Orion S.A. 10-Q

Item 1. Financial Statements and Supplementary Data (Unaudited) Condensed Consolidated Statements of Operations Three Months Ended March 31, 2022 2021 (In millions, except share and per share amounts) Net sales $ 484.5 $ 360.1 Cost of sales 366.6 257.6 Gross profit 117.9 102.5 Selling, general and administrative expenses 57.5 52.4 Research and development costs 5.5 4.7 Other expenses, net 0.3 2.5 Income from operations 54.6 42.9 Interest and other financial expense, net 8.4 10.0 Reclassification of actuarial losses from AOCI — 1.2 Income before earnings in affiliated companies and income taxes 46.2 31.7 Income tax expense 13.8 8.3 Earnings in affiliated companies, net of tax 0.1 0.1 Net income $ 32.5 $ 23.5 Weighted-average shares outstanding (in thousands of shares): Basic 60,879 60,648 Diluted 61,019 60,812 Earnings per share: Basic $ 0.53 $ 0.39 Diluted $ 0.53 $ 0.39 See accompanying Notes to these Condensed Consolidated Financial Statements 1 Orion Engineered Carbons S.A. Condensed Consolidated Statements of Comprehensive Income Three Months Ended March 31, 2022 2021 (In millions) Net income $ 32.5 $ 23.5 Other comprehensive income (loss), net of tax Foreign currency translation adjustments 11.8 ( 5.1 ) Net gains on derivatives 13.0 1.2 Defined benefit plans, net 0.1 1.2 Other comprehensive income (loss) 24.9 ( 2.7 ) Comprehensive income $ 57.4 $ 20.8 See accompanying Notes to these Condensed Consolidated Financial Statements 2 Orion Engineered Carbons S.A. Condensed Consolidated Balance Sheets March 31, 2022 December 31, 2021 (In millions, except share amounts) ASSETS Current assets Cash and cash equivalents $ 41.3 $ 65.7 Accounts receivable, net 373.6 288.9 Inventories, net 256.9 229.8 Income tax receivables 8.8 12.1 Prepaid expenses and other current assets 88.7 68.5 Total current assets 769.3 665.0 Property, plant and equipment, net 724.7 707.9 Right-of-use assets 94.8 84.6 Goodwill 76.4 78.0 Intangible assets, net 34.0 36.3 Investment in equity method affiliates 5.3 5.3 Deferred income tax assets 60.9 50.4 Other assets 3.2 3.5 Total non-current assets 999.3 966.0 Total assets $ 1,768.6 $ 1,631.0 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 208.0 $ 195.1 Current portion of long term debt and other financial liabilities 202.3 151.7 Accrued liabilities 36.5 50.9 Income taxes payable 19.4 16.9 Other current liabilities 44.6 34.1 Total current liabilities 510.8 448.7 Long-term debt, net 625.0 631.2 Employee benefit plan obligation 73.7 74.4 Deferred income tax liabilities 78.8 61.8 Other liabilities 102.9 95.2 Total non-current liabilities 880.4 862.6 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 60,656,076 shares 85.3 85.3 Treasury stock, at cost, 336,183 and 336,183 ( 6.3 ) ( 6.3 ) Additional paid-in capital 72.9 71.4 Retained earnings 249.1 217.8 Accumulated other comprehensive loss ( 23.6 ) ( 48.5 ) Total stockholders' equity 377.4 319.7 Total liabilities and stockholders' equity $ 1,768.6 $ 1,631.0 TY See accompanying Notes to these Condensed Consolidated Financial Statements 3 Orion Engineered Carbons S.A. Condensed Consolidated Statements of Cash Flows 878787878787878787 Three Months Ended March 31, 2022 2021 (In millions) Cash flows from operating activities: Net income $ 32.5 $ 23.5 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation of property, plant and equipment and amortization of intangible assets and right of use assets 27.3 25.6 Amortization of debt issuance costs 0.4 0.5 Share-based incentive compensation 1.5 1.0 Deferred tax (benefit) provision 2.6 ( 2.1 ) Foreign currency transactions ( 5.6 ) 3.6 Reclassification of actuarial losses from AOCI — 1.2 Other operating non-cash items, net — 0.2 Changes in operating assets and liabilities, net: Trade receivables ( 83.6 ) ( 30.5 ) Inventories ( 25.6 ) ( 19.8 ) Trade payables 20.7 11.4 Other provisions ( 13.7 ) ( 7.9 ) Income tax liabilities 6.2 4.2 Other assets and liabilities, net 9.5 ( 9.1 ) Net cash (used in) provided by operating activities ( 27.8 ) 1.8 Cash flows from investing activities: Acquisition of intangible assets and property, plant and equipment ( 48.8 ) ( 27.2 ) Net cash used in investing activities ( 48.8 ) ( 27.2 ) Cash flows from financing activities: Proceeds from long-term debt borrowings 