Item 2. Management’s Discussion and Analysis
Item 2. 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, 2023 and 2022 and should be read in conjunction with the information included under Item 1. Financial Statements and Supplementary Data (Unaudited) elsewhere in this report. We prepare our financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”).
PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION
Non-GAAP Financial Measures
We present certain financial measures that are not prepared in accordance with GAAP or the accounting standards of any other jurisdiction and may not be comparable to other similarly titled measures of other companies. For a reconciliation of these non-GAAP financial measures to their nearest comparable GAAP measures, see section Reconciliation of Non-GAAP Financial Measures below.
These non-GAAP measures include, but are not limited to, Gross profit per metric ton, Adjusted EBITDA, Net working capital, Capital expenditures, Segment Adjusted EBITDA margin (in percentage), Net debt and Net leverage..
We define:
• Gross profit per metric ton —Gross profit divided by volume measured in metric tons.
• Adjusted EBITDA —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 settlement gain, etc.) plus Earnings in affiliated companies, net of tax.
• Net working capital —Inventories, net, plus Accounts receivable, net, minus Accounts payable.
• Capital expenditures —Cash paid for the acquisition of property, plant and equipment.
• Segment Adjusted EBITDA margin (in percentage )—Segment Adjusted EBITDA divided by segment Revenue.
• Net debt —Current portion of long-term debt and other financial liabilities plus Long-term debt, net plus Deferred debt issuance costs less Cash and cash equivalents.
• Net leverage —Net debt divided by trailing twelve months Adjusted EBITDA.
Adjusted EBITDA is used by our chief operating decision maker (“CODM”) to evaluate our operating performance and to make decisions regarding allocation of capital, because it excludes the effects of items that have less bearing on the performance of our underlying core business. We use this measure, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing our business. We believe these measures are useful measures of financial performance in addition to Net income, Income from operations and other profitability measures under GAAP, because they facilitate operating performance comparisons from period to period. By eliminating potential differences in results of operations between periods caused by factors such as depreciation and amortization, historic cost and age of assets, financing and capital structures and taxation positions or regimes, we believe that Adjusted EBITDA provides a useful additional basis for evaluating and comparing the current performance of the underlying operations. In addition, we believe these non-GAAP measures aid investors by providing additional insight into our operational performance and help clarify trends affecting our business.
However, other companies and analysts may calculate non-GAAP financial measures differently, so making comparisons among companies on this basis should be done carefully. Non-GAAP measures are not performance measures under GAAP and should not be considered in isolation or construed as substitutes for Net sales, Net income, Income from operations, Gross profit and other GAAP measures as an indicator of our operations in accordance with GAAP.
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Reconciliation of Non-GAAP Financial Measures
The following tables present a reconciliation of each Non-GAAP measure to the most directly comparable GAAP measure:
Reconciliation of Gross profit per metric ton:
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 Delta 2023 2022 Delta
(In millions) % (In millions) %
Net sales $ 458.8 $ 541.2 $ (82.4) (15.2) $ 959.5 $ 1,025.7 $ (66.2) (6.5)
