Item 1. Financial Statements
Item 1. Financial Statements and Supplementary Data (Unaudited)
Condensed Consolidated Statements of Operations
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In millions, except share and per share data)
Net sales $ 466.2 $ 543.1 $ 1,425.7 $ 1,568.8
Cost of sales 356.0 428.7 1,062.0 1,216.7
Gross profit 110.2 114.4 363.7 352.1
Selling, general and administrative expenses 55.6 56.0 168.3 173.2
Research and development costs 6.2 4.5 18.3 15.9
Other expenses, net 2.7 0.3 ( 1.0 ) 1.9
Income from operations 45.7 53.6 178.1 161.1
Interest and other financial expense, net 12.9 10.2 41.6 29.1
Reclassification of actuarial gain from AOCI ( 2.2 ) — ( 6.7 ) —
Income before earnings in affiliated companies and income taxes 35.0 43.4 143.2 132.0
Income tax expense 8.9 11.7 45.0 38.3
Earnings in affiliated companies, net of tax 0.1 0.1 0.4 0.3
Net income $ 26.2 $ 31.8 $ 98.6 $ 94.0
Weighted-average shares outstanding (in thousands):
Basic 58,572 60,936 59,284 60,899
Diluted 59,252 61,215 59,934 61,314
Earnings per share:
Basic $ 0.45 $ 0.52 $ 1.66 $ 1.54
Diluted $ 0.44 $ 0.52 $ 1.65 $ 1.53
See accompanying Notes to these Condensed Consolidated Financial Statements
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Condensed Consolidated Statements of Comprehensive Income
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In millions)
Net income $ 26.2 $ 31.8 $ 98.6 $ 94.0
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments 0.3 ( 7.7 ) ( 12.2 ) ( 14.7 )
Net gains (losses) on derivatives 0.9 10.6 ( 1.3 ) 32.1
Defined benefit plans, net ( 1.7 ) 0.2 ( 4.6 ) 0.4
Other comprehensive income (loss) ( 0.5 ) 3.1 ( 18.1 ) 17.8
Comprehensive income $ 25.7 $ 34.9 $ 80.5 $ 111.8
See accompanying Notes to these Condensed Consolidated Financial Statements
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Condensed Consolidated Balance Sheets
September 30, 2023 December 31, 2022
(In millions, except share data)
ASSETS
Current assets
Cash and cash equivalents $ 59.1 $ 60.8
Accounts receivable, net 267.3 367.8
Inventories, net 276.9 277.9
Income tax receivables 8.9 5.2
Prepaid expenses and other current assets 68.5 66.8
Total current assets 680.7 778.5
Property, plant and equipment, net 845.5 818.5
Right-of-use assets 110.3 97.6
Goodwill 72.9 73.4
Intangible assets, net 25.3 27.8
Investment in equity method affiliates 4.8 5.0
Deferred income tax assets 37.9 29.1
Other assets 56.3 58.8
Total non-current assets 1,153.0 1,110.2
Total assets $ 1,833.7 $ 1,888.7
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 170.9 $ 184.1
Current portion of long-term debt and other financial liabilities 149.1 258.3
Accrued liabilities 44.3 44.7
Income taxes payable 36.6 31.3
Other current liabilities 48.4 34.4
Total current liabilities 449.3 552.8
Long-term debt, net 662.8 657.0
Employee benefit plan obligation 50.9 50.0
Deferred income tax liabilities 80.4 70.0
Other liabilities 107.4 99.5
Total non-current liabilities 901.5 876.5
Commitments and contingencies
Stockholders' equity
Common stock
Authorized: 65,035,579 and 65,035,579 shares with no par value
Issued – 60,992,259 and 60,992,259 shares with no par value
Outstanding – 58,208,136 and 60,571,556 shares
85.3 85.3
Treasury stock, at cost, 2,784,123 and 420,703
( 63.4 ) ( 8.8 )
Additional paid-in capital 78.9 76.4
Retained earnings 412.7 319.0
Accumulated other comprehensive loss ( 30.6 ) ( 12.5 )
Total stockholders' equity 482.9 459.4
Total liabilities and stockholders' equity $ 1,833.7 $ 1,888.7
TY
See accompanying Notes to these Condensed Consolidated Financial Statements
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Condensed Consolidated Statements of Cash Flows
7
Nine Months Ended September 30,
2023 2022
(In millions)
Cash flows from operating activities:
Net income $ 98.6 $ 94.0
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation of property, plant and equipment and amortization of intangible assets and right of use assets 80.8 79.9
Amortization of debt issuance costs 2.0 1.4
