Orion S.A. 10-K

Item 8. Financial Statements and Supplementary Data Table of Contents—Consolidated Financial Statements Page Reports of Independent Registered Public Accounting Firms (PCAOB ID: 42 and PCAOB ID: 1251 ) 34 Consolidated Statements of Operations 36 Consolidated Statements of Comprehensive Income 37 Consolidated Balance Sheets 38 Consolidated Statements of Cash Flows 39 Consolidated Statements of Changes in Stockholders' Equity 40 Notes to the Consolidated Financial Statements 41 33 Orion Engineered Carbons S.A. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Orion Engineered Carbons S.A. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Orion Engineered Carbons S.A. (the Company) as of December 31, 2021, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with the U.S. generally accepted accounting principles. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organization of the Treadway Commission (2013 framework) and our report dated February 17, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. Inventory Reserves- Valuation Description of the Matter As of December 31, 2021, the Company recognized $15.9 million of inventory reserves. As discussed in Note A and D of the financial statements, the Company records an adjustment to the cost basis of inventory when evidence exists that the net realizable value of inventory is lower than its cost, which occurs when the Company has excess or obsolete inventory. The Company's model to estimate excess or obsolete inventory is based on an analysis of existing inventory quantities compared to historical and expected future consumption. Expected future consumption is estimated based upon historical consumption, recent purchase volumes, product age and condition, and market factors. Auditing management's reserves for excess or obsolete inventories involved significant auditor judgement because write-downs of inventories are based on subjective factors including inventory condition and projected sales and usage of inventory which are affected by market and economic conditions outside the Company’s control. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company's inventory reserve process. This included management's assessment of the assumptions and data underlying the inventory reserve. Our substantive audit procedures included, among others, evaluating the significant assumptions stated above and the accuracy and completeness of the underlying data management used to value excess or obsolete inventory. We compared inventories on-hand to historical usage and forecasts of future demand obtained from entity-specific and available market information. We also performed sensitivity analyses over the significant assumptions to evaluate the changes in the excess and obsolete inventory estimates that would result from changes in the underlying assumptions. //s/ Ernst & Young LLP We have served as the Company’s auditor since 2021. Houston, TX February 17, 2022 34 Orion Engineered Carbons S.A. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Orion Engineered Carbons S.A. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Orion Engineered Carbons S.A. (the Company) as of December 31, 2020, the related consolidated statements of operations, comprehensive income, changes in stockholders' equity and cash flows for the years ended December 31, 2020 and 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for each of the years ended December 31, 2020 and 2019, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young GmbH We have served as the Company’s auditor from 2011 to 2021 Cologne, Germany February 18, 2021 35 Orion Engineered Carbons S.A Consolidated Statements of Operations Years Ended December 31, 2021 2020 2019 (In millions, except share and per share amounts) Net sales $ 1,546.8 $ 1,136.4 $ 1,476.4 Cost of sales 1,160.2 844.1 1,086.7 Gross profit 386.6 292.3 389.7 Selling, general and administrative expenses 210.4 176.1 206.9 Research and development costs 22.0 20.2 19.9 Gain related to litigation settlement ( 82.9 ) — — Other expenses, net 8.6 21.6 15.7 Income from operations 228.5 74.4 147.2 Interest and other financial expense, net 38.0 38.7 27.6 Reclassification of actuarial losses from AOCI 4.8 9.9 — Income before earnings in affiliated companies and income taxes 185.7 25.8 119.6 Income tax expense 51.7 8.1 33.3 Earnings in affiliated companies, net of tax 0.7 0.5 0.6 Net income $ 134.7 $ 18.2 $ 86.9 Weighted-average shares outstanding (in thousands of shares): Basic 60,708 60,430 59,986 Diluted 60,951 61,407 61,300 Earnings per share Basic $ 2.22 $ 0.30 $ 1.45 Diluted $ 2.21 $ 0.30 $ 1.42 The accompanying notes are an integral part of these Consolidated Financial Statements. 36 Orion Engineered Carbons S.A Consolidated Statements of Comprehensive Income Years Ended December 31, 2021 2020 2019 (In millions) Net income $ 134.7 $ 18.2 $ 86.9 Other comprehensive income (loss), net of tax Foreign currency translation adjustments ( 7.6 ) ( 14.3 ) ( 1.7 ) Net gains (losses) on derivatives 2.7 ( 2.6 ) ( 4.6 ) Gains (losses) on defined benefit plans 5.1 2.5 ( 8.4 ) Other comprehensive income (loss) 0.2 ( 14.4 ) ( 14.7 ) Comprehensive income $ 134.9 $ 3.8 $ 72.2 The accompanying notes are an integral part of these Consolidated Financial Statements. 37 Orion Engineered Carbons S.A Consolidated Balance Sheets December 31 2021 2020 (In millions, except share amounts) ASSETS Current assets Cash and cash equivalents $ 65.7 $ 64.9 Accounts receivable, net 288.9 234.8 Inventories, net 229.8 141.5 Income tax receivables 12.1 11.2 Prepaid expenses and other current assets 68.5 48.1 Total current assets 665.0 500.5 Property, plant and equipment, net 707.9 610.5 Right-of-use assets 84.6 85.6 Goodwill 78.0 84.5 Intangible assets, net 36.3 46.8 Investment in equity method affiliates 5.3 5.6 Deferred income tax assets 50.4 52.6 Other assets 3.5 3.7 Total non-current assets 966.0 889.3 Total assets $ 1,631.0 $ 1,389.8 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 195.1 $ 131.2 Current portion of long term debt and other financial liabilities 151.7 82.6 Accrued liabilities 50.9 49.2 Income taxes payable 16.9 23.9 Other current liabilities 34.1 37.8 Total current liabilities 448.7 324.7 Long-term debt, net 631.2 655.8 Employee benefit plan obligation 74.4 83.3 Deferred income tax liabilities 61.8 38.8 Other liabilities 95.2 106.2 Total non-current liabilities 862.6 884.1 Commitments and contingencies Stockholders' equity Common stock Authorized: 65,035,579 and 65,035,579 shares with no par value Issued – 60,992,259 and 60,992,259 shares with no par value Outstanding – 60,656,076 and 60,487,117 shares 85.3 85.3 Less 336,183 and 505,142 shares of common treasury stock, at cost ( 6.3 ) ( 8.5 ) Additional paid-in capital 71.4 68.5 Retained earnings 217.8 84.4 Accumulated other comprehensive loss ( 48.5 ) ( 48.7 ) Total stockholders' equity 319.7 181.0 Total liabilities and stockholders' equity $ 1,631.0 $ 1,389.8 The accompanying notes are an integral part of these Consolidated Financial Statements. 38 Orion Engineered Carbons S.A Consolidated Statements of Cash Flows Years Ended December 31, 2021 2020 2019 (In millions) Cash flows from operating activities: Net income $ 134.7 $ 18.2 $ 86.9 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant and equipment and amortization of intangible assets and right of use assets 104.1 96.6 96.7 Amortization of debt issuance costs 4.1 2.1 2.1 Share-based incentive compensation 5.2 4.4 9.4 Deferred tax (benefit) provision 20.3 ( 12.2 ) 15.9 Foreign currency transactions ( 11.5 ) ( 4.9 ) 1.1 Reclassification of actuarial losses from AOCI 4.8 9.9 — Other operating non-cash items, net ( 1.8 ) 0.1 1.8 Changes in operating assets and liabilities, net: Trade receivables ( 67.6 ) ( 16.5 ) 45.4 Inventories ( 94.9 ) 30.0 16.4 Trade payables 65.0 ( 18.7 ) ( 12.0 ) Other provisions 7.0 2.3 ( 10.4 ) Income tax liabilities ( 6.3 ) 16.4 ( 7.3 ) Other assets and liabilities, net ( 17.9 ) ( 2.4 ) ( 14.5 ) Net cash provided by operating activities 145.2 125.3 231.5 Cash flows from investing activities: Acquisition of intangible assets and property, plant and equipment ( 214.7 ) ( 144.9 ) ( 155.8 ) Net cash used in investing activities ( 214.7 ) ( 144.9 ) ( 155.8 ) Cash flows from financing activities: Proceeds from long-term debt borrowings 213.4 — — Repayments of long-term debt ( 213.0 ) ( 8.2 ) ( 8.0 ) Cash inflows related to current financial liabilities 188.4 206.0 96.9 Cash outflows related to current financial liabilities ( 112.6 ) ( 171.1 ) ( 101.3 ) Dividends paid to shareholders — ( 12.0 ) ( 48.1 ) Other financing activities ( 2.9 ) ( 1.2 ) ( 8.1 ) Net cash provided by (used in) financing activities 73.3 13.5 ( 68.6 ) Increase (decrease) in cash, cash equivalents and restricted cash 3.8 ( 6.1 ) 7.1 Cash, cash equivalents and restricted cash at the beginning of the period 67.9 68.2 61.6 Effect of exchange rate changes on cash ( 3.2 ) 5.8 ( 0.5 ) Cash, cash equivalents and restricted cash at the end of the period 68.5 67.9 68.2 Less restricted cash at the end of the period 2.8 3.0 4.5 Cash and cash equivalents at the end of the period $ 65.7 $ 64.9 $ 63.7 Cash paid for interest, net $ ( 22.8 ) $ ( 20.8 ) $ ( 20.4 ) Cash paid for income taxes $ ( 37.6 ) $ ( 7.9 ) $ ( 24.1 ) Supplemental disclosure of non-cash activity: Lease liabilities $ 11.6 $ 66.6 $ 32.6 The accompanying notes are an integral part of these Consolidated Financial Statements. 39 Orion Engineered Carbons S.A Consolidated Statements of Changes in Stockholders’ Equity Common stock (In millions, except share and per share amounts) Number Amount Treasury shares Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total As of January 1, 2019 59,518,498 $ 84.2 $ ( 8.7 ) $ 63.6 $ 39.4 $ ( 19.6 ) $ 158.9 Net income — — — — 86.9 — 86.9 Other comprehensive loss, net of tax — — — — — ( 14.7 ) ( 14.7 ) Dividends - $ 0.80 per share — — — — ( 48.1 ) — ( 48.1 ) Share based compensation — — — 2.0 — — 2.0 Issuance of stock under equity compensation plans 705,649 0.8 0.2 — — — 1.0 As of December 31, 2019 60,224,147 85.0 ( 8.5 ) 65.6 78.2 ( 34.3 ) 186.0 Net income — — — — 18.2 — 18.2 Other comprehensive loss, net of tax — — — — — ( 14.4 ) ( 14.4 ) Dividends - $ 0.20 per share — — — — ( 12.0 ) — ( 12.0 ) Share based compensation — — — 2.9 — — 2.9 Issuance of stock under equity compensation plans 262,970 0.3 — — — — 0.3 As of December 31, 2020 60,487,117 85.3 ( 8.5 ) 68.5 84.4 ( 48.7 ) 181.0 Net income — — — — 134.7 — 134.7 Other comprehensive income, net of tax — — — — — 0.2 0.2 Dividends - $ 0.02 per share — — — — ( 1.3 ) — ( 1.3 ) Share based compensation — — — 5.1 — — 5.1 Issuance of stock under equity compensation plans 168,959 — 2.2 ( 2.2 ) — — — As of December 31, 2021 60,656,076 $ 85.3 $ ( 6.3 ) $ 71.4 $ 217.8 $ ( 48.5 ) $ 319.7 The accompanying notes are an integral part of these Consolidated Financial Statements. 