Cost of sales (341.7) (421.4) 79.7 (18.9) (706.0) (788.0) 82.0 (10.4)
Gross profit $ 117.1 $ 119.8 $ (2.7) (2.3) $ 253.5 $ 237.7 $ 15.8 6.6
Volume (in kmt) 227.3 251.4 (24.1) (9.6) 460.8 504.6 (43.8) (8.7)
Gross profit per metric ton $ 515.2 $ 476.5 $ 38.7 8.1 $ 550.1 $ 471.1 $ 79.0 16.8
Reconciliation of Net income to Adjusted EBITDA:
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 Delta 2023 2022 Delta
(In millions) % (In millions) %
Net income $ 30.1 $ 29.7 $ 0.4 1.3 $ 72.4 $ 62.2 $ 10.2 16.4
Add back Income tax expense 17.8 12.8 5.0 39.1 36.1 26.6 9.5 35.7
Add back Equity in earnings of affiliated companies, net of tax (0.2) (0.1) (0.1) 100.0 (0.3) (0.2) (0.1) 50.0
Income before earnings in affiliated companies and income taxes 47.7 42.4 5.3 12.5 108.2 88.6 19.6 22.1
Add back Interest and other financial expense, net 13.5 10.5 3.0 28.6 28.7 18.9 9.8 51.9
Add back Reclassification of actuarial gain from AOCI (2.3) — (2.3) — (4.5) — (4.5) —
Income from operations 58.9 52.9 6.0 11.3 132.4 107.5 24.9 23.2
Add back Depreciation of property, plant and equipment and amortization of intangible assets and right of use assets 27.2 27.4 (0.2) (0.7) 52.9 54.7 (1.8) (3.3)
EBITDA 86.1 80.3 5.8 7.2 185.3 162.2 23.1 14.2
Equity in earnings of affiliated companies, net of tax 0.2 0.1 0.1 100.0 0.3 0.2 0.1 50.0
Long term incentive plan 2.6 1.6 1.0 62.5 4.7 3.1 1.6 51.6
Other adjustments (1.6) 1.4 (3.0) (214.3) (1.9) 1.1 (3.0) (272.7)
Adjusted EBITDA $ 87.3 $ 83.4 $ 3.9 4.7 $ 188.4 $ 166.6 $ 21.8 13.1
Adjusted EBITDA Specialty Carbon Black
$ 29.9 $ 45.4 $ (15.5) (34.1) $ 67.2 $ 87.9 $ (20.7) (23.5)
Adjusted EBITDA Rubber Carbon Black
$ 57.4 $ 38.0 $ 19.4 51.1 $ 121.2 $ 78.7 $ 42.5 54.0
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Operating Results
The table below presents our historical results derived from our Condensed Consolidated Financial Statements for the periods indicated.
Three Months Ended June 30, Year-Over Year
2023 2022 Delta
(In millions) %
Net sales $ 458.8 $ 541.2 $ (82.4) (15.2)
Cost of sales 341.7 421.4 (79.7) (18.9)
Gross profit 117.1 119.8 (2.7) (2.3)
Selling, general and administrative expenses 55.0 59.7 (4.7) (7.9)
Research and development costs 5.9 5.9 — —
Other (income) expenses, net (2.7) 1.3 (4.0) (307.7)
Income from operations 58.9 52.9 6.0 11.3
Interest and other financial expense, net 13.5 10.5 3.0 28.6
Reclassification of actuarial gain from AOCI (2.3) — (2.3) N/A
Income before earnings in affiliated companies and income taxes 47.7 42.4 5.3 12.5
Income tax expense 17.8 12.8 5.0 39.1
Earnings in affiliated companies, net of tax 0.2 0.1 0.1 100.0
Net income 30.1 29.7 0.4 1.3
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments (5.2) (18.8) 13.6 (72.3)
Net gains (losses) on derivatives (0.4) 8.5 (8.9) (104.7)
Defined benefit plans, net (1.5) 0.1 (1.6) (1,600.0)
Total other comprehensive (loss) income, net of tax (7.1) (10.2) 3.1 (30.4)
Comprehensive income $ 23.0 $ 19.5 $ 3.5 17.9
Net sales
Net sales decreased by $82.4 million, or 15.2%, in the second quarter of 2023 to $458.8 million, compared to the second quarter of 2022, primarily driven by the pass-through effect of declining oil prices and lower volume in both segments. Those were partially offset by improved contractual Rubber carbon black pricing.
Volume in both segments decreased in aggregate by 24.1 kmt in the second quarter of 2023 to 227.3 kmt, compared to the second quarter of 2022. The global economic slowdown impacted both segments.
Cost of sales
Cost of sales decreased by $79.7 million, or 18.9%, to $341.7 million in the second quarter of 2023, compared to the second quarter of 2022 primarily due to lower volume and the effect of declining oil prices.
Gross profit
Gross profit decreased by $2.7 million, or 2.3%, to $117.1 million, year over year. The decrease was primarily driven by lower volume in both segments, partially offset by improved contractual Rubber carbon black pricing.
