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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 106 added, 131 removed, 243 unchanged (49% 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 and six months ended June 30, 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 nine months ended September 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 June 30, Six Months Ended June 30,

2022 2021 2022 2021

(In millions, unless otherwise indicated)

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

2022 2021 Delta 2022 2021 Delta

(In millions) % (In millions) %

$ 543.1 $ 393.0 $ 150.1 38.2 $ 1,568.8 $ 1,154.1 $ 414.7 35.9

10 unchanged sentences

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

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

2022 2021 2022 2021

(In millions)

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

2022 2021 Delta 2022 2021 Delta

(In millions) % (In millions) %

Net income $ 31.8 $ 21.0 $ 10.8 51.4 $ 94.0 $ 133.6 $ (39.6) (29.6)

9 unchanged sentences

Evonik legal settlement — — — — — (82.9) 82.9 (100.0)

Cash settlement — (79.5) — (79.5)

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

Long term incentive plan 1.9 1.3 0.6 46.2 5.0 3.3 1.7 51.5

8 unchanged sentences

Operating Results

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

For the three months ended September 30, 2022 compared to three months ended September 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 June 30, Year-Over Year

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

2022 2021 Delta

5 unchanged sentences

Research and development costs 4.5 5.7 (1.2) (21.1)

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

Other (income) expenses, net 0.3 (0.2) 0.5 (250.0)

6 unchanged sentences

Net income $ 31.8 $ 21.0 $ 10.8 51.4

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.

Net sales increased by $150.1 million, or 38.2%, in the third quarter of 2022 to $543.1 million, compared to the third quarter of 2021, primarily driven by passing through 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 6.4 kmt in the third quarter of 2022 to 243.3 kmt, compared to the third 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 $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.

Cost of sales increased by $134.4 million, or 45.7%, to $428.7 million in the third quarter of 2022, compared to the third quarter of 2021, primarily due to higher raw material and production-associated costs.

Gross profit increased by $15.7 million, or 15.9%, to $114.4 million, year over year, primarily due to pricing and favorable product mix.

Selling, general and administrative expenses

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.

Selling, general and administrative expenses increased by $3.1 million, or 5.9%, to $56.0 million in the third quarter of 2022, compared to the third quarter of 2021.

The increase was primarily driven by higher freight and personal costs, partially offset by the impact of unfavorable foreign currency translation.

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

For the three months ended September 30, 2022, the Company recognized Income before earnings in affiliated companies and income taxes of $43.4 million, compared to $27.6 million in the three months ended September 30, 2021.

The provision for income taxes was an expense of $11.7 million and $6.7 million for the three months ended September 30, 2022 and September 30, 2021, respectively.

The effective tax rate for the three months ended September 30, 2022, was 27%, as compared to 24% for the three months ended September 30, 2021.

The increase in our effective tax rate for the three months ended September 30, 2022, relative to the three months ended September 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 third quarter of 2022 by $20.3 million, or 14.4%, to $160.8 million, year over year.

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.

margin per metric ton increased by 11.4% to $660.9 per metric ton in the three months ended September 30, 2022.

The increase was primarily driven by pricing measures, favorable product mix in both segments 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

Adjusted EBITDA increased in the third quarter of 2022 by $14.1 million, or 21.2%, to $80.5 million, year over year.

The increase was driven by pricing, 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.

For the nine months ended September 30, 2022 compared to nine months ended September 30, 2021

Condensed Consolidated Statement of Operations Data Nine Months Ended September 30, Year-Over Year

2022 2021 Delta

14 unchanged sentences

Net income $ 94.0 $ 133.6 $ (39.6) (29.6)

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.

Net sales increased by $414.7 million, or 35.9%, in the nine months ended September 30, 2022 to $1,568.8 million, year over year, driven primarily by passing through higher feedstock costs, pricing, 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.

Volume increased by 6.7 kmt to 747.9 kmt compared to the nine months ended September 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.

Cost of sales increased by $373.9 million, or 44.4%, to $1,216.7 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to higher raw material costs and production-associated costs.

Gross profit increased by $40.8 million, or 13.1%, to $352.1 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

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.

Selling, general and administrative expenses increased by $12.9 million, or 8.0%, to $173.2 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, driven primarily by higher freight and personal costs and higher personnel, partially offset by the impact of unfavorable foreign currency translation.

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.

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

Orion Engineered Carbons S.A.

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

connection with U.S.

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

2 unchanged sentences

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.

For the nine months ended September 30, 2022, the Company recognized Income before earnings in affiliated companies and income taxes of $132.0 million, compared to $181.6 million in the nine months ended September 30, 2021.

The provision for income taxes was an expense of $38.3 million for the nine months ended September 30, 2022, and $48.5 million for the nine months ended September 30, 2021.