40 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Table of Contents—Notes Page Note A. Significant Accounting Policies 42 Note B. Recent Accounting Pronouncements 47 Note C. Accounts Receivable 48 Note D. Inventories 48 Note E. Prepaid and Other Current Assets 49 Note F. Property, Plant and Equipment, and right-of-use assets 49 Note G. Leases 49 Note H. Goodwill and Intangible Assets 51 Note I. Accruals and Other Liabilities 52 Note J. Debt and Other Obligations 52 Note K. Financial Instruments and Fair Value Measurement 55 Note L. Employee Benefit Plans 57 Note M. Stock-Based Compensation 60 Note N. Accumulated Other Comprehensive Income (Loss) 62 Note O. Earnings Per Share 62 Note P. Income Taxes 63 Note Q. Commitments and Contingencies 67 Note R. Segment Financial Information 68 Note S. Related Parties 71 Note T. Subsequent Events 71 41 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Note A. Significant Accounting Policies Orion Engineered Carbons S.A. (“Orion”, the “Company”, “we”, “us”, “our”, or “OEC”) is a Luxembourg joint stock corporation (société anonyme or S.A.), incorporated on July 28, 2014 as a Luxembourg limited liability company (société à responsabilité limitée). Principles of Consolidation The accompanying Consolidated Financial Statements have been prepared, in U.S. Dollars, in conformity with accounting principles generally accepted in the United States (“U.S. GAAP” or “GAAP”). The Consolidated Financial Statements include the accounts of Orion Engineered Carbons S.A. and its wholly-owned subsidiaries and majority-owned and controlled entities. Subsidiaries are defined as being those companies over which we, either directly or indirectly, have control through a majority of the voting rights or the right to exercise control or to obtain the majority of the benefits and be exposed to the majority of the risks. Subsidiaries are consolidated from the date on which control is obtained until the date that such control ceases. All intercompany transactions and balances have been eliminated in consolidation . Use of Estimates and Assumptions We make estimates, and assumptions to prepare our financial statements in conformity with GAAP. Those estimates and assumptions affect the amount we report in our Consolidated Financial Statements and accompanying Notes. Our actual results could differ from those estimates, and variances could materially affect our financial condition and results of operations in future periods. Events surrounding the COVID-19 pandemic continue to evolve and the financial statements impact cannot be predicted. We continue to assess the potential financial statements impacts on our operational and financial performance. COVID-19 could have a material adverse impact on our business, results of operations, access to sources of liquidity and financial condition. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents comprise bank balances, checks and cash on hand and include highly liquid investments with maturities of three-months or less at the date of purchase. We record cash and cash equivalents as restricted when we are unable to freely use such cash and cash equivalents for our general operating purposes. A majority of our restricted cash and cash equivalents serves as cash collateral deposits, voluntary and or mandatory, for third-party bank guarantees. See Note J. Debt and Other Obligations for further discussion. Accounts and Notes Receivables Accounts receivable are amounts due from customers for merchandise sold or services performed in the ordinary course of business and are carried at transaction price net of allowance for credit losses. Allowance for credit losses is measured using historical loss rates for the respective risk categories and incorporating forward-looking estimates. The corresponding expense for the credit loss allowance is reflected in Selling, general and administrative expenses in the Consolidated Statements of Operations. Past due balances are written-off against credit loss allowance when the accounts are deemed no longer to be collectible. Inventories The Company values inventory at the lower of cost or net realizable value using the average cost method. We periodically evaluate the net realizable value of inventories based primarily upon their age, but also upon assumptions of future usage in production, customer demand and market conditions. Inventories have been reduced to the lower of cost or net realizable value by allowances for slow moving or obsolete goods. If actual circumstances are less favorable than those projected by management in its evaluation of the net realizable value of inventories, additional write-downs may be required. Property, plant and equipment Property, plant and equipment are recorded at historical cost. Historical cost includes expenditures that are directly attributable to the acquisition of the items. Costs may also include borrowing costs incurred on debt during construction of major projects exceeding one year, costs of major maintenance arising from turnarounds of major units and committed decommissioning costs. Expenditures for major renewals and improvements, which significantly extend the useful lives of the existing property, plant and equipment, are capitalized and depreciated. Routine maintenance costs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of assets. Depreciation of property, plant and equipment is calculated using the straight-line method over the expected useful lives of the related assets. The depreciable lives for Buildings, Plant and machinery as well as Furniture, fixtures and office equipment are between 5 and 50 years, 3 and 25 years, and 3 and 25 years, respectively. 42 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Land is not depreciated. We evaluate property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, which, for us, is generally at the plant group level. If it is determined that an asset or asset group’s undiscounted future cash flows will not be sufficient to recover the carrying amount, the asset is written down to its estimated fair value. Gain or loss on retirement or sale of property, plant and equipment is reflected in Other expenses, net in the Consolidated Statements of Operations. Business Combination We recognize and measure the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date, with any difference compared to the purchase consideration recorded as goodwill or gain on bargain purchase. Subsequent to the acquisition, and no later than one year from the acquisition date, we may record adjustments to the estimated fair values of assets acquired and liabilities assumed, with the corresponding offset to goodwill, to reflect new information obtained about facts and circumstances that existed at the acquisition date. Thereafter, subsequent adjustments of the estimated fair values are recorded to earnings. Acquisition-related costs are expensed as incurred. Goodwill Goodwill is tested for impairment annually as of September 30, 2021 or whenever events or changes in circumstances indicate that the fair value of a reporting unit with goodwill is below its carrying amount. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors assessed for each of the reporting units include, but are not limited to, changes in long-term commodity prices, discount rates, competitive environments, planned capacity, cost factors such as raw material prices, and financial performance of the reporting units. If the qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, a quantitative test is required. If the carrying value of the reporting unit including goodwill exceeds its fair value, an impairment charge equal to the excess would be recognized up to a maximum amount of goodwill allocated to that reporting unit. For 2021, we performed qualitative impairment assessments of our reporting units, which indicated that the fair value of our reporting units was more likely than not greater than their carrying value. Based on this assessment, a quantitative goodwill impairment test was not required. For 2020, we elected to proceed directly to the quantitative goodwill impairment test, which indicated that the fair value of our reporting units was greater than their carrying value including goodwill. No goodwill impairment was recognized in 2021 and 2020. Intangible Assets Intangible assets, which are comprised of trade names and trademarks, customer relationships, developed technologies and software costs. These assets are amortized, using the straight-line method, over their estimated useful lives of 3 - 15 years or over the term of the related agreement. The useful lives of intangibles related to customer relationships acquired in business combinations are estimated on the basis of contractual arrangements and the probability of a continuing relationship. We evaluate definite-lived intangible assets with the associated long-lived asset group for impairment whenever impairment indicators are present, such as a significant reduction in cash flows associated with the assets. Investments in Equity Method Affiliates We account for equity investments (“equity investments”) using the equity method of accounting if we have the ability to exercise significant influence over, but not control of, an investee. Significant influence generally exists if we have an ownership interest representing between 20% and 50% voting rights. Under the equity method of accounting, investments are stated initially at cost and are adjusted for subsequent additional investments and our proportionate share of profit or losses and distributions. We record our share of the profit or losses of the equity method investments, net of income taxes, in the Consolidated Statements of Operations. When our share of losses in an equity investment equals or exceeds our interest in the equity investment, including any other unsecured receivables, we do not recognize further losses, unless we have incurred obligations or made payments on behalf of the equity investment. We evaluate our equity method investments for impairment when events or changes in circumstances indicate, in our management’s judgment, that the carrying value of such investments may have experienced other-than-temporary decline in value. When evidence of loss in value has occurred, we compare the estimated fair value of investment to the carrying value of investment to determine whether an 43 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements impairment has occurred. If the estimated fair value is less than the carrying value and our management considers the decline in value to be other-than-temporary, the excess of the carrying value over the estimated fair value is recognized in the Consolidated Financial Statements as an impairment. We have an investment in Kommanditgesellschaft Deutsche Gasrußwerke GmbH & Co and Kommanditgesellschaft Deutsche Gasrußwerke GmbH & Co , (together “DGW”), which is accounted for using the equity method. Income Taxes The income tax for the period comprises current and deferred tax. Income tax is recognized in the Consolidated Statements of Operations, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In these cases, the applicable tax amount is recognized in other comprehensive income or directly in equity, respectively. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the net tax effects of tax carryforwards. Valuation allowances are provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. We recognize uncertain income tax positions in our financial statements when we believe it is more likely than not, based on the technical merits, that the position or a portion thereof will be sustained upon examination. For a position that is more likely than not to be sustained, the benefit recognized is measured at the largest cumulative amount that is greater than 50 percent likely of being realized. Other Provisions Asset retirement obligations— At some sites, we are contractually obligated to decommission our plants upon site exit. Asset retirement obligations are recorded at the present value of the estimated costs to retire the asset at the time the obligation is incurred. That cost, which is capitalized as part of the related long-lived asset, is depreciated on a straight-line basis over the remaining useful life of the related asset. Accretion expense in connection with the discounted liability is also recognized over the remaining useful life of the related asset. Environmental provisions — We accrue for environmental remediation costs and other obligations when it is probable that a liability has been incurred and we can reasonably estimate the amount. The amount accrued reflects our assumptions about remediation requirements at the contaminated site, the nature of the remedy, the outcome of discussions with regulatory agencies and other potentially responsible parties at multi-party sites, and the number and financial viability of other potentially responsible parties. We do not reduce its estimated liability for possible recoveries from insurance carriers. Proceeds from insurance carriers are recorded when realized by either the receipt of cash or a contractual agreement. We determine the timing and amount of any liability based upon assumptions regarding future events. Inherent uncertainties exist in such evaluations primarily due to unknown conditions and other circumstances, changing governmental regulations and legal standards regarding liability, and evolving technologies. We adjust these liabilities periodically as remediation efforts progress or as additional technical or legal information becomes available. Concentrations of Credit Risk This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that our customers may be similarly affected by changes in economic or other conditions. In addition, we and many of our customers operate worldwide and are therefore exposed to risks associated with the economic and political forces of various countries and geographic areas. We generally do not obtain any collateral for our receivables. See Note R. Segment Financial Information to the Consolidated Financial Statements for additional information about our operations in different geographic areas. Foreign Currency Translation Functional and Reporting Currency —Items included in the financial information of each of Orion’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”) and then translated to the U.S. dollar (“the reporting currency”) as follows: • Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • Income and expenses for each income statement are translated at monthly average exchange rates; and • All resulting exchange differences are recognized as a separate component within Other comprehensive income (foreign currency translation adjustments). Transactions and Balances —Foreign currency transactions are recorded in their respective functional currency using exchange rates prevailing at the dates of the transactions. Exchange gains and losses, resulting from the settlement of such transactions and from remeasurement of monetary assets and liabilities denominated in foreign currencies at period-end exchange rates, are recognized in Interest and other financial expense, net in the Consolidated Statements of Operations. 44 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Revenue Recognition We recognizes revenue when the customers obtain control of promised goods or services. The revenue recognized is the amount of consideration which we expect to receive in exchange for those goods or services. Our contracts with customers are generally for products only and do not include other performance obligations. Generally, we consider purchase orders, which in some cases are governed by master supply agreements, to be contracts with customers. The transaction price as specified on the purchase order or sales contract is considered the standalone selling price for each distinct product. To determine the transaction price at the time when revenue is recognized, we evaluate whether the price is subject to adjustments, such as for discounts or volume rebates, which are stated in the customer contract, to determine the net consideration to which we expect to be entitled. Revenue from product sales is recognized based on a point in time model when control of the product is transferred to the customer, which typically occurs upon shipment or delivery of the product to the customer and title, risk and rewards of ownership have passed to the customer. Taxes collected on sales to customers are excluded from the transaction price. Shipping and handling activities that occur after the transfer of control to the customer are billed to customers and are recorded as sales revenue, as we consider these to be fulfillment costs. Shipping and handling costs are expensed in the period incurred and included in Selling, general and administration expenses in our Consolidated Statements of Operations. Payment terms on product sales to our customers typically range from 30 to 90 days. When the period of time between the transfer of control of the goods and the time the customer pays for the goods is one year or less, we do not consider there to be a significant financing component associated with the contract. We do not have contract assets or liabilities that are material. Stock-based compensation Equity instruments are measured at fair value on the grant date. Stock-based compensation expense is generally recognized on a straight-line basis over the requisite service periods of the awards. We use a Monte Carlo model to determine the fair value of certain share-based awards that contain market and performance-based conditions. The use of these models requires highly subjective assumptions, such as assumptions about the expected life of the award, vesting probability, expected dividend yield and the volatility of our stock price. Compensation expense for liability-classified share-based awards are recognized on a straight-line basis over the vesting period as a liability and remeasured, at fair value, at the balance sheet date. See Note M. Stock-Based Compensation to the Consolidated Financial Statements for additional information. Leases At inception of a contract, we determine if the contract contains a lease. When a lease is identified, we recognize a leased asset (i.e., “Right-of-Use” or “ROU” assets) and a corresponding lease liability based on the present value of the lease payments over the lease term, discounted using our incremental borrowing rate, unless an implicit rate is readily determinable. Lease payments include fixed and variable lease components derived from usage or market-based indices, such as the consumer price index. Variable lease payments may fluctuate for a variety of reasons including usage, output, insurance or taxes. These variable amounts are expensed as incurred and not included in the lease assets or lease liabilities. Options to extend or terminate a lease are reflected in the lease payments and lease term when it is reasonably certain that we will exercise those options. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the Consolidated Statements of Operations. Majority of our leases are operating leases for which we recognize lease expense on a straight-line basis over the lease term. We apply the practical expedient to account for lease and associated nonlease components as a single lease component. Leases with an initial term of 12 months or less are recognized in the Consolidated Statements of Operations on a straight-line basis over the lease term. Please see Note H. Leases to the Consolidated Financial Statements for additional information. Financial Instruments and Hedging Activities Pursuant to our risk management policies, we may choose to enter into derivative transactions to manage market risk volatility associated with changes in commodity pricing, currency exchange rates and interest rates. Derivatives used for this purpose are generally designated as net investment hedges, cash flow hedges or fair value hedges. Derivative instruments are recorded at fair value in the balance sheet. Gains and losses related to changes in the fair value of derivative instruments not designated as hedges are recorded in Interest and other financial expense, net, in the Consolidated Statements of Operations. 45 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Cash flows from derivatives designated as hedges are reported in our Consolidated Statements of Cash Flows under the same category as the cash flows from the hedged items unless the derivative contract contains a significant financing element. Cash flows for derivatives with a significant financing element are classified as Cash flows from financing activities. Cash Flow Hedges —We enter into cash flow hedges to manage the variability in cash flows of a future transaction. Our cash flow hedges include cross currency swaps, and options and swaps to hedge interest rate and foreign exchange risk. For derivatives designated as cash flow hedges, the gains and losses are recorded in Other comprehensive income (loss) and released to earnings in the same line item and in the same period during which the hedged item affects earnings. We use regression analysis to assess initial hedge effectiveness. Following the inception of a hedging relationship, hedge effectiveness is assessed quarterly based on qualitative factors, if applicable, or regression analysis. We have cross-currency swap contracts designated as cash flow hedges to reduce our exposure to the foreign currency exchange risk associated with certain intercompany loans and debt denominated in currencies other than the functional currency of the issuer. Under the terms of these contracts, we make interest payments in euros and receive interest in U.S. dollars. Upon the maturities of these contracts, we will pay the principal amount of the loans in euros and receive U.S. dollars from our counterparties. Net Investment Hedges —We enter into foreign currency derivatives and foreign currency denominated debt to reduce the volatility in shareholders’ equity resulting from changes in currency exchange rates of our foreign subsidiaries with respect to the U.S. dollar. Our foreign currency derivatives consist of cross-currency contracts and forward exchange contracts. For derivatives designated as net investment hedges, gains or losses attributable to changes in spot foreign exchange rates over the designation period are reflected in foreign currency translation adjustments within Other comprehensive income (loss). Recognition in earnings is delayed until the net investment is sold or substantially liquidated. At that time, the amount recognized is reported in the same line item as the gain or loss on the liquidation of the hedged foreign operations. For our cross-currency swaps, the associated interest receipts and payments are recorded in Interest expense. For our foreign currency forward contracts, we amortize initial forward point values on a straight-line basis to Interest expense over the life of the hedging instrument. We monitor on a quarterly basis for any overhedged positions requiring de-designation and re-designation of the hedge to remove such over-hedged condition. Fair Value of Financial Instruments Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. An established hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of Orion. Unobservable inputs are inputs that reflect our assumptions about the factors that market participants would use in valuing the asset or liability. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: • Level 1 —inputs are based on quoted prices for identical instruments traded in active markets. • Level 2 —inputs are based on quoted prices for similar instruments in active markets, quoted prices for similar or identical instruments in inactive markets and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets and liabilities. • Level 3 —one or more significant inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar valuation techniques. We use the following inputs and valuation techniques to estimate the fair value of our financial instruments disclosed in Note K. Financial Instruments and Fair Value Measurement to the Consolidated Financial Statements: Cross-Currency Swaps —The fair value of our cross-currency swaps is calculated using the present value of future cash flows discounted using observable inputs such as known notional value amounts, yield curves, basis curves, as applicable, and with the foreign currency leg revalued using published spot and forward exchange rates on the valuation date. Floating-for-Fixed Interest Rate Swaps —The fair value of our floating-for-fixed interest rate swaps is calculated using the present value of future cash flows using observable inputs such as benchmark interest rates and market yield curves. Long-Term Debt —The fair value of our Term-Loan is calculated using pricing data obtained from well-established and recognized vendors of market data for debt valuations. The fair value of our term loan is determined based on a discounted cash flow model using observable inputs such as benchmark interest rates and public information regarding our credit risk. 46 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements The carrying amounts that we have reported for financial instruments, including Cash and cash equivalents, Restricted cash and cash equivalents, Accounts receivables, Accounts payable and Short-term debts, approximate their fair values due to the short maturity of those instruments. Employee Benefits Pension Plans: Defined Benefit Plans— Our defined benefit pension obligations are measured in accordance with the projected unit credit method. The calculations and the resulting amounts recorded in our Consolidated Financial Statements are affected by assumptions including the discount rate, expected long-term rate of return on plan assets, the annual rate of change in compensation for plan-eligible employees, mortality tables, and other factors. We evaluate the assumptions used on an annual basis. Past service cost and actual return on plan assets in excess of expected return are initially recorded in Other comprehensive income and subsequently recognized in earnings over the average remaining service period of the participants to the extent it exceeds the "corridor". The corridor is defined as the greater of 10 percent of the accumulated projected benefit obligation or the fair value of the plan assets as of the beginning of the year. Defined contribution obligations— Defined contribution obligations arise from commitments and state pension schemes (statutory pension insurance). We account for our contributions to a defined contribution plan on an accrual basis. An asset or liability may result from advance payments or payments due, respectively, to a defined contribution fund. Termination Benefits : Contractual termination benefits are payable when employment is terminated due to an event specified in the provisions of a social/labor plan or statutory law. A liability is recognized for one-time termination benefits when we are committed to (i) make payments and the number of affected employees and the benefits received are known to both parties, and (ii) terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal and can reasonably estimate such amount. Benefits falling due more than 12 months after the balance sheet date are discounted to present value. Classification Certain prior year amounts have been reclassified to conform with the current year presentation, because we believe they no longer meet the criteria for separate disclosure. Previously reported financial statements have been adjusted to reflect the following changes: • On the Consolidated Balance Sheets, we previously reported Other current financial assets, Other financial assets, and Current portion of employee benefit plan obligation on the face of this financial statement. During the fourth quarter of 2021, we concluded that classification of these line items are better reflected in Prepaid expenses and other current assets, Other assets and Other current liabilities , respectively. • On the Consolidated Statement of Comprehensive Income, we previously reported Unrealized net gains (losses) on hedges of a net investment in a foreign operation and Unrealized net gains (losses) on cash flow hedges separately on the face of this financial statement. During the fourth quarter of 2021, we combined them in the line item Net gains (losses) on derivatives . • On the Consolidated Statements of Cash Flows Statement, in Cash flows from financing activities , we previously reported Payments of debt issue costs and Taxes paid for shares issued under net settlement feature separately on the face of this financial statement . During the fourth quarter of 2021, we combined them in the line item Other financing activities . Note B. Recent Accounting Pronouncements Recently Adopted Accounting Standards Equity Method Investments —In January 2020, the FASB issued 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. 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 ), 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 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. 47 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements 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. Recently Issued Accounting Standards Not Yet Adopted Government Assistance —On November 17, 2021, the FASB issued Accounting Standards Update (ASU) No. 2021-10, Disclosures by Business Entities About Government Assistance, which requires business entities to provide certain disclosures when they have received government assistance and use a grant or contribution accounting model by analogy to other accounting guidance (e.g., a grant model under IAS 20, Accounting for Government Grants and Disclosure of Government Assistance ; Assistance ; ASC 958-605, Not-for-Profit Entities—Revenue Recognition ). The guidance is effective for financial statements issued for annual periods beginning after December 15, 2021. Entities may apply the ASU’s provisions either (1) prospectively to all transactions within the scope of ASC 832 that are reflected in the financial statements as of the adoption date and all new transactions entered into after the date of adoption or (2) retrospectively. Early adoption is permitted. The adoption of this ASU is not expected to have a material impact on our future consolidated financial statements and related disclosures. Note C. Accounts Receivable The company accounts receivable are as follows: December 31 2021 2020 (In millions) Accounts receivable $ 291.5 $ 240.6 Expected credit losses ( 2.6 ) ( 5.8 ) Accounts receivable, net of expected credit losses $ 288.9 $ 234.8 The company allowance for credit losses are as follows: 2021 2020 (In millions) Allowance for credit losses as of January 1, $ ( 5.8 ) $ ( 6.6 ) Credit loss expense ( 0.6 ) ( 4.0 ) Credit loss income and utilization 3.6 4.9 Foreign currency translation effects 0.2 ( 0.1 ) Allowance for credit losses as of December 31, $ ( 2.6 ) $ ( 5.8 ) Note D. Inventories Inventories, net of reserves, are as follows: December 31 2021 2020 (In millions) Raw materials, consumables and supplies, net $ 97.1 $ 57.0 Work in process 0.2 0.3 Finished goods, net 132.5 84.2 Total $ 229.8 $ 141.5 As of December 31, 2021 and 2020, inventory reserves were approximately $ 15.9 million and $ 12.7 million, respectively. 48 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Note E. Prepaid Expenses and Other Current Assets December 31 2021 2020 (In millions) VAT $ 23.4 $ 23.0 Deposits 17.5 2.3 Restricted Cash 2.8 3.0 Miscellaneous other receivables 24.8 19.8 Total $ 68.5 $ 48.1 Note F. Property, Plant and Equipment, and right-of-use assets Property, plant and equipment consists of the following: December 31, 2021 2020 (In millions) Land $ 32.6 $ 35.0 Land rights and buildings 104.1 101.9 Plant and machinery 1,029.9 833.2 Other equipment, furniture and fixtures 38.4 37.6 Prepayments and construction in progress 115.2 176.3 Total property, plant and equipment 1,320.2 1,184.0 Less: accumulated depreciation 612.3 573.5 Net property, plant and equipment $ 707.9 $ 610.5 Depreciation expense was $ 86.5 million, $ 81.0 million and $ 75.3 million for fiscal years ending December 31, 2021, 2020 and 2019, respectively. Note G. Leases 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 for operating lease assets such as rail cars, company cars, offices and office equipment. Lease costs for the years ended December 31, are as follows: 2021 2020 2019 (In millions) Finance lease costs $ 6.4 $ 2.3 $ 0.6 Operating lease costs 7.6 8.5 8.6 Short-term leasing costs 3.8 3.1 3.9 Total $ 17.8 $ 13.9 $ 13.1 49 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements 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: December 31, 2021 2020 (In millions) ROU Assets Operating leases $ 20.0 $ 25.3 Finance leases 64.6 60.3 Total $ 84.6 $ 85.6 Lease Liabilities (1) Operating leases Current $ 7.9 $ 7.2 Long-term 12.0 19.0 19.9 26.2 Finance leases Current 3.7 4.9 Long-term 61.0 55.5 64.7 60.4 Total $ 84.6 $ 86.6 (1) Reflected in Current and Other liabilities in the Consolidated Balance Sheets. The weighted remaining average minimum lease period for finance leases and operating leases are 20.6 years and 3.9 years, respectively. Maturities of operating and finance lease liabilities are as follows: Finance Leases Operating Leases Total (In millions) Next 12 months $ 6.3 $ 8.6 $ 14.9 1 to 2 years 5.1 5.4 10.5 2 to 3 years 4.9 3.7 8.6 3 to 4 years 4.8 2.9 7.7 4 to 5 years 4.4 1.0 5.4 More than 5 years 74.0 0.1 74.1 Total undiscounted minimum lease payments 99.5 21.7 121.2 Imputed interest ( 34.8 ) ( 1.8 ) ( 36.6 ) Lease liability (current and non-current) $ 64.7 $ 19.9 $ 84.6 The weighted average discount rate applied to the lease liabilities is 4.44 %. 50 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Note H. Goodwill and Intangible Assets Goodwill The carrying amount of goodwill attributable to each reportable segment for the years ended December 31, is as follows: Goodwill Rubber Specialty Total (In millions) Balance as of January 1, 2020 $ 31.0 $ 46.4 $ 77.4 Foreign currency impact 2.8 4.3 7.1 Balance as of December 31, 2020 33.8 50.7 84.5 Foreign currency impact ( 2.6 ) ( 3.9 ) ( 6.5 ) Balance as of December 31, 2021 $ 31.2 $ 46.8 $ 78.0 Intangible Assets The following table provides information regarding Orion's intangible assets: December 31, 2021 2020 Cost Accumulated Amortization Net Cost Accumulated Amortization Net (In millions) Developed technology and patents $ 71.5 $ 51.8 $ 19.7 $ 69.4 $ 46.2 $ 23.2 Customer relationships 76.9 73.6 3.3 83.1 76.0 7.1 Trademarks 19.5 13.4 6.1 21.1 13.1 8.0 Long-term contracts 7.9 1.9 6.0 8.2 1.3 6.9 Other intangible assets 42.8 41.6 1.2 53.8 52.2 1.6 Total intangible assets $ 218.6 $ 182.3 $ 36.3 $ 235.6 $ 188.8 $ 46.8 Amortization expense for the years ended December 31, 2021, 2020 and 2019 was $ 7.8 million, $ 8.2 million and $ 12.9 million, respectively, and is included in Cost of sales and Selling, general and administrative expenses in the Consolidated Statements of Operations. The estimated aggregate amortization expense for intangible assets for the fiscal years ending December 31, are as follows: Year (In millions) 2022 $ 6.8 2023 6.5 2024 6.4 2025 6.3 2026 5.0 Thereafter 5.3 Total aggregated amortization $ 36.3 51 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Note I. Accruals and Other Liabilities The components of Current accrued liabilities were as follows at December 31: 2021 2020 (In millions) Accrued employee compensation $ 26.1 $ 21.6 Accrued liabilities for sales and procurement 5.6 7.0 Accrued liabilities for restructuring 9.3 8.0 Environmental reserves 3.4 0.4 Other accrued liabilities 6.5 12.2 Total $ 50.9 $ 49.2 The components of Other current liabilities were as follows at December 31: 2021 2020 (In millions) Employee related liabilities $ 5.6 $ 6.6 Current lease liabilities (refer to Note G. Leases ) 11.6 12.1 Other current liabilities 16.9 19.1 Total $ 34.1 $ 37.8 The components of Other long-term liabilities were as follows at December 31: 2021 2020 (In millions) Employee related liabilities $ 4.9 $ 5.9 Liabilities for asset retirement obligation 4.1 1.7 Environmental reserve 4.4 1.2 Long-term lease liabilities (refer to Note G. Leases ) 73.0 74.5 Other non-current liabilities 8.8 22.9 Total $ 95.2 $ 106.2 Note J. Debt and Other Obligations The company arrangements at December 31 are as follows: 2021 2020 (In millions) Current Term loan $ 3.0 $ 8.5 Deferred debt issuance costs-term loan ( 0.8 ) ( 1.5 ) Other short-term debt and obligations 149.5 75.6 Current portion of long-term debt and other financial liabilities 151.7 82.6 Non-current Term loan 636.0 659.5 Deferred debt issuance costs-term loan ( 4.8 ) ( 3.7 ) Long-term debt, net 631.2 655.8 Total $ 782.9 $ 738.4 (a) Term Loan In 2014, Orion entered into Credit Agreement, which included an $ 895.0 million term loan, 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. 