3 million incurred in connection with the Amendment to the Credit Agreement are also recorded as deferred expenses and are amortized as finance costs on a straight-line basis over the term of the facility (until April 25, 2021).

On April 2, 2019, the Company entered into the eighth amendment (the “Eighth Amendment”) to the Credit Agreement, among the Company and certain of its subsidiaries, as Borrowers or Guarantors, the Lenders from time to time party thereto and Goldman Sachs Bank US, as administrative agent for the Lenders.

The Amendment relates to the revolving credit facility (“RCF”) provided by the Credit Agreement.

The Eighth Amendment became effective on April 10, 2019.

The Eighth Amendment:

Transaction costs in conjunction with the RCF of $ 2.3 million related to the 2017 amendment to the Credit Agreement are recorded as deferred expenses and amortized as finance costs on a straight-line basis over the term of the facility (until April 25, 2021).

In April 2019, the Company entered into an amendment to the RCF, effective April 10, 2019, which:

(i) extended the maturity date for the RCF by three years to April 25, 2024,

(ii) increased the aggregate amount of revolving credit commitments in Euro by € 75.0 million to EUR € 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);

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

All other terms of the Credit Agreement remain substantially unchanged.

During 2019, transaction costs of $ 0.7 million were amortized (prior year:

$ 0.8 million).

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 $ 3.4 million as at December 31, 2019.

Unamortized transaction costs as at December 31, 2018 amount to $ 2.4 million and were incurred in conjunction with the RCF in July 2014 and the Amendment on May 30, 2017.

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

As of December 31, 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 RCF remained substantially unchanged, including the commitment fee, which remains at 35 % of applicable margin.

As of December 31, 2020 and 2019, no RCF borrowings, as defined in the Credit Agreement, had been drawn, while $ 70.3 million and $ 28.6 million, respectively, in borrowings under ancillary facilities reduced the overall amount available under the RCF to $ 236.5 million .

Letters of credit can be issued for the amount available under the RCF and ancillary facilities.

The weighted average interest rates on short term borrowings as of December 31, 2020 and 2019 were 2.48 % and 2.51 %, respectively.

For the years ended December 31, 2020 , 2019 and 2018 transaction costs of $ 0.6 million, $ 0.7 million and $ 0.8 million.

respectively, were amortized.

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 December 31, 2020.

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

Orion has established additional local ancillary credit facilities for OEC GmbH and OEC LLC by using overall RCF commitments.

As of December 31, 2020, the Company had partly drawn its uncommitted local credit lines in Korea of $ 4.6 million and Brazil amounting to $ 0.8 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 € 250.0 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 December 31, 2020, the ancillary facilities had $ 70.3 million (as of December 31, 2019:

$ 26.4 million ) outstanding.

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

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).

Since June 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 as of December 31, 2020 , the € 250 million RCF amounted to approximately $ 307 million.

By converting the existing RCF commitments of select bank group participants, Orion has established local ancillary credit facilities for OEC GmbH and OEC LLC.

As of December 31, 2020, the OEC GmbH facility had $ 43.5 million (prior year:

$ 26.4 million ) outstanding and the OEC LLC facility had $ 26.8 million (prior year:

zero ) outstanding.

$ 2.2 million ) outstanding.

Future Years Payment Schedule

The following table shows the residual terms of our Term Loan and its impact on our cash flows based on the agreed maturity date, the repayment schedule, and the total interest amounts.

Implied three months EUR forward interest rates and implied USD forward interest rates as applicable on December 31, 2019 were used to calculate the repayment amounts.

Implied three months Euro forward interest rates and implied U.S Dollar forward interest rates as applicable on December 31, 2020 were used to calculate the repayment amounts.

Interest Scheduled Repayment Total

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2024 8.9 642.5 651.4

2024 9.9 610.8 620.7

Total $ 53.9 $ 668.0 $ 721.8

Business Combination, Goodwill and Intangible Assets

Covenant Compliance

The Credit Agreement contains certain non-financial covenants that, among other things, limit the Company’s ability and the ability of certain of its subsidiaries to (i) incur additional debt, (ii) pay dividends, repurchase shares or make certain other restricted payments or investments, (iii) incur liens, (iv) sell assets, (v) to pay dividends or to make other payments to the Company, (vi) enter into affiliate transactions, (vii) engage in sale and leaseback transactions, and (viii) consolidate, merge, sell or otherwise dispose of all or substantially all of the Company’s assets.

These covenants are subject to significant exceptions and qualifications.

In addition, there is one financial covenant under the Credit Agreement, the First Lien Leverage Ratio (“FLLR”), defined as Consolidated First Lien Debt divided by Consolidated Adjusted EBITDA for the trailing twelve months (“TTM”).

The FLLR is not permitted 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 credit lines are excluded.

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

Business Combinations, Goodwill and Intangible Assets

Business Combination

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The acquisition was accounted for using the acquisition method.

Tangible and identifiable intangible assets acquired and liabilities assumed are recorded at fair value as of the acquisition date.

Tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the acquisition date.

During the quarter ended September 30, 2019, we completed the purchase accounting for the acquisition of SN2A and we reduced the total fair value of intangible assets acquired from $ 44.3 million to $ 12.8 million based on an improved understanding of the allocation of future expected cash flows since the date of acquisition including an adjustment to the applied discount rate aligned to target specific considerations.

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There are inherent uncertainties and management judgment required in these determinations.

Orion had goodwill balances of $ 77.3 million and $ 55.5 million at December 31, 2019 and December 31, 2018, respectively.

