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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 132 added, 81 removed, 190 unchanged (53% of the section changed)

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

The following discussion and analysis summarizes the significant factors affecting our results of operations and financial condition during the three months ended March 31, 2021 and 2020 and should be read in conjunction with the information included under Item 1.

The following discussion and analysis summarizes the significant factors affecting our results of operations and financial condition during the three and six months ended June 30, 2021 and 2020 and should be read in conjunction with the information included under Item 1.

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

We prepare our financial statements in accordance with accounting principles generally accepted in the United States.

We prepare our financial statements in accordance with accounting principles generally accepted in the United States (‘GAAP”).

PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION

Non-GAAP Financial Measures

In this report, we present certain financial measures that are not recognized by the accounting principles generally accepted in the United States (“GAAP”).

In this report, we present certain financial measures that are not recognized by GAAP.

The non-GAAP financial measures contained in this report are unaudited and have not been prepared in accordance with GAAP and may not be comparable to other similarly titled measures of other companies.

For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, see below.

For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, see section Reconciliation of Non-GAAP Financial Measures below.

The non-GAAP financial measures used in this report are Contribution Margin, Contribution Margin per Metric Ton (collectively, “Contribution Margins”), Adjusted EBITDA, Net Working Capital and Capital Expenditures.

1 unchanged sentence

We define Contribution Margin per Metric Ton as Contribution Margin divided by volume measured in metric tons.

We define 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.

We define Adjusted EBITDA as income from operations before depreciation and amortization, restructuring expenses, consulting fees related to Company strategy, gain related to legal settlement, share of profit or loss of joint venture and certain other items.

Adjusted EBITDA is defined similarly in the Credit Agreement.

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

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

Three Months Ended March 31,

Reconciliation of Contribution Margin and Contribution Margin per Metric Ton to gross profit is as follows:

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

2021 2020 2021 2020

(In millions, unless otherwise indicated)

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Freight 24.0 11.6 46.5 30.8

Fixed Costs (2)

(67.5) (52.0) (134.6) (112.9)

3 unchanged sentences

Gross profit per metric ton $ 439.8 $ 216.3 $ 421.5 $ 316.6

Includes costs such as raw materials, packaging, utilities and distribution.

Includes costs such as depreciation, amortization and impairment of intangible assets, right of use assets, and property, plant and equipment, personnel and other production related costs.

Adjusted EBITDA (Non-GAAP Financial Measure)

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

Three Months Ended March 31,

Reconciliation of Adjusted EBITDA to consolidated net income is as follows:

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

2021 2020 2021 2020

(In millions)

Net income $ 23.5 $ 18.0

Net income (loss) $ 89.1 $ (17.8) $ 112.6 $ 0.3

Add back income tax expense 33.4 (5.8) 41.8 1.7

Add back equity in earnings of affiliated companies, net of tax (0.2) (0.2) (0.4) (0.3)

Pre-tax income before equity in earnings of affiliated companies 31.7 25.5

Pre-tax income (loss) before earnings in affiliated companies and income taxes 122.3 (23.8) 154.0 1.7

Add back interest and other financial expense, net 9.0 8.2 18.8 17.9

Add back reclassification of actuarial losses from AOCI 1.2 2.7 2.5 5.1

Income from operations 42.9 37.5

Add back depreciation, amortization and impairment of intangible assets, right of use assets, and property, plant and equipment 25.6 23.8

Income (loss) from operations 132.5 (12.9) 175.3 24.7

Add back depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment 25.1 21.9 50.8 45.7

EBITDA 157.6 9.0 226.1 70.4

Equity in earnings of affiliated companies, net of tax 0.2 0.2 0.4 0.3

Extraordinary expense items related to COVID-19 — 2.7 — 2.7

Evonik legal settlement:

Cash settlement (79.5) — (79.5) —

Release of legal reserve, net (3.4) — (3.4) —

Long term incentive plan 1.2 1.2 2.3 0.1

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Other adjustments (1)

