What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-10 · 170 added, 78 removed, 204 unchanged (55% of the section changed)

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

The following discussion and analysis summarizes the significant factors affecting our results of operations and financial condition during the three months ended March 31, 2022 and 2021 and should be read in conjunction with the information included under Item 1.

The following discussion and analysis summarizes the significant factors affecting our results of operations and financial condition during the three and six months ended June 30, 2022 and 2021 and should be read in conjunction with the information included under Item 1.

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

25 unchanged sentences

Reconciliation of Contribution margin and Contribution margin per metric ton to Gross profit is as follows:

Three Months Ended March 31,

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

2022 2021 2022 2021

(In millions, unless otherwise indicated)

1 unchanged sentence

Variable costs

370.3 247.4 687.5 460.4

Contribution margin 170.9 153.6 338.2 300.7

7 unchanged sentences

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

Three Months Ended March 31,

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

2022 2021 2022 2021

(In millions)

9 unchanged sentences

Equity in earnings of affiliated companies, net of tax 0.1 0.3 0.2 0.4

Evonik legal settlement:

Cash settlement — (79.5) — (79.5)

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

Long term incentive plan 1.6 1.2 3.1 2.2

EPA-related expenses — 1.7

Other adjustments 1.4 2.5 1.1 3.9

7 unchanged sentences

Operating Results

For the three months ended March 31, 2022 compared to three months ended March 31, 2021

For the three months ended June 30, 2022 compared to three months ended June 30, 2021

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

Condensed Consolidated Statement of Operations Data Three Months Ended March 31, Year-Over Year

Condensed Consolidated Statement of Operations Data Three Months Ended June 30, Year-Over Year

2022 2021 Delta

5 unchanged sentences

Research and development costs 5.9 6.0 (0.1) (1.7)

Other expenses, net 0.3 2.5 (2.2) (88.0)

Gain related to litigation settlement — (82.9) 82.9 (100.0)

Other (income) expenses, net 1.3 (0.5) 1.8 (360.0)

Income from operations 52.9 132.5 (79.6) (60.1)

5 unchanged sentences

Net income $ 29.7 $ 89.1 $ (59.4) (66.7)

Net sales increased by $124.4 million, or 34.5%, in the first quarter of 2022 to $484.5 million, compared to the first quarter of 2021, primarily driven by pricing and favorable product mix in both segments, partially offset by lower Specialty Carbon Black sales volume and impact of unfavorable foreign currency translation.

Volume decreased by 0.9 kmt in the first quarter of 2022 to 253.2 kmt, compared to the first quarter of 2021, primarily due to lower volume in the Specialty Carbon Black segment, partially offset by higher demand in our Rubber Carbon Black segment.

Net sales increased by $140.2 million, or 35.0%, in the second quarter of 2022 to $541.2 million, compared to the second quarter of 2021, primarily driven by passing through of higher feedstock costs, pricing, favorable product mix in both segments and higher volume in Rubber Carbon Black segment, partially offset by the impact of unfavorable foreign currency translation and lower volume in Specialty Carbon Black segment.

Volume increased by 1.1 kmt in the second quarter of 2022 to 251.4 kmt, compared to the second quarter of 2021, primarily due to higher demand in Rubber Carbon Black segment, partially offset by lower volume in the Specialty Carbon Black segment.

Cost of sales

Cost of sales increased by $109.0 million, or 42.3%, to $366.6 million in the first quarter of 2022, compared to the first quarter of 2021, primarily due to higher raw material and production associated costs.

Cost of sales increased by $130.5 million, or 44.9%, to $421.4 million in the second quarter of 2022, compared to the second quarter of 2021, primarily due to higher raw material and production-associated costs.

Gross profit increased by $9.7 million, or 8.8%, to $119.8 million, year over year, primarily due to pricing and favorable product mix.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $5.1 million, or 9.7%, to $57.5 million in the first quarter of 2022, compared to the first quarter of 2021.

The increase was primarily driven by higher freight costs.