52 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Subsequent to 2014, Orion entered into a number of amendments, achieving a significant reduction of both interest margins to 2.00 % for the U.S. dollar term loan and 2.25 % for the Euro term loan at that time. 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 Loans"). The Term Loan 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, replacing the Prior Term Loans. 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 %. For the U.S. dollar loan, a floor of 0.50 % applies and for the Euro-denominated loan no floor exists. 1 % of the principal amount is required to be repaid per annum in respect to the USD-denominated loans, whereas there is no scheduled amortization for the Euro-denominated 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 loans. 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. If the Company achieves both targets, it will benefit from up to a 10-basis point credit spread reduction for the prospective 12 month period following the submission of the annual ESG 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 Loan remained substantially 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. (b) Revolving credit facility In addition, in 2014, under the Credit Agreement, we entered into a € 115.0 million multicurrency revolving credit facility (“RCF”) with an original maturity date of July 25, 2019. Interest is calculated based on EURIBOR (for euro drawings), and USD-LIBOR (for U.S. Dollar drawings) plus a 2.5 % - 3.0 % margin (depending on leverage ratio). Transaction costs in the amount of $ 3.3 million originally incurred in connection with the RCF were recorded as deferred expenses and amortized as finance costs on a straight-line basis over the term of the facility (until July 25, 2019). Subsequent to 2014, Orion entered into a number of amendments, which largely were made to increase the RCF capacity. The latest RCF amendment completed in April 2019, extended the RCF maturity date to April 25, 2024, increased the aggregate amount of revolving credit commitments in Euro by € 75.0 million to the now EUR € 250.0 million, and reduced the interest margin to a 1.7 % to 2.7 % range, using a revised pricing grid. As of December 31, 2021, the Company’s net leverage ratio was 2.7 x, which corresponds to an interest margin of 2.40 for both USD and Euro denominated borrowings. All other terms of the RCF remained substantially unchanged, including the commitment fee, which remains at 35 % of the interest margin or 0.8 % at December 31, 2021. As of and for the years ended December 31, 2021 and 2020, no RCF borrowings, as defined in the RCF agreement, had been drawn. Letters of credit can be issued for the amount available under the RCF and ancillary facilities. The weighted average interest rates on the RCF as of December 31, 2021 and 2020 were 2.36 % and 2.48 %, respectively. For the years ended December 31, 2021 , 2020 and 2019, amortized transaction costs were immaterial. Unamortized transaction costs included in the Consolidated Balance Sheets, as of December 31, 2021 and 2020 amo unted t o $ 2.2 million and $ 3.0 million, were incurred in conjunction with various RCF amendments. (c) Local bank loans and other short term borrowings As part of the RCF, the Company can also establish ancillary credit facilities by converting the commitments of select lenders under the € 250.0 million RCF into bilateral credit agreements. Original borrowings under ancillary credit facilities reduce availability under the RCF. Borrowings under ancillary credit facilities do not count toward debt drawn under the RCF for the purposes of determining whether the financial covenant under the Credit Agreement related to the RCF must be tested. 53 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements As of December 31, 2021and 2020, the Company had the following ancillary facilities and uncommitted lines of credit outstanding: 2021 2020 (In millions) Ancillary credit facilities Total capacity (€ 170 million) $ 192.5 $ 208.6 OEC GmbH outstanding borrowings $ 103.0 $ 43.5 OEC LLC outstanding borrowings 13.4 26.7 Uncommitted local lines of credit: Korea (capacity $ 40.0 million) 30.8 4.6 Brazil (capacity $ 2.3 million) 2.3 0.8 Total of Other short-term debt and obligations $ 149.5 $ 75.6 The general terms of the ancillary credit facilities are linked to the terms in the RCF. The local credit lines in Brazil and Korea are with local banks that are not lenders under the Credit Agreement and were negotiated bilaterally. During the second quarter 2020, the Company increased the number of RCF banks and total converted ancillary borrowings from € 130 million to € 170 million, resulting in capacity under the RCF at any net leverage level, as even a full RCF utilization won’t trigger the 35 % covenant threshold (see Covenant Compliance section below - First Lien Leverage Ratio covenant). Using exchange rates applicable as of December 31, 2021, the € 250 million RCF capacity amounted to approximately $ 283 million with availability after ancillary borrowings of $ 166.7 million. Future Years Payment Schedule The aggregate principal amounts of long-term debt, excluding finance lease liabilities presented in Note G. Leases , are as follows: Repayment (In millions) 2022 $ 3.0 2023 3.0 2024 3.0 2025 3.0 2026 3.0 2027 3.0 2028 621.0 Total $ 639.0 Covenant Compliance The Credit Agreement contains certain non-financial covenants that, among other things, limit the Company’s ability and the ability of certain of its subsidiaries to (i) incur additional debt, (ii) pay dividends, repurchase shares or make certain other restricted payments or investments, (iii) incur liens, (iv) sell assets, (v) to pay dividends or to make other payments to the Company, (vi) enter into affiliate transactions, (vii) engage in sale and leaseback transactions, and (viii) consolidate, merge, sell or otherwise dispose of all or substantially all of the Company’s assets. These covenants are subject to significant exceptions and qualifications. In addition, there is one financial covenant under the Credit Agreement, the First Lien Leverage Ratio (“FLLR”), defined as Consolidated First Lien Debt divided by Consolidated Adjusted EBITDA for the trailing twelve months (“TTM”). The FLLR is not permitted to exceed 5.5 x TTM EBITDA and is tested each quarter RCF utilization exceeds 35 %, as defined in the Credit Agreement (the “Covenant Trigger”). Notably, not all debt counts toward RCF utilization for purposes of calculating the Covenant Trigger, namely, term debt, debt drawn under ancillary credit facility lines and debt drawn under any uncommitted local credit lines are excluded. FLLR, Consolidated First Lien Debt and Consolidated Adjusted EBITDA have the meanings given to them in the Credit Agreement. As of December 31, 2021, we are in compliance with our debt covenants. 54 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Note K. Financial Instruments and Fair Value Measurement Risk management We have policies governing the use of derivative instruments and do not enter into financial instruments for trading or speculative purposes. By using derivative instruments, we are subject to credit and market risk. To minimize counterparty credit (or repayment) risk, we enter into transactions, primarily with investment grade financial institutions. The market risk exposure is not hedged in a manner to completely eliminate the effects of changing market conditions on earnings or cash flow. No significant concentration of credit risk existed as of December 31, 2021 and 2020. Cash flow hedge On November 14, 2017 the Company acquired floored forward interest rate swaps to hedge interest rate risk on current Euro-denominated term loan financing. On May 15, 2018 the Company entered into a $ 235.0 million cross-currency swap to hedge interest rate risk on current USD-denominated term loan financing which replaced the USD-denominated Caps terminated on May 14, 2018. In December 2020, the Company unwound $ 38.0 million of the $ 235.0 million cross currency swap maturing in 2024 at a realized loss of approximately $ 2.4 million. In a separate transaction occurring in December 2020, the Company unwound a $ 30 million swap maturing in 2021 at a realized loss of approximately $ 3.9 million. We designated the Euro-denominated interest rate swap at closing in November 2017 and the cross-currency swaps at closing in May 2018 in the same manner. We performed a hedge effectiveness test based on the critical terms match method (prospectively) and the dollar offset test (retrospectively). 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. 55 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Fair value measurement The following table summarizes outstanding financial instruments that are measured at fair value on a recurring basis: December 31, 2021 December 31, 2020 Balance Sheet Classification Notional Amount Fair Value Notional Amount Fair Value (In millions) Assets Derivatives designated as hedges: Cross currency swaps $ 197.0 $ 4.3 $ — $ — Prepaid expenses and other current assets Total $ 197.0 $ 4.3 $ — $ — Liabilities Derivatives designated as hedges: Cross currency swaps $ — $ — $ 197.0 $ 12.7 Other liabilities (non-current) Interest rate swaps 311.5 8.6 337.5 10.1 Other liabilities (non-current) Total $ 311.5 $ 8.6 $ 534.5 $ 22.8 All financial instruments in the table above are classified as Level 2. We present the gross assets and liabilities of our derivative financial instruments on the Consolidated Balance Sheets. 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. There were no transfers of assets measured at fair value between Level 1 and Level 2 and there were no Level 3 investments during fiscal 2021 and 2020. The following table presents the carrying value and estimated fair value of our financial instruments that are not measured at fair value on a recurring basis for the periods presented. Due to the short maturity, the fair value of all non-derivative financial instruments included in Current assets and Current liabilities for which the carrying value approximates fair value are excluded from the table below. Short-term and long-term debt are recorded at amortized cost in the Consolidated Balance Sheets. December 31, 2021 December 31, 2020 Notional Amount Fair Value Notional Amount Fair Value (In millions) Non-derivatives: Liabilities: Term loan $ 639.0 $ 637.2 $ 668.0 $ 668.0 Term-Loan in the table above is classified as Level 2. At both December 31, 2021 and 2020, the fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and short term borrowings and variable rate debt approximated their carrying values due to the short-term nature of these instruments. 