What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2020-11-05 · 181 added, 577 removed, 290 unchanged (72% of the section changed)

Financial Statements and Supplementary Data (Unaudited)

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

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

2020 2019 2020 2019

Condensed Consolidated Statements of Operations

Three Months Ended March 31,

(In thousands, except per share amounts)

5 unchanged sentences

Other expenses, net 2,554 3,175

Restructuring expenses — 2,710 — 3,833

Income from operations 42,853 37,543

1 unchanged sentence

Reclassification of actuarial losses from AOCI 1,228 2,398

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

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

Pre-tax income before equity in earnings of affiliated companies 31,666 25,534

Income tax expense 8,274 7,635

Equity in earnings of affiliated companies, net of tax 146 133

Net income $ 23,538 $ 18,032

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

Weighted-average shares outstanding:

Basic 60,648 60,276

3 unchanged sentences

Diluted $ 0.39 $ 0.29

Dividends per share $ — $ 0.20 $ 0.20 $ 0.60

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

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

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

2020 2019 2020 2019

See accompanying Notes to these Condensed Consolidated Financial Statements

Orion Engineered Carbons S.A.

Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended March 31,

(In thousands)

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

Other comprehensive loss, net of tax

Net income $ 23,538 $ 18,032

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments ( 5,095 ) ( 24,071 )

Unrealized net gains/(losses) on hedges of a net investment in a foreign operation 70 36

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

Unrealized net gains/(losses) on cash flow hedges 1,089 ( 656 )

Gains on defined benefit plans 1,209 1,847

1 unchanged sentence

Comprehensive income/(loss) $ 20,810 $ ( 4,811 )

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

Consolidated Balance Sheets of Orion Engineered Carbons S.A.

September 30, 2020 December 31, 2019

See accompanying Notes to these Condensed Consolidated Financial Statements

Orion Engineered Carbons S.A.

Condensed Consolidated Balance Sheets

March 31, 2021 December 31, 2020

(In thousands, except share amounts)

1 unchanged sentence

Cash and cash equivalents $ 62,632 $ 64,869

Accounts receivable, net of expected credit losses

of $ 7,955 and $ 6,632 215,407 212,565

Accounts receivable, net 257,697 234,796

Other current financial assets 2,978 3,630

4 unchanged sentences

Property, plant and equipment, net 605,069 610,530

Operating lease right-of-use assets 82,681 27,532

Right-of-use assets 92,794 85,639

Goodwill 80,721 84,480

18 unchanged sentences

Other liabilities 104,614 106,131

Commitments and contingencies Note N

Total non-current liabilities 866,290 884,036

Commitments and contingencies Note M

Stockholders' equity

10 unchanged sentences

Total liabilities and stockholders' equity $ 1,425,809 $ 1,389,793

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

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

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

2020 2019 2020 2019

See accompanying Notes to these Condensed Consolidated Financial Statements

Orion Engineered Carbons S.A.

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

(In thousands)

2 unchanged sentences

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

Depreciation of property, plant and equipment and amortization of intangible assets 23,999 21,991 69,721 71,490

Depreciation of property, plant and equipment and amortization of intangible assets and right of use assets 25,627 23,845

Amortization of debt issuance costs 539 501

5 unchanged sentences

Changes in operating assets and liabilities, net of effects of businesses acquired:

(Increase)/decrease in trade receivables ( 66,152 ) 21,323 ( 6,682 ) 2,150

(Increase)/decrease in inventories 14,375 ( 2,210 ) 39,576 4,889

Increase/(decrease) in trade payables 14,080 ( 13,902 ) ( 31,662 ) ( 7,038 )

Increase/(decrease) in provisions 2,633 3,301 ( 4,899 ) ( 11,525 )

Increase/(decrease) in tax liabilities 7,674 6,150 16,298 3,814

Increase/(decrease) in other assets and liabilities that cannot be allocated to investing or financing activities ( 324 ) ( 1,844 ) 3,541 ( 7,254 )

Trade receivables ( 30,535 ) ( 31,097 )

Inventories ( 19,845 ) ( 11,681 )

Trade payables 11,383 4,391

Other provisions ( 7,946 ) ( 11,365 )

Income tax liabilities 4,206 12,016

Other assets and liabilities ( 9,226 ) ( 711 )

Net cash provided by operating activities 1,805 4,905

Cash flows from investing activities:

Cash paid for the acquisition of intangible assets and property, plant and equipment $ ( 30,942 ) $ ( 34,452 ) $ ( 120,343 ) $ ( 95,309 )

Acquisition of intangible assets and property, plant and equipment ( 27,227 ) ( 50,851 )

Net cash used in investing activities ( 27,227 ) ( 50,851 )

Cash flows from financing activities:

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

Repayments of long-term debt ( 2,072 ) ( 2,006 )

3 unchanged sentences

Taxes paid for shares issued under net settlement feature ( 36 ) ( 1,202 )