The effective tax rate for the nine months ended September 30, 2022, was 29%, as compared to 27% for the nine months ended September 30, 2021.

The increase in our effective tax rate for the nine months ended September 30, 2022, as compared to the nine months ended September 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 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.

Contribution margin increased by $57.8 million, or 13.1%, to $499.0 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

The increase was primarily due to pricing measures, 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 12.1%, to $667.2 per metric ton in the nine months ended September 30, 2022 compared to the nine months ended September 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 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.

Adjusted EBITDA increased by $31.0 million, or 14.3%, from $216.1 million in the nine months ended September 30, 2021 to $247.1 million in the nine months ended September 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

1 unchanged sentence

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 June 30, Year-Over Year

2022 2021 Delta

(In millions, unless otherwise indicated) %

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

2022 2021 Delta 2022 2021 Delta

(In millions) % (In millions) %

Specialty Carbon Black

13 unchanged sentences

Specialty Carbon Black

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 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.

Net sales increased by $19.4 million, or 12.9%, year over year, to $169.6 million and increased by $78.5 million, or 17.4%, year over year, to $529.1 million for the three and nine months ended September 30, 2022, respectively.

The net sales increase in both comparative period

Orion Engineered Carbons S.A.

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

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

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.

was primarily driven by pricing and favorable product mix, partially offset by lower sales volume and impact of unfavorable foreign currency translation.

Volumes decreased by 11.6 kmt, or 18.2%, year over year, to 52.3 kmt and decreased by 25.8 kmt, or 12.7% year over year, to 177.6 kmt for the three and nine months ended September 30, 2022, respectively.

The volumes were lower primarily due to lower demand and price competition in lower-end markets in both comparative periods.

Gross profit segment, for the three months ended September 30, 2022, decreased by $6.8 million, or 13.2%, year over year, to $44.8 million, primarily due to lower demand and price competition in lower-end markets.

Gross profit segment, for the nine months ended September 30, 2022, increased by $5.0 million, or 3.2%, year over year, to $163.0 million, primarily driven by higher margins and favorable product mix.

Year over year, adjusted EBITDA for the three months ended September 30, 2022 decreased by $7.9 million, or 20.3%, to $31.1 million, primarily driven by lower sales volume, partially offset by higher margins and favorable product mix.

Year over year, adjusted EBITDA for the nine months ended September 30, 2022 increased by $0.9 million, or 0.8%, to $119.0 million, primarily driven by higher margins and favorable product mix, partially offset by lower volume.

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

Adjusted EBITDA margin decreased by 770 basis points, year over year, to 18.3%, and decreased by 370 basis points, year over year, to 22.5% for the three and nine months ended September 30, 2022, respectively.

The decrease in both comparative periods was primarily due to lower demand, higher fixed costs and price competition in lower-end markets, partially offset by higher margins and favorable product mix.

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.

Net sales increased by $130.7 million, or 53.8%, year over year, to $373.5 million, and increased by $336.2 million, or 47.8%, year over year, to $1,039.7 million for the three and nine months ended September 30, 2022, respectively.

The increase in both comparative periods was primarily due to pricing, higher volume and favorable product mix, partially offset by the impact of unfavorable foreign currency translation.

Volumes increased by 18.0 kmt, or 10.4%, year over year, to 191.0 kmt, and increased by 32.5 kmt, or 6.0%, year over year, to 570.3 kmt, for the three and nine months ended September 30, 2022, respectively.

The increase in both comparative periods reflects higher demand in Americas and Europe/Middle East/Africa.

Gross profit increased by $22.5 million, or 47.8%, year over year, to $69.6 million, and increased by $35.8 million, or 23.4%, to $189.1 million, for the three and nine months ended September 30, 2022, respectively.

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

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.

Adjusted EBITDA increased by $22.0 million, or 80.3%, year over year, to $49.4 million, and increased by $30.1 million, or 30.7%, to $128.1 million for the three and nine months ended September 30, 2022, respectively.

The increase was primarily due to higher volume, pricing and product mix, partially offset by impact of unfavorable foreign currency translation and higher selling, general and administrative costs in both comparative periods.

For the three months ended September 30, 2022, adjusted EBITDA margin rose 190 basis points to 13.2%, year over year.

For the nine months ended September 30, 2022, adjusted EBITDA margin decreased 160 basis points, year over year, to 12.3%, 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]

Liquidity and Capital Resources

Historical Cash Flows

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

Six Months Ended June 30,

Nine Months Ended September 30,

(In millions)

2 unchanged sentences

Net cash provided by (used in) financing activities 167.4 (7.6)

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

Net cash used in operating activities during the nine months ended September 30, 2022, was $16.7 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.

