What changed in this filing

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Item 1. Financial Statements

2023-05-04 compared with 2022-11-03 · 115 added, 232 removed, 298 unchanged (54% of the section changed)

1 unchanged sentence

Condensed Consolidated Statements of Operations

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

2022 2021 2022 2021

(In millions, except share and per share amounts)

Three Months Ended March 31,

(In millions, except share and per share data)

Net sales $ 500.7 $ 484.5

3 unchanged sentences

Research and development costs 6.2 5.5

Gain related to litigation settlement — — — ( 82.9 )

Other (income) expenses, net ( 1.0 ) 0.3

1 unchanged sentence

Interest and other financial expense, net 15.2 8.4

Reclassification of actuarial losses from AOCI — 1.2 — 3.6

Reclassification of actuarial gain from AOCI ( 2.2 ) —

Income before earnings in affiliated companies and income taxes 60.5 46.2

11 unchanged sentences

Condensed Consolidated Statements of Comprehensive Income

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

2022 2021 2022 2021

Three Months Ended March 31,

(In millions)

9 unchanged sentences

Condensed Consolidated Balance Sheets

September 30, 2022 December 31, 2021

(In millions, except share amounts)

March 31, 2023 December 31, 2022

(In millions, except share data)

Current assets

42 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions)

5 unchanged sentences

Share-based incentive compensation 2.1 1.5

Deferred tax (benefit) provision 2.8 ( 2.7 )

Deferred tax provision 1.1 2.6

Foreign currency transactions 0.8 ( 5.6 )

Reclassification of actuarial losses from AOCI — 3.6

Other operating non-cash items, net ( 0.7 ) ( 2.4 )

Reclassification of actuarial gain from AOCI ( 2.2 ) —

Changes in operating assets and liabilities, net:

5 unchanged sentences

Other assets and liabilities, net 12.0 9.5

Net cash (used in)/provided by operating activities ( 16.7 ) 121.3

Net cash provided by (used in) operating activities 108.1 ( 27.8 )

Cash flows from investing activities:

Acquisition of intangible assets and property, plant and equipment ( 167.1 ) ( 113.7 )

Acquisition of property, plant and equipment ( 30.5 ) ( 48.8 )

Net cash used in investing activities ( 30.5 ) ( 48.8 )

2 unchanged sentences

Repayments of long-term debt ( 0.8 ) ( 0.8 )

Payments for debt issue costs ( 1.5 ) ( 2.8 )

Cash inflows related to current financial liabilities 30.8 90.4

1 unchanged sentence

Dividends paid to shareholders ( 1.3 ) ( 1.2 )

Other financing activities ( 0.2 ) —

Repurchase of common stock under Stock Repurchase Program ( 29.3 ) —

Net cash provided by (used in) financing activities ( 62.5 ) 51.4

8 unchanged sentences

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

Common stock Total

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

Balance at January 1, 2023 60,571,556 $ 85.3 $ ( 8.8 ) $ 76.4 $ 319.0 $ ( 12.5 ) $ 459.4

Net income — — — — 42.3 — 42.3

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

Net income — — — — 29.7 — 29.7

Other comprehensive loss, net of tax — — — — — ( 10.5 ) ( 10.5 )

Dividends $ 0.02 per share — — — — ( 1.3 ) — ( 1.3 )

Repurchases of Common stock ( 1,286,915 ) — ( 29.3 ) — — — ( 29.3 )

Share based compensation — — — 2.1 — — 2.1

Issuance of stock under equity compensation plans 131,550 — 2.9 ( 4.6 ) — — ( 1.7 )

Balance at June 30, 2022 60,749,265 $ 85.3 $ ( 4.7 ) $ 72.1 $ 276.3 $ ( 33.8 ) $ 395.2

Balance at March 31, 2023 59,416,191 85.3 ( 35.2 ) 73.9 360.0 ( 23.0 ) 461.0

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

2 unchanged sentences

Share based compensation — — — 1.5 — — 1.5

Issuance of stock under equity compensation plans 66,323 — — — — — —

Balance at September 30, 2022 60,815,588 $ 85.3 $ ( 4.7 ) $ 74.0 $ 306.8 $ ( 30.7 ) $ 430.7

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, 2022 60,656,076 85.3 ( 6.3 ) 72.9 249.1 ( 23.6 ) 377.4

Net loss — — — — 89.1 — 89.1

Other comprehensive income, net of tax — — — — — 9.0 9.0

Share based compensation — — — 1.2 — — 1.2

Balance at June 30, 2021 60,590,526 $ 85.3 $ ( 7.3 ) $ 69.5 $ 197.0 $ ( 42.4 ) $ 302.1

Net income — — — — 21.0 — 21.0

Other comprehensive loss, net of tax — — — — — ( 11.5 ) ( 11.5 )

Share based compensation — — — 1.1 — — 1.1

Issuance of stock under equity compensation plans 42,776 — 0.8 ( 0.8 ) — — —

Balance at September 30, 2021 60,633,302 $ 85.3 $ ( 6.5 ) $ 69.8 $ 218.0 $ ( 53.9 ) $ 312.7

See accompanying Notes to these Condensed Consolidated Financial Statements

22 unchanged sentences

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 ;

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.

Accounts Receivable

Accounts receivable, net of allowance for credit losses, are as follows:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In millions)

1 unchanged sentence

Expected credit losses ( 2.9 ) ( 2.6 )

Accounts receivable, net $ 403.7 $ 288.9

Accounts receivable, net of expected credit losses $ 335.2 $ 367.8

Inventories, net of reserves, are as follows:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In millions)

Raw materials, consumables and supplies, net $ 103.9 $ 108.3

Work in process 0.6 0.2

Finished goods, net 167.1 169.6

Total $ 266.7 $ 229.8

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Inventories, net $ 271.0 $ 277.9

Debt and Other Obligations

The company’s financing arrangements are as follows:

September 30, 2022 December 31, 2021

Debt and other obligations are as follows:

March 31, 2023 December 31, 2022

(In millions)

5 unchanged sentences

Deferred debt issuance costs - Term-Loan ( 3.6 ) ( 3.7 )

BOC Term-loan 35.3 —

China Term loan 49.5 47.5

Long-term debt, net 664.6 657.0

1 unchanged sentence

Revolving credit facility

In July 2014, Orion Group Holdings, Inc.

(the “Company”) entered in a credit agreement to establish long-term financing (“Term-Loan”) and a multicurrency revolving credit facility (“RCF”) for the consolidated group.

Subsequent to 2014, we entered into a number of amendments related to Term-Loan and RCF.

In May 2022, we added € 100 million of capacity to our RCF, which expands our facility to € 350 million ($ 341.2 million).

As part of the RCF, the Company can establish ancillary credit facilities by converting the commitments of select lenders under the € 350 million RCF into bilateral credit agreements.

Original borrowings under the 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.

During the third quarter of 2022, we increased our ancillary facility capacity by € 58 million.

As of September 30, 2022, the total commitment of € 350 million was split between an € 82 million RCF tranche and € 268 million of bilateral ancillary facilities established directly with several banks under the RCF.

As of September 30, 2022 and December 31, 2021, committed ancillary credit facilities totaled $ 261.5 million and $ 192.5 million, respectively.

As of September 30, 2022, $ 48.7 million was outstanding under the RCF, and there were no borrowings under the RCF as of December 31, 2021.

The capacity under our revolving credit facility (“RCF”) is € 350 million ($ 380.6 million).

As of March 31, 2023 and December 31, 2022, borrowing under the RCF was $ 54.4 million and $ 53.3 million, respectively.

We classify amounts outstanding under the RCF as current in our Condensed 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 September 30, 2022 and December 31, 2021, availability under the RCF was $ 130.3 million and $ 166.7 million, respectively.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

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.

The ancillary facilities (under RCF commitments) and uncommitted lines of credit outstanding are as follows:

September 30, 2022 December 31, 2021

As of March 31, 2023 and December 31, 2022, availability under the RCF was $ 196.8 million and $ 165.9 million, respectively.

Ancillary Credit Facilities —As part of the RCF, the Company can also establish ancillary credit facilities by converting the commitments of select lenders under the € 350.0 million RCF into bilateral credit agreements.

Original borrowings under ancillary credit facilities reduce availability under the RCF.

As of March 31, 2023 and December 31, 2022, committed ancillary credit facilities totaled $ 291.7 million and $ 286.1 million, respectively.

Other Short-Term borrowings and Obligations

Other short-term debt and obligations are as follows:

March 31, 2023 December 31, 2022

(In millions)

Total ancillary capacity - EUR € 268.3 € 170.0

Total ancillary capacity - U.S.

$ $ 261.5 $ 192.5

Revolving credit facility $ 54.4 $ 53.3

Ancillary credit facilities

4 unchanged sentences

Brazil (capacity $ 3.2 million)

China working capital 4.4 1.5

Korea working capital loan 7.7 7.9

1 unchanged sentence

Total of Other short-term debt and obligations $ 227.9 $ 256.0

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 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 September 30, 2022, the amount outstanding was $ 33.1 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.

Korea Working Capital Loan— For working capital flexibility, in June 2022, we entered in a one year term-loan agreement for ₩ 10.0 billion Korean won ($ 7.0 million) with Hana Bank.

The interest rate on this loan at inception is 4.3 %.

For early repayment, we are required to pay a 1 % prorated early repayment fee.

In the Condensed Consolidated Statements of Cash Flows, this loan is reflected in Cash inflows related to current financial liabilities .

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

As of September 30, 2022, we are in compliance with our debt covenants.

Supplemental information:

Total ancillary capacity - EUR € 268.3 € 268.3

Total ancillary capacity - U.S.

$ $ 291.7 $ 286.1

As of March 31, 2023, we are in compliance with our debt covenants.

Accounts Receivable Factoring Facilities ― We entered into agreements with various third-party financial institutions for the sale of certain Accounts receivable.

We have concluded that there would generally be no risk of loss to us from non-payment of the sold receivables because:

• The transferred financial assets have been isolated beyond the reach of our creditors, even in bankruptcy or other receivership;

• The party purchasing accounts receivables has the right to pledge and or exchange the transferred assets without restrictions;

• We do not retain effective control over the transferred financial assets.

In the Condensed Consolidated Statements of Operations, the loss on receivables sale is reflected in Other expenses, net.

As of March 31, 2023, the gross amount of receivables sold was $ 68.9 million.

No sales were made during 2022.

For additional information relating to our debt, see “ Note J.

6 unchanged sentences

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 September 30, 2022 or December 31, 2021.

No significant concentration of credit risk existed as of March 31, 2023 or December 31, 2022.

Orion Engineered Carbons S.A

2 unchanged sentences

The following table summarizes outstanding financial instruments that are measured at fair value on a recurring basis:

September 30, 2022 December 31, 2021 Balance Sheet Classification

March 31, 2023 December 31, 2022 Balance Sheet Classification

Notional Amount Fair Value Notional Amount Fair Value

4 unchanged sentences

Total $ 496.1 $ 49.6 $ 490.3 $ 56.2

Derivatives designated as hedges:

Interest rate swaps — — 311.5 8.6 Other liabilities (non-current)

Total $ — $ — $ 311.5 $ 8.6

All financial instruments in the table above are classified as Level 2.

3 unchanged sentences

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.

September 30, 2022 December 31, 2021

Short-term and Long-term debt are recorded at amortized cost in the Condensed Consolidated Balance Sheets.

March 31, 2023 December 31, 2022

Notional Amount Fair Value Notional Amount Fair Value

2 unchanged sentences

Term-Loan $ 621.7 $ 610.3 $ 616.2 $ 596.8

Term Loan in the table above is classified as Level 2.

At both September 30, 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.

China Term loan 49.5 44.9 47.5 42.9

Total $ 671.2 $ 655.2 $ 663.7 $ 639.7

Term-Loan and China Term loan in the table above are classified as Level 2.

At both March 31, 2023 and December 31, 2022, the fair values of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, short term borrowings and variable rate debt approximated their carrying values due to the short-term nature of these instruments.

Orion Engineered Carbons S.A

2 unchanged sentences

Effect of Financial Instruments

Three Months Ended Sep 30,

Gain (Loss) Recognized in AOCI Gain (Loss) Reclassified from AOCI to Income Income Statement Classification

2022 2021 2022 2021

(In millions)

Derivatives designated as hedges:

Cross currency swaps $ 9.2 $ ( 3.2 ) $ 0.4 $ — Interest and other financial expense, net

Interest rate swaps 6.2 0.3 — — Interest and other financial expense, net

Total $ 15.4 $ ( 2.9 ) $ 0.4 $ —

Effect of Financial Instruments

Nine Months Ended September 30,

Three Months Ended Mar 31,

Gain (Loss) Recognized in AOCI Gain (Loss) Reclassified from AOCI to Income Income Statement Classification

14 unchanged sentences

Net periodic defined benefit pension costs include the following:

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

2022 2021 2022 2021

Three Months Ended March 31,

(In millions)

1 unchanged sentence

Interest cost 0.6 0.4

Amortization of actuarial loss — 1.2 — 3.6

Amortization of actuarial (gain) ( 2.2 ) —

Net periodic pension cost $ ( 1.3 ) $ 0.7

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.

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

The amortization of actuarial (gain) losses, associated with the pension obligations recorded in prior years, in Accumulated other comprehensive income exceeding 10 % of the defined benefit obligation are recorded ratably in the Condensed Consolidated Statements of Operations.

Orion Engineered Carbons S.A

5 unchanged sentences

Balance at January 1, 2023 $ ( 47.5 ) $ 24.4 $ 10.6 $ ( 12.5 )

Other comprehensive income 11.2 18.7 — 29.9

Other comprehensive income (loss) before reclassifications ( 7.8 ) ( 3.3 ) — ( 11.1 )

Income tax effects 0.5 1.0 — 1.5

Amounts reclassified from AOCI — 0.4 ( 2.2 ) ( 1.8 )

Income tax effects on reclassifications — ( 0.1 ) 0.7 0.6

Currency translation AOCI — 0.2 0.1 0.3

Balance at March 31, 2023 $ ( 54.8 ) $ 22.6 $ 9.2 $ ( 23.0 )

Other comprehensive (loss) ( 18.5 ) 12.5 — ( 6.0 )

Income tax effects ( 0.3 ) ( 4.0 ) — ( 4.3 )

Currency translation AOCI — — 0.1 0.1

Balance at June 30, 2022 ( 41.1 ) 10.7 ( 3.4 ) ( 33.8 )

Other comprehensive income (loss) ( 8.1 ) 16.5 — 8.4

Income tax effects 0.4 ( 5.2 ) — ( 4.8 )

Currency translation AOCI — ( 0.7 ) 0.2 ( 0.5 )

Balance at September 30, 2022 ( 48.8 ) 21.3 ( 3.2 ) ( 30.7 )

Balance at January 1, 2022 $ ( 34.1 ) $ ( 10.8 ) $ ( 3.6 ) $ ( 48.5 )

1 unchanged sentence

Income tax effects before reclassifications 0.6 ( 6.0 ) — ( 5.4 )

Amounts reclassified from AOCI — — 1.2 1.2

Income tax effects on reclassifications — — ( 0.4 ) ( 0.4 )

Currency translation AOCI — 0.3 0.1 0.4

Balance at March 31, 2022 $ ( 22.3 ) $ 2.2 $ ( 3.5 ) $ ( 23.6 )

Other comprehensive income before reclassifications 7.2 1.1 — 8.3

Income tax effects before reclassifications 0.5 ( 0.3 ) — 0.2

Amounts reclassified from AOCI — — 1.2 1.2

Income tax effects on reclassifications — — ( 0.4 ) ( 0.4 )

Currency translation AOCI — ( 0.2 ) ( 0.1 ) ( 0.3 )

Balance at June 30, 2021 ( 23.9 ) ( 11.7 ) ( 6.8 ) ( 42.4 )

Other comprehensive income (loss) before reclassifications ( 10.4 ) ( 3.2 ) — ( 13.6 )

Income tax effects before reclassifications ( 0.3 ) 1.1 — 0.8

Amounts reclassified from AOCI — — 1.2 1.2

Income tax effects on reclassifications — — ( 0.4 ) ( 0.4 )

Currency translation AOCI — 0.3 0.2 0.5

Balance at September 30, 2021 $ ( 34.6 ) $ ( 13.5 ) $ ( 5.8 ) $ ( 53.9 )

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Earnings Per Share

2 unchanged sentences

The following table reflects the income and share data used in the basic and diluted EPS computations:

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

2022 2021 2022 2021

(In millions, except share and per share amounts)

Three Months Ended March 31,

(In millions, except share and per share data)

Net income attributable to ordinary equity holders $ 42.3 $ 32.5

Weighted average number of ordinary shares (in thousands) 60,936 60,740 60,899 60,680

Weighted average number of Common stock (in thousands) 60,287 60,879

Basic EPS $ 0.70 $ 0.53

Dilutive effect of share based payments (in thousands) 336 140

Weighted average number of diluted ordinary shares (in thousands) 61,215 60,840 61,314 60,756

Weighted average number of diluted Common stock (in thousands) 60,623 61,019

Diluted EPS $ 0.70 $ 0.53

5 unchanged sentences

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

Income tax expense for the three months ended September 30, 2022 and 2021 were $ 11.7 million and $ 6.7 million, respectively.

Income tax expense for the nine months ended September 30, 2022 and 2021 were $ 38.3 million and $ 48.5 million, respectively.

Income tax expense for the three months ended March 31, 2023 and 2022 were $ 18.3 million and $ 13.8 million, respectively.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Our effective income tax rates were as follows:

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

2022 2021 2022 2021

Three Months Ended March 31,

Effective income tax rates 30.2 % 29.8 %

The increase in our effective tax rate for both the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021 were primarily attributable to the projected earnings mix by geography and tax jurisdiction.

The increase in our effective tax rate for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was primarily attributable to the projected earnings mix by geography and tax jurisdiction.

Commitments and Contingencies

1 unchanged sentence

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 September 30, 2022 are $ 46.1 million and $ 4.6 million, respectively.

Total estimated and recognized costs and total remaining costs to be paid as of March 31, 2023 are $ 46.5 million and $ 3.8 million, respectively.

Orion's reserves for the ceased operation at Ambes are reflected in Accrued liabilities on the Condensed Consolidated Balance Sheets.

Orion has accrued liabilities for personnel expenses of $ 2.9 million and $ 2.6 million, and for ground remediation costs of $ 1.7 million and $ 6.7 million, as of September 30, 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 $ 4.9 million and $ 7.8 million as of September 30, 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.

Orion has accrued liabilities for personnel expenses of $ 3.3 million and $ 3.2 million, and for ground remediation costs of $ 0.5 million and $ 0.6 million, as of March 31, 2023 and December 31, 2022, respectively.

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.

1 unchanged sentence

We regularly assess the adequacy of legal accruals based on our professional judgment, experience and the information available regarding our cases.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

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 Condensed 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.

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 .

City of Hürth, Germany (Stadtwerke Hürth/Hürth municipal utilities) —In 2020, one of our wholly-owned subsidiaries and the City of Hürth entered into a long-term steam supply contract.

The Hürth municipality financed certain turbines and infrastructure, which are operated by us under a finance lease agreement.

In addition, we entered into a long-term supply agreement with the City of Hürth for delivery of heat.

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, Orion has open receivables from the City of Hürth totaling $ 10.8 million and $ 9.8 million as of March 31, 2023 and December 31, 2022, respectively.

The City of Hürth argues it has open claims of approximately $ 8.2 million and $ 7.0 million related to lease payments as of March 31, 2023 and December 31, 2022, respectively.

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

EPA Action— Under the EPA CD, Orion LLC had to install certain pollution control technology in order to further reduce emissions at its four U.S.

manufacturing facilities.

In line therewith, Orion LLC installed emissions control technology to remove SO2, NOx and dust particles from tail gases at its Ivanhoe (Louisiana) facility in 2021 and emissions controls were installed in accordance with the EPA CD at Orion’s facility in Orange (Texas) in 2020.

In first quarter of 2023, Orion LLC commissioned emissions control technology to remove SO2, NOx and dust particles from tail gases at its Borger (Texas) facility.

The installation of pollution control technology at its fourth and last U.S.

manufacturing facility in Belpre (Ohio) has started and is scheduled to complete in 2023, in line with the EPA CD terms.

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, Orion LLC installed SNOX TM emissions control technology to remove SO2, NOx and dust particles from tail gases at the Ivanhoe (Louisiana) facility in 2021.

Less stringent emissions controls were installed in accordance with the EPA CD at Orange (Texas) in 2020.

We have started installation at the two remaining sites, Belpre and Borger.

As of September 30, 2022, we have spent $ 264 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.

As of March 31, 2023, we have spent $ 285 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 on EPA Action refer to “Note Q.

Commitments and Contingencies”, included in our Annual Report in Form 10-K for the year ended December 31, 2022.

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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 September 30, 2022, the Company had guarantees totaling $ 13.6 million issued by various financial institutions.

As of March 31, 2023, the Company had guarantees totaling $ 25.5 million issued by various financial institutions.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Financial Information by Segment

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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.

• Specialty Black Carbon —Used for protection, colorization and conductivity 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.

• Rubber Carbon Black —Used in the reinforcement of rubber in tires and mechanical rubber goods, and

• Specialty Carbon Black —Used for protection, colorization and conductivity 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.

This includes finance income and expenses, taxes and items with less bearing on the underlying core business.

Discrete financial information is available for each of the segments and the Chief Operating Decision Maker (“CODM”) uses operating results of each operating 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.

We define Adjusted EBITDA as Income from operations before depreciation and amortization, share-based compensation, and non-recurring items (such as restructuring expenses, consulting fees related to Company strategy, legal settlements gains, etc.) plus Earnings 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.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Segment operating results for the three months ended September 30, 2022 and 2021 are as follows:

Rubber Specialties Corporate Total Segments

Segment operating results for the three months ended March 31, 2023 and 2022 are as follows:

Rubber Specialties Corporate Total

(In millions)

Net sales from external customers $ 338.7 $ 162.0 $ — $ 500.7

Adjusted EBITDA 49.4 31.1 — 80.5

Corporate charges — — ( 1.6 ) ( 1.6 )

Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment 15.8 9.9 — 25.7

Excluding equity in earnings of affiliated companies, net of tax ( 0.1 ) — — ( 0.1 )

Equity in earnings of affiliated companies, net of tax 0.1 — — 0.1

Interest and other financial expense, net ( 15.2 ) ( 15.2 )

Income before earnings in affiliated companies and income taxes $ 43.4

Net sales from external customers $ 242.8 $ 150.2 $ — $ 393.0

Reclassification of actuarial gain from AOCI 2.2 2.2

Adjusted EBITDA 63.8 37.3 — 101.1

Corporate charges — — ( 2.2 ) ( 2.2 )

Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment ( 13.3 ) ( 10.5 ) — ( 23.8 )

Excluding equity in earnings of affiliated companies, net of tax ( 0.1 ) — — ( 0.1 )

Interest and other financial expense, net ( 11.5 ) ( 11.5 )

Reclassification of actuarial losses from AOCI ( 1.2 ) ( 1.2 )

Income before earnings in affiliated companies and income taxes $ 27.6

Segment reconciliation for the nine months ended September 30, 2022 and 2021:

Rubber Specialties Corporate Total Segments

(In millions)

Net sales from external customers $ 306.9 $ 177.6 $ — $ 484.5

Adjusted EBITDA 128.1 119.0 — 247.1

Corporate charges — — ( 5.8 ) ( 5.8 )

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 ( 0.3 ) — — ( 0.3 )

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 $ 132.0

Net sales from external customers $ 703.5 $ 450.6 $ — $ 1,154.1

Adjusted EBITDA 40.7 42.5 — 83.2

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

A reconciliation of Income before earnings in affiliated companies and income taxes to Adjusted EBITDA for each of the periods presented is as follows:

Three Months Ended March 31,

(In millions)

Income before earnings in affiliated companies and income taxes $ 60.5 $ 46.2

Corporate charges 1.8 1.2

Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment 25.7 27.3

Gain related to litigation settlement 82.9 82.9

Excluding equity in earnings of affiliated companies, net of tax ( 0.5 ) — — ( 0.5 )

Equity in earnings of affiliated companies, net of tax 0.1 0.1

Interest and other financial expense, net 15.2 8.4

Reclassification of actuarial losses from AOCI ( 3.6 ) ( 3.6 )

Income before earnings in affiliated companies and income taxes $ 181.6

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Expense from operations before income taxes and finance costs of the segment “ Corporate” comprises the following:

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

2022 2021 2022 2021

Reclassification of actuarial gain from AOCI ( 2.2 ) —

Adjusted EBITDA $ 101.1 $ 83.2

Corporate charges include the following:

Three Months Ended March 31,

(In millions)

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What changed 10-Q

Item 1. Financial Statements