2.2 1.1 1.6 2.0

Adjusted EBITDA $ 78.8 $ 15.2 $ 149.7 $ 79.1

Thereof Adjusted EBITDA Specialty Carbon Black

Adjusted EBITDA Specialty Carbon Black

$ 39.4 $ 16.5 $ 79.0 $ 44.5

Thereof Adjusted EBITDA Rubber Carbon Black

Adjusted EBITDA Rubber Carbon Black

$ 39.5 $ (1.2) $ 70.6 $ 34.5

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Operating Results

For the three months ended March 31, 2021 compared to three months ended March 31, 2020

For the three and six months ended June 30, 2021 compared to three and six months ended June 30, 2020

The table below presents our historical results derived from our Condensed Consolidated Financial Statements for the periods indicated.

Statement of operations data Three Months Ended March 31,

Statement of Operations Data Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

(In millions)

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Research and development costs 5.9 4.4 10.7 9.4

Other expenses, net 2.6 3.2

Income from operations 42.9 37.5

Gain related to litigation settlement (82.9) 0.0 (82.9) 0.0

Other expenses (income),net (0.5) 3.9 2.1 6.9

Income (loss) from operations 132.5 (12.9) 175.3 24.7

Interest and other financial expense, net 9.0 8.2 18.8 17.9

Reclassification of actuarial losses from AOCI 1.2 2.7 2.5 5.1

Pre-tax income before equity in earnings of affiliated companies 31.7 25.5

Income tax expense 8.3 7.6

Pre-tax income (loss) before earnings in affiliated companies and income taxes 122.3 (23.8) 154.0 1.7

Income tax expense (benefit) 33.4 (5.8) 41.8 1.7

Equity in earnings of affiliated companies, net of tax 0.2 0.2 0.4 0.3

Net income $ 23.5 $ 18.0

Net sales increased by $24.1 million, or 7.2%, from $336.0 million ($119.8 million in our Specialty Carbon Black segment and $216.2 million in our Rubber Carbon Black segment) in the first quarter of 2020 to $360.1 million ($144.2 million in our Specialty Carbon Black segment and $215.9 million in our Rubber Carbon Black segment) in the first quarter of 2021 driven primarily by higher sales volume, partially offset by unfavorable product mix.

Volume increased by 19.0 kmt or 8.1%, from 235.1 kmt (58.3 kmt in our Specialty Carbon Black segment and 176.8 kmt in our Rubber Carbon Black segment) in the first quarter of 2020 to 254.1 kmt (71.4 kmt in our Specialty carbon Black segment and 182.7 kmt in our Rubber Carbon Black segment) in the first quarter of 2021, with higher demand in both segments, primarily driven by the broader global economic recovery.

Cost of sales and Gross profit

Cost of sales increased by $11.7 million, or 4.8%, from $245.8 million in the first quarter of 2020 to $257.6 million in the first quarter of 2021, mainly as a result of higher volumes.

Gross profit increased for reasons described above by $12.3 million, or 13.7% from $90.2 million ($39.7 million in our Specialty Carbon Black segment and $50.5 million in our Rubber Carbon Black segment) in the first quarter of 2020 to $102.5 million ($53.4 million in our Specialty Carbon Black segment and $49.1 million in our Rubber Carbon Black segment) in the first quarter of 2021.

Net income (loss) $ 89.1 $ (17.8) $ 112.6 $ 0.3

Net sales increased by $198.4 million, or 97.9%, in the second quarter of 2021 to $401.0 million compared to the second quarter of 2020, driven primarily by higher sales volume, favorable product mix and the impact of passing through higher feedstock costs.

Volume increased by 93.4 kmt or 59.5%, in the second quarter of 2021 to 250.3 kmt compared to the second quarter of 2020, with higher demand in both segments, across all applications and geographies, primarily driven by a sharp global recovery from the COVID-19 induced economic downturn.

Net sales increased by $222.4 million, or 41.3%, in the six months ended June 30, 2021 to $761.1 million compared to the six months ended June 30, 2020, driven primarily by higher sales volume, favorable product mix and the impact of passing through higher feed stock costs.