Net cash used in investing activities in the nine months ended September 30, 2022, amounted to $167.1 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.

Net cash provided by financing activities during the nine months ended September 30, 2022, amounted to $167.4 million.

Cash inflows during the nine months of $139.9 million were primarily related to net drawings under our senior secured revolving credit facilities (“RCF”), $35.3 million borrowings to partially finance our Huaibei facility in China from Bank of China and $7.0 million of short-term working capital borrowings in Korea, partially offset by scheduled debt repayments.

Net cash provided by operating activities for the nine months ended September 30, 2021, amounted to $121.3 million.

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

2 unchanged sentences

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.

Net cash used in investing activities for the nine months ended September 30, 2021, amounted to $113.7 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.

Net cash used in financing activities for the nine months ended September 30, 2021, amounted to $7.6 million.

Cash outflows during the nine months of $6.0 million were primarily related to RCF repayments.

2021 financing activities included refinancing of our Term-loan and associated costs.

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

Sources of Liquidity

1 unchanged sentence

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.

As of September 30, 2022, the company had total liquidity of $203.3 million, including cash and equivalents of $43.1 million, $130.3 million availability under our revolving credit facility, including ancillary lines and $29.9 million of capacity under other available credit lines.

Net debt was $840.4 million, and net leverage was 2.81x.

5 unchanged sentences

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

June 30, 2022 December 31, 2021

September 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 $476.4 million as of June 30, 2022.

Our Net working capital increased from $323.6 million as of December 31, 2021, to $492.3 million as of September 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 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.

As a result, as of September 30, 2022, Orion has open receivables from the city of Hürth totaling $7.7 million, while the city of Hürth argues open claims of approximately $5.5 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.

Those increases were partially offset by:

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

• Accounts payable —decrease was driven by timing of capital expenditures.

Capital expenditures (A Non-GAAP Financial Measure)

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Commitments and Contingencies.

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.

Capital expenditures during the nine months ended September 30, 2022 amounted to $167.1 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 nine months ended September 30, 2021 amounted to $113.7 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 June 30, 2022, we did not have any off-balance sheet arrangements.

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

Orion Engineered Carbons S.A.

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

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

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

• the ability to pay dividends at historical dividend levels or at all;

• cash flow projections;

• the installation of pollution control technology in our United States (“U.S.”) manufacturing facilities pursuant to the EPA consent decree described herein;

• the installation and operation of pollution control technology in our United States (“U.S.”) manufacturing facilities pursuant to the EPA consent decree described herein;

• the outcome of any in-progress, pending or possible litigation or regulatory proceedings;

• our expectation that the markets we serve will continue to grow.

• our expectations regarding environmental-related costs and liabilities;

• expectations regarding the performance of our industry and the global economy, including with respect to foreign currency rates;

• the sufficiency of our cash on hand and cash provided by operating activities and borrowings to pay our operating expenses, satisfy our debt obligations and fund capital expenditures;

• mitigating the impacts of the global outbreak of COVID-19 and variances thereof;

• anticipated spending on, and the timely completion and anticipated impacts of, capital projects including growth projects and the construction of new plants;

• our projections and expectations for pricing, financial results and performance in 2023 and beyond;

• the status of contract negotiations with counterparties and the impact of new contracts on our growth;

• the implementation of our natural gas and other raw material consumption reduction contingency plan;

• demand for our specialty products;

• our expectation that the markets we serve will continue to remain stable or grow.

All these forward-looking statements are based on estimates and assumptions that, although believed to be reasonable, are inherently uncertain.

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• our dependence on major customers and suppliers;

• unanticipated fluctuations in demand for our specialty products, including due to factors beyond our control;

• our ability to compete in the industries and markets in which we operate;

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• our ability to implement our business strategies;

• volatility in the costs and availability of raw materials and energy as a result of the ongoing Russia and Ukraine conflict;

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

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

• our ability to negotiate with counterparties on terms satisfactory to us and the satisfactory performance by such counterparties of their obligations to us;

Orion Engineered Carbons S.A.

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

• our ability to realize benefits from planned plant capacity expansions and site development projects and the potential delays to such expansions and projects;

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• 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;

• any and all impacts from the Russian war against 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;

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

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;

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Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include those factors detailed under the captions “Note Regarding Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and in “ Note Q.

Commitments and Contingencies” to our audited Consolidated Financial Statements regarding contingent liabilities, including litigation in the same 10-K..

Commitments and Contingencies” to our audited Consolidated Financial Statements regarding contingent liabilities, including litigation in the same Form 10-K, , and in our quarterly reports on Form 10-Q and the unaudited Consolidated Financial Statements contained therein.

It is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

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Quantitative and Qualitative Disclosures About Market Risk

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.

Information about market risks for the period ended September 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