The carrying amount of goodwill attributable to each reportable segment for period ended December 31, 2020 is as follows:

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(In thousands)

Balance at January 1, 2018 $ 33,037 $ 25,143 $ 58,180

Balance as of January 1, 2019 $ 31,550 $ 23,996 $ 55,546

Goodwill recorded in SN2A acquisition — 23,014 23,014

Foreign currency impact ( 595 ) ( 624 ) ( 1,220 )

Balance at December 31, 2018 $ 31,550 $ 23,996 $ 55,546

Addition Goodwill recorded in SN2A acquisition — 23,014 23,014

Balance as of December 31, 2019 $ 30,955 $ 46,385 $ 77,341

Foreign currency impact 2,857 4,282 7,139

Balance at December 31, 2019 $ 30,955 $ 46,385 $ 77,341

Balance as of December 31, 2020 $ 33,812 $ 50,667 $ 84,480

Qualitative impairment testing performed during the fiscal year for the Rubber and Specialty reporting units did no t indicate a goodwill impairment.

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Intangible assets are amortized over their estimated useful lives, which range from 3 to 15 years.

The weighted average amortization period for all intangible assets at December 31, 2019 and 2018 was 8.4 years and 10.8 years, respectively.

The weighted average amortization period for all intangible assets as of December 31, 2020 and 2019 was 9.8 years and 8.4 years, respectively.

Amortization expense for the years ended December 31, 2020, 2019 and 2018 was $ 8.2 million, $ 12.9 million and $ 20.0 million, respectively, and is included in Cost of sales and Selling, general and administrative expenses in the Consolidated Statements of Operations.

Intangible assets include remeasurements due to the purchase price adjustment in the third quarter of 2019 of SN2A acquisition (see Note H.

Business Combination, Goodwill and Intangible Assets ).

Intangible assets include remeasurements due to the purchase price adjustment in the third quarter of 2019 of SN2A acquisition (see Note I.

“ Business Combinations, Goodwill and Intangible Assets”

The estimated aggregate amortization expense for intangible assets for the fiscal years ending December 31, 2021 to 2025 and thereafter are as follows:

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Liabilities for VAT 675 555

Liabilities for property tax 785 —

Liabilities for outstanding invoices 7,112 5,902

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Environmental protection liabilities 1,250 1,240

Liabilities from build-to-suit lease agreement — 28,657

Liabilities for leases 74,526 21,463

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The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the following fair value hierarchy based on the lowest level input that is significant to the fair value measurement as a whole:

The Company uses valuation techniques, including cash flow and present value methods, that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

The FASB authoritative guidance on fair value measurements defines fair value, provides a framework for measuring fair value, and requires certain disclosures about fair value measurements.

The required disclosures focus on the inputs used to measure fair value.

The guidance establishes the following hierarchy for categorizing these inputs:

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

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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.

For the years ended December 31, 2019 and 2018, the Company’s defined benefit pension plan assets were all Level 2 assets.

- "Employee Benefit Plans" herein for additional information.

The following table shows the fair value measurement at both year-ends December 31, 2019 and 2018.

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 2019 2018

There were no transfers of assets measured at fair value between Level 1 and Level 2 and there were no Level 3 investments during fiscal 2020 or 2019.

The following table shows the fair value measurement based on observable inputs such as interest rates and are classified as Level 2 within the fair value hierarchy:

Derivative Fair Value Hierarchy 2020 2019

(In thousands)

Receivables from hedges/ derivatives $ 195 $ 8,436

Prepaid expenses and other current assets Level 2 8,434 9,777

Prepaid expenses and other current assets FX hedges Level 2 195 8,434

Other financial assets (non-current) Level 2 — 1

Liabilities from derivatives $ 23,127 $ 9,425

Other current liabilities Level 2 109 2,302

Other liabilities (non-current) Level 2 9,316 4,730

Other current liabilities FX hedges Level 2 296 109

Other liabilities (non-current) Cross currency and interest rate swaps Level 2 22,831 9,316

Term loan Level 2 $ 667,980 $ 643,051

Local bank loans Level 2 $ 75,640 $ 29,762

At both December 31, 2020 and 2019, the fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and short term borrowings and variable rate debt approximated their carrying values due to the short-term nature of these instruments.

See Note L- Accounting for Derivative Instruments and Hedging Activities for additional information related to derivatives and fair value.

Accounting for Derivative Instruments and Hedging Activities

Risk management

The Company’s business operations are exposed to changes in interest rates, foreign currency exchange rates and commodity prices because the Company finances certain operations through long and short-term borrowings, denominates transactions in a variety of foreign currencies and purchases certain commoditized raw materials.

Changes in these rates and prices may have an impact on future cash flows and earnings.

The Company manages these risks through normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments.

The Company has policies governing the use of derivative instruments and does not enter into financial instruments for trading or speculative purposes.

By using derivative instruments, the Company is subject to credit and market risk.

If a counterparty fails to fulfill its performance obligations under a derivative contract, the Company’s credit risk will equal the fair value of the derivative.

Generally, when the fair value of a derivative contract is positive, the counterparty owes the Company, thus creating a payment risk for the Company.

The Company minimizes counterparty credit (or repayment) risk by entering into transactions with major financial institutions of investment grade credit rating.

The Company’s exposure to market risk is not hedged in a manner that completely eliminates the effects of changing market conditions on earnings or cash flow.

No significant concentration of credit risk existed as of December 31, 2020 and 2019.

Cash flow hedge

The Company has designated, as of November 28, 2014 the entire interest rate caps entered in 2014 and denominated in Euro with an initial nominal amount of € 375.0 million against the Term Loan tranches denominated in Euro with an initial nominal amount of € 399.0 million, as well as the entire interest rate caps entered in 2014 and denominated in USD with an initial nominal amount of $ 350.0 million against Term Loan tranches denominated in USD with an initial nominal amount of $ 358.0 million with respect to quarterly interest payments exceeding a three months EURIBOR rate of 1.0 % and a three months USD-LIBOR rate of 2.5 % respectively.