Net cash provided by/(used in) financing activities $ ( 20,866 ) $ ( 29,475 ) $ 60,858 $ ( 46,309 )

Net cash provided by financing activities 25,623 94,560

Increase/(decrease) in cash, cash equivalents and restricted cash 202 48,614

4 unchanged sentences

Cash and cash equivalents at the end of the period $ 62,632 $ 107,540

Cash paid for interest, net $ ( 5,246 ) $ ( 6,527 ) $ ( 14,752 ) $ ( 15,693 )

Cash (paid)/refund for income taxes $ 1,068 $ 1,705 $ 1,067 $ ( 16,175 )

Supplemental disclosure of non-cash activity:

Liabilities for leasing - current $ 3,862 $ ( 1,148 ) $ 5,826 $ 5,778

Liabilities for leasing - non-current $ 51,191 $ 1,113 $ 57,834 $ 25,068

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

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 Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total equity

See accompanying Notes to these Condensed Consolidated Financial Statements

Orion Engineered Carbons S.A.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

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

Balance at January 1, 2021 60,487,117 $ 85,323 $ ( 8,515 ) $ 68,502 $ 84,407 $ ( 48,705 ) $ 181,013

1 unchanged sentence

Other comprehensive loss, net of tax — — — — — ( 2,728 ) ( 2,728 )

Dividends paid - $ 0.20 per share — — — — ( 12,045 ) — ( 12,045 )

Share based compensation — — — 1,024 — — 1,024

1 unchanged sentence

Balance at March 31, 2021 60,590,526 $ 85,323 $ ( 7,345 ) $ 68,356 $ 107,945 $ ( 51,432 ) $ 202,846

Net loss — — — — ( 17,780 ) — ( 17,780 )

Other comprehensive income, net of tax — — — — — 585 585

Share based compensation — — — 1,199 — — 1,199

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

Net income — — — — 8,997 — 8,997

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

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

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

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

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

Balance at January 1, 2020 60,224,147 $ 85,032 $ ( 8,515 ) $ 65,562 $ 78,296 $ ( 34,362 ) $ 186,013

3 unchanged sentences

Share based compensation — — — ( 2,632 ) — — ( 2,632 )

Balance at March 31, 2019 59,518,498 $ 84,254 $ ( 8,683 ) $ 67,097 $ 46,459 $ ( 20,337 ) $ 168,790

Net income — — — — 24,748 — 24,748

Other comprehensive loss, net of tax — — — — — ( 9,255 ) ( 9,255 )

Dividends paid - $ 0.20 per share — — — — ( 12,042 ) — ( 12,042 )

Share based compensation — — — ( 5,737 ) — — ( 5,737 )

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

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

Net income — — — — 24,253 — 24,253

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

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

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

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

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

Notes to the Condensed Consolidated Financial Statements of Orion Engineered Carbons S.A.

Balance at March 31, 2020 60,487,117 $ 85,323 $ ( 8,515 ) $ 62,930 $ 84,283 $ ( 57,206 ) $ 166,815

See accompanying Notes to these Condensed Consolidated Financial Statements

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statement (Unaudited)

Table of Contents—Notes

Organization, Description of the Business and Summary of Significant Accounting Policies

Orion Engineered Carbons S.A.’s unaudited condensed consolidated financial information include Orion Engineered Carbons S.A.

Recent Accounting Pronouncements Not Yet Adopted

Accounts Receivable

Debt and Other Obligations

Financial Instruments and Fair Value Measurement

Employee Benefit Plans

Restructuring Expenses

Accumulated Other Comprehensive Income/(Loss)

Earnings Per Share

Commitments and Contingencies

Financial Information by Segment

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Organization, Description of the Business and Summary of Significant Accounting Policies

Orion Engineered Carbons S.A.’s unaudited condensed consolidated financial information includes Orion Engineered Carbons S.A.

and its subsidiaries (“Orion” or the “Company”).

2 unchanged sentences

Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements.

These financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

These financial statements should be read in conjunction with the Consolidated Financial Statements included in our Annual Report in Form 10-K for the fiscal year ended December 31, 2020.

The accompanying unaudited Condensed Consolidated Financial Statements include all adjustments that are necessary for the fair presentation of our results for the interim periods presented.

Results for interim periods are not necessarily indicative of results to be expected for the full year.

The Company is a leading global manufacturer of carbon black products and is incorporated in Luxembourg.

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”).

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.

The types of Rubber Carbon Black used in the rubber industry are manufactured according to strict specifications and quality standards.

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

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

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

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

Risks and Uncertainties

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

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

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

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

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

The ultimate severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers and suppliers, all of which are uncertain and cannot be predicted.

The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions, lower demand for our products, commodity price volatility, heightened price sensitivity among customers, higher competitive intensity, inventory revaluations, and the impact of any initiatives or programs that the Company may undertake to address financial and operations challenges faced by its customers.