Volume increased by 112.4 kmt, or 28.7%, to 504.4 kmt compared to the six months ended June 30, 2020, with higher demand in both segments, across all application and geographies, driven by a sharp global economic recovery from COVID-19 induced economic downturn.

Cost of sales

Cost of sales increased by $122.2 million, or 72.4%, to $290.9 million in the second quarter of 2021 compared to second quarter of 2020, mainly as a result of higher production and associated costs.

Cost of sales increased by $133.9 million, or 32.3%, to $548.5 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to higher production and associated costs.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $7.8 million, or 17.6%, from $44.5 million in the first quarter of 2020 to $52.4 million in the first quarter of 2021, driven primarily by higher freight costs due to increase in sales volumes and higher incentive compensation accruals.

Income from operations

Income from operations rose by $5.3 million, or 14.1%, to $42.9 million, primarily driven by higher sales volume, partially offset by higher selling, general and administrative costs.

Selling, general and administrative expenses increased by $16.6 million, or 43.1%, to $55.1 million in the second quarter of 2021 compared to the six months ended June 30, 2020, driven primarily by higher freight costs due to increase in sales volumes and higher incentive compensation.

Selling, general and administrative expenses increased by $24.3 million, or 29.2%, to $107.4 million in the second quarter of 2021 compared to the six months ended June 30, 2020, driven primarily by higher freight costs due to increase in sales volumes and higher

Orion Engineered Carbons S.A.

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

incentive compensation.

Gain related to litigation settlement

During the second quarter of 2021, Evonik agreed to make a one-time cash payment of €66.55 million ($79.5 million) to settle dispute which originated from the acquisition of the carbon black business by Rhône Capital and Triton in 2011.

The 2011 acquisition agreement provided for a partial indemnity from Evonik against various exposures, including capital investments, fines and costs arising in connection with U.S.

Clean Air Act violations that occurred prior to the closing of the 2011 acquisition (i.e., under Evonik’s control).

In addition, we released $3.4 million of legal reserves, net, related to this dispute.

Income (loss) from operations

Income from operations in the second quarter of 2021 increased to $132.5 million compared to the second quarter 2020 loss from operations of $12.9 million, an increase of $145.4 million.

The increase was primarily driven by favorable operating leverage associated with substantially higher sales volume, favorable product mix and the Evonik legal settlement related gain, partially offset by higher selling, general and administrative costs.

Income from operations increased by $150.6 million to $175.3 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The increase was primarily driven by favorable operating leverage associated with substantially higher sales volumes, the impact of passing-through higher feedstock costs and the Evonik legal settlement related gain, partially offset by higher selling and administrative costs.

Reclassification of actuarial losses from AOCI

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

Pre-tax income before equity in earnings of affiliated companies

Income from operations before income taxes and equity in earnings of affiliated companies increased by $6.1 million, primarily due to higher sales volume driven by the global economic recovery, partially offset by unfavorable product mix.

Net income increased by $5.5 million, reflecting all the items described above.

Pre-tax income (loss) before earnings in affiliated companies and income taxes

Income from operations before income taxes and equity in earnings of affiliated companies in the second quarter of 2021 increased by $146.1 million, year over year, primarily driven by favorable operating leverage associated with substantially higher sales volumes, the impact of passing-through higher feedstock costs and the Evonik legal settlement related gain, partially offset by higher selling and administrative costs.

Income from operations before income tax expense and equity in earnings of affiliated companies increased by $152.3 million from $1.7 million in the six months ended June 30, 2020 to $154.0 million in the six months ended June 30, 2021, primarily driven by favorable operating leverage associated with substantially higher sales volumes, the impact of passing-through higher feedstock costs, and the Evonik legal settlement related gain, partially offset by higher selling and administrative costs, net.

Provision for income taxes

For the three months ended June 30, 2021, the Company recognized income before provision for income taxes of $122.3 million, compared to loss before provision for income taxes of $23.8 million in the three months ended June 30, 2020.

The provision for income taxes was an expense of $33.4 million for the three months ended June 30, 2021 and a benefit of $5.8 million for the three months ended June 30, 2020.