€ 399.0 million, as well as the entire interest rate caps entered in 2014 and denominated in USD with an initial nominal amount of $ 350.0 million against Term Loan tranches denominated in USD with an initial nominal amount of $ 358.0 million with respect to quarterly interest payments exceeding a three months EURIBOR rate of 1.0 % and a three months USD-LIBOR rate of 2.5 % respectively.

On November 14, 2017 the Company acquired floored forward interest rate swaps to hedge interest rate risk on current Euro-denominated term loan financing.

On May 15, 2018 the Company entered into a $ 235.0 million cross-currency swap to hedge interest rate risk on current USD-denominated term loan financing which replaced the USD-denominated Caps terminated on May 14, 2018.

In December 2020, the Company unwound $ 38.0 million of the $ 235.0 million cross currency swap maturing in 2024 at a realized loss of approximately $ 2.4 million.

In a separate transaction occurring in December 2020, the Company unwound a $ 30 million swap maturing in 2021 at a realized loss of approximately $ 3.9 million.

The Company designated the Euro-denominated interest rate caps, the Euro-denominated interest rate swap at closing in November 2017 and the cross-currency swaps at closing in May 2018 in the same manner.

1 unchanged sentence

Net Investment Hedge

For net investment hedges, changes in the fair value of the effective portion of the derivatives’ gains or losses are reported as foreign currency translation gains or losses in AOCI while changes in the ineffective portion are reported in earnings.

Effectiveness is assessed based on the hypothetical derivative method.

The gains or losses on derivative instruments reported in AOCI are reclassified to earnings in the period in which earnings are affected by the underlying item, such as a disposal or substantial liquidations of the entities being hedged.

To reduce the Company's foreign currency exposure a portion of the U.S.

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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.

Changes in fair value of the effective portion of the hedging instrument's gains or losses are reported as foreign currency translation gains or losses in AOCI while changes in the ineffective portion are reported in earnings.

Effectiveness is assessed based on the hypothetical derivative method.

There was no ineffectiveness in either of the years ended December 31, 2018 or 2017.

Due to the new hedging approach and the new cross currency swap described above, hedge accounting for the net investment hedge was discontinued on May 15, 2018.

Thus in 2018, with the change of the reporting currency, Orion decided to de-designate the net investment hedge.

Foreign currency risk exposure is reduced by using a cross-currency-swap, designated as a cash flow hedge.

Cumulative gains and losses recognized in AOCI from the net investment hedge will continue to be recorded in AOCI until disposal of the U.S.

Thus, 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.

See Note K- ”Financial Instruments and Fair Value Measurement” for additional information related to derivatives and fair value.

Employee Benefit Plans

Provisions for pensions are established to cover benefit plans for retirement, disability and surviving dependents’ pensions.

Provisions are established to cover defined benefit plans for retirement, disability and surviving dependents’ pensions.

The benefit obligations vary depending on the legal, tax and economic circumstances in the various countries in which the Company operates.

Generally, the level of benefit depends on the length of service and the remuneration.

In 2019 and 2018, Germany accounted for approximately 91.8 % and 90.1 %, respectively, of provisions for projected benefit pension obligations.

In 2020 and 2019, Germany accounted for approximately 93.3 % and 91.8 %, respectively, of provisions for projected defined benefit pension plan obligations.

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

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In addition, one program during the year ended December 31, 2016 ceased due to the closure of our Ambès (France) plant.

The total expected pension contribution amounts to $ 1.3 million in 2020.

The total expected defined benefit pension contribution amounts to $ 1.7 million in 2020.

The Company paid $ 12.5 million, $ 13.9 million and $ 12.8 million for the years ended December 31, 2020, 2019 and 2018, respectively, for state defined contribution pension schemes (statutory pension insurance) in Germany and other countries.

This amount is also recognized as personnel expenses (social security costs).

This amount is also recognized as personnel expenses.

Estimated Future Benefit Payments

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Amounts Recognized in Accumulated Other Comprehensive (Income)/Loss

Overall net actuarial loss amounts to $ 12.3 million and comprises $ 12.0 million pension-related and $ 0.3 million other personnel-related.

Amounts recognized in AOCI at December 31, 2019 and 2018 related to the Company's defined benefit pension plan were as follows:

Overall net actuarial loss amounted to $ 5.3 million and comprises $ 4.9 million pension-related and $ 0.4 million o ther personnel-related costs.

Amounts recognized in AOCI as of December 31, 2020 and 2019 related to the Company's defined benefit pension plan were as follows:

Accumulated Other Comprehensive (Income) / Loss December 31

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Net amount recognized $ 4,999

The fair value (all Level 2) of Orion's pension plan assets at December 31, 2019 and 2018, by asset category, is as follows:

The fair value (all Level 2) of Orion's pension plan assets as of December 31, 2020 and 2019, by asset category, is as follows:

(In thousands)

Equity securities $ — $ —

Debt securities

Other securities

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$ 6,831 $ 6,580

Defined Contribution Plans

We provide tax-qualified retirement contribution plans in the United States for the benefit of all full-time employees.

The plans are designed to provide employees with an accumulation of funds for retirement on a tax-deferred basis.

For the years ended December 31, 2020, 2019 and 2018 the Company contributions to the Employee Savings Plans were $ 2.6 million, $ 2.9 million and $ 2.9 million, respectively.

Stock-Based Compensation

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.

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.