As of the date of issuance of these condensed consolidated financial statements, the ultimate extent to which the COVID-19 pandemic will impact the Company's financial condition, liquidity, or results of operations remains uncertain.

Summary of Significant Accounting Policies

Revenue and Income Recognition

The Company recognizes revenue when or as it satisfies a performance obligation 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.

We also give our customers a limited right to return product that has been damaged or does not satisfy their specifications, or for 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 prescribed 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 has been transferred to the buyer, either at a point in time, or over time.

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

Revenue recognition and measurement is governed by the following principles.

The amount of revenue and the transaction price is contractually specified between the parties and 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.

The Company's business is organized by its two carbon black product types.

For corporate management purposes and all periods presented the Company had “Rubber” and “Specialty” 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.

Adoption of accounting standards

In March 2020, the FASB issued ASU No.

2020-03, Codification Improvements to Financial Instruments (ASU 2020-03).

The amendments in this update affect a wide variety of topics in the codification and represent changes to clarify or improve the codification.

The amendments make the codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications.

Issues 1, 2, 4 and 5 within the standard are conforming amendments and are effective upon issuance of ASU 2020-03.

Issue 3 is also a conforming amendment and is effective for fiscal years beginning after December 15, 2019.

Issues 6 and 7 relate to ASU No.

2016-13 and are effective for fiscal years beginning after December 15, 2019 since Orion previously adopted ASU No.

2016-13 on January 1 2019.

The Company adopted ASU 2020-03 as of January 1, 2020.

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

In February 2020, the FASB issued ASU No.

2020-02, Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842)- Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

2016-02, Leases (Topic 842) (SEC Update) (ASU 2020-02).

The new standard as it relates to Topic 326 is effective upon a registrant’s adoption of FASB ASC Topic 326 (adopted by Orion on January 1, 2019).

The new standard is as it relates to Topic 842 is not applicable.

The adoption of ASU 2020-02 did not have any impact on the Company’s financial statements.

In November 2019, the FASB issued ASU No.

2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses (ASU 2019-11).

The amendments in this update represents changes to clarify, correct errors in, or improve the codification, and make the codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications.

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 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 May 2019, the FASB issued ASU No.

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

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

The Company adopted ASU 2019-05 as of January 1, 2020.

The adoption of this guidance did not have a material 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 (ASU 2019-04).

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

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

Early adoption is permitted in any interim period after issuance of ASU 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 2019-04, the effective date is as of the beginning of the first annual period beginning after the issuance of ASU 2019-04 (January 1, 2020 for Orion).

For those entities, early

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

The Company adopted ASU 2019-04 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):

Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans .

The guidance changes the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans.

It eliminates requirements for certain disclosures that are no longer considered cost beneficial and requires new ones that the FASB considers pertinent.

The guidance is effective for financial statements issued for fiscal years ending after December 15, 2020 for public business entities and fiscal years ending after December 15, 2021 for all other entities.

Early adoption is permitted.

Entities will apply the amendments retrospectively.

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.

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.

The Company’s 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 U.S.

GAAP 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.

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 of the reporting date are recognized in other expenses, net.

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 of 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").

In January 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-01, 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.

We adopted this standard on January 1, 2021.

The adoption of this standard did not materially impact our Consolidated Financial Statements.

Recent Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU No.

Reference Rate Reform (Topic 848)— In March 2020, 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.

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

In January 2021, FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

Scope, which refines the scope of ASC 848 and clarifies some of its guidance as part of the Board’s monitoring of global reference rate reform.

This guidance permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities under way in global financial markets.

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.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (ASU 2019-12) , which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

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 .

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

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

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

The weighted remaining average minimum lease period is 17.0 years.

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

September 30, 2020

The Company will adopt this guidance prospectively and will elect certain optional expedients through the end of the hedging relationship.

This will enable the Company to update its assessments of effectiveness, probability, and hedged risk in order to continue hedge accounting for the designated hedges that reference a rate expected to be discontinued as a result of the reference rate reform without requiring de-designation of current hedging relationships.

The Company is currently evaluating the potential impact the adoption of this standard will have on its financial statements and it will continue to evaluate the guidance to determine the timing and extent to which it will apply accounting relief provided by the guidance.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

The company’s right-of-use assets (“ROU”) assets and lease liabilities related to operating and finance leases reflected in the Consolidated Balance Sheets are as follows:

March 31, 2021 December 31, 2020

(In thousands)

Next 12 months $ 11,550

1 to 2 years 10,804

2 to 3 years 10,519

3 to 4 years 9,529

4 to 5 years 8,989

More than 5 years 40,940

Total undiscounted minimum lease payments 92,330

Discount ( 8,130 )

Lease liability (current and non-current) $ 84,200

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

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

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

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

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

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

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

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

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

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

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

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

Operating leases $ 24,863 $ 25,321

Finance leases 67,931 60,318

Total $ 92,794 $ 85,639

Lease Liabilities (1)

Operating leases

Current $ 6,268 $ 7,215

Long-term 19,395 18,999

25,664 26,214

Finance leases

Current 3,019 4,862

Long-term 65,346 55,526

68,365 60,388

Total $ 94,028 $ 86,603

(1) In the Consolidated Balance Sheets are reflected in Current and Other Liabilities

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

(In thousands)

3 unchanged sentences

Total $ 157,504 $ 141,461

Orion periodically reviews inventories for both obsolescence and loss in value.