Income from operations

Income from operations increased by $11.7 million to $54.6 million in the first quarter of 2022, year over year, driven primarily by higher margins and favorable product mix, partially offset by lower sales volume in our Specialty Carbon Black segment and higher selling, general and administrative costs.

Selling, general and administrative expenses increased by $4.7 million, or 8.5%, to $59.7 million in the second quarter of 2022, compared to the second quarter of 2021.

The increase was primarily driven by higher freight costs with increased sales volumes and higher incentive compensation.

Gain related to litigation settlement

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

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

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

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

This was not repeated in 2022.

Provision for income taxes

For the three months ended June 30, 2022, the Company recognized Income before earnings in affiliated companies and income taxes of $42.4 million, compared to $122.3 million in the three months ended June 30, 2021.

The provision for income taxes was an expense of

Orion Engineered Carbons S.A.

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

$12.8 million and $33.5 million for the three months ended June 30, 2022 and June 30, 2021, respectively.

The effective tax rate for the three months ended June 30, 2022, was 30%, as compared to 27% for the three months ended June 30, 2021.

The increase in our effective tax rate for the three months ended June 30, 2022, relative to the three months ended June 30, 2021, was primarily attributable to the projected earnings mix by geography and tax jurisdiction compared to the prior period.

Contribution margin and Contribution margin per metric ton (Non-GAAP Financial Measures)

Contribution margin increased in the second quarter of 2022 by $17.3 million, or 11.3%, to $170.9 million, year over year.

Contribution margin per metric ton increased by 10.7% to $679.8 per metric ton in the three months ended June 30, 2022.

The increase was primarily driven by pricing in both segments, favorable product mix and higher volume in Rubber Carbon Black segment, partially offset by lower volume in the Specialty Carbon Black segment and higher selling, general and administrative costs.

Higher margins per ton resulted from price increases to recover environmental and reliability-related Capital expenditures.

Adjusted EBITDA (A Non-GAAP Financial Measure)

Adjusted EBITDA increased in the second quarter of 2022 by $4.6 million, or 5.8%, to $83.4 million, year over year.

The increase was driven by pricing, favorable product mix and higher volumes in Rubber Carbon Black segment, partially offset by lower volume in the Specialty Carbon Black segment and higher selling, general and administrative costs.

For the six months ended June 30, 2022 compared to six months ended June 30, 2021

Condensed Consolidated Statement of Operations Data Six Months Ended June 30, Year-Over Year

2022 2021 Delta

(In millions) %

Net sales $ 1,025.7 $ 761.1 $ 264.6 34.8

Cost of sales 788.0 548.5 239.5 43.7

Gross profit 237.7 212.6 25.1 11.8

Selling, general and administrative expenses 117.2 107.4 9.8 9.1

Research and development costs 11.4 10.7 0.7 6.5

Gain related to litigation settlement — (82.9) 82.9 (100.0)

Other (income) expenses, net 1.6 2.1 (0.5) (23.8)

Income from operations 107.5 175.3 (67.8) (38.7)

Interest and other financial expense, net 18.9 18.9 0.0 —

Reclassification of actuarial losses from AOCI — 2.4 (2.4) (100.0)

Income before earnings in affiliated companies and income taxes 88.6 154.0 (65.4) (42.5)

Income from operations before income taxes and equity in earnings of affiliated companies in the first quarter of 2022 increased by $14.5 million, year over year, driven primarily by higher margins and favorable product mix, partially offset by lower sales volume in our Specialty Carbon Black segment and higher selling, general and administrative costs.

Provision for income taxes

For the three months ended March 31, 2022, the Company recognized income before provision for income taxes of $46.3 million, compared to $31.8 million in the three months ended March 31, 2021.

The provision for income taxes was an expense of $13.8 million for the three months ended March 31, 2022, and $8.3 million for the three months ended March 31, 2021.