56 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements The following tables summarize the pre-tax effect of derivative and non-derivative instruments recorded in Accumulated other comprehensive loss (“AOCI”), the gains (losses) reclassified from AOCI to earnings and additional gains (losses) recognized directly in earnings: Effect of Financial Instruments Year Ended December 31, 2021 Gain (Loss) Recognized in AOCI Gain (Loss) Reclassified from AOCI to Income Additional Gain (Loss) Recognized in Income Income Statement Classification (In millions) Derivatives designated as hedges: Cross currency swaps $ 2.4 $ ( 0.5 ) $ — Interest and other financial expense, net Interest rate swaps 1.5 — — Interest and other financial expense, net Total $ 3.9 $ ( 0.5 ) $ — Effect of Financial Instruments Year Ended December 31, 2020 Gain (Loss) Recognized in AOCI Gain (Loss) Reclassified from AOCI to Income Additional Gain (Loss) Recognized in Income Income Statement Classification (In millions) Derivatives designated as hedges: Cross currency swaps $ ( 1.0 ) $ — $ ( 6.0 ) Interest and other financial expense, net Interest rate swaps ( 2.3 ) — — Interest and other financial expense, net Total $ ( 3.3 ) $ — $ ( 6.0 ) Effect of Financial Instruments Year Ended December 31, 2019 Gain (Loss) Recognized in AOCI Gain (Loss) Reclassified from AOCI to Income Additional Gain (Loss) Recognized in Income Income Statement Classification (In millions) Derivatives designated as hedges: Cross currency swaps $ ( 1.9 ) $ — $ ( 1.5 ) Interest and other financial expense, net Interest rate swaps ( 5.3 ) — — Interest and other financial expense, net Total $ ( 7.2 ) $ — $ ( 1.5 ) The amount recognized in AOCI related to cash flow hedges that will be reclassified to the Consolidated Statement of Operations in the next twelve months is approximately $ 1.9 million. Our cross currency swaps designated as a cash flow hedge of principal and interest payments related to our Term Loan matures in September 2028. Note L. Employee Benefit Plans Provisions are established to cover defined benefit plans for retirement, disability and surviving dependents’ pensions. The benefit obligations vary depending on the legal, tax and economic circumstances in the various countries in which the Company operates. Generally, the level of benefit depends on the length of service and the remuneration. We have defined benefit plans in Germany and South Korea for which Germany accounted for approximately 93.2 % and 93.3 % in 2021 and 2020, respectively, of provisions for projected defined benefit pension plan obligations. Effective at the end of 2013, all defined benefit plans in Germany were modified to close access to new participants and freeze benefits accrued under these plans at December 31, 2013 levels. Interest expense on the frozen obligation relating to these plans will continue to accrue. There are also defined contribution pension plans in Germany and the United States for which the Company makes regular contributions to off-balance sheet pension funds managed by third party insurance companies. 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. 57 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Obligations and Funded Status The following provides information about projected benefit obligations, plan assets, the funded status and weighted-average assumptions of the defined benefit pension plan: Change in Projected Benefit Obligation December 31 2021 2020 (In millions) Present value of projected benefit obligation at the beginning of the year $ 91.3 $ 79.4 Actuarial (gain)/ loss ( 1.7 ) 4.9 Service cost 0.5 0.6 Interest cost 1.0 1.2 Benefits paid ( 1.3 ) ( 1.7 ) Curtailments, settlements, special and contractual termination benefits ( 0.8 ) — Currency translation ( 7.1 ) 6.9 Present value of projected benefit obligation at the end of the year $ 81.9 $ 91.3 Based on the weighted Macaulay method the projected benefit obligation has a duration of 20.0 years ( 21.0 years in 2020 ). Change in Plan Assets December 31 2021 2020 (In millions) Fair value of plan assets at the beginning of the year $ 6.8 $ 6.6 Actual return on plan assets 0.1 0.1 Employer contributions 0.7 0.3 Benefits paid — ( 0.5 ) Settlement ( 0.7 ) — Currency translation ( 0.6 ) 0.3 Fair value of plan assets at the end of the year $ 6.3 $ 6.8 The plan assets are held by Orion Engineered Carbons Co. Ltd. Korea, Bupyeong-gu, South Korea, and relate to qualifying insurance policies. These insurance policies do not have a quoted market price. The actual return on plan assets amounted to $ 0.1 million and $ 0.1 million for the years ended December 31, 2021 and 2020, respectively. Net Unfunded Status December 31 2021 2020 (In millions) Projected benefit obligation $ 81.9 $ 91.3 Less: Fair value of plan assets 6.3 6.8 Net unfunded status $ 75.6 $ 84.5 Amount Recognized in the Consolidated Balance Sheets December 31 2021 2020 (In millions) Non-current assets $ — $ — Current liabilities 1.2 1.2 Non-current liabilities 74.4 83.3 Net liability recognized - pension plans $ 75.6 $ 84.5 58 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Pension Assumptions and Strategy The assumptions in the table below were used in the actuarial valuation of the underlying the obligations: Assumptions December 31 2021 2020 Discount rate 1.5 % 0.6 % Expected long-term rate of return on plan assets 1.8 % 2.0 % Rate of compensation/salary increase 3.0 % 3.0 % Future pension increase 1.6 % 1.5 % Mortality Heubeck 2018G Heubeck 2018G Mortality is based on Heubeck guidelines, the generally accepted biometric calculation bases for the balance sheet valuation of pension obligations in Germany. A 0.5 % increase or decrease in the discount rate or in the future pension increase would have impacted the projected benefit obligation as follows: Sensitivities December 31, 2021 Discount rate Future pension increase 0.5% decrease 0.5% increase 0.5% decrease 0.5% increase (In millions) Impact on projected benefit obligation $ 7.4 $ ( 6.5 ) $ ( 9.2 ) $ 10.2 Net Periodic Pension Cost (Benefit) Years Ended December 31, 2021 2020 2019 (In millions) Service cost $ 0.5 $ 0.6 $ 0.6 Interest cost 1.0 1.2 1.7 Expected return on plan assets ( 0.1 ) ( 0.1 ) ( 0.1 ) Net periodic pension cost $ 1.4 $ 1.7 $ 2.2 The total expected defined benefit pension contribution amounts to $ 1.3 million in 2022. The Company paid $ 15.0 million, $ 12.5 million and $ 13.9 million for the years ended December 31, 2021, 2020 and 2019, respectively, for state defined contribution pension schemes (statutory pension insurance) in Germany and other countries. This amount is recognized as personnel expenses in Cost of sales and in Selling, general and administrative expenses in the Consolidated Statements of Operations. Estimated Future Benefit Payments The Company expects that the following benefit payments will be made to plan participants in the years from 2022 to 2031: Benefit payments (In millions) 2022 $ 1.7 2023 2.0 2024 2.7 2025 2.4 2026 2.1 2027 - 2031 14.8 The Company does not anticipate making funding contributions to the Pension Plan in 2022. 59 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Amounts Recognized in Accumulated Other Comprehensive (Income)/Loss Amounts recognized in AOCI as of December 31, 2021, 2020 and 2019 related to the Company's defined benefit pension plan were as follows: Accumulated Other Comprehensive (Income) / Loss December 31 2021 2020 2019 (In millions) Net actuarial (gain) loss $ ( 1.7 ) $ 4.9 $ 12.0 Net prior service cost — — — Balance in accumulated other comprehensive (income) / loss $ ( 1.7 ) $ 4.9 $ 12.0 No amount is estimated to be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2022. Plan Assets The fair value (all Level 2) of Orion's pension plan assets as of December 31, 2021 and 2020, are as follows: December 31 2021 2020 (In millions) Government and corporate fixed income financial instruments 6.3 6.8 Total pension plan assets $ 6.3 $ 6.8 Defined Contribution Plans We provide tax-qualified retirement contribution plans in the United States for the benefit of all full-time employees. The plans are designed to provide employees with an accumulation of funds for retirement on a tax-deferred basis. For the years ended December 31, 2021, 2020 and 2019 the Company contributions to the Employee Savings Plans were $ 1.9 million, $ 2.6 million and $ 2.9 million, respectively. Note M. 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 achievement of applicable performance metrics, and are subject to vesting terms based on continued employment. All PSUs are granted under, and are subject to the terms and conditions of, the Company’s 2014 Omnibus Incentive Compensation Plan (the “Omnibus Plan”). The Company also issues Restricted Stock Units (“RSU”) in certain instances, under the LTIP plans, as sign-on incentives and one-time grants for employees who are non-participants in the LTIP plans. These RSUs vest ratably over a three-year period and vesting occurs on the anniversary of the hire date related to the sign-on grants and the grant date for the grants to employees who are non-participants in the LTIP plans. Under the LTIP plans, the PSU vesting period is three years with cliff vesting occurring on December 31 of the second full year subsequent to the date of the grant. For example, if a PSU grant was issued in June 2020 the PSUs would fully vest on December 31, 2022 with no ratable vesting during the vesting period. The RSUs vesting period is ratably over three years starting on January 1 in the year of the grant. For example, the employee would earn one third of the RSU on December 31 starting in the year of the grant and the remaining two thirds each December 31 for 2 years immediately subsequent to the year of the grant. 60 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Performance-based Restricted Stock Units In the following table summarizes the activity of our PSUs within year ended December 31, 2021: Number of units Weighted-average grant-date fair value per unit Unvested at January 1, 2021 498,352 $ 11.55 Granted 360,178 19.01 Forfeited ( 70,195 ) 15.98 Unvested at December 31, 2021 788,335 $ 14.97 During the years ended December 31, 2020 and 2019, we granted 290,906 and 332,891 performance-based units, respectively, with a per unit weighted-average grant-date fair value of $ 11.60 and $ 11.48 , respectively. The 2019 performance-based PSU grants expired as the performance conditions were not met. Restricted Stock Units In the following table summarizes the activity of our Individual RSUs within year ended December 31, 2021: Number of units Weighted-average grant-date fair value per unit Unvested at January 1, 2021 370,427 $ 14.53 Granted 214,225 18.46 Settled ( 54,048 ) 19.92 Forfeited ( 16,005 ) 14.09 Unvested at December 31, 2021 514,599 $ 16.09 In the year ended December 31, 2021, the vested service-based units had an aggregate grant-date fair value of $ 1.1 million. During the years ended December 31, 2020 and 2019, we granted 182,930 and 219,197 service-based units, respectively, with a per unit weighted-average grant-date fair value of $ 12.75 and $ 15.65 , respectively. In the year ended December 31, 2020 no RSUs vested. In the year ended December 31, 2019, the vested service-based units had an aggregate grant-date fair value of $ 0.3 million. Certain members of our Board of Directors receive compensation in form of restricted shares (“RSs”) in accordance with the 2014 Non-employee Director Plan. Under this plan 34,524 RSs are currently outstanding. The RSs will vest and become non-forfeitable on the first anniversary of the grant date. As of December 31, 2021, we had unrecognized compensation cost of $ 9.0 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 1.79 years. During 2021, 2020 and 2019 fiscal years, we recognized compensation expenses of $ 5.2 million, $ 4.4 million and $ 9.4 million, respectively, in our Consolidated Statements of Operations. 