Share-based compensation 8.3 5.0
Deferred tax provision 5.5 2.8
Foreign currency transactions 3.2 ( 13.8 )
Reclassification of actuarial gain from AOCI ( 6.7 ) —
Other operating non-cash items, net ( 0.7 ) ( 0.7 )
Changes in operating assets and liabilities, net:
Trade receivables 98.1 ( 149.2 )
Inventories ( 6.3 ) ( 65.3 )
Trade payables ( 3.8 ) 20.0
Other provisions 0.2 ( 2.0 )
Income tax liabilities 2.5 13.6
Other assets and liabilities, net ( 8.0 ) ( 2.4 )
Net cash provided by (used in) operating activities 273.7 ( 16.7 )
Cash flows from investing activities:
Acquisition of property, plant and equipment ( 111.0 ) ( 167.1 )
Net cash used in investing activities ( 111.0 ) ( 167.1 )
Cash flows from financing activities:
Proceeds from long-term debt borrowings 12.6 35.3
Repayments of long-term debt ( 2.3 ) ( 2.3 )
Payments for debt issue costs ( 0.2 ) ( 1.5 )
Cash inflows related to current financial liabilities 103.2 201.6
Cash outflows related to current financial liabilities ( 215.6 ) ( 61.7 )
Dividends paid to shareholders ( 3.7 ) ( 3.8 )
Repurchase of common stock under Stock Repurchase Program ( 58.9 ) ( 0.2 )
Net cash provided by (used in) financing activities ( 164.9 ) 167.4
Decrease in cash, cash equivalents and restricted cash ( 2.2 ) ( 16.4 )
Cash, cash equivalents and restricted cash at the beginning of the period 63.4 68.5
Effect of exchange rate changes on cash ( 0.6 ) ( 5.5 )
Cash, cash equivalents and restricted cash at the end of the period 60.6 46.6
Less restricted cash at the end of the period
1.5 3.5
Cash and cash equivalents at the end of the period $ 59.1 $ 43.1
See accompanying Notes to these Condensed Consolidated Financial Statements
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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 share and per share amounts) Number Amount
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 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 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
Net income — — — — 26.2 — 26.2
Other comprehensive loss, net of tax — — — — — ( 0.5 ) ( 0.5 )
Dividends $ 0.02 per share — — — — ( 1.2 ) — ( 1.2 )
Repurchases of Common stock ( 432,710 ) — ( 9.4 ) — — — ( 9.4 )
Share based compensation — — — 3.6 — — 3.6
Balance at September 30, 2023 58,208,136 $ 85.3 $ ( 63.4 ) $ 78.9 $ 412.7 $ ( 30.6 ) $ 482.9
j
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
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 — — — — — ( 10.2 ) ( 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
Net income — — — — 31.8 — 31.8
Other comprehensive income, net of tax — — — — — 3.1 3.1
Dividends $ 0.02 per share — — — — ( 1.3 ) — ( 1.3 )
Share based compensation — — — 1.9 — — 1.9
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
See accompanying Notes to these Condensed Consolidated Financial Statements
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Notes to the Condensed Consolidated Financial Statement (Unaudited)
Table of Contents—Notes
Note A. Organization, Description of the Business and Summary of Significant Accounting Policies
7
Note B. Accounts Receivable
7
Note C. Inventories
7
Note D. Debt and Other Obligations
7
Note E. Financial Instruments and Fair Value Measurement
9
Note F. Employee Benefit Plans
11
Note G. Accumulated Other Comprehensive Income (Loss)
12
Note H. Earnings Per Share
13
Note I. Income Taxes
13
Note J. Commitments and Contingencies
13
Note K. Financial Information by Segment
14
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Notes to the Condensed Consolidated Financial Statements—(continued)
Note A. Organization, Description of the Business and Summary of Significant Accounting Policies
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”). The unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the United States (“U.S.”) Generally Accepted Accounting Principles (“GAAP”) and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the Consolidated Financial Statements included in our Annual Report in Form 10-K for the year ended December 31, 2022.