The first performance period ran from January 1, 2015 through December 31, 2017, with PSUs earned based on achievement of EBITDA metrics established by the Compensation Committee and total shareholder return relative to a peer group.

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

There is no exercise price.

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

All PSUs are granted under, and are subject to the terms and conditions of, the Company’s 2014 Omnibus Incentive Compensation Plan, and do not increase the number of shares previously reserved for issuance under that plan.

On August 2, 2016 the Compensation Committee established a consecutive LTIP (the “2016 Plan”) having consistent terms as compared to the 2015 Plan.

On March 31, 2019 the vesting period ended for the “2016 Plan” and earned and vested PSUs settled in one common share of the Company per vested PSU - issued to participants on April 30, 2019, except for certain PSUs settled in cash at fair market value to cover wage taxes or as substitute for share transfer restrictions.

On July 31, 2017 the Compensation Committee established another consecutive LTIP (the "2017 Plan") having consistent terms as compared to the 2015 and 2016 Plan.

On July 12, 2018 the Compensation Committee established a consecutive LTIP (the "2018 Plan") and on July 16, 2019 the Compensation Committee established a consecutive LTIP (the “2019 Plan”).

The achievement metrics have changed for the 2019 Plan from EBITDA performance to a 'return on capital employed' and a 'total shareholder return' target.

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 achievement of applicable performance metrics, and are subject to vesting terms based on continued employment.

All PSUs are granted under, and are subject to the terms and conditions of, the Company’s 2014 Omnibus Incentive Compensation Plan (the “Omnibus Plan”).

In its “2019 Plan” the company issued beside PSUs ("2019 Plan PSU") also a tranche of restricted share units (“RSUs”) for its selected employees and officers ("2019 Plan RSU").

RSUs vest by one-third on each of the first, second and third anniversary of the grant date.

The RSUs are subject to certain further restrictions after vesting.

Settlement of selected employees and officer RSUs is within 75 days following the third anniversary of the grant date.

Specific Members of our Executive Committee received RSUs upon signing.

These sign-on RSUs are split into three parts each with service periods of one year and therefore vest on year one , two or three after the grant date.

The Company also issues Restricted Stock Units (“RSU”) in certain instances, under the LTIP plans, as sign-on incentives and one-time grants for employees who are non-participants in the LTIP plans.

These RSUs vest ratably over a three-year period and vesting occurs on the anniversary of the hire date related to the sign-on grants and the grant date for the grants to employees who are non-participants in the LTIP plans.

Under the LTIP plans, the PSU vesting period is three years with cliff vesting occurring on December 31 of the second full year subsequent to the date of the grant.

For example, if a PSU grant was issued in June 2020 the PSUs would fully vest on December 31, 2022 with no ratable vesting during the vesting period.

The RSUs vesting period is ratably over three years starting on January 1 in the year of the grant.

For example, the employee would earn one third of the RSU on December 31 starting in the year of the grant and the remaining two thirds each December 31 for 2 years immediately subsequent to the year of the grant.

In April 2018, the Compensation Committee established a stock compensation plan for the Board of Directors under the existing Omnibus Incentive Compensation Plan.

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2,094 3,435 2,961

Sign on RSU incentive

Individual RSU incentive 544 453 —

2020 Plan 525 — —

Total expenses $ 4,434 $ 9,438 $ 13,919

$ 9,438 $ 13,919 $ 8,835

In the following table summarizes the activity of our PSUs within year ended December 31, 2020:

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Period granted Vesting period RSUs outstanding January 1, RSUs granted Performance based adjustment RSUs settled RSUs forfeited RSUs outstanding at December 31, RSUs expected to vest Weighted average grant date fair value

Sign-on RSUs:

Individual RSU incentive:

2018 2018 - 2021 23,878 — — — — 23,878 23,878 $ 25.81

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2020 2020-2023 — 19,000 — — — 19,000 19,000 $ 12.78

2019 2019 - 2021 128,447 1,278 — — ( 8,057 ) 121,669 121,770 $ 14.74

2020 2020 - 2022 — 162,652 — — ( 2,029 ) 160,623 155,825 $ 12.51

Total 2020 197,582 182,930 — — ( 10,086 ) 370,427 365,730

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Under this plan 78,656 RSs are currently outstanding.

The RSs will vest and become non-forfeitable on April 30, 2020, the first anniversary of the grant date.

At December 31, 2019, we had unrecognized compensation cost of $ 9.5 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 1.6 years.

The RSs will vest and become non-forfeitable on the first anniversary of the grant date.

As of December 31, 2020, we had unrecognized compensation cost of $ 5.1 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 1.5 years.

The closing price of the Company's shares and therefore the intrinsic value of one PSU or RSU outstanding was $ 17.14 as of December 31, 2020, $ 19.30 as of December 31, 2019 and $ 25.28 as of December 31, 2018.

Total intrinsic value of PSUs and RSUs amounted to $ 23.2 million as of December 31, 2019, $ 41.2 million as of December 31, 2018 and $ 41.2 million as of December 31, 2017.

Total intrinsic value of PSUs and RSUs amounted to $ 14.9 million, $ 23.2 million and $ 41.2 million as of December 31, 2020, 2019, and 2018 respectively.

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

2017 Plan 2018 Plan 2019 Plan PSU

2020 Plan PSU 2019 Plan PSU 2018 Plan PSU

Expected term (in years) 3 3 3

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

In March 2020, 378,165 PSUs (including a performance adjustment reduction of 40,087 PSUs) were settled for the 2017 Plan.

In April 2019, 977,106 PSUs (including performance adjustment of 299,499 PSUs) were exercised for the 2016 Plan.