0.9 — Repayments of long-term debt ( 0.8 ) ( 2.1 ) Cash inflows related to current financial liabilities 90.4 35.5 Cash outflows related to current financial liabilities ( 37.9 ) ( 7.8 ) Dividends paid to shareholders ( 1.2 ) — Net cash provided by financing activities 51.4 25.6 Increase (decrease) in cash, cash equivalents and restricted cash ( 25.2 ) 0.2 Cash, cash equivalents and restricted cash at the beginning of the period 68.5 67.9 Effect of exchange rate changes on cash 0.7 ( 2.6 ) Cash, cash equivalents and restricted cash at the end of the period 44.0 65.5 Less restricted cash at the end of the period 2.7 2.9 Cash and cash equivalents at the end of the period $ 41.3 $ 62.6 See accompanying Notes to these Condensed Consolidated Financial Statements 4 Orion Engineered Carbons S.A. Condensed Consolidated Statements of Changes in Stockholders’ Equity Common stock Treasury shares Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total (In millions, except per share amounts) Number Amount Balance at January 1, 2022 60,656,076 $ 85.3 $ ( 6.3 ) $ 71.4 $ 217.8 $ ( 48.5 ) $ 319.7 Net income — — — — 32.5 — 32.5 Other comprehensive income, net of tax — — — — — 24.9 24.9 Dividends - $ 0.02 per share — — — — ( 1.2 ) — ( 1.2 ) Share based compensation — — — 1.5 — — 1.5 Balance at March 31, 2022 60,656,076 $ 85.3 $ ( 6.3 ) $ 72.9 $ 249.1 $ ( 23.6 ) $ 377.4 Balance at January 1, 2021 60,487,117 $ 85.3 $ ( 8.5 ) $ 68.5 $ 84.4 $ ( 48.7 ) $ 181.0 Net income — — — — 23.5 — 23.5 Other comprehensive loss, net of tax — — — — — ( 2.7 ) ( 2.7 ) Share based compensation — — — 1.0 — — 1.0 Issuance of stock under equity compensation plans 103,409 — 1.2 ( 1.2 ) — — — Balance at March 31, 2021 60,590,526 $ 85.3 $ ( 7.3 ) $ 68.3 $ 107.9 $ ( 51.4 ) $ 202.8 See accompanying Notes to these Condensed Consolidated Financial Statements 5 Orion Engineered Carbons S.A Notes to the Condensed Consolidated Financial Statement (Unaudited) Table of Contents—Notes Note A. Organization, Description of the Business and Summary of Significant Accounting Policies 7 Note B. Accounts Receivable 7 Note C. Inventories 7 Note D. Debt and Other Obligations 8 Note E. Financial Instruments and Fair Value Measurement 9 Note F. Employee Benefit Plans 10 Note G. Accumulated Other Comprehensive Income (Loss) 11 Note H. Earnings Per Share 12 Note I. Income Taxes 12 Note J. Commitments and Contingencies 12 Note K. Financial Information by Segment 13 6 Orion Engineered Carbons S.A Notes to the Condensed Consolidated Financial Statements—(continued) Note A. Organization, Description of the Business and Summary of Significant Accounting Policies Orion Engineered Carbons S.A.’s unaudited Condensed Consolidated Financial Statements include Orion Engineered Carbons S.A. and its subsidiaries (“Orion” or the “Company”). The unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the Consolidated Financial Statements included in our Annual Report in Form 10-K for the year ended December 31, 2021. The accompanying unaudited Condensed Consolidated Financial Statements include all adjustments that are necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year. Summary of Significant Accounting Policies Adoption of accounting standards Government Assistance (Topic 832) —On November 17, 2021, the Financial Accounting Standards Board (“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 ). This ASU creates Accounting Standards Codification (“ASC”) Topic 832 (“ASC 832”). 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. We adopted this standard prospectively on January 1, 2022. The adoption of this standard did not materially impact our Consolidated Financial Statements or related disclosures. Note B. Accounts Receivable Accounts receivable, net of allowance for credit losses, are as follows: March 31, 2022 December 31, 2021 (In millions) Accounts receivable $ 376.6 $ 291.5 Expected credit losses ( 3.0 ) ( 2.6 ) Accounts receivable, net of expected credit losses $ 373.6 $ 288.9 Note C. Inventories Inventories, net of reserves, are as follows: March 31, 2022 December 31, 2021 (In millions) Raw materials, consumables and supplies, net $ 101.6 $ 97.1 Work in process 0.3 0.2 Finished goods, net 155.0 132.5 Total $ 256.9 $ 229.8 7 Orion Engineered Carbons S.A Notes to the Condensed