The accompanying unaudited Condensed Consolidated Financial Statements include all adjustments that are necessary for the fair presentation of our results for the interim periods presented. These statements contain some amounts that are based upon management estimates and judgments. Future actual results could differ from such current estimates. Results for interim periods are not necessarily indicative of results to be expected for the full year.
Note B. Accounts Receivable
Accounts receivable, net of allowance for credit losses, are as follows:
September 30, 2023 December 31, 2022
(In millions)
Accounts receivable $ 268.9 $ 370.4
Expected credit losses ( 1.6 ) ( 2.6 )
Accounts receivable, net $ 267.3 $ 367.8
Note C. Inventories
Inventories, net of reserves, are as follows:
September 30, 2023 December 31, 2022
(In millions)
Raw materials, consumables and supplies, net $ 115.9 $ 108.3
Work in process 0.1 —
Finished goods, net 160.9 169.6
Inventories, net $ 276.9 $ 277.9
Note D. Debt and Other Obligations
Debt and other obligations are as follows:
September 30, 2023 December 31, 2022
(In millions)
Current
Current portion of Term-Loan $ 3.0 $ 3.0
Deferred debt issuance costs - Term-Loan ( 0.6 ) ( 0.7 )
Other short-term debt and obligations 146.7 256.0
Current portion of long-term debt and other financial liabilities 149.1 258.3
Non-current
Term-Loan 608.8 613.2
Deferred debt issuance costs - Term-Loan ( 3.1 ) ( 3.7 )
China Term-Loan 57.1 47.5
Long-term debt, net 662.8 657.0
Total $ 811.9 $ 915.3
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Notes to the Condensed Consolidated Financial Statements—(continued)
a. Term-Loan
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 U.S. 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. The U.S. dollar loan, 3-M USD-Libor was replaced by USD Term SOFR 3M + CAS (Credit Adjustment Spread) effective for all interest rate periods after June 30, 2023.
In August 2023, we entered into the 12th amendment, which primarily approved the merger of two of our wholly owned subsidiaries.
Other provisions of the Credit Agreement relating to the Term Loan remained unchanged.
b. Revolving credit facility
In October 2023, Orion entered into the 13th Amendment, which amended and restated our revolving credit facility (“RCF”). We voluntarily reduced the borrowing capacity under our amended RCF from € 350 million to € 300 million. Interest is calculated based on EURIBOR plus a 1.65 % - 3.30 % margin (depending on leverage ratio). At current leverage ratio (between 2.25 x and 2.75 x), the margin is at 2.30 %.
The amended RCF includes a sustainability-linked margin adjustment. The credit spread will increase or decrease up to 5 basis points depending on two key performance indicators: greenhouse gas intensity and environmental, social and governance rating from EcoVadis, a provider of corporate sustainability rating.
Covenant Compliance — There is one financial covenant under the amended RCF that will be tested when RCF utilization (including debt drawn under ancillary credit facility lines) exceeds 50 %. Net Leverage, as defined in the Credit Agreement (the “Covenant Trigger”), is not permitted to exceed 4.0 x.
Other provisions of the Credit Agreement relating to the RCF remained unchanged.
As of September 30, 2023, the capacity under our RCF was € 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).
There were no borrowings under the RCF as of September 30, 2023. As of December 31, 2022, borrowings under the RCF were $ 53.3 million.
As of September 30, 2023 and December 31, 2022, availability under the RCF was $ 234.4 million and $ 165.9 million, respectively.
Ancillary Credit Facilities —As part of the RCF, the Company may also establish ancillary credit facilities by converting the commitments of select lenders under the RCF into bilateral credit agreements. Borrowings under the ancillary credit facilities reduce RCF availability. For RCF financial covenant testing, borrowing under ancillary credit facilities are considered debt drawn under the RCF, as discussed elsewhere in this footnote.
As of September 30, 2023 and December 31, 2022, committed ancillary credit facilities totaled $ 284.2 million and $ 286.1 million, respectively.