The effective tax rate for the three

Income tax expense 26.6 41.8 (15.2) (36.4)

Earnings in affiliated companies, net of tax 0.2 0.4 (0.2) (50.0)

Net income $ 62.2 $ 112.6 $ (50.4) (44.8)

Net sales increased by $264.6 million, or 34.8%, in the six months ended June 30, 2022 to $1,025.7 million, year over year, driven primarily by passing through of higher feedstock costs, pricing, higher volume in Rubber Carbon Black segment, and favorable product mix, and partially offset by unfavorable impact of foreign currency translation and lower volume in the Specialty Carbon Black segment.

Volume increased by 0.2 kmt to 504.6 kmt compared to the six months ended June 30, 2021, primarily due to higher demand in Rubber Carbon Black segment, partially offset by lower demand in the Specialty Carbon Black segment.

Cost of sales

Cost of sales increased by $239.5 million, or 43.7%, to $788.0 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to higher raw material costs and associated production costs.

Gross profit increased by $25.1 million, or 11.8%, to $237.7 million, year over year, primarily due to pricing and favorable product mix.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $9.8 million, or 9.1%, to $117.2 million in the six months ended June 30, 2022

Orion Engineered Carbons S.A.

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

months ended March 31, 2022, was 30%, as compared to 26% for the three months ended March 31, 2021.

The increase in our effective tax rate for the three months ended March 31, 2022, relative to the three months ended March 31, 2021, was primarily attributable to the projected earnings mix by geography and tax jurisdiction as compared to the prior period.

Net income in the first quarter of 2022 increased by $9.0 million, year over year, primarily driven by higher margins and favorable product mix, partially offset by lower sales volumes in our Specialty Carbon Black segment, higher selling, general and administrative costs, and higher income taxes.

compared to the six months ended June 30, 2021, driven primarily by higher freight costs due to increase in sales volumes and higher incentive compensation.

Gain related to litigation settlement

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

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

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

This was not repeated in 2022.

Provision for income taxes

For the six months ended June 30, 2022, the Company recognized Income before earnings in affiliated companies and income taxes of $88.6 million, compared to $154.0 million in the six months ended June 30, 2021.

The provision for income taxes was an expense of $26.6 million for the six months ended June 30, 2022, and $41.8 million for the six months ended June 30, 2021.

The effective tax rate for the six months ended June 30, 2022, was 30%, as compared to 27% for the six months ended June 30, 2021.

The increase in our effective tax rate for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, was primarily attributable to the projected earnings mix by geography and tax jurisdiction as compared to the prior period.

Contribution margin and Contribution margin per metric ton (Non-GAAP Financial Measures)

Contribution margin increased in the first quarter of 2022 by $20.2 million, or 13.7%, to $167.3 million, year over year.

Contribution margin per metric ton increased by 14.1% to $660.7 per metric ton in the three months ended March 31, 2022.

The increase was primarily driven by higher margins and the impact of favorable product mix, partially offset by unfavorable impact of foreign currency translation.

Contribution margin increased by $37.5 million, or 12.5%, to $338.2 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

The increase was primarily due to higher margins, favorable product mix, and higher volume in Rubber Carbon Black segment, partially offset by unfavorable impact of foreign currency translation and lower volume in the Specialty Carbon Black segment.

Contribution margin per metric ton increased by 12.4%, to $670.2 per metric ton in the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Higher margins per ton resulted from price increases to recover environmental and reliability-related Capital expenditures.

Adjusted EBITDA (A Non-GAAP Financial Measure)

Adjusted EBITDA increased in the first quarter of 2022 by $12.3 million, or 17.3%, to $83.2 million, year over year.

The increase was driven by higher margins and the impact of favorable product mix, partially offset by lower Specialty Carbon Black sales volume and higher selling, general and administrative costs.

Adjusted EBITDA increased by $16.9 million, or 11.3%, from $149.7 million in the six months ended June 30, 2021 to $166.6 million in the six months ended June 30, 2022.

The increase was primarily due to higher margins, favorable product mix and higher volume in Rubber Carbon Black segment, partially offset by unfavorable impact of foreign currency translation and lower volume in the Specialty Carbon Black segment.