Consolidated Financial Statements—(continued) Note D. Debt and Other Obligations The company financing arrangements are as follows: March 31, 2022 December 31, 2021 (In millions) Current Current portion of Term-Loan $ 3.0 $ 3.0 Deferred debt issuance costs - Term-Loan ( 0.8 ) ( 0.8 ) Other short-term debt and obligations 200.1 149.5 Current portion of long-term debt and other financial liabilities 202.3 151.7 Non-current Term-Loan 628.6 636.0 Deferred debt issuance costs - Term Loan ( 4.5 ) ( 4.8 ) BOC Term-loan 0.9 — Long-term debt, net 625.0 631.2 Total $ 827.3 $ 782.9 a. Revolving credit facility To fund operating activities and generally safeguard the Company’s liquidity, the Company has entered into a revolving credit facility (“RCF”) of € 250 million ($ 277.5 million). As of March 31, 2022, the total commitment of $ 278 million was split between an $ 89 million RCF tranche and $ 189 million of bilateral ancillary facilities established directly with several banks under the RCF. As part of the RCF, the Company can establish ancillary credit facilities by converting the commitments of select lenders under the € 250 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. As of March 31, 2022, $ 55.5 million was outstanding under the RCF, and there were no borrowings under the RCF as of December 31, 2021. We classify amounts outstanding under the RCF as current in our Consolidated Balance Sheets as the borrowings are for short-term working capital needs, typically for one-month periods, and based on management’s intention to repay the amounts outstanding within one year from the date of drawing. As of March 31, 2022 and December 31, 2021, unused availability under the RCF was $ 122.6 million and $ 166.7 million, respectively. b. Local bank loans and other short-term borrowings The local credit lines in Brazil and Korea are with local banks that are not lenders under the RCF and were negotiated bilaterally. As of March 31, 2022 and December 31, 2021, the Company had the following ancillary facilities and uncommitted lines of credit outstanding: March 31, 2022 December 31, 2021 (In millions) Ancillary credit facilities Total capacity (€ 170 million) $ 188.7 $ 192.5 OEC GmbH outstanding borrowings $ 77.8 $ 103.0 OEC LLC outstanding borrowings 21.6 13.4 Uncommitted local lines of credit: Korea (capacity $ 39.1 million) 4.2 30.8 Brazil (capacity $ 3.3 million) 3.3 2.3 Repurchase agreement 37.7 — RCF 55.5 — Total of Other short-term debt and obligations $ 200.1 $ 149.5 Repurchase Agreement —On March 15, 2022, we entered into a repurchase agreement to sell European Emission Allowance (“EUA”) certificates. Under the agreement, we sold 450 thousand EUA certificates for € 33.5 million cash to a counterparty. The same counterparty has an obligation to resell, and we have the obligation to purchase, the same or substantially the same EUA certificates on January 27, 2023 8 Orion Engineered Carbons S.A Notes to the Condensed Consolidated Financial Statements—(continued) for € 34.0 million. The difference between the consideration received and the amount of consideration to be paid will be recognized as interest expense. At March 31, 2022, the amount outstanding was $ 37.7 million. Due to the short maturity, the carrying value approximates the fair value. Bank of China— To partially finance our Huaibei facility in China, on March 16, 2022, our wholly owned subsidiary, Orion Engineered Carbons (Huaibei) Co., Ltd. (“OECCL”), entered into a 4.5 % fixed interest rate, CNY 500 million (approximately $ 80 million), eight year term-loan agreement with Bank of China (‘BOC Term-Loan”) maturing on December 21, 2029. OECCL is required to repay the BOC Term-Loan principal in semi-annual payments beginning June 2024. Interest is payable quarterly, beginning June 2022. The agreement restricts OECCL’s ability to make external investments or make intercompany loan repayments or dividend distributions. The principal repayments under the agreement are: 2 % in 2024, 10 % in 2025 and 22 % each year thereafter, concluding in June 2029. The BOC Term-Loan is secured with the Huaibei facility’s land, construction in progress, and buildings as collateral. As of March 31, 2022, we are in compliance with our debt covenants. For additional information relating to our debt, see “ Note J. Debt and Other Obligations” , included in our Annual Report in Form 10-K for the year ended December 31, 2021. Note E. 