Gross profit per metric ton increased by 8.1% to $515.2, year over year, driven by improved contractual Rubber carbon black pricing.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased by $4.7 million or 7.9% to $55.0 million in the second quarter of 2023 compared to the second quarter of 2022, primarily driven by lower freight costs due to lower volume in both segments.
Provision for income taxes
For the three months ended June 30, 2023, the Company recognized Income before earnings in affiliated companies and income taxes of $47.7 million, compared to $42.4 million in the three months ended June 30, 2022. The provision for income taxes was an expense of $17.8 million and $12.8 million for the three months ended June 30, 2023 and 2022, respectively. The effective tax rate for the three months ended June 30, 2023, was 37.3%, as compared to 30.1% for the three months ended June 30, 2022. The increase in our effective tax rate for three months ended June 30, 2023, as compared to the three months ended June 30, 2022, was primarily attributable to the
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projected earnings mix by geography and tax jurisdiction as compared to the prior period.
Adjusted EBITDA (A Non-GAAP Financial Measure)
Adjusted EBITDA increased in the second quarter of 2023 by $3.9 million, or 4.7%, to $87.3 million, year over year.
The increase was driven by favorable pricing and product mix in Rubber Carbon Black segment, partially offset by lower volume in both segments and decreased cogeneration revenue, a byproduct.
Comprehensive Income
Comprehensive income increased by $3.5 million in the second quarter of 2023 compared to the second quarter of 2022. The activities from the components of Comprehensive income are discussed below:
• $13.6 million of net favorable impacts of unrealized changes in foreign currency translation adjustments.
• $8.9 million of net unfavorable impacts related to financial derivative instruments primarily driven by net periodic changes in cross currency and interest rate swaps, and
• $1.6 million of net unfavorable changes in defined pension and other post-retirement benefits.
Additionally, Net income increased by $0.4 million in the second quarter of 2023 compared to the second quarter of 2022.
For the six months ended June 30, 2023 compared to six months ended June 30, 2022
Condensed Consolidated Statement of Operations Data Six Months Ended June 30, Year-Over Year
2023 2022 Delta
(In millions) %
Net sales $ 959.5 $ 1,025.7 $ (66.2) (6.5)
Cost of sales 706.0 788.0 (82.0) (10.4)
Gross profit 253.5 237.7 15.8 6.6
Selling, general and administrative expenses 112.7 117.2 (4.5) (3.8)
Research and development costs 12.1 11.4 0.7 6.1
Other (income) expenses, net (3.7) 1.6 (5.3) (331.3)
Income from operations 132.4 107.5 24.9 23.2
Interest and other financial expense, net 28.7 18.9 9.8 51.9
Reclassification of actuarial gain from AOCI (4.5) — (4.5) N/A
Income before earnings in affiliated companies and income taxes 108.2 88.6 19.6 22.1
Income tax expense 36.1 26.6 9.5 35.7
Earnings in affiliated companies, net of tax 0.3 0.2 0.1 50.0
Net income 72.4 62.2 10.2 16.4
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments (12.5) (7.0) (5.5) 78.6
Net gains (losses) on derivatives (2.2) 21.5 (23.7) (110.2)
Defined benefit plans, net (2.9) 0.2 (3.1) (1,550.0)
Total other comprehensive (loss) income, net of tax (17.6) 14.7 (32.3) (219.7)
Comprehensive income $ 54.8 $ 76.9 $ (22.1) (28.7)
Net sales
Net sales decreased by $66.2 million, or 6.5%, in the six months ended June 30, 2023 to $959.5 million, year over year, driven primarily by lower volume, the pass-through effect of declining oil prices and unfavorable foreign currency translation adjustments. Those were partially offset by favorable product mix in both segments and improved contractual Rubber carbon black price.
Volume decreased by 43.8 kmt to 460.8 kmt compared to the six months ended June 30, 2022. The global economic slowdown impacted both segments.
