What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-05 · 156 added, 104 removed, 416 unchanged (38% of the section changed)

1 unchanged sentence

Condensed Consolidated Statements of Operations

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

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

2021 2020 2021 2020

7 unchanged sentences

Other (income) expenses, net ( 103 ) 4,528 1,904 11,530

Income (loss) from operations 132,476 ( 12,879 ) 175,329 24,664

Income from operations 40,275 24,147 215,604 48,811

Interest and other financial expense, net 11,456 10,768 30,366 28,656

Reclassification of actuarial losses from AOCI 1,197 2,273 3,649 7,325

Pre-tax income (loss) before earnings in affiliated companies and income taxes 122,301 ( 23,810 ) 153,967 1,724

Income tax expense (benefit) 33,490 ( 5,879 ) 41,764 1,756

Income before earnings in affiliated companies and income taxes 27,622 11,106 181,589 12,830

Income tax expense 6,753 2,250 48,517 4,006

Equity in earnings of affiliated companies, net of tax 143 141 536 426

Net income (loss) $ 89,058 $ ( 17,780 ) $ 112,596 $ 253

Net income $ 21,012 $ 8,997 $ 133,608 $ 9,250

Weighted-average shares outstanding:

1 unchanged sentence

Diluted 60,840 61,259 60,756 61,296

Earnings (loss) per share:

Earnings per share:

Basic $ 0.35 $ 0.15 $ 2.20 $ 0.15

3 unchanged sentences

Condensed Consolidated Statements of Comprehensive Income (Loss)

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

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

2021 2020 2021 2020

(In thousands)

Net income (loss) $ 89,058 $ ( 17,780 ) $ 112,596 $ 253

Net income $ 21,012 $ 8,997 $ 133,608 $ 9,250

Other comprehensive income (loss), net of tax

1 unchanged sentence

Unrealized net gains (losses) on hedges of a net investment in a foreign operation 364 ( 66 ) 414 ( 61 )

Unrealized net gains (losses) on cash flow hedges 575 ( 1,609 ) 1,663 ( 2,265 )

Unrealized net losses on cash flow hedges ( 2,103 ) ( 1,134 ) ( 440 ) ( 3,399 )

Gains on defined benefit plans 951 990 2,877 4,432

Other comprehensive income (loss) 8,989 585 6,261 ( 22,259 )

Other comprehensive loss ( 11,496 ) ( 3,829 ) ( 5,235 ) ( 26,088 )

Comprehensive income (loss) $ 9,516 $ 5,168 $ 128,373 $ ( 16,838 )

2 unchanged sentences

Condensed Consolidated Balance Sheets

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(In thousands, except share amounts)

31 unchanged sentences

Total non-current liabilities 861,945 884,035

Commitments and contingencies Note M

Commitments and contingencies

Stockholders' Equity

3 unchanged sentences

85,323 85,323

Less 401,733 and 505,142 shares of common treasury stock, at cost

Treasury stock, at cost, 358,957 and 505,142

( 6,546 ) ( 8,515 )

7 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30,

(In thousands)

Nine Months Ended September 30,

Cash flows from operating activities:

4 unchanged sentences

Share-based incentive compensation 3,396 1,242

Deferred tax (benefit) provision ( 1,683 ) ( 6,499 )

Deferred tax (benefit) ( 2,693 ) ( 11,224 )

Foreign currency transactions ( 8,979 ) ( 1,782 )

10 unchanged sentences

Cash flows from investing activities:

Acquisition of intangible assets and property, plant and equipment ( 58,308 ) ( 89,401 )

Acquisition of property, plant and equipment ( 113,682 ) ( 120,343 )

Net cash used in investing activities ( 113,682 ) ( 120,343 )

Cash flows from financing activities:

Proceeds from long-term debt borrowings 213,427 —

Repayments of long-term debt ( 212,250 ) ( 6,077 )

Payments for debt issue costs ( 2,750 ) —

Cash inflows related to current financial liabilities 81,367 191,041

3 unchanged sentences

Net cash provided by (used in) financing activities ( 7,587 ) 60,858

Increase (decrease) in cash, cash equivalents and restricted cash 10,207 82,937

Increase in cash, cash equivalents and restricted cash — 32,867

Cash, cash equivalents and restricted cash at the beginning of the period 67,865 68,231