In this review, Orion makes assumptions about the future demand for and the future market value of the inventory and, based on these assumptions, estimates the amount of obsolete, unmarketable or slow-moving inventory.

Accounts Receivable

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

September 30, 2020 December 31, 2019

The company had the following accounts receivable as of March 31, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020

(In thousands)

2 unchanged sentences

Accounts receivable, net of expected credit losses $ 257,697 $ 234,796

The expected credit losses developed as follows in the periods indicated:

Fiscal Year 2020 Fiscal Year 2019

(In thousands)

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

Credit loss expense ( 3,725 ) ( 1,530 )

Credit loss income and utilization 2,295 968

Foreign currency translation effects 106 295

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

Debt and Other Obligations

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

September 30, 2020 December 31, 2019

The Company had the following debt arrangements in place as of March 31, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020

(In thousands)

1 unchanged sentence

Deferred debt issuance costs - term loan ( 1,424 ) ( 1,500 )

( 1,441 ) ( 1,409 )

Other short-term debt and obligations 101,006 75,640

2 unchanged sentences

Deferred debt issuance costs - term loan ( 3,162 ) ( 3,676 )

( 3,856 ) ( 4,733 )

Long-term debt, net 637,127 655,826

Total $ 744,970 $ 738,444

(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 U.S.

Dollars of $ 895.0 million 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 USD 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 % 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, dated as of July 25, 2014, among the Company, Orion Engineered Carbons Holdings GmbH, Orion Engineered Carbons Bondco GmbH, Orion Engineered Carbons GmbH, OEC Finance US LLC, the revolving borrowers named therein, the guarantors named on the signature page thereto, the lenders named therein, and Goldman Sachs Bank USA as administrative agent, as amended (the Credit Agreement”), Orion repriced the Term Loans during the years 2016 to 2018, achieving a significant reduction of both interest margins to currently 2.00 % for the U.S.

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

In addition, the interest margin is no longer linked to Orion's net leverage ratio and the EURIBOR and USD-LIBOR floors were reduced to 0.00 %.

Moreover the durations of both term loans were extended by another three years 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 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.

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

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

On May 11, 2018, Orion entered into a $ 235.0 million cross currency swap to synthetically convert its U.S.

Dollar liabilities into Euros to mitigate foreign currency risk.

This swap transaction impacted both principal and interest payments associated with debt service and resulted in annual interest 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 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 US subsidiary, which is held by a Germany based subsidiary, to manage foreign currency risk.

Due to the new hedging approach utilizing cross currency swap as described above, hedge accounting for the net investment hedge was discontinued in May, 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 of the Term Loans as of September 30, 2020 includes their nominal amounts plus accrued unpaid interest less deferred debt issuance costs of $ 5.3 million (December 31, 2019:

$ 6.1 million).

(b) Revolving credit facility

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

As part of the July 25, 2014 refinancing the then-existing revolving facility was replaced by a € 115.0 million multicurrency RCF 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).

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

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

All other terms of the Credit Agreement remained unchanged.

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).

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 Eighth Amendment related to the RCF provided by the Credit Agreement and became effective on April 10, 2019.

The Eighth Amendment:

(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 € 250.0 million, and

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

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

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

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

For further details see Note F.

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

Discussion related to Other short-term debt and obligations is as follows:

(a) Revolving credit facility

To fund operating activities and generally safeguard the Company’s liquidity, the Company has entered into a revolving credit facility (“RCF”) of € 250 million ($ 293 million).

As of March 31, 2021, the total commitment of $ 293 million is split between a $ 94 million RCF tranche and $ 199 million of bilateral ancillary facilities established directly with several banks under the RCF.

As of March 31, 2021, and December 31, 2020, no RCF borrowings, as defined in the Credit Agreement, had been drawn.

However, as of March 31, 2021 and December 31, 2020, $ 83.0 million and $ 70.3 million, respectively, of drawings under ancillary facilities reduced the overall amount available under the RCF to $ 210 million and $ 236.5 million, respectively.

(b) Local bank loans and other short-term borrowings

As of March 31, 2021, the Company had partially drawn its uncommitted local credit line in Korea by $ 4.4 million and in Brazil by $ 1.7 million (December 31, 2020:

$ 4.6 million and $ 0.8 million, respectively).

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

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

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

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

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

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

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

$ 28.6 million) outstanding.

