Orion S.A. 10-K

Item 1. Business Overview Orion Engineered Carbons S.A. (“Orion”, “Company”, “we”, and “our”,”OEC”) is a Luxembourg joint stock corporation ( société anonyme or S.A.), incorporated on July 28, 2014 as a Luxembourg limited liability company ( société à responsabilité limitée ). The Company's registered office is located at 6, Route de Trèves, L-2633 Senningerberg (Municipality of Niederanven), Grand Duchy of Luxembourg. Our principal executive offices are located in Houston, Texas, U.S. The Company is a leading global manufacturer of carbon black products. Carbon black is a powdered form of carbon that is used to create the desired physical, electrical and optical qualities of various materials. Carbon black products are primarily used as consumables and additives for the production of polymers, printing inks and coatings (“Specialty Carbon Black” or “Specialties”) and in the reinforcement of rubber polymers (“Rubber Carbon Black” or “Rubber”). Our core competencies include the ability to engineer the physical properties of carbon black to meet the functional needs of our customers. The Company is one of the largest global producers of specialty and rubber carbon black. We operate a global supply chain network comprised of 14 production sites (including a joint venture in Dortmund, Germany) in 10 countries. In addition to our headquarters in Luxembourg, we have our principal executive office in Houston, Texas (U.S.), as well as offices in Frankfurt (Germany), Cologne (Germany), Shanghai (China), Seoul (Korea), Tokyo (Japan) and other locations. Our principal research and development (“R&D”) center is located in Cologne (Germany). We also have laboratories to support our customers in Carlstadt, New Jersey (U.S), Shanghai, China and Yeosu, South Korea. We are a premium supplier of carbon black generating long-term benefits for stakeholders while remaining committed to responsible business practices with a focus on team culture, reliability and sustainability. Our business is organized into two reportable segments: Specialty Carbon Black and Rubber Carbon Black. Our business segments are discussed in more detail later in this section. Our internet address is www.orioncarbons.com. We make available free of charge on or through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the U.S. Securities and Exchange Commission (“SEC”). Information appearing on our website is not a part of, and is not incorporated in this Annual Report on Form 10-K. Products and Applications Specialty Carbon Black Carbon black is manufactured in a highly controlled process to produce particles and aggregates of varied structure and surface chemistry, resulting in many different performance characteristics for a wide variety of applications. The Company manufactures specialty carbon black for a broad range of specialized applications such as polymers, printing systems and coatings applications. The various production processes result in a wide range of different specialty carbon black pigment grades with respect to their primary particle size, structure surface area and surface chemistry. These parameters affect jetness, tinting strength, undertone, dispersibility, oil absorption, electrical conductivity and other characteristics. Carbon black is an additive that enhances the physical, electrical and optical properties of our customer’s end products. We have several post-treated specialty carbon black grades for coatings and printing applications, as well as several high purity carbon black grades for the fiber industry and conductive carbon black grades for polymers, coatings and new markets, such as for battery electrodes. Our specialty grades of carbon black are used to impart color, provide rheology control, enhance conductivity and static charge control, provide UV protection, enhance mechanical properties, and provide formulation flexibility through surface treatment. These specialty carbon products are used in a wide variety of applications, such as coatings, inks, plastics, adhesives, toners, batteries, and displays. Products Coatings We have a broad Coatings product portfolio, which includes products used for pigmentation in black coatings and enhancement of various other coatings (e.g., automotive base coats and architectural coatings), for conductivity and for tinting, as well as for paints and for light tinting in transparent coatings (e.g., metallic effects and wood glazing). The diversity of our manufacturing processes allows for the creation of a wide range of specialty carbon black grades with different structures and chemical properties, thereby allowing our products to impart unique characteristics to our customer’s products. 1 Customers Over time we have demonstrated the ability to leverage our application technology platform to play a substantial role in our Coatings customer's product innovation processes and to meet their demanding requirements. We supply the full range of Coatings industry participants, ranging from leading global players to mid and small sized customers and have longstanding relationships across the spectrum. We have been serving several of the key industry players for more than 30 years. While the Coatings market is relatively fragmented, our top five customers accounted for approximately 36% of our Coatings related volume in 2020. Polymers Our Polymers portfolio provides products to a diverse range of end markets including pipe (e.g., gas, oil, municipal water, sewage), construction, energy distribution (e.g., power cables), automotive, agriculture, and consumer packaging. Certain products within this portfolio provide UV protection against