17 unchanged sentences

Balance at June 30, 2021 60,590,526 85,323 ( 7,345 ) 69,572 197,003 ( 42,443 ) 302,110

Net income — — — — 21,012 — 21,012

Other comprehensive loss, net of tax — — — — — ( 11,496 ) ( 11,496 )

Share based compensation — — — 1,120 — — 1,120

Issuance of stock under equity compensation plans 42,776 — 799 (799) — — —

Balance at September 30, 2021 60,633,302 $ 85,323 $ ( 6,546 ) $ 69,893 $ 218,015 $ ( 53,939 ) $ 312,746

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

10 unchanged sentences

Balance at June 30, 2020 60,487,117 85,323 ( 8,515 ) 64,129 66,504 ( 56,621 ) 150,820

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 $ ( 60,450 ) $ 157,170

See accompanying Notes to these Condensed Consolidated Financial Statements

3 unchanged sentences

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

Recent Accounting Pronouncements Not Yet Adopted

Accounts Receivable

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Financial Information by Segment

Subsequent Events 18

Orion Engineered Carbons S.A

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

Recent Accounting Pronouncements Not Yet Adopted

Reference Rate Reform (Topic 848)— In March 2020, FASB issued ASU No.

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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 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.

This guidance permits entities to elect certain optional expedients and exceptions when accounting for contract modifications for receivables, debt, and leases related to reference rate reform as well as derivative contracts and certain hedging relationships affected by reference rate reform activities under way in global financial markets.

The Company adopted this guidance prospectively from July 1, 2021.

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

The adoption of this ASU will enable us to update our assessments of effectiveness, probability, and hedged risk in order to continue hedge accounting for the designated hedges that reference LIBOR, which is expected to be discontinued as a result of reference rate reform.

The Company will continue to evaluate the guidance to determine the timing and extent to which we will apply other 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:

June 30, 2021 December 31, 2020

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

September 30, 2021 December 31, 2020

(In thousands)

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Total $ 91,346 $ 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)

(1) Reflected in Current and Other liabilities in the Consolidated Balance Sheets.

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(In thousands)

4 unchanged sentences

Accounts Receivable

The company had the following accounts receivable as of June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

The company had the following accounts receivable as of September 30, 2021 and December 31, 2020:

September 30, 2021 December 31, 2020

(In thousands)

2 unchanged sentences

Accounts receivable, net of expected credit losses $ 300,697 $ 234,796

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Debt and Other Obligations

The Company had the following debt arrangements in place as of June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

The Company had the following debt arrangements in place as of September 30, 2021 and December 31, 2020:

September 30, 2021 December 31, 2020

(In thousands)

7 unchanged sentences

Total $ 709,867 $ 738,444

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

(a) Revolving credit facility

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

Dollars of $ 358.0 million and a term loan facility denominated in Euros of € 399.0 million with both having an original maturity date of July 25, 2021 (the “Prior Term Loans”).

Initial interest was calculated based on three-month EURIBOR (for the Euro-denominated loan), and 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.

Subsequent to 2014, Orion entered into a number of amendments, 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 was no longer linked to Orion's net leverage ratio and the EURIBOR and USD-LIBOR floors were eliminated.

In 2017, the duration of the Prior Term Loans was extended to July 25, 2024.

In September 2021, Orion entered into the Ninth Amendment to the Credit Agreement, which includes an amended and restated term loan agreement (the "Term Loan").

The term loan credit facility was allocated to a term loan facility denominated in U.S.

dollars of $ 300 million and denominated in Euros of € 300 million with both having a maturity date of September 24, 2028 (the “Term Loans”) replacing the existing term loan credit facility.

Interest is calculated based on three months EURIBOR (for the Euro-denominated loan) plus a margin of 2.50 %, or three-month USD-LIBOR (for the USD-denominated loan) plus a margin of 2.25 %.

dollar loan, a floor of 0.50 % applies and for the Euro denominated loan a floor of 0.00 % applies.