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The expected term of share awards represents the weighted average period the share awards are expected to remain outstanding.

The remaining contractual terms of share units outstanding is April 2020 for the 2017 Plan, April 2021 for the 2018 Plan and April 2022 for the 2019 Plan.

The remaining contractual terms of share units outstanding is December 2021 for the 2019 Plan and December 2022 for the 2020 Plan.

The Company used a combination of historical and implied volatility of its traded shares, or blended volatility, in deriving the expected volatility assumption.

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The dividend yield assumption is based on the Company's history.

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

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

Years Ended December 31,

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$ 4,434 $ 9,438 $ 13,919

The assumption for estimating expected forfeitures is based on previous experience and based on 3 % leavers rate per year.

Actual forfeitures are in addition recorded as they occur.

The assumption for estimating expected forfeitures is based on previous experience and based on a 3 % rate per year.

Actual forfeitures are recorded as they occur.

For the full year 2020 expenses recorded in prior years for 2018 and 2019 Plan were partially reversed as the performance condition for the EBITDA and ROCE metrics are no longer expected to be met.

Restructuring Expenses

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Provision at December 31, 2020 $ 3,559 $ 229 $ 4,251 $ — $ 8,039

Orion's reserves for restructuring are reflected in accrued liabilities on the Consolidated Balance Sheets.

The expenses relate to the Company’s effort to restructure its Rubber segment.

As a first step the Company's German operating subsidiary terminated with effect as of December 31, 2016, the Contract Manufacturing Agreement then in place between the Company's German operating subsidiary and the Company's French subsidiary, Orion Engineered Carbons SAS ("OEC SAS"), which has a plant in Ambès with a maximum capacity of mostly standard rubber grades of 50 kmt per year.

Consequently, the management of OEC SAS concluded consultations with the local Works Council at this facility to implement a restructuring and down staffing with a cessation of production at the site by the end of 2016.

Impairment charges of $ 10.3 million related to the property, plant and equipment of OEC SAS were calculated based on an estimated recoverable amount of zero and are fully charged to the Rubber Carbon Black segment.

Orion's reserves for restructuring of its Rubber segment in 2020 are reflected in accrued liabilities on the Consolidated Balance Sheets.

In 2016, the Company ceased operations at its plant in Ambes, France as part of the restructuring of it Rubber business segment.

Expenses related to the closing include personnel costs, demolition, removal costs and remediation costs and were $ 6.5 million, none and $ 3.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Total estimated and recognized costs and total costs remaining as of December 31, 2020 are $ 42.4 million and $ 8.0 million, respectively.

The restructuring of the South Korean footprint concluded in the second quarter of 2018 resulting in cessation of production at the Bupyeong plant and the sale of the land to a third party.

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Restructuring expenses comprise required costs for land restoration of $ 7.2 million and cost to consolidate the two South Korean production sites into one remaining site, including in particular personnel related termination costs of $ 4.4 million incurred in fiscal year 2018.

In the periods ending December 31, 2019 , 2018 and 2017 restructuring expense, net amounted to $ 3.6 million as compared to restructuring income, net of $ 24.6 million and restructuring expense, net of $ 6.5 million, respectively .

In the periods ending December 31, 2020 and 2019 restructuring expense, net amounted to $ 7.6 million and $ 3.6 million, respectively.

For the year ended December 31, 2018 restructuring income, net was $ 24.6 million.

Accumulated Other Comprehensive Income (Loss)

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Income tax effects before reclassifications ( 1,178 ) 1,719 ( 64 ) 477

Amounts reclassified from AOCI — — 9,687 9,687

Income tax effects on reclassifications — — ( 3,131 ) ( 3,131 )

Currency translation AOCI — 284 — 284

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Income tax effects before reclassifications ( 177 ) 2,454 4,020 6,297

Amounts reclassified from AOCI — — — —

Income tax effects on reclassifications — — — —

Currency translation AOCI — 85 ( 90 ) ( 5 )

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Balance at December 31,2020 $ ( 26,543 ) $ ( 13,485 ) $ ( 8,676 ) $ ( 48,705 )

The amounts reclassified out of AOCI and into the Consolidated Statement of Operations for the fiscal years ended December 31, 2019, 2018 and 2017 are as follows:

The amounts reclassified out of AOCI and into the Consolidated Statement of Operations for the fiscal year ended December 31, 2020 are presented in the table below.

There were no reclassifications in 2019 and 2018.

Years Ended December 31,

2019 2018 2017

(In thousands)

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Total after tax $ 6,663

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 $ 9.9 million,for the year end December 31, 2020.

Earnings Per Share

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Diluted EPS $ 0.30 $ 1.42 $ 1.99

For 2017 the weighted average number of shares equals the outstanding number of shares.

In 2018, repurchases of treasury shares were taken into account on a daily basis.

In 2018 and 2019 new shares were generated and transferred for settlement of stock based compensation ("2015 Plan", "2016 Plan", and "RSU Plan"), which was also included in the weighted number of shares.

In 2018, 2019 and 2020 new shares were generated and transferred for settlement of stock based compensation ("2015 Plan",”2016 Plan", "RSU Plan", and “2017 Plan”), which was also included in the weighted number of shares.

The dilutive effect of the share-based payment transaction is the weighted number of shares considering the grant date, forfeitures and executions during the respective fiscal years.

The effect is determined by using the treasury stock method.

Anti-dilutive shares were immaterial as of December 31, 2020, 2019 and 2018.

Tax provision (benefit) for income taxes consisted of the following:

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A corporate income tax rate of 15.00 % was used to calculate the current and deferred taxes for the German entities.