61 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Note N. Accumulated Other Comprehensive Income (Loss) Changes in each component of AOCI, net of tax, are as follows for fiscal 2021, 2020 and 2019: Currency Translation Adjustments Hedging Activities Adjustments Pension and Other Postretirement Benefit Liability Adjustment Total (In millions) Balance at January 1, 2019 $ ( 10.6 ) $ ( 6.2 ) $ ( 2.8 ) $ ( 19.6 ) Other comprehensive loss before reclassifications ( 1.4 ) ( 7.3 ) ( 12.3 ) ( 21.0 ) Income tax effects before reclassifications ( 0.1 ) 2.4 4.0 6.3 Currency translation AOCI — 0.1 ( 0.1 ) — Balance at December 31, 2019 ( 12.1 ) ( 11.0 ) ( 11.2 ) ( 34.3 ) Other comprehensive loss before reclassifications ( 13.1 ) ( 2.6 ) ( 5.3 ) ( 21.0 ) Income tax effects before reclassifications ( 1.3 ) 0.8 1.8 1.3 Amounts reclassified from AOCI — — 9.9 9.9 Income tax effects on reclassifications — — ( 3.3 ) ( 3.3 ) Currency translation AOCI — ( 0.7 ) ( 0.6 ) ( 1.3 ) Balance at December 31, 2020 ( 26.5 ) ( 13.5 ) ( 8.7 ) ( 48.7 ) Other comprehensive income (loss) before reclassifications ( 7.3 ) 2.3 2.0 ( 3.0 ) Income tax effects before reclassifications ( 0.3 ) ( 0.7 ) ( 0.7 ) ( 1.7 ) Amounts reclassified from AOCI — — 4.8 4.8 Income tax effects on reclassifications — — ( 1.6 ) ( 1.6 ) Currency translation AOCI — 1.1 0.6 1.7 Balance at December 31,2021 $ ( 34.1 ) $ ( 10.8 ) $ ( 3.6 ) $ ( 48.5 ) 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 $ 4.8 million and $ 9.9 million for the years end December 31, 2021 and 2020 respectively. Note O. Earnings Per Share 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. The following table reflects the income and share data used in the basic and diluted EPS computations: Years Ended December 31, Dollars in millions, shares in thousands and per share amount in dollars 2021 2020 2019 Net income for the period - attributable to ordinary equity holders of the parent $ 134.7 $ 18.2 $ 86.9 Weighted average number of ordinary shares 60,708 60,430 59,986 Basic EPS $ 2.22 $ 0.30 $ 1.45 Dilutive effect of share based payments 243 977 1,314 Weighted average number of diluted ordinary shares 60,951 61,407 61,300 Diluted EPS $ 2.21 $ 0.30 $ 1.42 62 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Note P. Income Taxes The Company operates in multiple jurisdictions with complex tax and regulatory environments and our income tax returns are periodically audited or subjected to review by tax authorities. We monitor tax law changes and the potential impact to our results of operations including potential proposals in the U.S. as a result of a new administration. Tax provision (benefit) for income taxes consisted of the following: Years Ended December 31, 2021 2020 2019 (In millions) Current Domestic (1) $ 21.7 $ 16.3 $ 16.3 Foreign 9.7 4.0 1.1 Total 31.4 20.3 17.4 Deferred Domestic (1) ( 1.4 ) ( 4.9 ) 7.4 Foreign 21.7 ( 7.3 ) 8.5 Total 20.3 ( 12.2 ) 15.9 Provision for income taxes $ 51.7 $ 8.1 $ 33.3 (1) Domestic refers to Germany. Income before income taxes for fiscal years 2021, 2020 and 2019 is as follows: Years Ended December 31, 2021 2020 2019 (In millions) Domestic (1) $ 89.2 $ 25.6 $ 112.5 Foreign 97.2 0.7 7.7 Income before income taxes $ 186.4 $ 26.3 $ 120.2 (1) Domestic refers to Germany. A statutory corporate income tax rate of 15.00 % was used to calculate the current and deferred taxes for the German entities. A solidarity surcharge of 0.825 % and a trade tax rate of 16.18 %, for the years ended December 31, 2021, 2020 and 2019, respectively, were also reflected in the calculation. As a result, the overall statutory income tax rate for the German entities was 32.00 %, for the years ended December 31, 2021, 2020 and 2019. The current and deferred taxes for the non-German entities were calculated using their respective country-specific tax rates. 63 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements The following tax reconciliation shows the difference between the expected income taxes using the German overall statutory income tax rate of 32.0 % and the effective income taxes in the income statement, for the years ended December 31, 2021, 2020 and 2019. Years Ended December 31, 2021 2020 2019 (In millions) Income before income taxes $ 186.4 $ 26.3 $ 120.2 Expected income tax thereon 59.6 8.4 38.4 Tax rate differential ( 9.8 ) ( 1.4 ) ( 3.5 ) Change in valuation allowance ( 6.0 ) ( 1.3 ) 0.5 Change in the tax rate and tax laws — ( 0.1 ) 0.1 Non-deductible interest expenses 1.2 1.1 1.2 Non-deductible expenses, and non-deductible taxes 5.4 2.8 0.7 Tax effect on tax-free income ( 0.4 ) ( 0.2 ) ( 0.9 ) Other tax effects 1.7 ( 1.2 ) ( 3.2 ) Effective income taxes as reported $ 51.7 $ 8.1 $ 33.3 Effective tax rate 27.74 % 30.80 % 27.65 % Other non-deductible expenses and non-deductible taxes which are non-creditable in the U.S. were $ 2.4 million, $ 0.9 million and $ 2.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. Non-deductible taxes include taxes from Brazil which is a disregarded entity for U.S. tax purposes. The unfavorable tax effect from other non-deductible expenses and non-deductible taxes were mainly driven by non-deductible expenses in connection with the Company’s LTIP and non creditable taxes in Brazil in 2021. The favorable effect from changes in valuation allowance on deferred tax assets for the year ended December 31, 2021 included the impact mainly from Brazil and Germany related to the judgment on the realization of deferred tax assets. Tax effect from changes in valuation allowance on deferred tax assets for the year ended December 31, 2020 included the impact from lower pre-tax earnings attributed to the economic downturn from COVID-19. Also included was a benefit from the favorable change of the valuation allowance related to U.S. tax credits of $ 3.6 million. Income tax expense recognized in the Consolidated Statements of Operations were $ 51.7 million in 2021, $ 8.1 million in 2020 and $ 33.3 million in 2019. Tax expense/(benefit) recognized directly in equity were $( 4.0 ) million in 2021, $( 1.1 ) million in 2020 and $ 6.2 million in 2019. 64 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Significant components of deferred income taxes were as follows: December 31 2021 2020 (In millions) Deferred tax assets Financial assets $ — $ 7.9 Inventories 3.3 3.4 Deferred compensation 15.8 16.8 Liabilities including leases liabilities 36.3 26.9 Loss carryforwards 47.0 39.8 Interest carryforwards 9.8 11.2 Tax credits 8.4 4.3 Total deferred tax assets 120.6 110.3 Deferred tax asset valuation allowances ( 36.3 ) ( 42.7 ) Net deferred tax assets $ 84.3 67.6 Deferred Tax Liabilities Intangible assets $ 2.9 $ 3.5 Property, plant and equipment including right of use assets 65.9 30.5 Financial assets 1.0 — Receivables, other assets 14.3 9.2 Other 11.6 10.6 Total deferred tax liabilities $ 95.7 $ 53.8 Net deferred tax assets / (liabilities) $ ( 11.4 ) $ 13.8 Our net deferred tax assets and liabilities reflected in our balance sheet are as follows: Net deferred tax position December 31 2021 2020 (In millions) Deferred tax assets Net deferred tax assets $ 50.4 $ 52.6 Deferred tax liabilities Net deferred tax liabilities 61.8 38.8 Net deferred tax asset / (liability) positions $ ( 11.4 ) $ 13.8 As of each reporting date, management considers the weight of all evidence, both positive and negative, to determine if a valuation allowance is necessary for each jurisdiction's deferred tax assets. We place greater weight on historical evidence over future predictions of our ability to utilize deferred tax assets. We consider future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences, and taxable income in prior carryback year(s) if carryback is permitted under applicable law, as well as available prudent and feasible tax planning strategies that would, if necessary, be implemented to ensure realization of the net deferred tax assets. Valuation allowance 2021 2020 2019 (In millions) As of January 1, $ 42.7 $ 41.9 $ 39.3 Additions for Tax Credits 3.5 — 3.2 Additions for Loss carryforwards — 1.8 — Additions for Interest carryforwards — 1.3 0.9 Additions Other 0.4 0.2 — Reduction for Tax Credits — ( 2.5 ) ( 1.0 ) Reduction for Loss carryforwards ( 1.8 ) — ( 0.4 ) Reductions for Interest carryforwards ( 8.5 ) — ( 0.1 ) As of December 31, $ 36.3 $ 42.7 $ 41.9 65 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements The favorable changes in valuation allowance on deferred tax assets and for losses with recognition of deferred taxes for the year ended December 31, 2021, is related to the positive judgment on the realization of deferred tax assets. The reduction in the interest carryforward is driven by anticipated positive income of the appropriate nature. A negative judgment on the valuation allowance related to tax credits was recorded or the year ended December 31, 2021. The following table provides detail surrounding the expiration dates of the gross amount of tax loss carryforwards and tax credits: December 31 Net operating loss carryforwards Tax Credits (In millions) 2022 to 2028 $ — $ — 2029 and thereafter 50.1 — Indefinite carryforwards 139.2 8.4 Total $ 189.3 $ 8.4 We continue to make an assertion to indefinitely reinvest the unrepatriated earnings of most of our foreign subsidiaries that would incur incremental tax consequences upon the distribution of such earnings. As of December 31, 2021, we did not provide for deferred taxes on earnings of most of our foreign subsidiaries that are indefinitely reinvested. If we were to make a distribution from the unremitted earnings of these subsidiaries, we could be subject to taxes in various jurisdictions. However, it is not practical to estimate the amount of tax that could ultimately be due if such earnings were remitted. If our expectations were to change regarding future tax consequences, we may be required to record additional deferred taxes that could have a material effect on our consolidated financial statements. Deferred tax liabilities amounting $ 0.7 million, (2020: $ 0.8 million, 2019: $ 1.7 million) were recognized for subsidiaries for which a dividend distribution is expected. Tax uncertainties The following table summarizes the activity in unrecognized tax benefits: 2021 2020 2019 (In millions) Balance at beginning of the year $ 13.0 $ 11.6 $ 14.8 Additions based on tax positions related to the current year 0.3 0.1 0.2 Additions for tax positions of prior year — 1.3 — Reductions of tax positions of prior year ( 1.2 ) — ( 3.4 ) Balance at end of the year $ 12.1 $ 13.0 $ 11.6 We recognize interest and penalties associated with unrecognized tax benefits in income tax expense. Income tax expense includes a benefit of interest and penalties of $ 0.7 million in 2021 and an expense of interest and penalties totaling $ 1.1 million and $ 0.5 million in 2020 and 2019, respectively. We had accrued $ 4.4 million, $ 5.1 million and $ 4.0 million for interest and penalties as of December 31, 2021, 2020 and 2019, respectively. The majority of the unrecognized tax benefits for the fiscal years ended December 31, 2021, 2020 and 2019, respectively would affect our effective income tax rate. Orion and certain subsidiaries are under audit in several jurisdictions, and in particular in Germany for periods 2011-2017. During the year ending December 31, 2022, it is reasonably possible that our existing liabilities for unrecognized tax benefits may increase or decrease, primarily due to the progression of open audits and the expiration of statutes of limitation. However, we cannot reasonably estimate a range of potential changes in our existing liabilities for unrecognized tax benefits due to various uncertainties, such as the unresolved nature of various audits. 