1 % of the principal amount is required to be repaid per annum in respect to the Dollar Term Loans whereas there is no scheduled amortization for the Euro Term Loans.

The Credit Agreement was also amended to include LIBOR replacement language in preparation for the eventual phase out of the London Interbank Offered Rate (LIBOR).

The Term Loans include a sustainability-linked margin adjustment that applies to both the Euro and U.S.

dollar term loan credit facilities.

The margin adjustment is based on annual SOx and NOx emission reduction targets for the Company’s North American plants between 2022 and 2028, respectively.

Specifically, the credit spread on the Term Loans will decline or rise by up to 10 basis points depending on the emissions profile of the Company’s North American plants, in aggregate.

Starting in 2022 and continuing through 2025, the Company will review annually whether both interim targets have been met.

Only if the Company achieves both targets will it benefit from up to a 10 basis point credit spread reduction for the prospective 12 month period following the submission of the sustainability linked compliance certificate.

For the period from 2026 to 2028, a margin step-up by 5 or 10 basis points would occur if Orion does not maintain the reduced emissions profile of one or both targets.

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

In connection with the September 2021 modification of the term loan, Orion incurred approximately $ 7.8 million of refinancing costs of which $ 2.8 million of loan origination costs were capitalized and $ 5.0 million of other fees were directly expensed.

In September 2021, the Company restructured its previously existing cross-currency swaps in the amount of $ 197 million, to align them with the new U.S.

dollar denominated term loan credit facility.

Specifically for changes in the loan interest margin of 2.25 % (formerly 2.0 %) and the three-month USD-LIBOR floor of 0.50 % (formerly 0.00 %).

The cross-currency swap became effective on September 30, 2021 and will expire on September 30, 2028, in line with the maturity of the term loan.

This cross-currency swap was determined to be highly effective, continues to qualify for hedge accounting and was cost-neutral.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

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 ($ 289 million).

As of June 30, 2021, the total commitment of $ 297 million is split between a $ 95 million RCF tranche and $ 202 million of bilateral ancillary facilities established directly with several banks under the RCF.

As of June 30, 2021, and December 31, 2020, no RCF borrowings, as defined in the Credit Agreement, had been drawn.

However, as of June 30, 2021 and December 31, 2020, $ 44.8 million and $ 70.3 million, respectively, of drawings under ancillary facilities reduced the overall amount available under the RCF to $ 252.3 million and $ 236.5 million, respectively.

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

As of June 30, 2021, the Company had partially drawn its uncommitted local credit line in Korea by $ 4.4 million and in Brazil by $ 2.0 million (December 31, 2020:

As of September 30, 2021, the total commitment of $ 289 million was split between a $ 93 million RCF tranche and $ 197 million of bilateral ancillary facilities established directly with several banks under the RCF.

As of September 30, 2021, and December 31, 2020, no RCF borrowings, as defined in the Credit Agreement, had been drawn.

However, as of September 30, 2021 and December 31, 2020, $ 50.7 million and $ 70.3 million, respectively, of drawings under ancillary facilities reduced the overall amount available under the RCF to $ 238.8 million and $ 236.5 million, respectively.

Local bank loans and other short-term borrowings

As of September 30, 2021, the Company had partially drawn its uncommitted local credit line in Korea by $ 4.2 million and in Brazil by $ 1.8 million (December 31, 2020:

$ 4.6 million and $ 0.8 million), respectively.

1 unchanged sentence

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

The counterparty has an obligation to resell, and we have the obligation to purchase, the same or substantially the same EUA certificates at December 22, 2021

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

for € 10.06 million.

The counterparty has 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 June 30, 2021, the amount outstanding was $ 12.0 million.

At September 30, 2021, the amount outstanding was $ 11.7 million.

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

11 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 June 30, 2021 and December 31, 2020.

The following table shows the fair value measurement at September 30, 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 June 30, 2021 December 31, 2020

Fair Value Hierarchy September 30, 2021 December 31, 2020

(In thousands)

6 unchanged sentences

Local bank loans Level 2 $ 68,443 $ 75,640

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

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.