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Notes to the Condensed Consolidated Financial Statements—(continued)
c. Other Short-Term borrowings and Obligations
Other short-term debt and obligations are as follows:
September 30, 2023 December 31, 2022
(In millions)
Revolving credit facility $ — $ 53.3
Ancillary credit facilities
OEC GmbH outstanding borrowings 130.4 148.7
OEC LLC outstanding borrowings — 5.4
Uncommitted local lines of credit:
Korea (capacity $ 39.0 million)
2.0 —
Brazil (capacity $ 3.2 million)
— 2.9
China working capital 4.1 1.5
Korea working capital loan 10.2 7.9
Repurchase agreement — 36.3
Total of Other short-term debt and obligations $ 146.7 $ 256.0
Supplemental information:
Total ancillary capacity - EUR € 268.3 € 268.3
Total ancillary capacity - U.S. $ $ 284.2 $ 286.1
As of September 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. 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; and
• We do not retain effective control over the transferred financial assets.
For the three and nine months ended September 30, 2023, the gross amount of receivables sold were as $ 106.2 million and $ 300.4 million, respectively. No sales were made in 2022.
In the Condensed Consolidated Statements of Operations, the loss on receivables sale is reflected in Other expenses, net. For the three and nine months ended September 30, 2023 the loss on receivables sale were $ 1.3 million and $ 3.1 million, respectively.
For additional information relating to our debt, see “ Note J. Debt and Other Obligations” , included in our Annual Report in Form 10-K for the year ended December 31, 2022.
Note E. Financial Instruments and Fair Value Measurement
Risk management
We have policies governing the use of derivative instruments and do not enter into financial instruments for trading or speculative purposes.
By using derivative instruments, we are subject to credit and market risk. To minimize counterparty credit (or repayment) risk, we enter into transactions primarily with investment grade financial institutions. 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, 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. We transitioned from US dollar LIBOR 3M to US dollar Term SOFR 3M + CAS (Credit Adjustment Spread) 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.
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Notes to the Condensed Consolidated Financial Statements—(continued)
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.
Fair value measurement
The following table summarizes outstanding financial instruments that are measured at fair value on a recurring basis:
September 30, 2023 December 31, 2022 Balance Sheet Classification
Notional Amount Fair Value Notional Amount Fair Value
(In millions)
Assets
Derivatives designated as hedges:
Cross currency swaps $ 197.0 $ 47.4 $ 197.0 $ 46.6 Other financial assets (non-current)
Interest rate swaps 291.3 6.9 293.3 9.6 Other financial assets (non-current)
Total $ 488.3 $ 54.3 $ 490.3 $ 56.2
All financial instruments in the table above are classified as Level 2. We present the gross assets and liabilities of our derivative financial instruments in the Condensed Consolidated Balance Sheets.
For financial assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period. There were no transfers of assets measured at fair value between Level 1 and Level 2 and there were no Level 3 investments during 2023 or 2022.
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 Condensed Consolidated Balance Sheets.
September 30, 2023 December 31, 2022
Notional Amount Fair Value Notional Amount Fair Value
(In millions)
Non-derivatives:
Liabilities:
Term-Loan $ 611.8 $ 605.8 $ 616.2 $ 596.8
China Term loan 57.1 55.0 47.5 42.9
Total $ 668.9 $ 660.8 $ 663.7 $ 639.7
Term-Loan and China Term-Loan in the table above are classified as Level 2.
At both September 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.
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Notes to the Condensed Consolidated Financial Statements—(continued)
The following tables summarize the pre-tax effect of derivative and non-derivative instruments recorded in Accumulated other comprehensive income (loss) (“AOCI”), the gains (losses) reclassified from AOCI to earnings and additional gains (losses) recognized directly in earnings:
Effect of Financial Instruments
Three Months Ended Sep 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 $ 9.2 $ 0.4 $ 0.4 Interest and other financial expense, net
Interest rate swaps ( 1.7 ) 6.2 — — Interest and other financial expense, net
Total $ 1.3 $ 15.4 $ 0.4 $ 0.4
Effect of Financial Instruments
Nine Months Ended September 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 $ — $ 30.1 $ 1.2 $ 1.3 Interest and other financial expense, net
Interest rate swaps ( 2.6 ) 15.9 — — Interest and other financial expense, net
Total $ ( 2.6 ) $ 46.0 $ 1.2 $ 1.3
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. The amount recognized in AOCI related to cash flow hedges that will be reclassified to the Condensed Consolidated Statement of Operations in the next twelve months is approximately $ 1.0 million.
See “ Note K. Financial Instruments and Fair Value Measurement” , included in our Annual Report in Form 10-K for the year ended December 31, 2022, for additional information relating to our derivatives instruments.