polymer degradation for material such as pipe used for potable water, injection molding, agriculture films and cables. Other products include standard-to high-performance grades designed and modified to provide electrical conductivity, antistatic and reinforcing properties to many different polymer articles, including high-voltage cables, films, boxes and high-pressure pipes. Certain of our polymer products have a bluish undertone, which makes these grades especially attractive for high-performance fibers used in textiles, giving them a luxury touch and feel. Customers The Polymer applications are used in a wide variety of industries and, as such, the customer base for Polymers tends to be wide-ranging from regional and international master batch producers to global integrated petrochemical and polyolefin producers. Many of these producers are the leading suppliers in each region. We have been serving certain of our key customers for more than 30 years. Our top five customers accounted for approximately 27% of Polymers volume in 2020. Printing We have a broad Printing product portfolio that provides numerous grades for different printing technologies and applications. We apply different process technologies to offer highly specialized products meeting specific requirements, including compliance with food-contact regulations and specially formulated products that require unique attributes such as color undertone, optical density and gloss. We focus on Printing products with the highest potential for specialty applications, such as packaging and specialty niches. Packaging inks require special rheology, dispersion and wetting behavior properties. Some of our manufactured products used in UV curing inks require special surface chemistry for wetting, flow, color and stability. UV curing inks are used in products such as special applications for print media, books, posters and brochures. Our products also support printing ink manufacturers in achieving specific attributes in their products such as optical density, gloss, light fastness and color tone. These attributes are found in products and services such as display advertising, magazines and high-end packaging. Customers The global Printing industry has been undergoing consolidation and currently the industry is dominated by a few key players. Sourcing decisions are largely based on the attributes of specialty carbon black products. For high-end applications we focus on the required degree of product and technology know-how that make purchasing decisions less price sensitive than the low-end applications which are normally based on price. We are recognized by customers as a preferred strategic and technical partner. We have been serving certain of our key customers for more than 30 years. As a result of the consolidated nature of the printing industry our top five Printing customers accounted for approximately 66% of our Printing volume in 2020. Competition We are one of the largest global producers of specialty carbon black. Cabot Corporation and Birla Carbon are the other two large global producers of specialty carbon black. Each of the top three producers of specialty carbon black leverages R&D and applications technology platforms to tailor products to customer needs and to introduce its products into new application niches. Rubber Carbon Black Our rubber carbon black products are used in tires and mechanical rubber goods (“MRG”). Rubber carbon blacks are used to enhance the physical properties of the systems and applications in which they are incorporated. Rubber carbon blacks have traditionally been used in the tire industry as a rubber reinforcing agent to increase tread durability and are also used as a performance additive to reduce rolling resistance and improve traction. In MRG, such as hoses, belts, extruded profiles and molded goods, rubber carbon blacks are used to improve the physical performance of the product, including the product’s physical strength, fluid resistance, conductivity and resistivity. 2 Products Tires We offer a broad Tire product portfolio, which includes high reinforcing grades and semi-reinforcing grades. Fine particle reinforcing grade carbon blacks are used mostly in the tread of tires. Other reinforcing grade carbon blacks are also used in different components of the tire carcass. In addition to standardized grades, we produce advanced grades tailored to meet specific customer performance requirements, such as ECORAX® grades designed to lower rolling resistance and high performance grades for truck tires and high- and ultra-high-performance passenger car tires. Semi-reinforcing grade carbon blacks are used in several components of the tire carcass like the sidewall and bead areas of a tire. We cover the full portfolio of standard semi-reinforcing grade carbon blacks and have a portfolio of special semi-reinforcing grade carbon blacks, which fulfill special customer requirements using special production technology. These special semi-reinforcing grade carbon blacks are part of our ECORAX® product family. Customers Given the highly consolidated nature of the tire industry, our top ten customers represented approximately 89% of our Tires volume in 2020. A significant portion of our Tire products are sold to leading tire manufacturers. We have longstanding relationships with most of these customers and have the capacity to serve them in major global regions. We have been serving certain of our key customers for more than 30 years. We believe that our customers value the quality, consistency and reliability of our operations and are generally reluctant to switch suppliers without due cause. In