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

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

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

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

(d) Covenant Compliance

The Credit Agreement maturing April 25, 2024, 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 allowed to exceed 5.5 x TTM EBITDA and is tested each quarter RCF utilization exceeds 35 %, as defined in the Credit Agreement (the “Covenant Trigger”).

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

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

Repurchase Agreement —On March 3, 2021 we entered in to a repurchase agreement to sell European Emission Allowance (“EUA”) certificates.

Under the agreement, we sold 260 thousand EUA certificates for € 10.04 million cash to a counterparty.

The counterparty has

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

an obligation to resell, and we have the obligation to purchase, the same or substantially the same EUA certificates at December 22, 2021 for € 10.06 million.

The difference between the consideration received and the amount of consideration to be paid is recognized as interest expense.

At March 31, 2021, the amount outstanding is $ 11.8 million.

Due to the short maturity, the carrying value approximates the fair value.

Financial Instruments and Fair Value Measurement

8 unchanged sentences

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

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

The following table shows the fair value measurement at March 31, 2021 and December 31, 2020.

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 September 30, 2020 December 31, 2019

Fair Value Hierarchy March 31, 2021 December 31, 2020

(In thousands)

1 unchanged sentence

Prepaid expenses and other current assets Level 2 4 195

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

Liabilities from derivatives $ 15,044 $ 23,127

3 unchanged sentences

Local bank loans Level 2 $ 101,006 $ 75,640

Accounting for Derivative Instruments and Hedging Activities , included in our Annual Report in Form 10-K for the year ended December 31, 2020, for additional information relating to our derivatives instruments.

Employee Benefit Plans

3 unchanged sentences

Net periodic defined benefit pension benefit costs include the following:

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

2020 2019 2020 2019

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Three Months Ended March 31,

(In thousands)

4 unchanged sentences

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

The actuarial losses associated with the pension obligations recorded in prior years in accumulated other comprehensive income exceeding 10 % of the defined benefit obligation are recorded ratably over the current year through profit and loss separately from income from operations and amounted to $ 7.3 million in the nine months ended September 30, 2020.

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

In South Korea, the Company’s pension plan provides, at the option of employees, for either projected benefit or defined contribution benefits.

Plan assets relating to this plan reduce the pension provision disclosed.

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”).

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

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

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 common share per vested PSU (or, at the Company’s election, cash equal to the fair market value thereof).

There was 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.

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, in addition to PSUs, the Company also issued a tranche of restricted share units (“RSUs”) for select employees and officers.

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

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

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

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

2020 2019 2020 2019

(In thousands)

$ — $ — $ — $ 1,083

— 725 — 1,826

Stock compensation plan for Board of Directors

831 666 351 2,842

Sign on RSU incentive

29 96 297 360

323 538 594 538

Total expenses

$ 1,182 $ 2,025 $ 1,242 $ 7,137

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

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

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

Period granted Performance period

PSUs outstanding at January 1,

PSUs granted Performance based adjustment PSUs settled PSUs forfeited PSUs

outstanding at

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

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

2018 2018 - 2020 355,766 — — — ( 4,360 ) 351,406 173,076 $ 39.24

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

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

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

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

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

outstanding at

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

Sign-on RSUs:

2018 2018 - 2020 23,878 — — — — 23,878 23,878 $ 25.81

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

2019 & 2020 Plan:

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

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

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

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

Under this plan 88,488 RSs are currently outstanding.

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

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

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

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

2017 Plan 2018 Plan 2019 Plan PSU 2020 Plan PSU

Expected term (in years) 3 3 3 3

Dividend yield (%) 1.88 % 1.94 % 4.65 % — %

Expected volatility OEC (%) 33.77 % 30.22 % 33.30 % 60.84 %

Expected volatility peer group (%) 17.30 % 20.09 % 17.62 % 33.22 %

Correlation 0.4574 0.3659 0.5205 0.7227

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

Model used Monte Carlo Monte Carlo Monte Carlo Monte Carlo

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

In March 2020, 378,165 PSUs (after 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 settled for the 2016 Plan.

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 March 2021 for the 2018 Plan and December 2021 for the 2019 Plan.

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

The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of stock options.

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

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

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

2020 2019 2020 2019

(In thousands)

Cost of sales

$ 66 $ 55 $ 158 $ 66

Selling expenses

263 246 233 1,105

General and administrative expenses

801 1,604 808 5,588

Research and development costs

53 120 44 378

Stock-based compensation expense

$ 1,182 $ 2,025 $ 1,242 $ 7,137

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

Actual forfeitures are recorded as they occur.

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

The actuarial losses associated with the pension obligations recorded in prior years in accumulated other comprehensive income exceeding 10 % of the defined benefit obligation are recorded ratably over the current year through profit and loss separately from income from operations and amounted to $ 1.2 million and $ 2.4 million for the three months ended March 31, 2021 and 2020, respectively.