Cost of sales
Cost of sales decreased by $82.0 million, or 10.4%, to $706.0 million and in the six months ended June 30, 2023 compared to the six
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months ended June 30, 2022, primarily due to lower volume and the effect of declining oil prices.
Gross profit
Gross profit increased by $15.8 million, or 6.6%, to $253.5 million, and gross profit per metric ton increased by 16.8% to $550.1 year over year. The increase was primarily driven by favorable product mix in both segments and improved contractual Rubber carbon black price, partially offset by lower volume in both segments.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased by $4.5 million, or 3.8%, to $112.7 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by lower freight costs due to lower volume in both segments.
Provision for income taxes
For the six months ended June 30, 2023, the Company recognized Income before earnings in affiliated companies and income taxes of $108.2 million, compared to $88.6 million in the six months ended June 30, 2022. The provision for income taxes was an expense of $36.1 million for the six months ended June 30, 2023, and $26.6 million for the six months ended June 30, 2022. The effective tax rate for the six months ended June 30, 2023, was 33.4%, as compared to 30.0% for the six months ended June 30, 2022. The increase in our effective tax rate for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, was primarily attributable to the projected earnings mix by geography and tax jurisdiction as compared to the prior period.
Adjusted EBITDA (A Non-GAAP Financial Measure)
Adjusted EBITDA increased by $21.8 million, or 13.1%, from $166.6 million in the six months ended June 30, 2022 to $188.4 million in the six months ended June 30, 2023. The increase was primarily due to favorable product mix in both segments and improved contractual Rubber carbon black price. Those were partially offset by lower volume in both segments.
Comprehensive Income
Comprehensive income decreased by $22.1 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The activities from the components of Comprehensive income are discussed below:
• $5.5 million of net unfavorable impacts of unrealized changes in foreign currency translation adjustments.
• $23.7 million of net unfavorable impacts related to financial derivative instruments primarily driven by net periodic changes in cross currency and interest rate swaps, and
• $3.1 million of net unfavorable changes in defined pension and other post-retirement benefits.
These decreases were partially offset by $10.2 million of higher net income in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.
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Segment Discussion
Our operations are managed through two reportable segments, Specialty Carbon Black and Rubber Carbon Black . We use Segment Adjusted EBITDA as the measure of segment performance and profitability.
The table below presents our segment results derived from our unaudited Condensed Consolidated Financial Statements for the periods indicated.
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 Delta 2023 2022 Delta
(In millions) % (In millions) %
Specialty Carbon Black
Net sales $ 149.5 $ 181.9 $ (32.4) (17.8) $ 311.5 $ 359.5 $ (48.0) (13.4)
Cost of sales 106.9 121.3 (14.4) (11.9) 216.8 241.3 (24.5) (10.2)
Gross profit $ 42.6 $ 60.6 $ (18.0) (29.7) $ 94.7 $ 118.2 $ (23.5) (19.9)
Volume (kmt) 53.6 59.7 (6.1) (10.2) 106.6 125.3 (18.7) (14.9)
Adjusted EBITDA $ 29.9 $ 45.4 $ (15.5) (34.1) $ 67.2 $ 87.9 $ (20.7) (23.5)
Adjusted EBITDA margin (%) 20.0 25.0 (5.0) (20.0) 21.6 24.5 (2.9) (11.8)
Rubber Carbon Black
Net sales $ 309.3 $ 359.3 $ (50.0) (13.9) $ 648.0 $ 666.2 $ (18.2) (2.7)
Cost of sales 234.8 300.1 (65.3) (21.8) 489.2 546.7 (57.5) (10.5)
Gross profit $ 74.5 $ 59.2 $ 15.3 25.8 $ 158.8 $ 119.5 $ 39.3 32.9
Volume (kmt) 173.7 191.7 (18.0) (9.4) 354.2 379.3 (25.1) (6.6)
Adjusted EBITDA $ 57.4 $ 38.0 $ 19.4 51.1 $ 121.2 $ 78.7 $ 42.5 54.0
Adjusted EBITDA margin (%) 18.6 10.6 8.0 75.5 18.7 11.8 6.9 58.5
Specialty Carbon Black
Net sales decreased by $32.4 million, or 17.8%, year over year, to $149.5 million and decreased by $48.0 million, or 13.4%, year over year, to $311.5 million for the three and six months ended June 30, 2023, respectively. The net sales decrease in both comparative periods was primarily driven by reduced volume and oil prices.