addition, because automotive tires have safety implications, tire manufacturers are often required to go through lab and extensive plant approval processes before they change their supplier of carbon black. Mechanical Rubber Goods We produce a wide range of MRG products for a variety of end-uses, including automotive production, construction, manufacturing of wires and cables, as well as certain food, consumer and medical applications. In the area of MRG products that fall within the standards of ASTM International (“ASTM”), a global standard-setting body for a wide range of materials including carbon black, and non-ASTM blacks, we offer an extensive portfolio of “PUREX®” grades. These grades have an exceptionally high purity and high consistency and satisfy special requirements needed for smooth surfaces and electrical resistance. These grades also disperse well in rubber compounds used in parts like window seals, automotive hoses, transmission belts, damping elements and electrically conductive and antistatic rubber goods. Customers We serve customers across the entire value chain and the full range of MRG applications, including parts and component manufacturers and automotive system suppliers. The MRG industry is fragmented in nature and supports a large number of suppliers. Our top ten global customers accounted for approximately 50% of our Mechanical Rubber Goods volume in 2020. We have a diversified geographic presence with significant exposure to the European, North and South American and Asian MRG markets, supplying numerous leading industry participants. Drivers of Demand Besides general global economic conditions, certain specific drivers of demand for carbon black differ among our operating segments. Specialty carbon black has a wide variety of end-uses and demand is largely driven by the growth and development of the coatings, polymers and printing industries. Demand for specialty carbon black in the coatings and polymers industries is mainly influenced by the levels of industrialization, automobile original equipment manufacturer (“OEM”) demand, infrastructure development, consumer spending and construction activity. Demand for specialty carbon black in the printing industry is mainly influenced by developments in print media and packaging materials. Demand for rubber carbon black is largely driven by the growth and development of the automotive tire, commercial tire and MRG industries. Demand for rubber carbon black in tires is mainly influenced by the number of replacement and original equipment tires produced, which in turn is driven by (i) vehicle trends, including the number of vehicles produced and registered, and the number of miles driven, (ii) demand for high-performance tires, (iii) demand for larger vehicles, such as trucks and buses, (iv) consumer and industrial spending on new vehicles and (v) changes in regulatory requirements. Demand for rubber carbon black in MRG is mainly influenced by vehicle production and design trends, construction activity and general industrial production. Demand in the developed Western European and North American regions is mainly driven by demographic changes, customers’ high-quality requirements, stringent tire regulation standards and relatively stable tire replacement demand. Demand in developing markets, such as China, Southeastern Asia, South America and Eastern Europe, is mainly driven by the growing middle class, rapid industrialization, infrastructure spending and increasing car ownership trends. The growth in vehicle production in turn drives demand for both original equipment tire manufacturing and replacement tires in developing regions. 3 Customer Contracts Most of our long-term contracts contain formula-driven price adjustment mechanisms for changes in raw material and/or energy costs and in some instances, foreign exchange rates. We sell carbon black under the following two main categories of contracts based on price adjustment mechanisms: • Contracts with feedstock adjustments (indexed contracts). This category includes contracts with monthly or, in some cases, quarterly automatic feedstock and/or energy cost adjustments, which cover approximately 70% of our global volumes. • Non-indexed contracts. This category includes short-term contracts (usually shorter than three months) where sales prices of our carbon black products are not linked to carbon black oil market prices. Many of our indexed contracts allow for monthly price adjustments, while a small portion (by volume sold) allow for quarterly price adjustments. These contracts have enabled us to reduce the impact of fluctuations in oil prices on our margins; however, rapid and significant oil price fluctuations have had and are likely to continue to have significant effects on our earnings and results of operations given (i) not all contracts contain price adjustment mechanisms and (ii) the value of our productivity improvements rises and falls with oil price movements. See “ Item 1A. Risk Factors—Risks Related to Our Business—We are subject to volatility in the costs and availability of raw materials and energy, which could decrease our margins and adversely affect our business, financial condition, results of operations and cash flows .” Sales prices under non-indexed contracts are reviewed on a regular basis to reflect raw material and energy price fluctuations as well as overall market conditions. Raw Materials Raw materials for our products are, in general, readily available and in adequate supply. The principal raw material used in the manufacture of carbon black is comprised of residual heavy oils derived from petroleum refining