Restructuring Expenses

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

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

Details of restructuring activities and the related reserves for this facility were as follows:

expenses Demolition and

8 unchanged sentences

Provision at March 31, 2021 $ 3,041 $ 219 $ 4,062 $ — $ 7,321

Charges — — — — —

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

Cash paid ( 486 ) ( 74 ) ( 148 ) — ( 708 )

Foreign currency translation adjustment 53 2 2 1 59

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

Provision at January 1, 2020 $ 3,400 $ 561 $ 488 $ 317 $ 4,765

Charges — — — — —

2 unchanged sentences

Foreign currency translation adjustment ( 81 ) ( 11 ) ( 14 ) ( 6 ) ( 113 )

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

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

Provision at March 31, 2020 $ 2,805 $ 147 $ 221 $ 48 $ 3,221

Accumulated Other Comprehensive Income/(Loss)

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

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

Changes in each component of Accumulated other comprehensive income (loss) (“AOCI”), net of tax, are as follows for the three months ended March 31, 2021 and 2020.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

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

7 unchanged sentences

Balance at March 31, 2021 $ ( 31,638 ) $ ( 12,327 ) $ ( 7,467 ) $ ( 51,432 )

Other comprehensive income/(loss) before reclassifications 800 ( 2,224 ) — ( 1,424 )

Income tax effects before reclassifications ( 169 ) 708 — 539

Amounts reclassified from AOCI — — 2,654 2,654

Income tax effects on reclassifications — — ( 904 ) ( 904 )

Currency translation AOCI — ( 125 ) ( 155 ) ( 280 )

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

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

Income tax effects before reclassifications ( 117 ) 294 — 178

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

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

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

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

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

3 unchanged sentences

Income tax effects before reclassifications ( 1,336 ) 426 — ( 910 )

Amounts reclassified from AOCI — — 2,398 2,398

Income tax effects on reclassifications — — ( 776 ) ( 776 )

Currency translation AOCI — 195 225 420

Balance at March 31, 2020 $ ( 36,353 ) $ ( 11,511 ) $ ( 9,342 ) $ ( 57,206 )

Other comprehensive loss before reclassifications ( 4,954 ) ( 5,951 ) — ( 10,905 )

Income tax effects before reclassifications 110 1,730 — 1,840

Currency translation AOCI — ( 154 ) ( 36 ) ( 190 )

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

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

Income tax effects before reclassifications ( 391 ) 551 — 160

Currency translation AOCI — 537 121 658

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

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

Affected Line Item in the Consolidated

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

2020 2019 2020 2019

The amounts reclassified out of AOCI and into the Condensed Consolidated Statement of Operations for the three months ended March 31, 2021 and 2020 are as follows:

Affected Line Item in the Condensed Consolidated

Statements of Operations Three Months Ended March 31,

(In thousands)

3 unchanged sentences

Total after tax $ 834 $ 1,623

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

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 $ 1.2 million and $ 2.4 million for the three months ended March 31, 2021 and 2020, respectively.

Earnings Per Share

Basic EPS is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted EPS is calculated by dividing the profit for the year (numerator) attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares arising from exercising all dilutive ordinary shares (denominator).

Basic earnings per share (“EPS”) is computed by dividing net income attributable to Orion by the weighted average number of common stock outstanding during the period.

Diluted EPS equals net income attributable to Orion divided by the weighted average number of common stock outstanding during the period, adjusted for the dilutive effect of our stock–based and other equity compensation awards.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

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

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

2020 2019 2020 2019

Net income/(loss) for the period - attributable to ordinary equity holders of the parent (in thousands) $ 8,997 $ 24,253 $ 9,250 $ 67,955

Three Months Ended March 31,

Net income for the period - attributable to ordinary equity holders of the parent (in thousands) $ 23,538 $ 18,032

Weighted average number of ordinary shares (in thousands of shares) 60,648 60,276

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Diluted EPS $ 0.39 $ 0.29

In 2019 and 2020, new shares were generated and transferred for settlement of stock-based compensation, 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.

The Company records its tax provision or benefit on an interim basis using an estimated annual effective tax rate.

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Adjustments to the estimated annual effective income tax rate are recognized in the period when such estimates are revised.

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

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

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

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

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

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

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

The estimated annual tax rate is 30.2 % for 2020.

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

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

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

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

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

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

Income tax expense for the three months ended March 31, 2021 amounted to $ 8.3 million compared to $ 7.6 million for the three months ended March 31, 2020, reflecting the income during this current period.

Our effective income tax rate for the three months ended March 31, 2021, was 26.0 %, compared with 29.8 % for the corresponding period of 2020.

The decrease in our effective tax rate was primarily attributable to the positive effects of discrete tax items from a deferred tax gain of $ 0.7 million due to the reassessment of recoverability of deferred tax assets in Brazil and the U.S.

Our effective income tax rate for the three months ended March 31, 2020 was 29.8 %, compared with 33.4 % for the corresponding period of 2019.