A solidarity surcharge of 0.825 % (calculated as 5.5 % on the corporate income tax rate) and a trade tax rate of 16.18 %, for the years ended December 31, 2019, 2018 and 2017, respectively, were also taken into account in the calculation.

A solidarity surcharge of 0.825 % (calculated as 5.5 % on the corporate income tax rate) and a trade tax rate of 16.18 %, for the years ended December 31, 2020, 2019 and 2018, respectively, were also reflected in the calculation.

As a result, the overall tax rate for the German entities was 32.00 %, for the years ended December 31, 2020, 2019 and 2018 respectively.

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The following tax reconciliation shows the difference between the expected income taxes using the German overall tax rate of 32.0 % and the effective income taxes in the income statement, for the years ended December 31, 2020, 2019 and 2018, respectively.

The German tax rate is applied due to the fact that the primary operating entity is located in Germany and this entity holds all non-German operations.

The German tax rate is applied because the primary operating entity located in Germany holds all non-German operations.

Years Ended December 31,

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Effective tax rate 30.93 % 27.65 % 27.90 %

Change in the tax rate and tax laws in an amount of $ 8.8 million are related to the effect of the U.S.

tax reform enacted in December 2017 reducing the corporate income tax rate from 35.0% to 21.0% in the USA.

As a result the net deferred tax liabilities for the US entities are now based on the new tax rate of 21.0%.

Other non-deductible expenses, and non-deductible taxes include taxes for Brazil (treated as a disregarded entity for U.S.

tax purposes) which are non-creditable in the U.S.

were $ 2.3 million, $ 1.6 million, and $ 1.4 million for the years ended December 31, 2019, 2018 and 2017, respectively, in connection with the reduced corporate income tax rate from 35.0% to 21.0% in the USA (U.S.

tax reform enacted in December 2017).

tax reform enacted in December 2017 reduced the corporate income tax rate from 35.0% to 21.0% in the U.S..

Other non-deductible expenses and non-deductible taxes which are non-creditable in the U.S.

were $ 0.9 million, $ 2.3 million and $ 1.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Non-deductible taxes include taxes from Brazil which is a disregarded entity for U.S.

tax purposes.

Tax rate differential for the year ended December 31, 2018 are mainly driven by a benefit $ 6.3 million from taxable income resulting from a land sale completed in Korea during 2018.

Income taxes for prior years ended December 31, 2019 are mainly driven by a the result of the conclusion of a tax audit in Poland.

The amounts set in accruals for this purpose were released accordingly in 2019.

Income taxes for prior year ended December 31, 2019 are mainly driven by result of the conclusion of a tax audit in Poland.

The favorable tax effect from income taxes for prior years was mainly driven by return to provision adjustments from tax return filings in 2020.

The amounts accrued for the return to provision adjustments were released accordingly in 2020.

Tax effect from changes in valuation allowance on deferred tax assets and for losses without recognition of deferred taxes for the year ended December 31, 2020 included the impact from lower pre-tax earnings attributed to the economic downturn from COVID-19.

Also included was a benefit from the favorable change of the valuation allowance related to U.S.

tax credits of $ 3.6 million.

The unfavorable tax effect from other non-deductible expenses and non-deductible taxes were mainly driven by non-deductible expenses in connection with the Company’s LTIP.

Income tax expense recognized in the Consolidated Statements of Operations were $ 8.1 million in 2020, $ 33.2 million in 2019 and $ 46.9 million in 2018.

Tax expenses/(benefit) recognized directly into the equity were $ 6.2 million in 2019, $ 0.3 million in 2018 and $( 8.5 ) million in 2017.

Tax expense/(benefit) recognized directly in equity were $( 1.1 ) million in 2020, $ 6.2 million in 2019 and $ 0.3 million in 2018.

Significant components of deferred income taxes were as follows:

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The assessment depends on future taxable profits being generated during the periods in which tax measurement differences reverse and tax loss carryforwards can be claimed.

Orion expects that sufficient taxable income will be available to recover deferred tax assets due to the tax group in place.

Orion expects that sufficient taxable income will be available to recover deferred tax assets.

As of December 31, 2020 and 2019, certain loss carryforwards were subject to restrictions with respect to the offsetting of losses.

No deferred tax assets were recorded on these loss carryforwards if it is not likely that they will be used by future taxable income.

The following tax loss and interest carryforwards were recognized as at December 31, 2019 and 2018 (gross amounts):

No deferred tax assets were recorded on these loss carryforwards if it is not likely that they will be utilized by future taxable income.

The following tax loss and interest carryforwards were recognized as of December 31, 2020 and 2019 (gross amounts):

(In thousands)

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Total $ 182,608 $ 180,700

The change between the recognized tax loss and interest carryforwards as at December 31, 2019 compared to 2018 is mainly driven by the taxable income of our German Tax Group.

The change between the recognized tax loss and interest carryforwards as of December 31, 2020 compared to 2019 is mainly driven by the taxable income of our German Tax Group and other German entities.

No deferred tax assets were recognized for the following items (gross amounts):

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$ 1.7 million, 2018:

$ 2.2 million) were recognized for subsidiaries for which a dividend distribution is expected in the near future.

Deferred tax liabilities in the USA were reduced by $ 8.8 million, deferred tax assets were reduced by $ 0.4 million mainly reflecting the changes following the U.S.

tax reform and the future corporate tax rate of 21.0% for the year ended December 31, 2017.

We are not aware about events which would cause temporary differences, for which a deferred tax liability has not been recognized.

$ 1.8 million) were recognized for subsidiaries for which a dividend distribution is expected.

We are not aware of any events which would cause temporary differences, for which a deferred tax liability has not been recognized.