operations, the distillation of coal tars, and the production of ethylene throughout the world. Approximately 56% of our carbon black oil supply is covered by short- and long-term contracts with a wide variety of suppliers. Natural gas is also used in the production of carbon black. These raw material costs generally are influenced by the availability of various types of carbon black feedstock and natural gas, supply and demand of such raw materials and related transportation costs. Changes in our raw material supplier’s operating conditions and demand for their products could reduce the availability of certain very specialized feedstocks. Competition We are one of the leading global producers of rubber carbon blacks. We compete with four companies that operate globally and numerous other companies that operate regionally, a number of which export product outside their region. The smaller regional suppliers mainly participate in standard and MRG applications and are less likely to provide specialized products used in higher end tire and MRG applications. Competition for our rubber carbon black products is generally based on product performance, quality, reliability, price, service, technical innovation, and logistics. Strategy Innovation We enjoy a long-standing reputation within the industry for carbon black product and process technology, applications knowledge, and innovation. Carbon black products are highly versatile and meet specific performance requirements across many industries. This creates significant opportunities for product and process innovation. Further product innovations are a key competitive factor in the industry, even after decades of R&D in this field. We maintain product applications and process development centers in Europe, Asia and the Americas. Our Innovation Group is divided into applications technology and process development teams. The applications technology team works closely with our major clients to develop innovative products and expand the applications range for carbon black products. The process development team works closely with our manufacturing and procurement teams to improve production processes, product quality and cost structure. Our leading center of excellence is located in Cologne (Germany) to support and enhance our global Innovation Group activities. This center includes carbon black technologists, applications technology laboratories and process development staff, co-located with our pilot process development facilities. Staffing in our Cologne technical center includes physicists, chemists and engineers who can effectively and efficiently collaborate to create and analyze various carbon black properties with a goal to develop new products to meet customer requirements. Common processes and information technology tools further enhance coordination and communication with our regional technical centers located in South Korea, China and the U.S. Applications Technology Our goal is to remain at the forefront of the industry in terms of product development by having dedicated applications technology facilities. Success relies on close collaboration with customers, often through long-term R&D alliances, which create superior technical interfaces. These interactions enable us to develop tailored solutions and meet unique customer requirements. 4 Our applications technology team brings together a deep knowledge of carbon black technology with an understanding of the key applications practiced by our customers. This team has access to extensive laboratory and testing facilities using similar formulations, processing and test methods employed by our customers. Customer collaborations often include cooperative testing with customers’ staff in our facilities. Applications technology provides a key customer and market interface and translates specific customer needs into carbon black product attributes. Applications technology plays a supporting role in the process of new product launches by providing technical data and presentations, training and support, and establishing and monitoring quality targets. This team works closely with customers to provide support during the qualification cycle, which can be long and may last over one year. This close cooperation decreases the likelihood of customers switching suppliers once a product has been approved. Product quality test methods and applications testing are defined within the applications technology team. Methods are developed centrally and deployed worldwide to relevant production and applications laboratories to assure consistency in measurements and reporting. Intellectual Property We consider intellectual property development and management as a source of strategic competitive advantage. We initiate and maintain patents and trademarks, with varying expiration dates, on a number of our products and processes. We sell our products under a variety of patents and trademarks we own and take reasonable measures to protect them. In connection with the separation of our business from Evonik, Evonik assigned to us its intellectual property that was exclusively used in its carbon black business, as well as certain intellectual property rights that are still in use in its retained business. However, we may be restricted in leveraging our intellectual property that we use on the basis of a license from Evonik or the intellectual property that is subject to grant-back license to expand our business into fields outside of carbon black. For additional information, see “ Item 1A. Risk Factors—Legal and Regulatory Risks—We may not be able to protect our intellectual property rights successfully.” Seasonality