Volume decreased by 6.1 kmt, or 10.2%, year over year, to 53.6 kmt and decreased by 18.7 kmt, or 14.9% year over year, to 106.6 kmt for the three and six months ended June 30, 2023, respectively. Volumes in both comparative periods were lower primarily due to weakness in most end-markets.
Gross profit decreased by $18.0 million, or 29.7%, year over year, to $42.6 million, and decreased by $23.5 million, or 19.9%, year over year, to $94.7 million for the three and six months ended June 30, 2023, respectively. The gross profit decrease in both comparative periods was primarily driven by the global economic slowdown, which resulted in lower volume.
Adjusted EBITDA decreased by $15.5 million, or 34.1%, year over year, to $29.9 million, and decreased by $20.7 million, or 23.5%, year over year, to $67.2 million for the three and six months ended June 30, 2023, respectively. The decrease in both comparative periods was primarily due to the global economic slowdown, which resulted in lower volume, product mix and decreased cogeneration revenue, a byproduct. End-market pricing was stable.
Adjusted EBITDA margin decreased by 500 basis points, year over year, to 20.0% and by 290 basis points, year over year, to 21.6% for the three and six months ended June 30, 2023, respectively.
Rubber Carbon Black
Net sales decreased by $50.0 million, or 13.9%, year over year, to $309.3 million and decreased by $18.2 million, or 2.7%, year over year, to $648.0 million for the three and six months ended June 30, 2023, respectively. The decrease in both comparative periods was primarily due to lower volume and oil prices, partially offset by improved contractual Rubber carbon black price and favorable product mix.
Volume decreased by 18.0 kmt, or 9.4%, year over year, to 173.7 kmt and decreased by 25.1 kmt, or 6.6%, year over year, to 354.2 kmt, for
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the three and six months ended June 30, 2023, respectively due to the global economy slowdown in both comparative periods.
Gross profit increased by $15.3 million, or 25.8%, year over year, to $74.5 million, and increased by $39.3 million, or 32.9%, to $158.8 million for the three and six months ended June 30, 2023, respectively. The increase in both comparative periods was primarily due to improved contractual price and favorable product mix.
Adjusted EBITDA increased by $19.4 million, or 51.1%, year over year, to $57.4 million, and increased by $42.5 million, or 54.0%, to $121.2 million for the three and six months ended June 30, 2023. The increase was primarily due to contractual base price improvement, which resulted in improved gross profit margins, partially offset by lower volume and decreased cogeneration revenue, a byproduct.
For the three and six months ended June 30, 2023, Adjusted EBITDA margin rose 800 basis points to 18.6%, year over year, and 690 basis points to 18.7%, year over year, respectively.
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,
2023 2022
(In millions)
Net cash provided by (used in) operating activities $ 206.2 $ (50.9)
Net cash used in investing activities (69.1) (108.7)
Net cash provided by (used in) financing activities (120.7) 138.1
2023
Net cash provided by operating activities during the six months ended June 30, 2023 was $206.2 million. The cash provided by operating activities primarily reflects changes in working capital and higher Net income. Change in working capital includes $194.1 million sale of certain accounts receivables during 2023, discussed in Note D. Debt and Other Obligations.
Net cash used in investing activities in the six months ended June 30, 2023 amounted to $69.1 million. These expenditures were composed of a combination of safety, maintenance-related and growth investments, as well as $19.4 million of 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 during the six months ended June 30, 2023 amounted to $120.7 million. These outflows primarily consisted of $62.8 million related to the reduction of other short-term debt, $49.5 million for repurchase of common stock under the Stock Repurchase Program and $12.0 million, net related to repayment of our ancillary credit facilities.