Tax uncertainties

A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal years 2019, 2018 and 2017 is as follows:

2019 2018 2017

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the following fiscal years:

(In thousands)

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We recognize interest related to unrecognized tax benefits and penalties as income tax expense.

During 2019 we accrued penalties of zero and interest of $ 0.5 million to the unrecognized tax benefits (noted above).

As of December 31, 2019 we have a total of $ 4.0 million of accrued penalties and interest.

We recognized no liabilities for penalties and accrued interest of $ 0.5 million during 2018 and had a total accrual of $ 3.4 million as of December 31, 2018 for penalties and interest while we recognized no liabilities for penalties and accrued interest of $ 0.9 million during 2017.

Accrued penalties and interest totaled $ 2.9 million as of December 31, 2017.

Orion and certain subsidiaries are under audit in a number of jurisdictions, and in particular in Germany for the initial three years of incorporation (fiscal years 2011-2013).

It cannot be excluded that a further change in the unrecognized tax benefits may occur within the next twelve months related to the settlement of one or more of these audits or the lapse of applicable statutes of limitations;

however, an estimated range of the impact on the unrecognized tax benefits cannot be quantified at this time.

During 2020 we accrued no penalties and interest of $ 1.1 million to the unrecognized tax benefits (noted above).

As of December 31, 2020, we had $ 5.1 million of accrued penalties and interest.

We recognized no liabilities for penalties and accrued interest of $ 0.5 million during 2019 and had an accrual of $ 4.0 million as of December 31, 2019 for penalties and interest while we recognized no liabilities for penalties and accrued $ 0.5 million interest during 2018.

We accrued penalties and interest in total $ 3.4 million as of December 31, 2018.

Orion and certain subsidiaries are under audit in several jurisdictions, and in particular in Germany for periods 2011-2017.

A further change in unrecognized tax benefits may occur within the next twelve months related to the potential settlement of one or more of these audits or the lapse of applicable statutes of limitations.

The estimated range of the impact on unrecognized tax benefits cannot be determined at this time.

Commitments and Contingencies

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facilities, the Company furnished information to the EPA on each of its U.S.

EPA subsequently sent notices under Section 113(a) of the Clean Air Act in 2010 alleging violations of Prevention of Significant Deterioration (“PSD”) and Title V permitting requirements under the Clean Air Act at the Company’s Belpre (Ohio) facility.

The EPA subsequently sent notices under Section 113(a) of the Clean Air Act in 2010 alleging violations of Prevention of Significant Deterioration (“PSD”) and Title V permitting requirements under the Clean Air Act at the Company’s Belpre (Ohio) facility.

In October 2012, the Company received a corresponding notice and finding of violation (a “NOV”) alleging the failure to obtain PSD and Title V permits reflecting Best Available Control Technology (“BACT”) at several units of the Company’s Ivanhoe (Louisiana) facility, and in January 2013, the Company also received a NOV issued by the EPA for its facility in Borger (Texas) alleging the failure to obtain PSD and Title V permits reflecting BACT during the years 1996 to 2008.

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facility in Orange (Texas) was issued by the EPA in February 2013;

and EPA issued an additional NOV in March 2016 alleging more recent non-PSD air emissions violations primarily at the dryers and the incinerator of the Orange facility.

and the EPA issued an additional NOV in March 2016 alleging more recent non-PSD air emissions violations primarily at the dryers and the incinerator of the Orange facility.

In 2013, Orion began discussions with the EPA and the U.S.

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Under Orion’s EPA CD, Orion will install certain pollution control technology in order to further reduce emissions at its four U.S.

manufacturing facilities in Ivanhoe (Louisiana), Belpre (Ohio), Borger (Texas), and Orange (Texas) over approximately six years.

manufacturing facilities in Ivanhoe (Louisiana), Belpre (Ohio), Borger (Texas), and Orange (Texas) over approximately five years .

The EPA CD also requires the continuous monitoring of emissions reductions that Orion will need to comply with over a number of years.

Orion has commenced the installation works for its Ivanhoe facility, and expects to complete the installation in this facility over the next one year.

Orion has commenced the installation works for its Ivanhoe and Orange facilities.

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 but has deferred judgment on it at this time.

In line with the 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.

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We estimate the installations of monitoring and pollution control equipment at all four Orion plants in the U.S.

will require capital expenditures of approximately $ 190.0 million, subject to the results of further scope design and estimation efforts presently underway.

will require capital expenditures in an approximate range between $ 230 million to $ 270 million of which approximately $ 123.1 million has been incurred 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.

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.

The solutions Orion ultimately chooses to implement at its facilities other than Ivanhoe (Louisiana), may differ in scope and operation from those it currently anticipates (including those discussed in the next paragraph) and, for any and all of its four facilities, factors, such as timing, locations, target levels, changing cost estimates and local regulations, could cause actual capital expenditures to significantly exceed current expectations or affect Orion’s ability to meet the agreed target emission levels or target dates for installing required equipment as anticipated or at all.

The solutions Orion ultimately chooses to implement at its facilities other than Ivanhoe (Louisiana) and Orange (Texas), may differ in scope and operation from those it currently anticipates (including those discussed in the next paragraph) and, for any and all of its three facilities, factors, such as timing, locations, target levels, changing cost estimates and local regulations, could cause actual capital expenditures to exceed or be lower than current expectations or affect Orion’s ability to meet the agreed target emission levels or target dates for installing required equipment as anticipated or at all.

Orion also agreed to and paid a civil penalty of $ 0.8 million and agreed to perform environmental mitigation projects totaling $ 0.6 million.

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Orion’s Share Purchase Agreement with Evonik in connection with the Acquisition provides for a partial indemnity from Evonik against various exposures, including, but not limited to, capital investments, fines and costs arising in connection with Clean Air Act violations that occurred prior to July 29, 2011.