Our business is generally not seasonal in nature, although our results of operations are generally weaker in the last three months of a calendar year. Human Capital We are a group of people who share one common passion: carbon black. Our success depends on attracting, recruiting and developing a diverse, talented global workforce. We are committed to providing our employees with equal opportunities for learning and personal growth in an environment where creativity and innovation are encouraged. To this end, our aspiration is to be the employer of choice in our industry. With this in mind, we have reviewed our existing talent management programs and have started taking actions to augment and modify the existing programs to provide an effective platform for all of our employees to be trained and developed and to provide them with an opportunity to grow and achieve their individual aspirations. Orion is made up of over 1,400 employees with operating assets, laboratories and offices in 23 locations across 13 countries in all 3 regions (Americas, Asia/Pacific (“APAC”) and Europe/Middle East/Africa (“EMEA”)). Inspiring the entire Orion workforce to function as one team is critical to our success. We believe this is possible when we accept and value each individual for who they are. Indeed, valuing people is one of Orion’s core values which define who we are and the expectation we have of Orion colleagues in our interactions with other employees, customers, suppliers and within the communities where we operate. Building on this foundation, we value our people irrespective of their nationality, race, gender, citizenship status, ethnic origin, sexual orientation, gender identification, religion or philosophy, disability and age, among others; and we strive to put this into practice when hiring, developing and retaining talents. At Orion, talent management and development are an interactive process between individual employees and the company so that the individuals can have a fulfilling career at Orion while taking on roles and assignments that are aligned with the company’s strategy. We have upgraded our talent management and development program, focusing on specific actions to improve Attraction, Engagement, Learning and Development, and Retention. In support of these efforts, we made significant investments in both a global e-learning training platform and a human resources system platform which include focused modules for learning and development, succession planning and performance management that will allow Orion to better train and develop all our employees. A renewed focus on promoting from within has led to increases in internal fill rates and the involvement of business leaders across the organization in talent reviews to assess employees on performance and future potential. These talent reviews have helped to uncover talent gaps, identify high potential employees, build bench strength, increase retention, and to identify our future leaders and innovators. We uphold the freedom of association and fully recognize the right of collective bargaining. Certain of our employees worldwide are represented through unions and works councils. We value exchanging information and views with the local unions and works councils with the view to finding solutions to our common issues and ensuring success for both our employees and the company. 5 Environmental, Health and Safety Matters Protection of humans and the environment, fair treatment of our partners and a clear alignment to the needs of customers are essential components of our activities. Therefore, we strive not only to comply with all applicable laws and voluntary obligations, but to continuously improve our performance and management systems. Our integrated global management system with established standards and processes is based on the principles of the Responsible Care, ISO 9001 Quality Management System, ISO 14001 Environmental Management Systems, and the Occupational Safety and Health Administration’s (“OSHA”) OSHAS 18001 Safety Management Systems. All of our operating sites are third-party certified by the International Organization for Standardization (“ISO”) ISO 14001 and ISO 9001. The global management system outlines our processes and procedures practiced in relation to environmental protection, occupational and process safety, health protection and quality management including sustainable compliance, social accountability and product stewardship. Our sustainability report is accessible on our webpage: www.orioncarbons.com. Our operations involve the use, processing, handling, storage and transportation of materials that are subject to numerous supranational, national and local environmental and safety laws and regulations. Our production facilities require operating permits that are subject to renewal or modification. We believe that our operations are currently in substantial compliance with all applicable environmental, health and safety laws and regulations. Although our management systems and practices are designed to ensure compliance with laws and regulations, future developments and increasingly stringent regulation could require us to make additional unforeseen environmental, health and safety expenditures. Environmental Air Quality One of the main environmental challenges of a carbon black plant is the management of exhaust gas from production processes. This exhaust gas contains a number of regulated pollutants, including carbon monoxide and sulfur compounds. The most common method for controlling these gases is through combustion, which produces useable energy as a by-product. Currently, eight