Orion Engineered Carbons S.A.

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

Segment Discussion

Our operations are managed through two reportable segments, Specialty Carbon Black and Rubber Carbon Black .

We use Segment Adjusted EBITDA as measures of segment performance and profitability.

We use Segment Adjusted EBITDA as the measure of segment performance and profitability.

Three months ended June 30, 2022 compared to three months ended June 30, 2021

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

Three Months Ended March 31, Year-Over Year

Three Months Ended June 30, Year-Over Year

2022 2021 Delta

15 unchanged sentences

Specialty Carbon Black

Three months ended March 31, 2022 compared to three months ended March 31, 2021

Net sales of the Specialty Carbon Black segment increased by $33.4 million, or 23.2%, to $ 177.6 million, year over year, primarily driven by pricing and the impact of favorable product mix, partially offset by lower sales volume and the impact of unfavorable foreign currency translation.

Net sales of the Specialty Carbon Black segment increased by $25.6 million, or 16.4%, to $181.9 million, year over year, primarily driven by pricing and favorable product mix, partially offset by lower sales volume and impact of unfavorable foreign currency translation.

Specialty Carbon Black segment volumes decreased by 8.4 kmt, or 12.3%, to 59.7 kmt, year over year.

During the first quarter of 2022,

During the second quarter of 2022, Specialty Carbon Black volumes were lower primarily due to lower demand and price competition in lower-end markets.

Gross profit of the Specialty Carbon Black segment increased by $7.6 million, or 14.3%, to $60.6 million, year over year, primarily driven by higher margins and favorable product mix.

Higher margins resulted from price increases to recover environmental and reliability-related Capital expenditures.

Adjusted EBITDA of the Specialty Carbon Black segment increased by $6.1 million, or 15.5%, to $45.4 million, year over year, primarily driven by higher margins and favorable product mix, partially offset by lower sales volume and higher selling, general and administrative costs.

Year over year, Adjusted EBITDA margin is comparable despite higher feedstock prices.

Rubber Carbon Black

Net sales increased by $114.6 million, or 46.8%, to $359.3 million, year over year, primarily due to passing through of higher feedstock costs, pricing, higher volume and favorable product mix, partially offset by the impact of unfavorable foreign currency translation.

Rubber Carbon Black segment volumes increased by 9.5 kmt, or 5.2%, to 191.7 kmt, year over year, reflecting higher demand in Americas and Europe/Middle East/Africa (“EMEA”).

Gross profit of the Rubber Carbon Black segment increased by $2.1 million, or 3.7%, to $59.2 million, year over year, primarily driven by higher margins, higher volume and favorable product mix, partially offset by the impact of unfavorable foreign currency translation.

Higher margins resulted from price increases to recover environmental and reliability-related Capital expenditures.

Rubber Carbon Black Adjusted EBITDA decreased by $1.5 million, or 3.8%, to $38.0 million, year over year, primarily due to impact of unfavorable foreign currency translation and higher selling, general and administrative costs, partially offset by pricing, product mix and higher volume.

Orion Engineered Carbons S.A.

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

focus on high margin rubber products and supply chain issues resulted in lower specialty black volumes.

During the first quarter of 2021, higher demand was driven by a sharp global economic recovery from 2020 COVID-19 induced economic downturn.

Gross profit of the Specialty Carbon Black segment increased by $4.2 million, or 7.9%, to $57.6 million, year over year, primarily driven by higher margins and the impact of favorable product mix, partially offset by lower sales volumes reflecting a decrease across nearly all applications.

Higher margins per ton resulted from price increases to recover environmental and reliability-related capital expenditures.

Adjusted EBITDA of the Specialty Carbon Black segment increased by $2.8 million, or 7.1%, to $ 42.5 million, year over year, primarily driven by higher margins, and the impact of favorable product mix, partially offset by lower sales volume, and higher selling, general and administrative costs.