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 March 31, 2022 or December 31, 2021. Fair value measurement The following table summarizes outstanding financial instruments that are measured at fair value on a recurring basis: March 31, 2022 December 31, 2021 Balance Sheet Classification Notional Amount Fair Value Notional Amount Fair Value (In millions) Assets Derivatives designated as hedges: Cross currency swaps $ 197.0 $ 20.8 $ 197.0 $ 4.3 Prepaid expenses and other current assets Total $ 197.0 $ 20.8 $ 197.0 $ 4.3 Liabilities Derivatives designated as hedges: Interest rate swaps 305.3 2.7 311.5 8.6 Other liabilities (non-current) Total $ 305.3 $ 2.7 $ 311.5 $ 8.6 All financial instruments in the table above are classified as Level 2. We present the gross assets and liabilities of our derivative financial instruments in 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 2022 or 2021. 9 Orion Engineered Carbons S.A Notes to the Condensed Consolidated Financial Statements—(continued) 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. Short-term and long-term debt are recorded at amortized cost in the Consolidated Balance Sheets. March 31, 2022 December 31, 2021 Notional Amount Fair Value Notional Amount Fair Value (In millions) Non-derivatives: Liabilities: Term loan $ 639.0 $ 620.4 $ 639.0 $ 637.2 Term Loan in the table above is classified as Level 2. At both March 31, 2022 and December 31, 2021, 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. The following tables summarize the pre-tax effect of derivative and non-derivative instruments recorded in Accumulated other comprehensive income (“AOCI”), the gains (losses) reclassified from AOCI to earnings and additional gains (losses) recognized directly in earnings: Effect of Financial Instruments Three Months Ended March 31, 2022 Gain (Loss) Recognized in AOCI Gain (Loss) Reclassified from AOCI to Income Income Statement Classification (In millions) Derivatives designated as hedges: Cross currency swaps $ 12.6 $ 0.5 Interest and other financial expense, net Interest rate swaps 5.9 — Interest and other financial expense, net Total $ 18.5 $ 0.5 Effect of Financial Instruments Three Months Ended March 31, 2021 Gain (Loss) Recognized in AOCI Gain (Loss) Reclassified from AOCI to Income Income Statement Classification (In millions) Derivatives designated as hedges: Cross currency swaps $ 0.8 $ — Interest and other financial expense, net Interest rate swaps 0.7 — Interest and other financial expense, net Total $ 1.5 $ — Our cross currency swaps designated as a cash flow hedge of principal and interest payments related to our Term Loan mature in September 2028. 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 $ 1.8 million. See “ Note K. Financial Instruments and Fair Value Measurement” , included in our Annual Report in Form 10-K for the year ended December 31, 2021, for additional information relating to our derivatives instruments. Note F. Employee Benefit Plans Provisions for pensions are established to cover benefit plans for retirement, disability and surviving dependents’ pensions. The benefit obligations vary depending on the legal, tax and economic circumstances in various countries in which the Company operates. Generally, the level of benefit depends on the length of service and the remuneration. 10 Orion Engineered Carbons S.A Notes to the Condensed Consolidated Financial Statements—(continued) Net periodic defined benefit pension benefit costs include the following: Three Months Ended March 31, 2022 2021 (In millions) Service cost $ 0.3 $ 0.3 Interest cost 0.4 0.3 Amortization of actuarial loss — 1.2 Net periodic pension cost $ 0.7 $ 1.8 Service costs were recorded within Income from operations in Selling, general and administrative expenses, and interest cost in Interest and other financial expense, net. The amortization of actuarial losses, associated with the pension obligations recorded in prior years, in accumulated other comprehensive income exceeding 10 % of the defined benefit obligation are recorded ratably in the Condensed Consolidated Statements of Operations. Note G. Accumulated Other Comprehensive Income/(Loss) Changes in each component of Accumulated other comprehensive income (loss) (“AOCI”), net of tax, are as follows: Currency Translation Adjustments Hedging Activities Adjustments Pension and Other Postretirement Benefit Liability Adjustment Total (In millions) Balance at January 1, 2022 $ ( 34.1 ) $ ( 10.8 ) $ ( 3.6 ) $ ( 48.5 ) Other comprehensive income before reclassifications 11.2 18.7 — 29.9 Income tax effects before reclassifications 0.6 ( 6.0 ) — ( 5.4 ) Currency translation AOCI — 0.3 0.1 0.4 Balance at March 31, 2022 $ ( 22.3 ) $ 2.2 $ ( 3.5 ) $ ( 23.6 ) Balance at January 1, 2021 $ ( 26.5 ) $ ( 13.5 ) $ ( 8.7 ) $ ( 48.7 ) Other comprehensive loss before reclassifications ( 4.7 ) 0.9 — ( 3.8 ) Income tax effects before reclassifications ( 0.4 ) ( 0.3 ) — ( 0.7 ) Amounts reclassified from AOCI — — 1.2 1.2 Income tax effects on reclassifications — — ( 0.4 ) ( 0.4 ) Currency translation AOCI — 0.6 0.4 1.0 Balance at March 31, 2021 $ ( 31.6 ) $ ( 12.3 ) $ ( 7.5 ) $ ( 51.4 ) 11 Orion Engineered Carbons S.A Notes to the Condensed Consolidated Financial Statements—(continued) Note H. 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: Three Months Ended March 31, 2022 2021 (In millions, except share and per share amounts) Net income attributable to ordinary equity holders $ 32.5 $ 23.5 Weighted average number of ordinary shares 60,879 60,648 Basic EPS $ 0.53 $ 0.39 Dilutive effect of share based payments 140 164 Weighted average number of diluted ordinary shares 61,019 60,812 Diluted EPS $ 0.53 $ 0.39 Note I. Income Taxes The Company records its tax provision or benefit on an interim basis using an estimated annual effective tax rate. This rate is applied to the current period ordinary income to determine the income tax provision or benefit allocated to the interim period. Losses from jurisdictions for which no benefit can be recognized, and the income tax effects of unusual and infrequent items are excluded from the estimated annual effective tax rate and are recognized in the impacted interim period as discrete items. Valuation allowances are provided against any future tax benefits that arise from losses in jurisdictions for which no benefit can be recognized. The estimated annual effective tax rate may be significantly impacted by nondeductible expenses and by the Company’s projected earnings mix by tax jurisdiction. Adjustments to the estimated annual effective income tax rate are recognized in the period when such estimates are revised. Income tax expense for the three months ended March 31, 2022 and 2021 were $ 13.8 million and $ 8.3 million, respectively. Our effective income tax rates were as follows: Three Months Ended March 31, 2022 2021 Effective income tax rates 29.8 % 26.0 % The increase in our effective tax rate for the three months ended March 31, 2022 as compared to the three-months ended March 31, 2021, was primarily attributable to the projected earnings mix by geography and tax jurisdiction. Note J. Commitments and Contingencies Environmental Matters 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 remaining costs to be paid as of March 31, 2022 are $ 44.3 million and $ 7.8 million, respectively. Orion's reserves for restructuring of its Rubber segment in 2022 are reflected in Accrued liabilities on the Consolidated Balance Sheets. Orion has accrued liabilities for personnel expenses of $ 2.3 million and $ 2.6 million, and for ground remediation costs of $ 5.5 million and $ 6.7 million, as of March 31, 2022 and December 31, 2021, respectively. Environmental Reserves— Our accrued liability for future environmental reserves at our current and former plant sites and other sites totaled $ 6.6 million and $ 7.8 million as of March 31, 2022 and December 31, 2021, respectively. Environmental-related costs are expected to occur over a number of years and are not concentrated in any single year. In our opinion, it is reasonably possible that losses in excess of the liabilities recorded will be 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. 12 Orion Engineered Carbons S.A Notes to the Condensed Consolidated Financial Statements—(continued) 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 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 an 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 the 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 (“Orion LLC” for purposes of this Note J.) 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 and in a respective complaint filed in court against Orion by the United States immediately prior to the filing of the consent decree. Under the EPA CD, Orion LLC is installing certain pollution control technology in order to further reduce emissions at its four U.S. manufacturing facilities in Ivanhoe (Louisiana), Belpre (Ohio), Borger (Texas), and Orange (Texas) over approximately five years . The EPA CD also requires 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 LLC’s compliance plan under the EPA CD, in April 2018, Orion LLC signed a contract with Haldor Topsoe group to install its SNOX TM emissions control technology to remove SO2, 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 were 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. We have started construction on both the Belpre and Borger facilities. While the construction at Orange was completed according to schedule, the construction at the Ivanhoe facility was subject to COVID-19 and Hurricane Ida-related delays. As a result, we have declared force majeure with respect to the EPA CD and received an extension of the timeline for completion of installations. Orion has successfully commissioned the new emissions control equipment at Ivanhoe within the extended timeline under the amended EPA CD. As of March 31, 2022, we have spent $ 229 million on capital expenditures related to the EPA CD of which approximately $ 80 million was received as an indemnity payment from Evonik. For further discussion refer to “Note Q. Commitments and Contingencies”, included in our Annual Report in Form 10-K for the year ended December 31, 2021. 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 debt agreements. As of March 31, 2022, the Company had guarantees totaling $ 15.5 million issued by various financial institutions. Note K. Financial Information by Segment 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, batteries, printing and special applications. Corporate includes income and expenses that cannot be directly allocated to the business segments or that are managed at the corporate level including: finance income and expenses, taxes and items with less bearing on the underlying core business. 13 Orion Engineered Carbons S.A Notes to the Condensed Consolidated Financial Statements—(continued) Discrete financial information is available for each of the segments, and the Chief Operating Decision Maker (“CODM”) uses operating results of each operating segment 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 settlements, 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. Segment operating results for the three months ended March 31, 2022 and 2021 are as follows: Rubber Specialties Corporate Total Segments (In millions) 2022 Net sales from external customers $ 306.9 $ 177.6 $ — $ 484.5 Adjusted EBITDA 40.7 42.5 — 83.2 Corporate charges — — ( 1.2 ) ( 1.2 ) Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment ( 16.5 ) ( 10.8 ) — ( 27.3 ) Excluding equity in earnings of affiliated companies, net of tax ( 0.1 ) — — ( 0.1 ) Interest and other financial expense, net ( 8.4 ) ( 8.4 ) Income before earnings in affiliated companies and income taxes $ 46.2 2021 Net sales from external customers $ 215.9 $ 144.2 $ — $ 360.1 Adjusted EBITDA 31.2 39.7 — 70.9 Corporate charges — — ( 2.3 ) ( 2.3 ) Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment ( 14.3 ) ( 11.3 ) — ( 25.6 ) Excluding equity in earnings of affiliated companies, net of tax ( 0.1 ) — — ( 0.1 ) Interest and other financial expense, net ( 10.0 ) ( 10.0 ) Reclassification of actuarial losses from AOCI ( 1.2 ) ( 1.2 ) Income before earnings in affiliated companies and income taxes $ 31.7 Expense from operations before income taxes and finance costs of the segment “ Corporate” comprises the following: Three Months Ended March 31, 2022 2021 (In millions) Long Term Incentive Plan $ 1.5 $ 1.0 EPA-related expenses — 1.7 Other non-operating ( 0.3 ) ( 0.4 ) Corporate Charges 1.2 2.3 14 Orion Engineered Carbons S.A. Management’s Discussion and Analysis of Financial Condition and Results of Operation