manufacturing sites, including one jointly owned production facility, have the capability to beneficially utilize these gases through some form of energy co-generation, such as the sale or reuse of steam, gas or electricity. The primary air pollutants of concern include sulfur dioxide (“SO 2 ”), nitrogen oxides (“NOx”) and particulates. In order to maintain compliance with emission requirements, we utilize various desulfurization and de-NOx processes in some of our plants. We control the particulate matter by using our bag filter technology. In the European Union, we are subject to the EU Directive No. 2010/75/EU on industrial emissions (“IED Directive”), which regulates pollution from industrial activities and includes rules aiming to reduce emissions into air, water, and land and to prevent the generation of waste. In addition to the IED Directive and its implementation, European jurisdictions in which we operate may provide for further regulations regarding emission reduction and safety technology standards that apply to our facilities (for example, the German Emissions Control Act). In addition to the IED Directive and its implementation, European jurisdictions in which we operate may provide for further regulations regarding emission reduction and safety technology standards that apply to our facilities (for example, the German Emissions Control Act). In the U.S., we are subject to emissions limitations under the federal Clean Air Act (“CAA”) and a consent decree entered into with the U.S. Environmental Protection Agency (“EPA”) as described in more detail below under “ —Environmental Proceedings”, as well as analogous state and local laws, which regulate the emission of air pollutants from our facilities and impose significant monitoring, record keeping and reporting requirements. In addition, these laws and regulations require us to obtain pre-approval for the construction or modification of facilities expected to produce or significantly increase air emissions and to obtain and comply with air permits that include stringent conditions on air emissions and operations. In certain cases, we may need to incur capital and operating expenditures for specific equipment or technologies to control emissions. We have incurred, and expect to continue to incur, substantial administrative and capital expenditures to maintain compliance with CAA requirements. Pursuant to the CAA, the EPA has developed industry-specific National Emission Standards for Hazardous Air Pollutants (“NESHAPs”) for stationary sources classified as “major” on the basis of their hazardous air pollutant emissions. Our U.S. facilities are subject to NESHAPs applicable to carbon black facilities, as well as NESHAPs applicable to industrial boilers. In China and South Korea, our operations have been subject to increasingly strict air quality regulations in recent years. These regulation changes in China and South Korea in recent years have been complied with. Those to come may require additional capital and operating expenditures for specific equipment or technologies to control emissions, and we have projects underway to address the new requirements. 6 Greenhouse Gas Regulation and Emissions Trading Our facilities also emit significant volumes of CO 2 . In the European Union, all of our production facilities are subject to the European Emission Trading Scheme (“ETS”) for CO 2 emissions. Industrial sites to which the ETS applies receive a certain number of allowances to emit GHGs and must surrender one allowance for each metric ton of greenhouse gas (“GHG”) emitted. Carbon black production is currently listed on the carbon leakage list, which allows receiving the significant share of needed emission allowances free of charge. The design concept of the South Korean ETS is similar to the European ETS. Currently, we purchase emission rights for an insignificant amount in South Korea to cover our excess requirements. In the United States, the EPA regulates GHG emissions under the Clean Air Act, and has adopted rules that require reporting of GHG emissions by owners and operators of facilities in certain source categories, which include our facilities. At the state level, approximately one-half of the states have already taken legal measures to reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or regional GHG cap-and-trade programs. There is no assurance that the current level of regulation will continue at the federal or state level in the future, or that future changes would not materially affect our operations or require material capital expenditures. The adoption of legislation or regulations that require reporting of GHGs, establish permitting thresholds based on GHG emissions or otherwise limit or impose compliance obligations for emissions of GHGs from our equipment and operations could require us to incur costs to obtain and comply with permits, reduce emissions of GHGs associated with our operations or purchase carbon offsets or allowances. There are also ongoing discussions and regulatory initiatives in other countries in which we have facilities, including Brazil, regarding GHG emission reduction programs. Water Quality Our plants are net consumers of water and are generally subject to laws and regulations related to water management. Most of our plants recycle a substantial amount of the water used in the manufacturing process, which is used as “quench water” in the cooling process. Contamination As we handle chemicals that could cause water or soil contamination, we may be subject to remediation obligations under national law. Additionally, third parties may be able