Year over year, Adjusted EBITDA margin decreased 360 basis points to 23.9%.

Adjusted EBITDA margin decreased 550 basis points to 10.6%, year over year, primarily due to the revenue impact from higher feedstock prices.

Six months ended June 30, 2022 compared to six months ended June 30, 2021

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

Six Months Ended June 30, Year-Over Year

2022 2021 Delta

(In millions, unless otherwise indicated) %

Specialty Carbon Black

Net sales $ 359.5 $ 300.4 $ 59.1 19.7

Cost of sales 241.3 194.0 47.3 24.4

Gross profit $ 118.2 $ 106.4 $ 11.8 11.1

Volume (kmt) 125.3 139.5 (14.2) (10.2)

Adjusted EBITDA $ 87.9 $ 79.1 $ 8.8 11.1

Adjusted EBITDA margin (%) 24.5 26.3 (1.8) (6.8)

Rubber Carbon Black

Three months ended March 31, 2022 compared to three months ended March 31, 2021

Net sales increased by $91.0 million, or 42.1%, to $ 306.9 million, year over year, primarily due to pricing, impact of higher volume, and the impact of favorable product mix.

Rubber Carbon Black segment volumes increased by 4.9 kmt, or 2.7%, to 187.6 kmt, year over year.

Gross profit of the Rubber Carbon Black segment increased by $11.2 million, or 22.8%, to $60.3 million, year over year, primarily driven by higher margins, the impact of higher volume, and the impact of favorable product mix.

Higher margins per ton resulted from price increases to recover environmental and reliability-related capital expenditures.

Rubber Carbon Black Adjusted EBITDA increased by $9.5 million, to $ 40.7 million, year over year, primarily due to higher margins, the impact of higher volume, and the impact of favorable product mix, partially offset by higher selling, general and administrative costs.

Adjusted EBITDA margin decreased 120 basis points to 13.3%, year over year, reflecting dilution from higher input costs..

Liquidity and Capital Resources

Net sales $ 666.2 $ 460.7 $ 205.5 44.6

Cost of sales 546.7 354.5 192.2 54.2

Gross profit $ 119.5 $ 106.2 $ 13.3 12.5

Volume (kmt) 379.3 364.9 14.4 3.9

Adjusted EBITDA $ 78.7 $ 70.6 $ 8.1 11.5

Adjusted EBITDA margin (%) 11.8 15.3 (3.5) (22.9)

Specialty Carbon Black

Net sales of the Specialty Carbon Black segment increased by $59.1 million, or 19.7% to $359.5 million, year over year, primarily driven by pricing and favorable product mix, partially offset by unfavorable impact of foreign currency translation and lower volume.

Specialty Carbon Black segment volumes decreased by 14.2 kmt, or 10.2%, to 125.3 kmt, year over year.

Specialty Carbon Black volumes were lower primarily due to focus on higher margin specialty and rubber products and lower demand.

Gross profit of the Specialty Carbon Black segment increased by $11.8 million, or 11.1%, to $118.2 million, year over year, primarily driven by pricing and favorable product mix, partially offset by lower sales volumes.

Higher margins resulted from price increases to recover environmental and reliability-related Capital expenditures and optimization of product and customer mix.

Adjusted EBITDA of the Specialty Carbon Black segment increased by $8.8 million, or 11.1% to $87.9 million, year over year, primarily driven by pricing, and favorable product mix, partially offset by unfavorable impact of foreign currency translation and lower volume.

Year over year, Adjusted EBITDA margin decreased 180 basis points to 24.5%, primarily due to the revenue impact from higher feedstock prices.

Rubber Carbon Black

Net sales increased by $205.5 million, or 44.6% to $666.2 million, year over year, primarily driven by higher sales volume and favorable product mix, passing through of higher feedstock costs, and pricing, partially offset by unfavorable impact of foreign currency translation.

Rubber Carbon Black segment volumes increased by 14.4 kmt, or 3.9%, to 379.3 kmt, year over year, reflecting higher demand in Americas and EMEA.