66 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Note Q. Commitments and Contingencies 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 are as follows: Maturity December 31, 2021 (In millions) 2022 $ 128.4 2023 3.3 2024 3.3 2025 3.3 2026 3.3 2027 and thereafter 22.8 Total $ 164.4 Restructuring —In 2016, the Company ceased operations at its plant in Ambes, France as part of the restructuring of its Rubber business segment. Expenses related to the closing include personnel costs, demolition, removal costs and remediation costs. Total estimated and recognized costs and total costs remaining as of December 31, 2021 are $ 44.6 million and $ 9.3 million, respectively. Orion's reserves for restructuring of its Rubber segment in 2021 are reflected in Accrued liabilities on the Consolidated Balance Sheets. Orion has accrued liabilities for personnel expenses of $ 2.6 million and $ 3.5 million, and ground remediation costs of $ 6.7 million and $ 4.3 million, as of December 31, 2021 and 2020 respectively. In the periods ending December 31, 2021, 2020 and 2019 restructuring expense, net including Ambes amounted to $ 2.2 million, $ 7.5 million, and $ 3.6 million, respectively. Environmental Reserves —Our accrued liability for future environmental reserves at our current and former plant sites and other sites totaled $ 7.8 million and $ 1.7 million as of December 31, 2021 and 2020, respectively. During the fourth quarter of 2021, we recognized an additional reserve of $ 7.2 million reflected in the Consolidated Statement of Operations in the Other expense, net. The environmental-related costs are expected to occur over a number of years and not concentrated in any single year. In our opinion, it is reasonably possible that losses in excess of the liabilities recorded may have been incurred. However, we cannot estimate any amount or range of such possible additional losses. New information about sites, new technology or future developments such as involvement in investigations by regulatory agencies, could require us to reassess our potential exposure related to environmental matters. Legal Proceedings —We are subject to various lawsuits and claims, including but not limited to, matters involving contract disputes, environmental damages, personal injury and property damage. We vigorously defend ourselves and prosecute these matters as appropriate. We regularly assess the adequacy of legal accruals based on our professional judgment, experience and the information available regarding our cases. Based on a consideration of all relevant facts and circumstances, we do not believe the ultimate outcome of any currently pending lawsuit against us will not have a material adverse effect upon our operations, financial condition or Consolidated Financial Statements. EPA Action— During 2008 and 2009, the U.S. Environmental Protection Agency (“EPA”) contacted all U.S. carbon black producers as part of an industry-wide EPA initiative, requesting extensive and comprehensive information under Section 114 of the U.S. Clean Air Act. The EPA used that information to determine, for each facility, that either: (i) the facility has been in compliance with the Clean Air Act; (ii) violations have occurred and enforcement litigation may be undertaken; or (iii) violations have occurred and a settlement of an enforcement case is appropriate. 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 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. A comparable NOV for the Company’s U.S. facility in Orange (Texas) was issued by the EPA in February 2013; and EPA issued an additional NOV in March 2016 alleging more recent non-PSD air emissions violations primarily at the dryers and the incinerator of the Orange facility. In 2013, Orion began discussions with the EPA and the U.S. 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, a wholly owned subsidiary of the Company (for purpose of this Note Q. “Orion LLC”) 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 EPA CD resolves and settles the EPA’s claims of noncompliance set forth in the NOVs described above and in a respective complaint filed in court against Orion by the United States immediately prior to the filing of the consent decree. 67 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Under Orion LLC’s EPA CD, Orion LLC is required to install certain pollution control technology in order to further reduce emissions at its four U.S. manufacturing facilities in Ivanhoe (Louisiana), Belpre (Ohio), Borger (Texas), and Orange (Texas) over approximately five years . The EPA CD also requires the continuous monitoring of emissions reductions that Orion LLC will need to comply with over a number of years. In addition, the EPA CD required Orion LLC to pay a fine of $ 0.8 million and perform other environmental mitigation projects that are not anticipated to be material. As part of Orion’s compliance plan under the EPA CD, in April 2018 Orion signed a contract with Haldor Topsoe group to install its SNOX TM emissions control technology to remove SO 2 , NOx and dust particles from tail gases at Orion LLC’s Ivanhoe, Louisiana Carbon Black production plant. In 2021, the construction projects at the Ivanhoe (Louisiana) and Orange (Texas) facilities have been completed. Under the EPA CD, Orion LLC can choose either its Belpre or Borger facilities as the next site for installation of pollution control equipment with comparable effectiveness. As of December 31, 2021, we have spent $ 210 million of capital expenditures related to the EPA CD. The Company’s Share Purchase Agreement with Evonik Industries AG, Germany, Evonik Degussa GmbH, Germany and any affiliated companies (“Evonik”) in connection with the acquisition of the carbon black business line from Evonik, completed on July 29, 2011 (the “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. 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 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 December 31, 2021, the Company had guarantees totaling $ 15.8 million issued by various financial institutions. Note R. Segment Financial Information Segment information 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 as follows: • 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. 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. Discrete financial information is available for each of the segments, and the chief operating decision maker (“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 Adjusted EBITDA as income from operations before depreciation and amortization, restructuring expenses, consulting fees related to Company strategy, gain related to legal settlement, and includes equity earnings (loss) in affiliated companies, net of tax. The CODM does not review reportable segment asset or liability information for purposes of assessing performance or allocating resources. 68 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Segment operating results are as follows: Rubber Specialties Corporate Total (In millions) 2021 Net sales from external customers $ 948.6 $ 598.2 $ — $ 1,546.8 Adjusted EBITDA 120.0 148.4 — 268.4 Corporate charges — — ( 18.0 ) ( 18.0 ) Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment ( 59.0 ) ( 45.1 ) — ( 104.1 ) Gain related to litigation settlement — — 82.9 82.9 Excluding equity in earnings of affiliated companies, net of tax ( 0.7 ) — — ( 0.7 ) Interest and other financial expense, net — — ( 38.0 ) ( 38.0 ) Reclassification of actuarial losses from AOCI — — ( 4.8 ) ( 4.8 ) Income before earnings in affiliated companies and income taxes $ 185.7 Assets 912.2 582.1 136.7 $ 1,631.0 Capital expenditures 149.1 65.6 — 214.7 2020 Net sales from external customers $ 691.2 $ 445.2 $ — $ 1,136.4 Adjusted EBITDA 90.0 110.0 — 200.0 Corporate charges — — ( 28.5 ) ( 28.5 ) Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment ( 57.0 ) ( 39.6 ) — ( 96.6 ) Excluding equity in earnings of affiliated companies, net of tax ( 0.5 ) — — ( 0.5 ) Interest and other financial expense, net — — ( 38.7 ) ( 38.7 ) Reclassification of actuarial losses from AOCI — — ( 9.9 ) ( 9.9 ) Income before earnings in affiliated companies and income taxes $ 25.8 Assets 789.3 467.0 133.5 $ 1,389.8 Capital expenditures 111.5 27.3 — 138.8 2019 Net sales from external customers $ 967.9 $ 508.5 $ — $ 1,476.4 Adjusted EBITDA 145.2 122.2 — 267.4 Corporate charges — — ( 22.9 ) ( 22.9 ) Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment ( 58.6 ) ( 38.1 ) — ( 96.7 ) Excluding equity in earnings of affiliated companies, net of tax ( 0.6 ) — — ( 0.6 ) Interest and other financial expense, net — — ( 27.6 ) ( 27.6 ) Income before earnings in affiliated companies and income taxes $ 119.6 Assets 696.5 417.8 143.1 $ 1,257.4 Capital expenditures 132.6 26.1 — 158.7 Income from operations before income taxes and finance costs of the segment ‘Corporate’ comprises the following: 2021 2020 2019 (In millions) Consulting fees related to Company strategy $ — $ — $ 1.3 Extraordinary expense items related to COVID-19 — 3.9 — Long Term Incentive Plan 5.2 4.4 9.4 EPA-related expenses 2.3 5.2 4.0 Environmental reserve accrual 7.2 — — Other non-operating 3.3 15.0 8.2 Expenses/(income) from operations before income taxes and finance costs $ 18.0 $ 28.5 $ 22.9 69 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Geographic information: Net sales Years Ended December 31, 2021 2020 2019 (In millions) Germany $ 648.6 $ 486.5 $ 593.8 United States 405.1 289.5 394.3 South Korea 208.9 173.5 241.2 Brazil 100.1 64.8 94.5 China 92.7 60.1 63.1 South Africa 53.3 34.0 54.7 Other 24.9 19.5 23.8 Rest of Europe (1) 13.2 8.5 11.0 Total $ 1,546.8 $ 1,136.4 $ 1,476.4 (1) Only a holding company is located in Luxembourg, accordingly no revenue is generated in the country of domicile. For the years ended December 31, 2021 and 2020, one customer accounted for 10% or more revenue in the Rubber segment and amounted to $ 218.6 million and $ 170.3 million, respectively. For the year ended December 31, 2019, two customers accounted for 10% or more of revenue in the Rubber segment totaling $ 299.7 million. In 2021, revenue from top ten customers, in the Rubber segment, was approximately $ 590.9 million. In 2021, revenue from top ten customers, in the Specialties segment, was approximately $ 148.7 million. Long-lived tangible assets (1) December 31 2021 2020 (In millions) Germany $ 149.5 $ 147.9 Sweden 23.9 27.9 Italy 70.8 60.5 Poland 12.8 12.9 Rest of Europe (2) 21.9 10.7 Subtotal Europe 278.9 259.9 United States 319.6 258.2 South Korea 109.1 120.6 South Africa 15.1 13.1 Brazil 15.4 17.2 China 53.2 27.0 Other 1.2 0.1 Total $ 792.5 $ 696.1 (1) Long-lived assets include property, plant and equipment, net and right-of-use assets, net. (2) Only a holding company is located in Luxembourg, accordingly no revenue is generated in the country of domicile. 70 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Note S. Related Parties As of December 31, 2021, related parties primarily includes one joint venture Orion that is accounted for using the equity method, “Deutsche Gaßrußwerke” (DGW). 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. December 31, 2021 2020 (In millions) Trade receivables $ 0.6 $ — Trade payables 24.9 11.8 Years Ended December 31, 2021 2020 2019 (In millions) Purchases $ 113.2 $ 68.8 $ 89.4 Sales and services 5.7 1.6 2.7 Note T. Subsequent Events On October 29, 2021, the Company’s Board of Directors declared interim dividends in the aggregate amount of $ 1.25 million, which is equivalent to approximately $ 0.02 per common stock of the company. The interim dividend was paid on January 12, 2022, to holders of record as of the close of business on January 5, 2022. 71 Orion Engineered Carbons S.A Notes to the Consolidated Financial Statements Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.