to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other pollutants into the environment. In particular, the German Federal Act on Soil Protection requires the prevention of soil contamination by taking adequate precautions. In the United States, our facilities are subject to the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), the Resource Conservation and Recovery Act (“RCRA”) and similar state laws. CERCLA establishes liability for parties, including current and former site owners and operators, generators, and transporters, in connection with releases of hazardous substances. Under CERCLA, we may be subject to liability without regard to fault or the lawfulness of the disposal or other activity. RCRA is the principal federal statute regulating the generation, treatment, storage and disposal of hazardous and other wastes. RCRA and state hazardous waste regulations impose detailed operating, inspection, training and response standards and requirements for permitting, closure, remediation, financial responsibility, record keeping and reporting. Our sites have areas currently and formerly used as landfills that are subject to regulation under RCRA, and certain of our facilities have been investigated and remediated under RCRA. These laws and regulations may also expose us to liability for acts that were in compliance with applicable laws at the time we performed those acts. We could incur significant costs in connection with investigation and remediation activities or claims asserted at current or former facilities or third-party sites. Non-hazardous and Hazardous Waste In some jurisdictions in which we operate we are subject to provisions regarding waste management and the handling and storage of hazardous substances. We generate hazardous waste in the form of spent solvents at our plant labs. In addition, coal tar fractions, a common raw material at some plants, are considered hazardous waste if spilled or otherwise require disposal, as are certain refractories that contain hexavalent chromium, which are generated infrequently. Certain facilities have on-site landfills permitted for the current disposal of non-hazardous solid waste. Energy Surcharge The German Renewable Energies Act (“EEG”) grants above-market payments to the producers of energy generated from renewable sources. To balance these payments, an energy surcharge is imposed on the consumers of energy. Certain exemptions regarding that surcharge are provided in the EEG, in particular for energy intensive industries and self-consumption of self-produced energy. It is expected that the exemption from the energy surcharge regarding electricity generated for the Company’s own consumption will continue to be grandfathered. However, there is no assurance that we can maintain the exemption status permanently. 7 Chemical Regulations Some jurisdictions we operate in have established regimes to regulate or control chemical products to ensure the safe manufacture, use and disposal of chemicals. In the European Union, the Regulation on Registration, Evaluation, Authorization of Chemicals (“REACh”) requires chemical manufacturers and importers in the European Union to register all chemicals manufactured in, or imported into the European Union in quantities of more than one ton annually. Registration has to be made at the European Chemicals Agency (“ECHA”), and the use of certain “highly hazardous chemicals” must be authorized by ECHA. Furthermore, REACh Regulation contains rules on bringing substances to the market that have been identified as substances of very high concern. In the United States, we are subject to federal and state chemical regulations. In particular, we are subject to the California Safe Water and Toxic Enforcement Act, which imposes labeling and record keeping requirements. In South Korea, under the Chemical Control Act, coal-based feedstock oils such as crude coal tar (“CCT”), coal tar distillate (“CTD”) and soft pitch oil (“SPO”) containing more than 0.001% quinoline are treated as hazardous chemicals requiring production sites to be duly licensed. We are a member of the International Carbon Black Association (the “ICBA”), which currently consists of representatives from carbon black manufacturers in Europe, North and South America, Asia and Africa. The ICBA seeks to address common environmental, health and safety issues, undertakes research on health implications of carbon black, and serves as the leading advocate for the industry in the regulatory and public-interest arenas. The ICBA funds research on international environmental, health, product safety and workplace safety matters. We are also a member of the European consortium for carbon black (“ cb4reach Consortium ”) which has pre-registered and registered carbon black with ECHA as required by the REACh Regulation. Besides the Company, the following companies are members of the cb4reach Consortium: Cabot Corporation, Cancarb Limited, Birla Carbon, Continental Carbon Company, Tokai Carbon, and Imerys S.A. Health and Safety The health and safety of our employees and customers is one of our highest priorities. We maintain very good performance in occupational injury and illness rates. New employees and contractors working on site are given environmental, health and safety training and we keep track of environmental, health and safety matters. Employees are required to report and log incidents including near misses into the electronic environmental, health and safety (“EHS”) management system. Our sites are required to implement and report EHS leading and lagging indicators for EHS performance. Plant managers are required to track and monitor these leading and