The decrease in our effective tax rate was primarily attributable to the discrete tax gain of $ 0.7 million due to the refund of prior year taxes in connection with the land sale in South Korea during 2018, offset by the unfavorable deferred tax expense of $ 0.8 million due to the revaluation of the realizability of deferred tax assets and the earnings mix by geography and tax jurisdiction.

The effective income tax rate for the three months ended March 31, 2021 varied from the German overall tax rate of 32.0 %, due to the Company’s reassessment of the recoverability of deferred tax assets and its projected earnings mix by geography and tax jurisdiction.

The effective income tax rate of 29.8 % for the three months ended March 31, 2020 varied from the German overall tax rate of 32.0 %, due to the Company’s reassessment of the recoverability of deferred tax assets and its projected earnings mix by geography and tax jurisdiction.

The effective income tax rate of 26.0 % for the three months ended March 31, 2021 deviated from the estimated annual tax rate of 28.2 % for 2021, due to the impact of discrete tax items.

The effective tax rate of 29.8 % for the three months ended March 31, 2020 deviated from the estimated annual tax rate of 29.2 % for 2020, due to the impact of discrete tax items.

Commitments and Contingencies

Other Long-Term Commitments

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

Maturity September 30, 2020

(In thousands)

Less than one year $ 108,850

One to five years 77,502

More than five years —

Total $ 186,351

For details regarding lease obligations see Note C.

Environmental Matters

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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.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

(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.

A comparable NOV for the Company’s U.S.

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“Orion”) and the United States (on behalf of the EPA), as well as the Louisiana Department of Environmental Quality.

The consent decree

(the “EPA CD”) became effective on June 7, 2018.

The consent decree resolves and settles the EPA’s claims of noncompliance set forth in the NOVs and in a respective complaint filed in court against Orion by the United States immediately prior to the filing of the consent decree.

The consent decree (the “EPA CD”) became effective on June 7, 2018.

The EPA CD resolves and settles the EPA’s claims of noncompliance set forth in the NOVs and in a respective complaint filed in court against Orion by the United States immediately prior to the filing of the consent decree.

All five U.S.

carbon black producers have settled with the U.S.

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

Under Orion’s EPA CD, Orion is installing 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 five years .

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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) 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.

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 still affected 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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The SNOX TM technology has not been used previously in the carbon black industry.

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.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Orion’s Share Purchase Agreement with Evonik in connection with the acquisition of the carbon black business line from Evonik Industries AG, completed on July 29, 2011 (“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.

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The indemnity provides for a recovery from Evonik of a share of the costs (including fines), expenses (including reasonable attorney’s fees, but excluding costs for maintenance and control in the ordinary course of business and any internal cost of monitoring the remedy), liabilities, damages and losses suffered and is subject to various contractual provisions including provisions set forth in the Share Purchase Agreement with Evonik, such as a de minimis clause, a basket, overall caps (which apply to all covered exposures and all covered environmental exposures, in the aggregate), damage mitigation and cooperation requirements, as well as a statute of limitations provision.

Due to the cost-sharing and cap provisions in Evonik’s indemnity, the Company expects that substantial costs it has already incurred and will incur in this EPA enforcement initiative and the EPA CD likely will exceed the scope of the indemnity in the tens of millions of US dollars.

In addition, Evonik signaled that it is not honoring Orion’s claims under the indemnity.

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

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

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

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

As of March 31, 2021, the Company had guarantees totaling $ 18.8 million issued by various financial institutions.

Financial Information by Segment

Segment information

The Company’s business is organized by its two carbon black product types.

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.

We disclose the results of each of our operating segments in accordance with ASC 280, Segment Reporting .

We manage our business in

two operating segments, Rubber Carbon Black and Specialty Carbon Black.

• Rubber carbon black —Used in the reinforcement of rubber in tires and mechanical rubber goods.

• Specialties —Used as pigments and performance additives in coatings, polymers, printing and special applications.

The CEO, CFO and certain other senior management members, together, are the chief operating decision maker (“CODM”).

Discrete financial information is available for each of the segments, and the CODM uses operating results of each operating segments for performance evaluation and resource allocation.

Our CODM uses Adjusted EBITDA as the primary measure for reviewing our segment profitability.

We define segment Adjusted EBITDA as Income from operations before depreciation and amortization, adjusted for acquisition related expenses, restructuring expenses, consulting fees related to Company strategy, share of profit or loss of joint venture and certain other items.

The CODM does not review reportable segment asset or liability information for purposes of assessing performance or allocating resources.

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

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

2020 2019 2020 2019

Three Months Ended March 31,

Rubber 60 % 64 %

Specialty 40 % 36 %

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 monitors the operating segments’ results separately in order to facilitate decisions regarding the allocation of resources and determine the segments’ performance.

Orion uses Adjusted EBITDA as the segments' performance measure.

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.