Note F. Employee Benefit Plans
Provisions for pensions are established to cover benefit plans for retirement, disability and surviving dependents’ pensions. The benefit obligations vary depending on the legal, tax and economic circumstances in various countries in which the Company operates. Generally, the level of benefit depends on the length of service and the remuneration.
Net periodic defined benefit pension costs include the following:
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In millions)
Service cost $ 0.3 $ 0.3 $ 0.8 $ 0.9
Interest cost 0.6 0.3 1.9 1.1
Amortization of actuarial (gain) ( 2.2 ) — ( 6.7 ) —
Net periodic pension cost $ ( 1.3 ) $ 0.6 $ ( 4.0 ) $ 2.0
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.
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Notes to the Condensed Consolidated Financial Statements—(continued)
Note G. Accumulated Other Comprehensive Income (Loss)
Changes in each component of AOCI, net of tax, are as follows:
Currency Translation Adjustments Hedging Activities Adjustments Pension and Other Postretirement Benefit Liability Adjustment Total
(In millions)
Balance at January 1, 2023 $ ( 47.5 ) $ 24.4 $ 10.6 $ ( 12.5 )
Other comprehensive loss before reclassifications ( 7.8 ) ( 3.3 ) — ( 11.1 )
Income tax effects before reclassifications 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 before reclassifications ( 5.1 ) ( 0.5 ) — ( 5.6 )
Income tax effects before reclassifications ( 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 )
Other comprehensive income before reclassifications 0.5 2.3 — 2.8
Income tax effects before reclassifications ( 0.2 ) ( 0.7 ) — ( 0.9 )
Amounts reclassified from AOCI — 0.4 ( 2.2 ) ( 1.8 )
Income tax effects on reclassifications — ( 0.1 ) 0.7 0.6
Currency translation AOCI — ( 1.0 ) ( 0.2 ) ( 1.2 )
Balance at September 30, 2023 $ ( 59.7 ) $ 23.1 $ 6.0 $ ( 30.6 )
Balance at January 1, 2022 $ ( 34.1 ) $ ( 10.8 ) $ ( 3.6 ) $ ( 48.5 )
Other comprehensive income before reclassifications 11.2 18.7 — 29.9
Income tax effects before reclassifications 0.6 ( 6.0 ) — ( 5.4 )
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 (loss) 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 )
Other comprehensive income (loss) before reclassifications ( 8.1 ) 16.5 — 8.4
Income tax effects before reclassifications 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 )
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Notes to the Condensed Consolidated Financial Statements—(continued)
Note H. Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing Net income attributable to Orion by the weighted average number of common stock outstanding during the period. Diluted EPS equals Net income attributable to Orion divided by the weighted average number of common stock outstanding during the period, adjusted for the dilutive effect of our stock–based and other equity compensation awards.
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,
2023 2022 2023 2022
(In millions, except share and per share data)
Net income attributable to ordinary equity holders $ 26.2 $ 31.8 $ 98.6 $ 94.0
Weighted average number of Common stock (in thousands) 58,572 60,936 59,284 60,899
Basic EPS $ 0.45 $ 0.52 $ 1.66 $ 1.54
Dilutive effect of share based payments (in thousands) 680 279 650 415
Weighted average number of diluted Common stock (in thousands) 59,252 61,215 59,934 61,314
Diluted EPS $ 0.44 $ 0.52 $ 1.65 $ 1.53
Note I. Income Taxes
The Company records its tax provision or benefit on an interim basis using an estimated annual effective tax rate. This rate is applied to the current period ordinary income to determine the income tax provision or benefit allocated to the interim period. Losses from jurisdictions for which no benefit can be recognized and the income tax effects of unusual and infrequent items are excluded from the estimated annual effective tax rate and are recognized in the impacted interim period as discrete items. Valuation allowances are provided against any future tax benefits that arise from losses in jurisdictions for which no benefit can be recognized. The estimated annual effective tax rate may be significantly impacted by nondeductible expenses and by the Company’s projected earnings mix by tax jurisdiction. 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, 2023 and 2022 were $ 8.9 million and $ 11.7 million, respectively.
Income tax expense for the nine months ended September 30, 2023 and 2022 were $ 45.0 million and $ 38.3 million, respectively.