Except for certain less relevant allegations contained in the second NOV received for the Company’s facility in Orange (Texas) in March 2016, all of the other allegations made by the EPA with regard to all four of the Company’s U.S.

facilities - as discussed above - relate to alleged violations before July 29, 2011.

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Although Orion believes that it is entitled to the indemnity and that its rights thereunder are enforceable, there is no assurance that the Company will be able to recover costs or expenditures incurred under the indemnity as it expects or at all.

See “Item 1A.

Risk-Factors-Risks Related to Indebtedness, Currency Exposure and Other Financial Matters-Our agreements with Evonik in connection with the Acquisition require us to indemnify Evonik with respect to certain aspects of our business and require Evonik to indemnify us for certain retained liabilities.

We cannot offer assurance that we will be able to enforce claims under these indemnities as we expect.”

Pledges and guarantees

The pledge serves as collateral for claims arising under the finance documents, including the credit agreement dated July 25, 2014 as amended from time to time.

The current principal amounts of the outstanding term loans under the Credit Agreement are $ 281.3 million (U.S.

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 as of December 31, 2020 are $ 277.7 million (U.S.

Dollar Term Loan), and € 390.3 million (Euro Term Loan).

As at December 31, 2019 Orion Engineered Carbons GmbH has three guarantees issued by Euler Hermes S.A.

with a total volume of $ 9.2 million (in prior year four guarantees by Euler Hermes S.A.

of $ 15.2 million);

one guarantee insurance issued by Deutsche Bank AG with a volume of $ 2.2 million (prior year one guarantee issued by Deutsche Bank AG with a volume of $ 2.9 million).

None of these guarantees reduce the possible utilization limit of the current RCF.

As of December 31, 2020, the Company had thirteen guarantees totaling $ 17.6 million issued by various financial institutions.

Financial Information by Segment & Geographic Area

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For corporate management purposes and all periods presented, the Company had Rubber Carbon Black and Specialty Carbon Black as reportable operating segments.

Rubber carbon black is used in the reinforcement of rubber in tires and mechanical rubber goods, Specialties are used as pigments and performance additives in coatings, polymers, printing and special applications.

Rubber carbon black is used in the reinforcement of rubber in tires and mechanical rubber goods, Specialty carbon black products are used as pigments and performance additives in coatings, polymers, printing and special applications.

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

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Specialty 39 % 34 % 35 %

The senior management team, which is composed of the CEO, CFO and certain other senior management members is the chief operating decision maker (“CODM”).

The senior management team, which is comprised of the CEO, CFO and certain other senior management members, is the chief operating decision maker (“CODM”).

The senior management team monitors the operating segments’ results separately in order to facilitate decisions regarding the allocation of resources and determine the segments’ performance.

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The CODM does not review reportable segment asset or liability information for purposes of assessing performance or allocating resources.

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

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

Segment reconciliation for the years ended December 31, 2020, 2019 and 2018:

Rubber Specialties Corporate and other Total segments

Rubber Specialties Corporate Total segments

(In thousands)

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Interest and other financial expense, net — — ( 38,671 ) ( 38,671 )

Reclassification of actuarial losses from AOCI — — ( 9,916 ) ( 9,916 )

Income tax expense — — ( 8,132 ) ( 8,132 )

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Interest and other financial expense, net — — ( 28,642 ) ( 28,642 )

Reclassification of actuarial losses from AOCI — — ( 9,687 ) ( 9,687 )

Income tax expense — — ( 46,944 ) ( 46,944 )

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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:

‘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:

2020 2019 2018

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Consulting fees related to Company strategy — 1,280 4,804

Extraordinary expense items related to COVID-19 3,866 — —

Long Term Incentive Plan 4,434 9,438 13,919

EPA-related expenses 5,228 3,992 2,703

Other non-operating 7,556 4,578 2,297

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(1) Only a holding company is located in Luxembourg, accordingly no revenue is generated in the country of domicile.

Revenue generated for the year ended December 31, 2019 from the largest customer in the “Rubber” segment amounted to $ 195.6 million.

Revenue from the largest customer in the “Rubber” segment for the year ended December 31, 2018 was $ 201.7 million and for the year ended December 31, 2017 revenue from the largest customer in the “Rubber” segment was $ 144.4 million, respectively.

There is each another customer with more than, or equal to 10% of revenue for the period 2019 and 2018.

For the year ended December 31, 2020, one customer accounted for 10% or more revenue in the Rubber segment and amounted to $ 170.3 million.

Revenue from the largest customer in the Rubber segment for the year ended December 31, 2019 was $ 195.6 million and for the year ended December 31, 2018 was $ 201.7 million.

Another customer had 10% or more revenue for the periods 2019 and 2018 amounting to $ 104.1 million and $ 96.8 million, respectively.

Long-lived tangible assets (1)

11 unchanged sentences

China 27,235 19,655

Other 103 100

Total $ 696,169 $ 561,585

(1) Long-lived assets include property.

plant and equipment, net.

plant and equipment, net and Operating lease right-of-use assets

(2) Only a holding company is located in Luxembourg, accordingly no revenue is generated in the country of domicile.

Related Parties

As of December 31, 2019 related parties include one associate of Orion that is accounted for using the equity method, namely "Deutsche Gaßrußwerke" (DGW) and one principal owner of more than 10%.

As of December 31, 2020, related parties included one joint venture of Orion that is accounted for using the equity method, "Deutsche Gaßrußwerke" (DGW), and one shareholder 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.

35 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-K

Item 8. Financial Statements and Supplementary Data