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

Rubber Specialties Corporate Total segments

(In thousands)

Net sales from external customers $ 178,406 $ 103,630 $ — $ 282,036

Adjusted EBITDA $ 28,525 $ 26,477 $ — $ 55,002

Corporate charges — — ( 6,714 ) ( 6,714 )

Depreciation and amortization of intangible assets and property, plant and equipment ( 13,828 ) ( 10,171 ) — ( 23,999 )

Excluding equity in earnings of affiliated companies, net of tax ( 141 ) — — ( 141 )

Income/(loss) from operations before income tax expense and finance costs $ 14,556 $ 16,305 $ ( 6,714 ) $ 24,147

Interest and other financial expense, net — — ( 10,769 ) ( 10,769 )

Reclassification of actuarial losses from AOCI — — ( 2,272 ) ( 2,272 )

Income tax expense/(benefit) — — ( 2,250 ) ( 2,250 )

Equity in earnings of affiliated companies, net of tax 141 — — 141

Net income/(loss) $ 8,997

Net sales from external customers $ 247,371 $ 122,824 $ — $ 370,195

Adjusted EBITDA $ 38,097 $ 29,957 $ — $ 68,054

Corporate charges — — ( 7,543 ) ( 7,543 )

Depreciation and amortization of intangible assets and property, plant and equipment ( 13,524 ) ( 8,467 ) — ( 21,991 )

Excluding equity in earnings of affiliated companies, net of tax ( 134 ) — — ( 134 )

Income/(loss) from operations before income tax expense and finance costs $ 24,439 $ 21,490 $ ( 7,543 ) $ 38,386

Interest and other financial expense, net — — ( 6,500 ) ( 6,500 )

Reclassification of actuarial losses from AOCI — — — —

Income tax expense/(benefit) — — ( 7,767 ) ( 7,767 )

Equity in earnings of affiliated companies, net of tax 134 — — 134

Net income/(loss) $ 24,253

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

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Segment reconciliation for the three months ended March 31, 2021 and 2020:

Rubber Specialties Corporate Total segments

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Corporate charges — — ( 2,225 ) ( 2,225 )

Depreciation and amortization of intangible assets and property, plant and equipment ( 41,382 ) ( 28,339 ) — ( 69,721 )

Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment ( 14,291 ) ( 11,336 ) — ( 25,627 )

Excluding equity in earnings of affiliated companies, net of tax ( 146 ) — — ( 146 )

Income/(loss) from operations before income tax expense and finance costs $ 21,253 $ 42,684 $ ( 15,125 ) $ 48,811

Interest and other financial expense, net ( 9,959 ) ( 9,959 )

Reclassification of actuarial losses from AOCI ( 1,228 ) ( 1,228 )

Income tax expense/(benefit) — — ( 4,006 ) ( 4,006 )

Equity in earnings of affiliated companies, net of tax 426 — — 426

Net income $ 9,250

Pre-tax income before equity in earnings of affiliated companies 31,666

Net sales from external customers $ 216,228 $ 119,779 $ — $ 336,007

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Corporate charges — — ( 2,323 ) ( 2,323 )

Depreciation and amortization of intangible assets and property, plant and equipment ( 41,502 ) ( 29,988 ) — ( 71,490 )

Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment ( 15,293 ) ( 8,552 ) — ( 23,845 )

Excluding equity in earnings of affiliated companies, net of tax ( 133 ) — — ( 133 )

Income/(loss) from operations before income tax expense and finance costs $ 71,829 $ 60,406 $ ( 17,680 ) $ 114,555

Interest and other financial expense, net ( 9,610 ) ( 9,610 )

Reclassification of actuarial losses from AOCI ( 2,398 ) ( 2,398 )

Income tax expense/(benefit) — — ( 26,515 ) ( 26,515 )

Equity in earnings of affiliated companies, net of tax 424 — — 424

Net income $ 67,955

Pre-tax income before equity in earnings of affiliated companies 25,534

The sales information noted above relates to external customers only.

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

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

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

2020 2019 2020 2019

(In thousands)

Restructuring expenses $ — $ 2,710 $ — $ 3,833

Consulting fees related to Company strategy — ( 674 ) — 831

Extraordinary expense items related to COVID-19 822 — 3,548 —

Long Term Incentive Plan 1,182 2,025 1,242 7,137

EPA-related expenses 1,487 1,549 5,053 2,957

Other non-operating 3,222 1,933 5,283 2,922

Expense from operations before income taxes and finance costs $ 6,714 $ 7,543 $ 15,125 $ 17,680

Related Parties

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

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

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

September 30, 2020 December 31, 2019

(In thousands)

Trade receivables from DGW KG $ 510 $ 537

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

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

2020 2019 2020 2019

(In thousands)

Purchased carbon black products from DGW KG $ 17,009 $ 19,312 $ 49,002 $ 65,387

Sales and services/(refund) provided to DGW KG $ 1,396 $ 596 $ 1,376 $ 2,087

Orion Engineered Carbons S.A.

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

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

What changed 10-Q

Item 1. Financial Statements