1 unchanged sentence

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

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

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

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

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

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

Net periodic defined benefit pension benefit costs include the following:

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

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

2021 2020 2021 2020

4 unchanged sentences

Net periodic pension cost $ 1,757 $ 2,857 $ 5,362 $ 9,056

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

Service costs were recorded within Income from operations in Selling, general and administrative expenses, and interest cost in Interest and other financial expense, net.

The amortization of 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 in the Condensed Consolidated Statements of Operations.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Restructuring Expenses

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:

Restructuring reserves related to this facility, in the Condensed Consolidated Balance Sheets, are included in Accrued Liabilities.

Details of the reserves were as follows:

Expenses Demolition and

11 unchanged sentences

Provision at June 30, 2021 2,715 — 5,146 — 7,861

Charges ( 1 ) — 620 — 619

Cash paid — — ( 66 ) — ( 66 )

Foreign currency translation adjustment ( 69 ) — ( 142 ) — ( 211 )

Provision at September 30, 2021 $ 2,645 $ — $ 5,558 $ — $ 8,203

Expenses Demolition and

9 unchanged sentences

Provision at June 30, 2020 2,372 76 76 49 2,573

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.

Cash paid ( 814 ) — ( 48 ) — ( 862 )

Foreign currency translation adjustment 108 3 2 2 115

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

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Changes in each component of Accumulated other comprehensive income (loss) (“AOCI”), net of tax, for the three and six months ended June 30, 2021 and 2020 are as follows:

Accumulated Other Comprehensive Income/(Loss)

Changes in each component of Accumulated other comprehensive income (loss) (“AOCI”), net of tax, are as follows:

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

13 unchanged sentences

Balance at June 30, 2021 ( 23,921 ) ( 11,772 ) ( 6,750 ) ( 42,443 )

Other comprehensive income (loss) before reclassifications ( 10,383 ) ( 3,218 ) — ( 13,601 )

Income tax effects before reclassifications ( 325 ) 1,145 — 820

Amounts reclassified from AOCI — — 1,197 1,197

Income tax effects on reclassifications — — ( 390 ) ( 390 )

Currency translation AOCI — 334 144 478

Balance at September 30, 2021 $ ( 34,629 ) $ ( 13,511 ) $ ( 5,799 ) $ ( 53,939 )

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

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Balance at June 30, 2020 ( 35,723 ) ( 13,151 ) ( 7,747 ) ( 56,621 )

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

Income tax effects before reclassifications ( 116 ) 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 ) $ ( 6,758 ) $ ( 60,450 )

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Earnings Per Share

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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 June 30, Six Months Ended June 30,

Three Months Ended September 30, 2021 Nine Months Ended September 30,

2021 2020 2021 2020

(In thousands, except per share amounts)

Net income (loss) for the period - attributable to ordinary equity holders of the parent $ 89,058 $ ( 17,780 ) $ 112,596 $ 253

Net income attributable to ordinary equity holders $ 21,012 $ 8,997 $ 133,608 $ 9,250

Weighted average number of ordinary shares 60,740 60,487 60,680 60,408

9 unchanged sentences

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

Income tax expense for the six months ended June 30, 2021 amounted to $ 41.8 million compared to $ 1.8 million for the six months ended June 30, 2020.

Income tax expense for the three months ended June 30, 2021 amounted to $ 33.5 million compared to income tax benefit of $ 5.9 million for the three months ended June 30, 2020.

For the three and six months ended June 30, 2021 and 2020, our effective income tax rates were as follows:

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

Income tax expense for the three months ended September 30, 2021 and 2020 were $ 6.8 million and $ 2.3 million, respectively.

Income tax expense for the nine months ended September 30, 2021 and 2020 were $ 48.5 million and $ 4.0 million, respectively.

Our effective income tax rates were as follows:

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

2021 2020 2021 2020

Effective income tax rates 24.3 % 20.0 % 26.6 % 30.2 %

The decrease in our effective tax rate for the six months 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 compared with an discrete deferred tax expense of $ 1.2 million within the six months ended June 30, 2020 in relation to the lower pre-tax income 2020.