lagging indicators and take action as appropriate. Leading and lagging indicator data and incidents are reviewed by senior management on a monthly basis. Carbon black is produced under controlled conditions and has high purity levels. It therefore differs from other combustion products that may contain high concentrations of hazardous compounds. Due to its high purity, certain carbon black grades are permitted for use in cosmetics or in products in contact with food. The International Agency for Research on Cancer (“IARC”) classifies carbon black as a Group 2B substance (known animal carcinogen, possible human carcinogen). We have communicated IARC’s classification of carbon black to our customers and employees in accordance with applicable regulatory requirements. The Permanent Senate Commission for the Investigation of Health Hazards of Chemical Compounds in the Work Area (the “MAK Commission”) of the German Research Foundation ( Deutsche Forschungsgemeinschaft ), which uses a different rating system, classifies carbon black as a suspect carcinogen (Category 3B). Other national and international health organizations have not rated carbon black. Any risk reclassification of our raw materials, intermediates or finished product could result in increased operating costs or affect product lines or sales. The Community Rolling Action Plan (“CoRAP”) indicates substances for evaluation by the European Member States. The evaluation aims to clarify the initial concern that manufacturing and/or use of shortlisted substances could pose a risk to human health or the environment. With ECHA's update of the CoRAP list in March 2016 Carbon black was included in CoRAP for substance evaluation in 2018 though it has been postponed several times. The most recent ECHA update from October 2019 the substance evaluation is proposed to be further delayed to 2022. The substance evaluation for carbon black was proposed by France. The initial reasons of concern raised by the French Agency for Food, Environmental and Occupational Health & Safety (“ANSES”) relate to carbon black being an alleged carcinogenic substance and a suspected reproduction toxicant. Orion is working as a member of the cb4reach Consortium and ICBA to address the reasons for nomination. The conclusion of the evaluation may have significant business impact should ANSES conclude that carbon black poses a risk to human health. A potential outcome could be a harmonized classification and labeling of carbon black for carcinogenicity and toxicity to reproduction. These developments may significantly affect our business, including increasing costs of doing business. According to the recommendation of October 18, 2011 (2011/696/EU), carbon black is defined as a nano-material in Europe. Afterwards the ISO developed the ISO TC 229 “Nanotechnologies,” which considers carbon black as a “nano-structured material.” Other countries (such as, US, Canada, France, Belgium, Sweden, Switzerland, etc.) have implemented notification schemes related to nano materials. In Europe, Commission Regulation (EU) 2018/1881 as of December 3, 2018 amending the REACh regulation introduced new information requirements for substances with forms meeting the definition criteria of EU COM 2011/696/EU. The notification of carbon black under the different notification schemes as well as meeting the new nano-related information requirements under REACh requires 8 capital and resource commitments to compile and file dossiers. Furthermore, more and more specific requirements for substances regarded as nanomaterials are emerging with Europe. For example, Germany is planning to introduce a more stringent Occupational Exposure Limit for nanomaterials. These developments may significantly affect our business, including increasing costs of doing business. Further Regulatory Matters We are subject to further governmental regulation from national, European Union and other international regulatory authorities concerning, among other things: product safety, export and import control regulations and other customs regulations, data protection and our competitive and marketplace conduct. We believe that we are in compliance in all material respects with these regulations. We cannot guarantee, however, that any future changes in the requirements or mode of enforcement of these laws and regulations will not have a material adverse effect on our business, financial condition, results of operations or cash flows. Labor Relations Our employees are located in many countries and are represented by labor unions and works councils in accordance with local law and practices, which could provide participation and information rights to those representatives. Membership of employee labor unions varies in accordance with the business area, local practice and country. We have entered into collective bargaining agreements with employee labor unions either directly or as members of industry-wide unions or employer organizations. In particular, approximately 73% of our employees are covered by such agreements. These agreements typically govern, among other things, terms and conditions of employment and reflect the prevailing practices in each country. We believe we have stable relations with our employees and voluntary turnover is low. In 2017, 35 of the former employees in our closed facility in Ambès, France filed claims with the labor court of Bordeaux contesting the termination of their employment and seeking damages. Of these claims 32 are pending in the courts and our results of operations reflect accruals made by us to satisfy our best estimate of these claims should the former employees prevail.