2022
Net cash used in operating activities for the six months ended June 30, 2022, amounted to $50.9 million. The cash used in operating activities primarily reflects changes in working capital and lower Net income.
Net cash used in investing activities for the six months ended June 30, 2022, amounted to $108.7 million. These expenditures were comprised of a combination of safety, maintenance-related, and growth investments, as well as expenditures associated with our ongoing efforts to install emissions reduction technology to meet EPA requirements in the U.S.
Net cash provided by financing activities for 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.
Sources of Liquidity
Our principal sources of liquidity are the net cash generated (i) from operating activities, primarily driven by our operating results and changes in working capital requirements and (ii) from financing activities, primarily driven by borrowing amounts available under our committed multicurrency, senior secured RCF and related ancillary facilities, various uncommitted local credit lines, and, from time to time, term loan borrowings and Accounts receivable factoring.
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We believe our anticipated future operating cash flows, the capacity under our existing credit facilities and uncommitted bilateral lines of credit, along with access to surety bonds, will be sufficient to finance our planned Capital expenditures, settle our commitments and contingencies, and address our normal anticipated working capital needs for the foreseeable future.
As of June 30, 2023, the company had total liquidity of $339.6 million, including cash and equivalents of $77.3 million, $205.0 million availability under our revolving credit facility, including ancillary lines, $16.2 million undrawn on the Term-loan for Huaibei, China, and $41.1 million of capacity under other available credit lines. Net debt was $782.7 million, and Net leverage was 2.34x.
Net working capital (A Non-GAAP Financial Measure)
We define Net working capital as the sum total of current Accounts receivable, net and Inventories, net less Accounts payable. Net working capital is a non-GAAP financial measure and other companies may use a similarly titled financial measure that is calculated differently from the way we calculate Net working capital. The following table sets forth the principal components of our Net working capital as of the dates indicated.
June 30, 2023 December 31, 2022
(In millions)
Accounts receivable, net $ 269.6 $ 367.8
Inventories, net 268.6 277.9
Accounts payable (170.3) (184.1)
Net working capital $ 367.9 $ 461.6
Our Net working capital position can vary significantly from month to month, mainly due to fluctuations in oil prices and receipts of carbon black oil shipments. In general, increases in the cost of raw materials lead to an increase in our Net working capital requirements, as our inventories and trade receivables increase as a result of higher carbon black oil prices and related sales levels. These increases are partially offset by related increases in trade payables. Due to the quantity of carbon black oil that we typically keep in stock, such increases in Net working capital occur gradually over a period of two to three months. 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 decreased from $461.6 million as of December 31, 2022, to $367.9 million as of June 30, 2023. The drivers of the changes in working capital over the periods were:
• Accounts receivable, net —Improved payment terms and accounts receivables factoring of certain customers. See Note D. Debt and Other Obligations to the accompanying Condensed Consolidated Financial Statements for further information related to the Company’s factoring agreements.
• Inventories, net —Lower oil prices and a decrease in production due to lower demand.
• Accounts payable —Lower oil prices was the primary driver.
Capital expenditures (A Non-GAAP Financial Measure)
We define Capital expenditures as cash paid for the acquisition of property, plant and equipment. We plan to finance our Capital expenditures with cash generated by our operating activities and/or by utilizing existing debt capacity. We currently do not have any material commitments to make Capital expenditures and do not plan to make Capital expenditures outside the ordinary course of our business.
Off-Balance Sheet Arrangements
As of June 30, 2023, we did not have any off-balance sheet arrangements.
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Cautionary Statement for the Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995
This report contains and refers to certain forward-looking statements with respect to our financial condition, results of operations and business. These statements constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among others, statements concerning the potential exposure to market risks, statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions and statements that are not limited to statements of historical or present facts or conditions.