The increase in our effective tax rate for the three months ended June 30, 2021 was primarily attributable to the impact of a discrete deferred tax gain of $ 0.7 million due to the reassessment of the recoverability of deferred tax assets compared with an discrete deferred tax expense of $ 1.0 million within the three months ended June 30, 2020 in relation to the negative pre-tax income.

The decrease in our effective tax rate for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, was primarily attributable to the impact of a discrete deferred tax gain impacting the valuation allowance on deferred tax assets.

The increase in our effective tax rate for the three months ended September 30, 2021 as compared to the three-months ended September 30, 2020, was primarily attributable to the reassessment of the recoverability of deferred tax assets and its projected earnings mix by geography and tax jurisdiction as compared to the prior period.

Commitments and Contingencies

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In response to information requests received by the Company’s U.S.

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

facilities, the Company furnished information to

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

the EPA on each of its U.S.

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

1 unchanged sentence

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

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

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

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

Department of Justice about a potential settlement to resolve the NOVs received, which ultimately led to a consent decree executed between Orion Engineered Carbons LLC (for purpose of this note M.

Department of Justice (“DOJ”) about a potential settlement to resolve the NOVs received, which ultimately led to a consent decree executed between Orion Engineered Carbons LLC (for purpose of this note M.

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

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

While the construction at Orange has been completed according to schedule despite COVID-19 related impacts, the construction at the Ivanhoe facility has been subject to COVID-19-related delays, and as a result we have declared force majeure with respect to the EPA CD and requested an extension of the timeline for completion of installations.

The EPA has not confirmed our extension request but has deferred judgment on it at this time.

While the construction at Orange has been completed according to schedule, the construction at the Ivanhoe facility has been subject to COVID-19 and hurricane Ida-related delays.

As a result, we have declared force majeure with respect to the EPA CD and requested an extension of the timeline for completion of installations.

Orion is negotiating the extension of the EPA CD deadlines, but that extension has not yet been approved by the government as of this date, and, when it is, it must also be submitted to the court for approval.

In line with EPA’s respective request, Orion continues to provide regular updates to the EPA on the Ivanhoe installation works timeline and respective COVID-19 related impacts and mitigation measures.

Under the EPA CD, Orion can choose either its Belpre or Borger facilities as the next site for installation of pollution control equipment with comparable effectiveness.

We expect the capital expenditures for installation of pollution control equipment in the remaining Orion facilities to decrease due to economies of scale and synergies from prior installations.

We also expect that the third and fourth plants will require significantly less costly pollution control equipment given the requirements of the EPA CD.

We estimate the installations of monitoring and pollution control equipment at all four Orion plants in the U.S.

will require capital expenditures in an approximate range between $ 270 million to $ 290 million of which approximately $ 181 million has been spent to date.

To narrow this range, the Company is pursuing further scope design and estimation efforts.

However, the actual total capital expenditures we might need to incur to fulfill the requirements of the EPA CD remain uncertain.

The EPA CD allows some flexibility for Orion to choose among different technology solutions for reducing emissions and the locations where these solutions are implemented.

The solutions Orion ultimately chooses to implement at its facilities other than Ivanhoe (Louisiana) 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.

However, factors, such as timing, locations, target levels, changing scope or cost estimates as well as local regulations or unforeseen necessities could cause actual capital expenditures to exceed or be lower than current expectations or could affect Orion’s ability to meet the agreed target emission levels or target dates for installing required equipment as anticipated or at all.

Under the EPA CD, Orion also agreed to and paid a civil penalty of $ 0.8 million and agreed to perform environmental mitigation projects totaling $ 0.6 million.

Noncompliance with applicable emissions limits could lead to further penalty payments to the EPA.

2 unchanged sentences

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), provided for a partial indemnity from Evonik against various exposures, including, but not limited to, capital investments, fines and costs arising in connection with Clean Air Act violations that occurred prior to July 29, 2011.

Except for certain less relevant allegations contained in the second NOV received for the Company’s facility in Orange (Texas) in March 2016, all of the other allegations made by the EPA with regard to all four of the Company’s U.S.

facilities - as discussed above - relate to alleged violations before July 29, 2011.

The indemnity provided 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 was 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.