Our effective income tax rates were as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Effective income tax rates 25.4 % 27.0 % 31.4 % 29.0 %
The change in our effective tax rate for the three and nine months ended September 30, 2023 as compared to the three and nine months ended September 30, 2022 was primarily attributable to changes in projected pre-tax income mix in countries with varying statutory tax rates.
Note J. Commitments and Contingencies
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. We vigorously defend ourselves and prosecute these matters as appropriate. We regularly assess the adequacy of legal accruals based on our professional judgment, experience and the information available regarding our cases.
The outcome of legal proceedings is inherently uncertain, and we offer no assurances as to the outcome of any of these matters or their effect on the Company.
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— 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 completed installation of emissions control technology to remove SO2, NOx and dust particles from tail gases at its Borger (Texas) facility since the beginning of 2023, Ivanhoe (Louisiana) facility in 2021 and Orange (Texas) facility in 2020. The installation of pollution control technology at its fourth and last U.S. manufacturing facility in Belpre
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Notes to the Condensed Consolidated Financial Statements—(continued)
(Ohio) is ongoing and is scheduled to be completed late 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 September 30, 2023, we have spent $ 303 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.
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 in which it operates excluding China as collateral under its debt agreements. As of September 30, 2023, the Company had guarantees totaling $ 25.2 million issued by various financial institutions.
Note K. Financial Information by Segment
Segment information
We disclose the results of each of our operating segments in accordance with ASC 280, Segment Reporting . 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, and
• 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. 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, 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.
Segment operating results for the three months ended September 30, 2023 and 2022 are as follows:
Rubber Specialty Corporate Total
(In millions)
2023
Net sales from external customers $ 315.8 $ 150.4 $ — $ 466.2
Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment 17.3 10.6 — 27.9
Equity in earnings of affiliated companies, net of tax 0.1 — — 0.1
Interest and other financial expense, net ( 12.9 ) ( 12.9 )
Reclassification of actuarial gain from AOCI 2.2 2.2
Adjusted EBITDA 51.2 26.1 — 77.3
2022
Net sales from external customers $ 373.5 $ 169.6 $ — $ 543.1
Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment 15.6 9.6 — 25.2
Equity in earnings of affiliated companies, net of tax 0.1 — — 0.1
Interest and other financial expense, net ( 10.2 ) ( 10.2 )
Adjusted EBITDA 49.4 31.1 — 80.5
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Notes to the Condensed Consolidated Financial Statements—(continued)
Segment operating results for the nine months ended September 30, 2023 and 2022:
Rubber Specialty Corporate Total
(In millions)
2023
Net sales from external customers $ 963.8 $ 461.9 $ — $ 1,425.7
Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment 51.0 29.8 — 80.8
Equity in earnings of affiliated companies, net of tax 0.4 — — 0.4
Interest and other financial expense, net ( 41.6 ) ( 41.6 )
Reclassification of actuarial gain from AOCI 6.7 6.7
Adjusted EBITDA 172.4 93.3 — 265.7
2022
Net sales from external customers $ 1,039.7 $ 529.1 $ — $ 1,568.8
Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment 49.1 30.8 — 79.9
Excluding equity in earnings of affiliated companies, net of tax 0.3 — — 0.3
Interest and other financial expense, net ( 29.1 ) ( 29.1 )
Adjusted EBITDA 128.1 119.0 — 247.1
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 September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In millions)
Income before earnings in affiliated companies and income taxes $ 35.0 $ 43.4 $ 143.2 $ 132.0
Corporate charges 3.6 1.6 6.4 5.8
Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment 27.9 25.2 80.8 79.9
Equity in earnings of affiliated companies, net of tax 0.1 0.1 0.4 0.3
Interest and other financial expense, net 12.9 10.2 41.6 29.1
Reclassification of actuarial gain from AOCI ( 2.2 ) — ( 6.7 ) —
Adjusted EBITDA $ 77.3 $ 80.5 $ 265.7 $ 247.1
Corporate charges include the following:
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In millions)
Long term incentive plan $ 3.6 $ 1.9 $ 8.3 $ 5.0
Other non-operating — ( 0.3 ) ( 1.9 ) 0.8
Corporate Charges $ 3.6 $ 1.6 $ 6.4 $ 5.8
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Management’s Discussion and Analysis of Financial Condition and Results of Operation
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.