Gross profit of the Rubber Carbon Black segment increased by $13.3 million, or 12.5% to $119.5 million, year over year, primarily reflecting pricing, favorable product mix and higher sales volume.

Higher margins resulted from price increases to recover environmental and reliability-related Capital expenditures.

Rubber Adjusted EBITDA increased by $8.1 million, or 11.5%, to $78.7 million, year over year, primarily driven by pricing, favorable operating leverage associated with substantially higher sales volume and favorable product mix, partially offset by higher selling, general and administrative costs.

Adjusted EBITDA margin declined 350 basis points to 11.8%, year over year primarily due to the revenue impact from higher feedstock prices.

Orion Engineered Carbons S.A.

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

Liquidity and Capital Resources [Update]

Historical Cash Flows

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

Three Months Ended March 31,

Six Months Ended June 30,

(In millions)

1 unchanged sentence

Net cash used in investing activities (108.7) (58.3)

Net cash provided by financing activities 51.4 25.6

Net cash used in operating activities during the three months ended March 31, 2022, was $27.8 million.

The cash used in operating activities primarily reflects changes in working capital, partially offset by higher net income.

Net cash used in investing activities in the three months ended March 31, 2022, amounted to $48.8 million.

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

Net cash provided by financing activities during the three months ended March 31, 2022, amounted to $51.4 million.

Cash inflows during the three months of $52.5 million were primarily related to net drawings under our senior secured revolving credit facilities (“RCF”), partially offset by scheduled debt repayments.

Debt and Other Obligations” included in the Annual Report in Form 10-K for the year ended December 31, 2021 for further discussion on Term-loan refinancing.

Net cash provided by operating activities for the three months ended March 31, 2021, amounted to $1.8 million.

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

Orion Engineered Carbons S.A.

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

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

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

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

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

Net cash provided by (used in) financing activities 138.1 (16.6)

Net cash used in operating activities during the six months ended June 30, 2022, was $50.9 million.

The cash used in operating activities primarily reflects changes in working capital and lower Net income.

2021 operating activities included $82.9 million related to Evonik legal settlement gain not repeated in 2022

Net cash used in investing activities in the six months ended June 30, 2022, amounted to $108.7 million.

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

Net cash provided by financing activities during the six months ended June 30, 2022, amounted to $138.1 million.

Cash inflows during the six months of $126.1 million were primarily related to net drawings under our senior secured revolving credit facilities (“RCF”), $17.2 million borrowings to partially finance our Huaibei facility in China from Bank of China and $7.7 million of short-term working capital borrowings in Korea, partially offset by scheduled debt repayments.

Net cash provided by operating activities for the six months ended June 30, 2021, amounted to $85.1 million.

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

Net income includes $82.9 million related to Evonik legal settlement gain.

See “ Note Q.

Commitments and Contingencies ” included in the Annual Report in Form 10-K for the year ended December 31, 2021 for further discussion on Evonik legal settlement.

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

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

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

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

Sources of Liquidity

Our principal sources of liquidity are (i) cash on hand, (ii) net cash generated from operating activities, primarily driven by our operating results and changes in working capital requirements, and (iii) cash available from financing activities, primarily driven by borrowing amounts available under our committed multicurrency, senior secured RCF and related ancillary facilities, various uncommitted local credit lines, and, from time to time, term loan borrowings.

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

As of March 31, 2022, the company had total liquidity of $198.8 million, including cash and equivalents of $41.3 million, $122.6 million availability under our revolving credit facility, including ancillary lines, and $34.9 million of capacity under other available credit lines.

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

As of June 30, 2022, the company had total liquidity of $228.2 million, including cash and equivalents of $40.9 million, $155.6 million availability under our revolving credit facility, including ancillary lines, and $31.7 million of capacity under other available credit lines.

Net debt was $846.5 million, and net leverage was 2.97x.

Orion Engineered Carbons S.A.