Forward-looking statements are typically identified by words such as “anticipate,” “assume,” “assure,” “believe,” “confident,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “objectives,” “outlook,” “probably,” “project,” “will,” “seek,” “target,” “to be” and other words of similar meaning. These forward-looking statements include, without limitation, statements about the following matters:
• our strategies for (i) strengthening our position in Specialty carbon black or Rubber carbon black, (ii) increasing our Specialty or Rubber carbon black margins and (iii) strengthening the competitiveness of our operations;
• our cash flow projections;
• the installation and operation of pollution control technology in our United States (“U.S.”) manufacturing facilities pursuant to the U.S. Environmental Protection Agency (“EPA”) consent decree;
• the outcome of any in-progress, pending or possible litigation or regulatory proceedings;
• the expectations regarding environmental-related costs and liabilities;
• the 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;
• the ability to pay dividends;
• the ability to have access to new debt providers;
• our anticipated spending on, and the timely completion and anticipated impacts of, capital projects including growth projects, emission reduction 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;
• the demand for our specialty products; and
• 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. Therefore, undue reliance should not be placed upon any forward-looking statements. There are important factors that could cause actual results to differ materially from those contemplated by such forward-looking statements. These factors include, among others:
• the negative or uncertain worldwide economic conditions and developments;
• the volatility and cyclicality of the industries in which we operate;
• the operational risks inherent in chemicals manufacturing, including disruptions due to technical facilities, severe weather conditions or natural disasters;
• our dependence on major customers and suppliers;
• the 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;
• our ability to address changes in the nature of future transportation and mobility concepts which may impact our customers and our business;
• our ability to develop new products and technologies successfully and the availability of substitutes for our products;
• our ability to implement our business strategies;
• 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, the satisfactory performance by such counterparties of their obligations to us, as well as our ability to meet our performance obligations towards such counterparties;
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Orion S.A.
• our ability to realize benefits from planned plant capacity expansions and site development projects and impacts of potential delays to such expansions and projects;
• our information technology systems failures, network disruptions and breaches of data security;
• our relationships with our workforce, including negotiations with labor unions, strikes and work stoppages;
• our ability to recruit or retain key management and personnel;
• our exposure to political or country risks inherent in doing business in some countries;
• 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;
• the 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;
• the environmental, health and safety regulations, including nanomaterial and greenhouse gas emissions regulations, and the related costs of maintaining compliance and addressing liabilities;
• the possible future investigations and enforcement actions by governmental, supranational agencies or other organizations;
• our operations as a company in the chemical sector, including the related risks of leaks, fires and toxic releases;
• the market and regulatory changes that may affect our ability to sell or otherwise benefit from co-generated energy;
• any litigation or legal proceedings, including product liability, environmental or asbestos related claims;
• our ability to protect our intellectual property rights and know-how;
• our ability to generate the funds required to service our debt and finance our operations;
• any fluctuations in foreign currency exchange and interest rates;
• the availability and efficiency of hedging;
• any changes in international and local economic conditions, including with regard to the dollar and the euro, dislocations in credit and capital markets and inflation or deflation;
• the potential impairments or write-offs of certain assets;
• any required increases in our pension fund contributions;
• the adequacy of our insurance coverage;
• any changes in our jurisdictional earnings mix or in the tax laws or accepted interpretations of tax laws in those jurisdictions;
• any challenges to our decisions and assumptions in assessing and complying with our tax obligations;
• the potential difficulty in obtaining or enforcing judgments or bringing legal actions against Orion S.A. (a Luxembourg incorporated entity) in the U.S. or elsewhere outside Luxembourg; and
• any current or future changes to disclosure requirements and obligations, related audit requirements and our ability to comply with such obligations and requirements.
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 “Cautionary Statement for the Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995” and “Risk Factors” and in “ Note Q. Commitments and Contingencies” to our audited Consolidated Financial Statements regarding contingent liabilities, including litigation in our Annual Report in Form 10-K for the year ended December 31, 2022 and in our quarterly reports in Form 10-Q and the unaudited Condensed 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. We undertake no obligation to publicly update or revise any forward-looking statement, as a result of new information, future events or other information, other than as required by applicable law.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the period ended June 30, 2023 does not differ materially from that discussed under “ Item 7A” in our 2022 Form 10-K.