The effective tax rate for the three months ended June 30, 2021 was 27%, as compared to 25% for the three months ended June 30, 2020.

The increase in our effective tax rate for the three-month period ended June 30, 2021 is primarily attributable to the reassessment of the recoverability of deferred tax assets and the projected earnings mix by geography and tax jurisdiction.

For the six months ended June 30, 2021 the Company recognized income before provision for income taxes of $154.0 million, compared to $1.7 million in the six months ended June 30, 2020.

The provision for income taxes was $41.8 million for the six months ended June 30, 2021 and $1.7 million for the six months ended the six months ended June 30, 2020.

The effective tax rate for the six months ended June 30, 2021 was 27%, as compared to 87% for the six months ended June 30, 2020.

The decrease in our effective tax rate for the six-month period ended June 30, 2021 was primarily attributable to the impact of a discrete deferred tax gain of $1.4 million on the revaluation of realizability of certain deferred tax assets and the projected earnings mix by geography and tax jurisdiction.

Net income (loss)

Net income, in the second quarter of 2021, increased by $106.9 million, year over year, primarily due to higher sales volume driven by the global economic recovery, favorable product mix, the impact of passing-through higher feedstock costs and gain on legal settlement and release of tax reserve discussed above, partially offset by higher selling and administrative costs and income tax expense.

Our net income in the six months ended June 30, 2021 amounted to $112.6 million, an increase of $112.3 million, primarily due by favorable operating leverage associated with substantially higher sales volumes, the impact of passing-through higher feedstock costs, and the Evonik legal settlement related gain, partially offset by higher selling and administrative costs and income tax expense.

Orion Engineered Carbons S.A.

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

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

Contribution Margin increased by $15.2 million, or 11.6%, to $147.1 million, year over year, primarily due to higher sales volume, partially offset by unfavorable product mix.

Contribution margin increased in the second quarter of 2021 by $79.3 million, or 106.7%, to $153.6 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume.

Contribution Margin increased by $94.5 million, or 45.8%, to $300.7 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The increase is primarily due to favorable operating leverage associated with substantially higher sales volumes and the impact of passing-through higher feedstock costs.

Contribution margin per metric ton increased by 13.4%, to $596.2 per metric ton in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Adjusted EBITDA (Non-GAAP Financial Measure)

Adjusted EBITDA increased by $7.0 million, or 11.0%, to $70.9 million, year over year, primarily due to higher volume.

Adjusted EBITDA increased in the second quarter of 2021 by $63.6 million, or 418.4%, to $78.8 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume and favorable product mix.

Adjusted EBITDA increased by $70.6 million, or 89.3%, from $79.1 million in the six months ended June 30, 2020 to $149.7 million in the six months ended June 30, 2021, primarily due to favorable operating leverage associated with substantially higher sales volume and favorable product mix.

Segment Discussion

Our business operations are divided into two operating segments:

the Specialty Carbon Black segment and the Rubber Carbon Black segment.

Our business operations are divided into two operating segments—the Specialty Carbon Black segment and the Rubber Carbon Black segment.

We use segment revenue, segment gross profit, segment volume, Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin as measures of segment performance and profitability.

The table below presents our segment results derived from our unaudited Condensed Consolidated Financial Statements for the periods indicated.

Three Months Ended March 31,

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

2021 2020 2021 2020

(In millions, unless otherwise indicated)

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Adjusted EBITDA Margin (%) 16.1 (1.1) 15.3 10.6

(1) Defined as Adjusted EBITDA divided by Net sales.

Specialty Carbon Black

2021 Compared to 2020

Three months ended March 31, 2021 compared to three months ended March 31, 2020

Net sales of the Specialty Carbon Black segment increased by $24.4 million, or 20.4% to $144.2 million, year over year, primarily driven by a 22.4% volume increase, partially offset by unfavorable product mix.

Volume gains were principally concentrated in the EMEA and Asia Pacific regions and reflected a broad-based demand increase across nearly all applications.

Three months ended June 30, 2021 compared to three months ended June 30, 2020

Net sales of the Specialty Carbon Black segment increased by $61.9 million, or 65.6% to $156.3 million, year over year, primarily driven by a 18.6 kmt, or 37.6% , to 68.1 , volume increase, favorable product mix, and passing through higher feedstock costs.

Volume gains across all regions reflected a broad-based demand increase across all applications reflecting a sharp global recovery from the COVID-19 induced economic downturn.

Gross profit of the Specialty Carbon Black segment increased by $28.8 million, or 119.0%, to $53.0 million, year over year, as a result of higher volumes and the impact of passing-through higher feedstock costs.

Volume gains across all regions reflected a broad-based demand increase across nearly all applications reflecting a sharp global recovery from the COVID-19 induced economic downturn.

Orion Engineered Carbons S.A.

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

Specialty Carbon Black segment volumes increased by 13.0 kmt, or 22.4%, to 71.4 kmt, year over year, primarily in EMEA and Asia.

Gross profit of the Specialty Carbon Black segment increased by $13.7 million, or 34.4%, to $53.4 million, year over year, as a result of higher volumes.

Adjusted EBITDA of the Specialty Carbon Black segment increased by $11.6 million, or 41.3% to $39.7 million, year over year, primarily due to higher volumes.

Adjusted EBITDA margin rose 410 basis points to 27.5%year over year.

Adjusted EBITDA of the Specialty Carbon Black segment increased by $22.8 million, or 138.2% to $39.3 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume, and favorable product mix.

Year over year, Adjusted EBITDA margin rose 780 basis points to 25.2%.

Six months ended June 30, 2021 compared to six months ended June 30, 2020

Net sales of the Specialty Carbon Black segment increased by $86.2 million, or 40.2% to $300.4 million, year over year, a 29.4% volume increase, primarily reflecting favorable operating leverage associated with substantially higher sales volume and the impact of passing-through higher feedstock costs.

Volume gains were in all regions and reflected a broad-based demand increase across nearly all applications.

Specialty Carbon Black segment volumes increased by 31.7 kmt, or 29.4%, to 139.5 kmt, year over year.

Gross profit of the Specialty Carbon Black segment increased by $42.5 million, or 66.5%, to $106.4 million, year over year, as a result of favorable operating leverage associated with substantially higher sales volume and the impact of passing-through higher feedstock costs.

Adjusted EBITDA of the Specialty Carbon Black segment increased by $34.5 million, or 77.5% to $79.0 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume and the impact of passing-through higher feedstock costs.

Year over year, Adjusted EBITDA margin rose 550 basis points to 26.3%.

Rubber Carbon Black

2021 Compared to 2020

Three months ended March 31, 2021 compared to three months ended March 31, 2020

Net sales declined marginally by $0.3 million, or 0.1% to $215.9 million, year over year, primarily reflecting higher sales volume, partially offset by the pass through of lower feedstock costs.

Three months ended June 30, 2021 compared to three months ended June 30, 2020

Net sales increased by $136.5 million, or 126.2% to $244.7 million, year over year, primarily reflecting higher sales volume, favorable product mix, and passing through higher feedstock costs.

Rubber Carbon Black segment volumes increased by 74.8 kmt, or 69.6%, to 182.2 kmt, year over year.

reflecting the broader global economic recovery, particularly in the Asia Pacific region.

Gross profit of the Rubber Carbon Black segment decreased by $1.3 million, or 2.6% to $49.1 million, year over year, primarily due to higher feedstock costs, partially offset by higher volume.

Rubber Adjusted EBITDA declined by $4.6 million, or 12.9%, to $31.2 million, year over year, despite moderately higher volume, primarily due to higher selling, general and administrative expenses and one-time impacts related to Winter Storm Uri.

Adjusted EBITDA margin declined 210 basis points to 14.4%, year over year.

reflecting the broader global economic recovery across all regions.

Gross profit of the Rubber Carbon Black segment increased by $47.4 million, or 488.7% to $57.1 million, year over year, primarily reflecting higher sales volume, and pass through of higher feedstock costs.

Rubber Adjusted EBITDA increased by $40.8 million, to $39.5 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume and favorable product mix.

Adjusted EBITDA margin rose 1,720 basis points to 16.1%, year over year.

Six months ended June 30, 2021 compared to six months ended June 30, 2020

Net sales increased by $136.2 million, or 42.0% to $460.7 million, year over year, primarily reflecting higher sales volume, favorable product mix, and passing through higher feedstock costs.

Rubber Carbon Black segment volumes increased by 80.7 kmt, or 28.4%, to 364.9 kmt, year over year.

reflecting the broader global economic recovery across all regions.

Gross profit of the Rubber Carbon Black segment increased by $46.0 million, or 76.4% to $106.2 million, year over year, primarily reflecting higher sales volume, and pass through of higher feedstock costs.

Rubber Adjusted EBITDA increased by $36.1 million, or 104.3%, to $70.7 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume, and the impact of passing-through higher feedstock costs, partially offset by the increase in general and administrative expenses and one-time impact related to Winter Storm Uri.

Adjusted EBITDA margin rose 470 basis points to 15.3%, year over year.

Orion Engineered Carbons S.A.

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

Liquidity and Capital Resources

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The tables below present our historical cash flows derived from our unaudited Condensed Consolidated Financial Statements for the periods indicated.

Three Months Ended March 31,

Six Months Ended June 30,

(In millions)

1 unchanged sentence

Net cash used in investing activities (58.3) (89.4)

Net cash provided by financing activities 25.6 94.6

Net cash provided by operating activities during the three months ended March 31, 2021 was $1.8 million.

The cash provided by operating activities primarily reflected our net income, adjusted for non-cash items and changes in working capital.

Net cash used in investing activities in the three months ended March 31, 2021 amounted to $27.2 million.

Net cash provided by (used in) financing activities (16.6) 81.7

Net cash provided by operating activities during the six months ended June 30, 2021 was $85.1 million.

The cash provided by operating activities primarily reflected our net income, adjusted for non-cash items and changes in working capital and $82.9 million related to Evonik legal settlement gain.

Commitments and Contingencies for further discussion on Evonik legal settlement.

Net cash used by investing activities in the six months ended June 30, 2021 amounted to $58.3 million, net.

These expenditures were comprised of a combination of safety, sustainability and growth investments as well as expenditures associated with our ongoing efforts to install emissions reduction technology to meet EPA requirements in the U.S.

Net cash provided by financing activities during the three months ended March 31, 2021 amounted to $25.6 million.

Cash inflows during the three months of $27.7 million were primarily related to net drawings under our local bank loan facilities, and under our senior secured revolving credit facilities (“RCF”), partially offset by scheduled debt repayments of $2.1 million.

Net cash provided by operating activities for the three months ended March 31, 2020 amounted to $4.9 million.

Net cash used by financing activities during the six months ended June 30, 2021 amounted to $16.6 million.

Cash outflows during the six months of $12.4 million were primarily related to repayments under our senior secured revolving credit facilities (“RCF”), and scheduled debt repayments of $4.2 million, partially offset by drawings under our local bank loan facilities.

Net cash provided by operating activities for the six months ended June 30, 2020 amounted to $90.6 million.

The cash provided by operating activities primarily reflected our net income, adjusted for non-cash items and changes in the components of our working capital.

Net cash used in investing activities for the three months ended March 31, 2020 amounted to 50.9 million.

Net cash used by investing activities for the six months ended June 30, 2020 amounted to 89.4 million.

Orion Engineered Carbons S.A.

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

Net cash provided by financing activities for the three months ended March 31, 2020 amounted to $94.6 million, primarily reflecting the company drawing under its revolver to bolster its cash position and enhance financial flexibility to successfully manage through the pandemic.

Net cash provided by financing activities for the six months ended June 30, 2020 amounted to $81.7 million, primarily reflecting the company drawing under its revolver to bolster its cash position and enhance financial flexibility to successfully manage through the pandemic.

Sources of Liquidity

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

As of March 31, 2021, the company had total liquidity of $310.3 million, including cash and equivalents of $62.6 million, $210.1 million under our revolving credit facility capacity, including ancillary lines, and $37.6 million of capacity under other available credit lines.

As of June 30, 2021, the company had total liquidity of $364.0 million, including cash and equivalents of $74.1 million, $252.2 million under our revolving credit facility capacity, including ancillary lines, and $37.7 million of capacity under other available credit lines.

Net debt was $640.7 million and net leverage was 2.37x.

2 unchanged sentences

Net Working Capital is a non-GAAP financial measure, and other companies may use a similarly titled financial measure that is calculated differently from the way we calculate Net Working Capital.

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

March 31, 2021 December 31, 2020

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

Orion Engineered Carbons S.A.

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

June 30, 2021 December 31, 2020

(In millions)

9 unchanged sentences

Based on expected 2021 Net Working Capital requirements and normalized business activities, we estimate that a $10 per barrel movement in the Brent crude oil price correlates to a movement in our Net Working Capital of approximately $27 million to $30 million within about a two to three-month period.

Our Net Working Capital increased from $245.0 million as of December 31, 2020 to $273.7 million as of March 31, 2021.

Our Net Working Capital increased from $245.0 million as of December 31, 2020 to $337.7 million as of June 30, 2021.

The components of working capital that used or provided cash were:

5 unchanged sentences

We define Capital Expenditures as cash paid for the acquisition of intangible assets and property, plant and equipment as shown in the unaudited Condensed Consolidated Financial Statements.

Our Capital Expenditures amounted to $50.9 million in the three months ended March 31, 2020 and $27.2 million in the three months ended March 31, 2021.

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

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Commitments and Contingencies ”.

Orion Engineered Carbons S.A.

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

Capital Expenditures during the three months ended March 31, 2021 amounted to $27.2 million is primarily associated with safety, sustainability and growth investments as well as expenditures associated with our ongoing efforts to install emissions reduction technology to meet EPA requirements in the U.S.

Capital Expenditures in the three months ended March 31, 2020 amounted to $50.9 million and were mainly comprised of preservation and overhaul projects and in expenditures related to investments required to address the EPA requirements in the United States.

Capital Expenditures during the six months ended June 30, 2021 amounted to $58.3 million were primarily associated with safety, sustainability and growth investments as well as expenditures associated with our ongoing efforts to install emissions reduction technology to meet EPA requirements in the U.S.

Capital Expenditures in the six months ended June 30, 2020 amounted to $89.4 million and were mainly comprised of preservation and overhaul projects and in expenditures related to investments required to address the EPA requirements in the United States.

Off-Balance Sheet Arrangements

As of March 31, 2021, we did not have any off-balance sheet arrangements.

As of June 30, 2021, we did not have any off-balance sheet arrangements.

Note Regarding Forward-Looking Statements

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These forward-looking statements include, without limitation, statements about the following matters:

Orion Engineered Carbons S.A.

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

• our strategies for (i) mitigating the impacts of the global outbreak of the coronavirus, (ii) strengthening our position in specialty carbon blacks and rubber carbon blacks, (ii) strengthening our position in specialty carbon blacks and rubber carbon blacks, (iii) increasing our rubber carbon black margins and (iv) strengthening the competitiveness of our operations;

20 unchanged sentences

• our ability to respond to changes in feedstock prices and quality;

Orion Engineered Carbons S.A.

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

• our ability to realize benefits from investments, joint ventures, acquisitions or alliances;

14 unchanged sentences

• the availability and efficiency of hedging;

Orion Engineered Carbons S.A.

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

• changes in international and local economic conditions, including with regard to the Euro, dislocations in credit and capital markets and inflation or deflation;

10 unchanged sentences

Quantitative and Qualitative Disclosures About Market Risk

Information about market risks for the period ended March 31, 2021 does not differ materially from that discussed under Item 7A of our 2020 Form 10-K.

Information about market risks for the period ended June 30, 2021 does not differ materially from that discussed under Item 7A of our 2020 Form 10-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis