What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-04 · 120 added, 61 removed, 352 unchanged (34% of the section changed)

1 unchanged sentence

Condensed Consolidated Statements of Operations

Three Months Ended March 31,

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

2023 2022 2023 2022

(In millions, except share and per share data)

19 unchanged sentences

See accompanying Notes to these Condensed Consolidated Financial Statements

Orion Engineered Carbons S.A.

Condensed Consolidated Statements of Comprehensive Income

Three Months Ended March 31,

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

2023 2022 2023 2022

(In millions)

7 unchanged sentences

See accompanying Notes to these Condensed Consolidated Financial Statements

Orion Engineered Carbons S.A.

Condensed Consolidated Balance Sheets

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(In millions, except share data)

41 unchanged sentences

See accompanying Notes to these Condensed Consolidated Financial Statements

Orion Engineered Carbons S.A.

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

(In millions)

8 unchanged sentences

Reclassification of actuarial gain from AOCI ( 4.5 ) —

Other operating non-cash items, net ( 0.5 ) ( 0.9 )

Changes in operating assets and liabilities, net:

12 unchanged sentences

Repayments of long-term debt ( 1.5 ) ( 1.5 )

Payments for debt issue costs ( 0.2 ) ( 0.8 )

Cash inflows related to current financial liabilities 85.6 178.3

10 unchanged sentences

See accompanying Notes to these Condensed Consolidated Financial Statements

Orion Engineered Carbons S.A.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

9 unchanged sentences

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

Net income — — — — 30.1 — 30.1

Other comprehensive loss, net of tax — — — — — ( 7.1 ) ( 7.1 )

Dividends $ 0.04 per share — — — — ( 2.4 ) — ( 2.4 )

Repurchases of Common stock ( 822,595 ) — ( 20.2 ) — — — ( 20.2 )

Share based compensation — — — 2.6 — — 2.6

Issuance of stock under equity compensation plans 47,250 — 1.4 ( 1.2 ) — — 0.2

Balance at June 30, 2023 58,640,846 $ 85.3 $ ( 54.0 ) $ 75.3 $ 387.7 $ ( 30.1 ) $ 464.2

Balance at January 1, 2022 60,656,076 $ 85.3 $ ( 6.3 ) $ 71.4 $ 217.8 $ ( 48.5 ) $ 319.7

4 unchanged sentences

Balance at March 31, 2022 60,656,076 85.3 ( 6.3 ) 72.9 249.1 ( 23.6 ) 377.4

Net loss — — — — 29.7 — 29.7

Other comprehensive loss, net of tax — — — — — ( 10.2 ) ( 10.2 )

Dividends $ 0.04 per share — — — — ( 2.5 ) — ( 2.5 )

Share based compensation — — — 1.6 — — 1.6

Issuance of stock under equity compensation plans 93,189 — 1.6 ( 2.4 ) — — ( 0.8 )

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

See accompanying Notes to these Condensed Consolidated Financial Statements

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statement (Unaudited)

9 unchanged sentences

Financial Information by Segment

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Organization, Description of the Business and Summary of Significant Accounting Policies

Orion Engineered Carbons S.A.’s unaudited Condensed Consolidated Financial Statements include Orion Engineered Carbons S.A.

Orion S.A.’s (formerly, Orion Engineered Carbons S.A.) unaudited Condensed Consolidated Financial Statements include Orion S.A.

and its subsidiaries (“Orion” or the “Company”).

7 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(In millions)

3 unchanged sentences

Inventories, net of reserves, are as follows:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(In millions)

4 unchanged sentences

Debt and other obligations are as follows:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(In millions)

8 unchanged sentences

Total $ 855.9 $ 915.3

Notes to the Condensed Consolidated Financial Statements—(continued)

The Term-Loan facility was allocated to one term loan facility denominated in U.S.

dollars of $ 300 million and another denominated in Euros of € 300 million with both having a maturity date of September 24, 2028.

Interest is calculated based on three months EURIBOR (for the Euro-denominated loan) plus a margin of 2.50 %, or three-month USD-LIBOR (for the USD-denominated loan) plus a margin of 2.25 %.

Due to cessation of US dollar LIBOR after June 30, 2023 (“LIBOR cessation date”), in May 2023, the Company entered into the Eleventh Amendment to the Credit Agreement (the “Term-Loan”) to update the referenced floating benchmark rate.

dollar loan, 3-M USD-Libor will be replaced by USD Term SOFR 3M + CAS (Credit Adjustment Spread) effective for all interest rate periods after June 30, 2023.

Other provisions of the Credit Agreement relating to the Term Loan remained unchanged.

Revolving credit facility

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.

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

Interest is calculated based on EURIBOR (for euro drawings), and USD Term SOFR + CAS (for U.S.

Dollar drawings) plus a 1.65 % - 2.70 % margin (depending on leverage ratio).

As of June 30, 2023 and December 31, 2022, borrowings under the RCF were $ 27.2 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.

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

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

As of June 30, 2023 and December 31, 2022, availability under the RCF was $ 205.0 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.

1 unchanged sentence

Borrowings under ancillary credit facilities do not count toward debt drawn under the RCF for the purposes of determining whether the financial covenant under the Credit Agreement related to the RCF must be tested.

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

As of June 30, 2023 and December 31, 2022, committed ancillary credit facilities totaled $ 291.5 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

June 30, 2023 December 31, 2022

(In millions)

14 unchanged sentences

$ $ 291.5 $ 286.1

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

Notes to the Condensed Consolidated Financial Statements—(continued)

As of June 30, 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.

4 unchanged sentences

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.

For the three and six months ended June 30, 2023 the loss on receivables sale were not material.

No sales were made during 2022.

For the three and six months ended June 30, 2023, the gross amount of receivables sold were as $ 125.2 million and $ 194.1 million, respectively.

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 March 31, 2023 or December 31, 2022.

Orion Engineered Carbons S.A

No significant concentration of credit risk existed as of June 30, 2023 or December 31, 2022.

Cash flow hedge

Due to LIBOR cessation, the Company in May 2023 amended its previously existing cross-currency swaps in the amount of $ 197 million to update the referenced floating benchmark rate.

The effective date to transition from US dollar LIBOR 3M to US dollar Term SOFR 3M + CAS (Credit Adjustment Spread) will be on September 29, 2023.

Other terms of the cross-currency swaps remained unchanged.

The cross-currency swap will expire on September 30, 2028, in line with the maturity of the term loan.

In 2021 we adopted Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 848, Reference Rate Reform (“ASC 848 ”).

This guidance permits entities to elect certain optional expedients for contract modifications for debt, and leases related to reference rate reform as well as derivative contracts and for the continued application of hedge accounting to certain hedging relationships affected by reference rate reform activities.

We applied the practical expedients allowed under ASC 848 as follows:

• Accounted for the modification to our term loan facility as if the modification was not substantial in accordance with ASC 470-50, Modifications and Extinguishment and thus a continuation of the existing contract.

• The cross-currency swaps in cash-flow hedging relationships were not de-designated as a result of the modifications and continue to be highly effective and qualify for hedge accounting.

Notes to the Condensed Consolidated Financial Statements—(continued)

1 unchanged sentence

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

March 31, 2023 December 31, 2022 Balance Sheet Classification

June 30, 2023 December 31, 2022 Balance Sheet Classification

Notional Amount Fair Value Notional Amount Fair Value

10 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Notional Amount Fair Value Notional Amount Fair Value

5 unchanged sentences

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

At both June 30, 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.

Notes to the Condensed Consolidated Financial Statements—(continued)

1 unchanged sentence

Effect of Financial Instruments

Three Months Ended Mar 31,

Three Months Ended Jun 30,

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

5 unchanged sentences

Total $ ( 0.8 ) $ 12.1 $ 0.4 $ 0.4

Effect of Financial Instruments

Six Months Ended June 30,

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

2023 2022 2023 2022

(In millions)

Derivatives designated as hedges:

Cross currency swaps $ ( 3.0 ) $ 20.9 $ 0.8 $ 0.9 Interest and other financial expense, net

Interest rate swaps ( 0.9 ) 9.7 — — Interest and other financial expense, net

Total $ ( 3.9 ) $ 30.6 $ 0.8 $ 0.9

Our cross currency swaps and interest rate swaps are designated as cash flow hedges of principal and interest payments related to our Term-Loan and mature in September 2028.

7 unchanged sentences

Net periodic defined benefit pension costs include the following:

Three Months Ended March 31,

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

2023 2022 2023 2022

(In millions)

5 unchanged sentences

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

Notes to the Condensed Consolidated Financial Statements—(continued)

10 unchanged sentences

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

Other comprehensive (loss) ( 5.1 ) ( 0.5 ) — ( 5.6 )

Income tax effects ( 0.1 ) 0.2 — 0.1

Amounts reclassified from AOCI — 0.4 ( 2.3 ) ( 1.9 )

Income tax effects on reclassifications — ( 0.2 ) 0.7 0.5

Currency translation AOCI — ( 0.3 ) 0.1 ( 0.2 )

Balance at June 30, 2023 $ ( 60.0 ) $ 22.2 $ 7.7 $ ( 30.1 )

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

3 unchanged sentences

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

Other comprehensive income before reclassifications ( 18.5 ) 12.5 — ( 6.0 )

Income tax effects before reclassifications ( 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 )

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 March 31,

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

2023 2022 2023 2022

(In millions, except share and per share data)

5 unchanged sentences

Diluted EPS $ 0.51 $ 0.49 $ 1.20 $ 1.02

Notes to the Condensed Consolidated Financial Statements—(continued)

The Company records its tax provision or benefit on an interim basis using an estimated annual effective tax rate.

4 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 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)

Income tax expense for the three months ended June 30, 2023 and 2022 were $ 17.8 million and $ 12.8 million, respectively.

Income tax expense for the six months ended June 30, 2023 and 2022 were $ 36.1 million and $ 26.6 million, respectively.

Our effective income tax rates were as follows:

Three Months Ended March 31,

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

2023 2022 2023 2022

Effective income tax rates 37.3 % 30.1 % 33.4 % 30.0 %

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.

The increase in our effective tax rate for the three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022 was primarily attributable to the projected earnings mix by geography and tax jurisdiction.

Commitments and Contingencies

Restructuring— In 2016, the Company ceased operations at its plant in Ambes, France as part of the restructuring of its Rubber business segment.

Expenses related to the closing include personnel costs, demolition, removal costs and remediation costs.

Total estimated and recognized costs and total remaining costs to be paid as of March 31, 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 $ 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.

2 unchanged sentences

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.

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.

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

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

1 unchanged sentence

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.

As a result, Orion had open receivables from the City of Hürth totaling $ 7.2 million and $ 9.8 million as of June 30, 2023 and December 31, 2022, respectively.

Open lease payments to the City of Hürth accrued to approximately $ 5.2 million and $ 7.0 million as of June 30, 2023 and December 31, 2022, respectively.

In June 2023, we and the City of Hürth resolved the disagreement and net settled outstanding receivables and lease liabilities for the years ended 2020 and 2021.

In addition, we and the City of Hürth resolved the disagreement on certain contract terms for periods after the year 2021.

The settlement did not materially impact the Condensed Consolidated Statements of Operations.

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.

In line therewith, Orion LLC installed emissions control technology to remove SO2, NOx and dust particles from tail gases at its Borger (Texas) facility beginning of 2023, and its Ivanhoe (Louisiana) facility in 2021.

Further emissions controls were installed in accordance with the EPA CD at Orion’s facility in Orange (Texas) in 2020.

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.

manufacturing facility in Belpre (Ohio) is ongoing and is scheduled to be completed 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.

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.

As of June 30, 2023, we have spent $ 296 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.

1 unchanged sentence

Pledges and guarantees

The Company has pledged the majority of its assets (amongst others shares in affiliates, bank accounts and receivables) within the different regions excluding China as collateral under the debt agreements.

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

Orion Engineered Carbons S.A

The Company has pledged the majority of its assets (amongst others shares in affiliates, bank accounts and receivables) within the different regions in which it operates excluding China as collateral under its debt agreements.

As of June 30, 2023, the Company had guarantees totaling $ 25.9 million issued by various financial institutions.

Notes to the Condensed Consolidated Financial Statements—(continued)

4 unchanged sentences

• 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.

• Specialty Carbon Black —Used for protection, colorization and conductivity in coatings, polymers, batteries, printing and other special applications.

Corporate includes income and expenses that cannot be directly allocated to the business segments or that are managed at the corporate level.

4 unchanged sentences

The CODM does not review reportable segment asset or liability information for purposes of assessing performance or allocating resources.

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

Rubber Specialties Corporate Total

Segment operating results for the three months ended June 30, 2023 and 2022 are as follows:

Rubber Specialty Corporate Total

(In millions)

10 unchanged sentences

Adjusted EBITDA 38.0 45.4 — 83.4

Orion Engineered Carbons S.A

Notes to the Condensed Consolidated Financial Statements—(continued)

Segment operating results for the six months ended June 30, 2023 and 2022:

Rubber Specialty Corporate Total Segments

(In millions)

Net sales from external customers $ 648.0 $ 311.5 $ — $ 959.5

Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment 33.7 19.2 — 52.9

Equity in earnings of affiliated companies, net of tax 0.3 — — 0.3

Interest and other financial expense, net ( 28.7 ) ( 28.7 )

Reclassification of actuarial gain from AOCI 4.5 4.5

Adjusted EBITDA 121.2 67.2 — 188.4

Net sales from external customers $ 666.2 $ 359.5 $ — $ 1,025.7

Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment 33.5 21.2 — 54.7

Excluding equity in earnings of affiliated companies, net of tax 0.2 — — 0.2

Interest and other financial expense, net ( 18.9 ) ( 18.9 )

Adjusted EBITDA 78.7 87.9 — 166.6

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,

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

2023 2022 2023 2022

(In millions)

7 unchanged sentences

Corporate charges include the following:

Three Months Ended March 31,

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

2023 2022 2023 2022

(In millions)

2 unchanged sentences

Corporate Charges $ 1.0 $ 3.0 $ 2.8 $ 4.2

Orion Engineered Carbons S.A.

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

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 1. Financial Statements