In June 2021, Orion and Evonik agreed to settle their disputes.

Evonik made a one-time cash payment € 66.55 million ($ 79.5 million) to Orion which resolved all pending claims and counterclaims of $ 3.4 million.

In the Condensed Consolidated Financial Statements, we recorded a gain aggregating $ 82.9 million.

In June 2019, Orion initiated arbitration proceedings to enforce its rights against Evonik.

In June 2021, Orion and Evonik agreed to settle all claims made under this partial indemnity as well as certain other claims and counterclaims Orion and Evonik asserted against each other.

Evonik made a one-time cash payment of € 66.55 million ($ 79.5 million) to Orion which resolved all pending claims as well as counterclaims of $ 3.4 million.

In the Condensed Consolidated Financial Statements, Orion recorded a gain aggregating $ 82.9 million.

Pledges and guarantees

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.

As of June 30, 2021, the Company had guarantees totaling $ 16.9 million issued by various financial institutions.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

As of September 30, 2021, the Company had guarantees totaling $ 16.4 million issued by various financial institutions.

Financial Information by Segment

1 unchanged sentence

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.

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.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

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

4 unchanged sentences

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

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

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

2021 2020 2021 2020

2 unchanged sentences

Adjustment items are not allocated to the individual segments as they are managed on a group basis.

Segment reconciliation for the three months ended June 30, 2021 and 2020:

Segment reconciliation for the three months ended September 30, 2021 and 2020:

Rubber Specialties Corporate Total Segments

4 unchanged sentences

Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment ( 13,333 ) ( 10,477 ) — ( 23,810 )

Gain related to litigation settlement

— — 82,858 82,858

Excluding equity in earnings of affiliated companies, net of tax ( 143 ) — — ( 143 )

1 unchanged sentence

Reclassification of actuarial losses from AOCI ( 1,197 ) ( 1,197 )

Pre-tax income before earnings in affiliated companies and income taxes $ 122,301

Income before earnings in affiliated companies and income taxes $ 27,622

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

2 unchanged sentences

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

Gain related to litigation settlement — — — —

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

1 unchanged sentence

Reclassification of actuarial losses from AOCI ( 2,273 ) ( 2,273 )

Pre-tax loss before earnings in affiliated companies and income taxes $ ( 23,810 )

Income before earnings in affiliated companies and income taxes $ 11,106

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Segment reconciliation for the six months ended June 30, 2021 and 2020:

Segment reconciliation for the nine months ended September 30, 2021 and 2020:

Rubber Specialties Corporate Total Segments

8 unchanged sentences

Reclassification of actuarial losses from AOCI ( 3,649 ) ( 3,649 )

Pre-tax income before earnings in affiliated companies and income taxes $ 153,967

Income before earnings in affiliated companies and income taxes $ 181,589

Net sales from external customers $ 502,895 $ 317,796 $ — $ 820,691

5 unchanged sentences

Reclassification of actuarial losses from AOCI ( 7,325 ) ( 7,325 )

Pre-tax income before earnings in affiliated companies and income taxes $ 1,724

Income before earnings in affiliated companies and income taxes $ 12,830

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.

In the Consolidated Statements of Operations, shipping and handling costs of $ 24.0 million and $ 11.6 million for the three months ended June 30, 2021 and 2020, respectively, and $ 46.5 million and $ 30.8 million for the six months ended June 30, 2021 and 2020, respectively, were reflected in Selling, general and administrative expenses.

In the Consolidated Statements of Operations, shipping and handling costs of $ 23.3 million and $ 17.9 million for the three months ended September 30, 2021 and 2020, respectively, and $ 69.8 million and $ 48.7 million for the nine months ended September 30, 2021 and 2020, respectively, were reflected in Selling, general and administrative expenses.

Subsequent Events

On October 29, 2021, the Company’s Board of Directors declared interim dividend in the aggregate amount of $ 1.25 million, which is equivalent to approximately $ 0.02 per common stock of the company.

The interim dividend will be paid on January 12, 2022, to holders of record as of the close of business on January 5, 2022.

Orion Engineered Carbons S.A.

1 unchanged sentence

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