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

Net working capital (A Non-GAAP Financial Measure)

We define Net Working Capital as the sum total of inventories and current trade receivables less trade payables.

We define Net working capital as the sum total of current trade receivables and inventories less trade payables.

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

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

March 31, 2022 December 31, 2021

The following table sets forth the principal components of our Net working capital as of the dates indicated.

June 30, 2022 December 31, 2021

(In millions)

8 unchanged sentences

Conversely, decreases in the cost of raw materials lead to a decrease in our Net working capital requirements over the same period of time.

Our Net Working Capital increased from $323.6 million as of December 31, 2021, to $422.5 million as of March 31, 2022.

Our Net working capital increased from $323.6 million as of December 31, 2021, to $476.4 million as of June 30, 2022.

The components of working capital were:

5 unchanged sentences

Since the fourth quarter of 2020, the city of Hürth has not fully honored the contractually-stipulated calculation for heat deliveries, amongst other stipulations.

As a result, as of March 31, 2022, Orion has open receivables from the city of Hürth totaling $6.5 million, while the city of Hürth argues open claims of approximately $4.2 million related to lease payments.

As a result, as of June 30, 2022, Orion has open receivables from the city of Hürth totaling $7.2 million, while the city of Hürth argues open claims of approximately $4.9 million related to lease payments.

Orion is in negotiations with the city but is prepared to pursue its rights vigorously through legal enforcement if necessary.

1 unchanged sentence

• Accounts payable —higher production and higher oil prices resulted in increased accounts payable.

Orion Engineered Carbons S.A.

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

Capital expenditures (A Non-GAAP Financial Measure)

4 unchanged sentences

Commitments and Contingencies.

Capital Expenditures during the three months ended March 31, 2022 amounted to $48.8 million and were primarily associated with safety, sustainability and growth investments as well as expenditures associated with our ongoing efforts to install emissions reduction technology to meet EPA requirements in the U.S.

Capital Expenditures in the three months ended March 31, 2021 amounted to $27.2 million and were mainly comprised of preservation and overhaul projects and expenditures related to investments required to address the EPA requirements in the U.S.

Capital expenditures during the six months ended June 30, 2022 amounted to $108.7 million and were primarily associated with safety, sustainability and growth investments as well as expenditures associated with our ongoing efforts to install emissions reduction technology to meet EPA requirements in the U.S.

Capital expenditures in the six months ended June 30, 2021 amounted to $58.3 million and were mainly comprised of preservation and overhaul projects and expenditures related to investments required to address the EPA requirements in the U.S.

Off-Balance Sheet Arrangements

As of March 31, 2022, we did not have any off-balance sheet arrangements.

As of June 30, 2022, we did not have any off-balance sheet arrangements.

Orion Engineered Carbons S.A.

34 unchanged sentences

• our exposure to political or country risks inherent in doing business in some countries;

• any and all impacts from the Russian war against the Ukraine and/or any escalation thereof as well as related energy shortages or other economic or physical impairments or disruptions;

• geopolitical events in the European Union (“EU”), relations amongst the EU member states as well as future relations between the EU and other countries and organizations;

1 unchanged sentence

• possible future investigations and enforcement actions by governmental, supranational agencies or other organizations;

• our operations as a company in the chemical sector, including the related risks of leaks, fires and toxic releases;

• market and regulatory changes that may affect our ability to sell or otherwise benefit from co-generated energy;

Orion Engineered Carbons S.A.

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

• our operations as a company in the chemical sector, including the related risks of leaks, fires and toxic releases;

• market and regulatory changes that may affect our ability to sell or otherwise benefit from co-generated energy;

• litigation or legal proceedings, including product liability and environmental claims;

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Quantitative and Qualitative Disclosures About Market Risk

Information about market risks for the period ended March 31, 2022 does not differ materially from that discussed under “ Item 7A” in our 2021 Form 10-K.

Information about market risks for the period ended June 30, 2022 does not differ materially from that discussed under “ Item 7A” in our 2021 Form 10-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis