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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
ORION ENGINEERED CARBONS S.A.
(Exact name of registrant as specified in its charter)
Grand Duchy of Luxembourg001-3656300-0000000
(State or other jurisdiction of incorporation or organization)
(Commission file number)
(I.R.S. Employer Identification No.)
4501 Magnolia Cove Drive Suite 106
Houston,
Texas
77345
(Address of Principal Executive Offices)
(Zip Code)
(281) 318-2959
Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares, no par valueOECNew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.                              Yes x    No  o 

Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                                            Yes  x   No  o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes    No  x

The registrant had 60,590,526 shares of common stock outstanding as of May 4, 2021.



Orion Engineered Carbons S.A.
TABLE OF CONTENTS
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Comprehensive Income (Loss)
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Cash Flows
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other
Item 6. Exhibits
Signatures





Orion Engineered Carbons S.A.
PART I - Financial Information
Item 1. Financial Statements and Supplementary Data (Unaudited)


Condensed Consolidated Statements of Operations
Three Months Ended March 31,
20212020
(In thousands, except per share amounts)
Net sales$360,077 $336,007 
Cost of sales257,557 245,815 
Gross profit102,520 90,193 
Selling, general and administrative expenses52,353 44,519 
Research and development costs4,760 4,956 
Other expenses, net2,554 3,175 
Income from operations42,853 37,543 
Interest and other financial expense, net9,959 9,610 
Reclassification of actuarial losses from AOCI1,228 2,398 
Pre-tax income before equity in earnings of affiliated companies31,666 25,534 
Income tax expense8,274 7,635 
Equity in earnings of affiliated companies, net of tax146 133 
Net income$23,538 $18,032 
Weighted-average shares outstanding:
Basic60,648 60,276 
Diluted60,812 61,391 
Earnings/(loss) per share:
Basic$0.39 $0.30 
Diluted$0.39 $0.29 
See accompanying Notes to these Condensed Consolidated Financial Statements


                1

Orion Engineered Carbons S.A.
Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended March 31,
20212020
(In thousands)
Net income$23,538 $18,032 
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments(5,095)(24,071)
Unrealized net gains/(losses) on hedges of a net investment in a foreign operation70 36 
Unrealized net gains/(losses) on cash flow hedges1,089 (656)
Gains on defined benefit plans1,209 1,847 
Other comprehensive loss(2,728)(22,844)
Comprehensive income/(loss)$20,810 $(4,811)
See accompanying Notes to these Condensed Consolidated Financial Statements

                2

Orion Engineered Carbons S.A.
Condensed Consolidated Balance Sheets

March 31, 2021December 31, 2020
(In thousands, except share amounts)
Current assets
Cash and cash equivalents$62,632 $64,869 
Accounts receivable, net 257,697 234,796 
Other current financial assets2,978 3,630 
Inventories, net157,504 141,461 
Income tax receivables11,415 11,249 
Prepaid expenses and other current assets45,334 44,452 
Total current assets537,560 500,456 
Property, plant and equipment, net605,069 610,530 
Right-of-use assets 92,794 85,639 
Goodwill80,721 84,480 
Intangible assets, net42,974 46,772 
Investment in equity method affiliates5,528 5,637 
Deferred income tax assets58,028 52,563 
Other financial assets699 761 
Other assets2,438 2,956 
Total non-current assets888,249 889,337 
Total assets$1,425,809 $1,389,793 

Current liabilities
Accounts payable$141,529 $131,250 
Current portion of long term debt and other financial liabilities107,843 82,618 
Current portion of employee benefit plan obligation948 1,118 
Accrued liabilities39,424 49,176 
Income taxes payable 28,228 23,906 
Other current liabilities38,700 36,676 
Total current liabilities356,672 324,745 
Long-term debt, net637,127 655,826 
Employee benefit plan obligation79,930 83,310 
Deferred income tax liabilities44,619 38,770 
Other liabilities104,614 106,131 
Total non-current liabilities866,290 884,036 
Commitments and contingenciesNote M
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 – 60,590,526 and 60,487,117 shares
85,323 85,323 
Less 401,733 and 505,142 shares of common treasury stock, at cost
(7,345)(8,515)
Additional paid-in capital68,356 68,502 
Retained earnings107,945 84,407 
Accumulated other comprehensive loss(51,432)(48,705)
Total stockholders' equity202,846 181,013 
Total liabilities and stockholders' equity$1,425,809 $1,389,793 
See accompanying Notes to these Condensed Consolidated Financial Statements
                3

Orion Engineered Carbons S.A.
Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,
20212020
(In thousands)
Cash flows from operating activities:
Net income$23,538 $18,032 
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation of property, plant and equipment and amortization of intangible assets and right of use assets25,627 23,845 
Amortization of debt issuance costs539 501 
Share-based incentive compensation1,060 (1,139)
Deferred tax (benefit)/provision(2,068)(1,865)
Foreign currency transactions3,641 1,219 
Reclassification of actuarial losses from AOCI1,228 2,398 
Other operating non-cash items204 360 
Changes in operating assets and liabilities, net of effects of businesses acquired:
Trade receivables(30,535)(31,097)
Inventories(19,845)(11,681)
Trade payables11,383 4,391 
Other provisions(7,946)(11,365)
Income tax liabilities4,206 12,016 
Other assets and liabilities(9,226)(711)
Net cash provided by operating activities1,805 4,905 
Cash flows from investing activities:
Acquisition of intangible assets and property, plant and equipment(27,227)(50,851)
Net cash used in investing activities(27,227)(50,851)
Cash flows from financing activities:
Repayments of long-term debt(2,072)(2,006)
Cash inflows related to current financial liabilities35,465 109,813 
Cash outflows related to current financial liabilities(7,734) 
Dividends paid to shareholders (12,045)
Taxes paid for shares issued under net settlement feature(36)(1,202)
Net cash provided by financing activities25,623 94,560 
Increase/(decrease) in cash, cash equivalents and restricted cash202 48,614 
Cash, cash equivalents and restricted cash at the beginning of the period67,865 68,231 
Effect of exchange rate changes on cash(2,572)(6,630)
Cash, cash equivalents and restricted cash at the end of the period65,495 110,215 
Less restricted cash at the end of the period2,863 2,675 
Cash and cash equivalents at the end of the period$62,632 $107,540 
See accompanying Notes to these Condensed Consolidated Financial Statements
                4

Orion Engineered Carbons S.A.
Condensed Consolidated Statements of Changes in Stockholders’ Equity

Common stock
(In thousands, except per share amounts)NumberAmountTreasury sharesAdditional paid-in capitalRetained earningsAccumulated other comprehensive lossTotal
Balance at January 1, 202160,487,117 $85,323 $(8,515)$68,502 $84,407 $(48,705)$181,013 
Net income— — — — 23,538 — 23,538 
Other comprehensive loss, net of tax— — — — — (2,728)(2,728)
Share based compensation— — — 1,024 — — 1,024 
Issuance of stock under equity compensation plans103,409  1,170 (1,170)— —  
Balance at March 31, 202160,590,526 $85,323 $(7,345)$68,356 $107,945 $(51,432)$202,846 

Common stock
(In thousands, except per share amounts)NumberAmountTreasury sharesAdditional paid-in capitalRetained earningsAccumulated other comprehensive lossTotal
Balance at January 1, 202060,224,147 $85,032 $(8,515)$65,562 $78,296 $(34,362)$186,013 
Net income— — — — 18,032 — 18,032 
Other comprehensive loss, net of tax— — — — — (22,844)(22,844)
Dividends paid -$0.20per share— — — — (12,045)— (12,045)
Share based compensation— — — (2,632)— — (2,632)
Issuance of stock under equity compensation plans262,970 291 — — — — 291 
Balance at March 31, 202060,487,117 $85,323 $(8,515)$62,930 $84,283 $(57,206)$166,815 
See accompanying Notes to these Condensed Consolidated Financial Statements

                5

Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statement (Unaudited)

Table of Contents—Notes
Note C. Leases

                6

Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
Note A. Organization, Description of the Business and Summary of Significant Accounting Policies    
Orion Engineered Carbons S.A.’s unaudited condensed consolidated financial information includes Orion Engineered Carbons S.A. and its subsidiaries (“Orion” or the “Company”). The unaudited Condensed Consolidated Financial Statements have been prepared in accordance with 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 fiscal year ended December 31, 2020.
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. Results for interim periods are not necessarily indicative of results to be expected for the full year.

Summary of Significant Accounting Policies
Adoption of accounting standards
In January 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-01, Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments in this update clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments in this update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. We adopted this standard on January 1, 2021. The adoption of this standard did not materially impact our Consolidated Financial Statements.
Note B. Recent Accounting Pronouncements Not Yet Adopted
Reference Rate Reform (Topic 848)—In March 2020, FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04), a new standard. In January 2021, FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which refines the scope of ASC 848 and clarifies some of its guidance as part of the Board’s monitoring of global reference rate reform. This guidance permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities under way in global financial markets. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022.
The Company will adopt this guidance prospectively and will elect certain optional expedients through the end of the hedging relationship. This will enable the Company to update its assessments of effectiveness, probability, and hedged risk in order to continue hedge accounting for the designated hedges that reference a rate expected to be discontinued as a result of the reference rate reform without requiring de-designation of current hedging relationships. The Company is currently evaluating the potential impact the adoption of this standard will have on its financial statements and it will continue to evaluate the guidance to determine the timing and extent to which it will apply accounting relief provided by the guidance.
                7

Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
Note C. Leases
The company’s right-of-use assets (“ROU”) assets and lease liabilities related to operating and finance leases reflected in the Consolidated Balance Sheets are as follows:
March 31, 2021December 31, 2020
(In thousands)
ROU Assets
Operating leases $24,863 $25,321 
Finance leases67,931 60,318 
Total$92,794 $85,639 
Lease Liabilities(1)
Operating leases
Current$6,268 $7,215 
Long-term19,395 18,999 
25,664 26,214 
Finance leases
Current3,019 4,862 
Long-term65,346 55,526 
68,365 60,388 
Total$94,028 $86,603 
(1) In the Consolidated Balance Sheets are reflected in Current and Other Liabilities
                8

Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
Note D. Inventories
Inventories, net of obsolete, unmarketable and slow-moving reserves are as follows:
March 31, 2021December 31, 2020
(In thousands)
Raw materials, consumables and supplies, net$62,850 $57,011 
Work in process184 322 
Finished goods, net94,469 84,128 
Total$157,504 $141,461 

Note E. Accounts Receivable
The company had the following accounts receivable as of March 31, 2021 and December 31, 2020:
March 31, 2021December 31, 2020
(In thousands)
Accounts receivable$263,374 $240,590 
Expected credit losses(5,676)(5,794)
Accounts receivable, net of expected credit losses$257,697 $234,796 

Note F. Debt and Other Obligations
The Company had the following debt arrangements in place as of March 31, 2021 and December 31, 2020:
March 31, 2021December 31, 2020
(In thousands)
Current
Term loan$8,261 $8,479 
Deferred debt issuance costs - term loan(1,424)(1,500)
Other short-term debt and obligations101,006 75,640 
Current portion of long term debt and other financial liabilities107,843 82,618 
Non-current
Term loan640,289 659,502 
Deferred debt issuance costs - term loan(3,162)(3,676)
Long-term debt, net637,127 655,826 
Total $744,970 $738,444 
Discussion related to Other short-term debt and obligations is as follows:
(a) Revolving credit facility
To fund operating activities and generally safeguard the Company’s liquidity, the Company has entered into a revolving credit facility (“RCF”) of €250 million ($293 million). As of March 31, 2021, the total commitment of $293 million is split between a $94 million RCF tranche and $199 million of bilateral ancillary facilities established directly with several banks under the RCF. As of March 31, 2021, and December 31, 2020, no RCF borrowings, as defined in the Credit Agreement, had been drawn. However, as of March 31, 2021 and December 31, 2020, $83.0 million and $70.3 million, respectively, of drawings under ancillary facilities reduced the overall amount available under the RCF to $210 million and $236.5 million, respectively.
(b) Local bank loans and other short-term borrowings
As of March 31, 2021, the Company had partially drawn its uncommitted local credit line in Korea by $4.4 million and in Brazil by $1.7 million (December 31, 2020: $4.6 million and $0.8 million, respectively).
Repurchase Agreement—On March 3, 2021 we entered in to a repurchase agreement to sell European Emission Allowance (“EUA”) certificates. Under the agreement, we sold 260 thousand EUA certificates for €10.04 million cash to a counterparty. The counterparty has
                9

Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
an obligation to resell, and we have the obligation to purchase, the same or substantially the same EUA certificates at December 22, 2021 for €10.06 million. The difference between the consideration received and the amount of consideration to be paid is recognized as interest expense. At March 31, 2021, the amount outstanding is $11.8 million. Due to the short maturity, the carrying value approximates the fair value.
Note G. Financial Instruments and Fair Value Measurement
The Company measures financial instruments, such as derivatives, at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the following fair value hierarchy based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1—Unadjusted quoted market prices in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2—Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices such as quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves), and market-corroborated inputs.
Level 3—Unobservable inputs for the asset or liability.
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.
The following table shows the fair value measurement at March 31, 2021 and December 31, 2020. All measurements are based on observable inputs such as interest rates and are classified as Level 2 within the fair value hierarchy:
Fair Value HierarchyMarch 31, 2021December 31, 2020
(In thousands)
Receivables from hedges / derivatives$4 $195 
Prepaid expenses and other current assets Level 24 195 
Liabilities from derivatives$15,044 $23,127 
Other current liabilitiesLevel 22,838 296 
Other liabilities (non-current)Level 212,206 22,831 
Term loanLevel 2$648,550 $667,980 
Local bank loansLevel 2$101,006 $75,640 
See Note L. Accounting for Derivative Instruments and Hedging Activities, included in our Annual Report in Form 10-K for the year ended December 31, 2020, for additional information relating to our derivatives instruments.
Note H. 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 the 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 benefit costs include the following:
                10

Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
Three Months Ended March 31,
20212020
(In thousands)
Service cost$321 $303 
Interest cost257 295 
Amortization of actuarial loss1,228 2,398 
Net periodic pension cost$1,806 $2,996 
Service costs were recorded within income from operations under selling, general and administrative expenses, interest cost in interest and other financial expense, net.
The actuarial losses associated with the pension obligations recorded in prior years in accumulated other comprehensive income exceeding 10% of the defined benefit obligation are recorded ratably over the current year through profit and loss separately from income from operations and amounted to $1.2 million and $2.4 million for the three months ended March 31, 2021 and 2020, respectively.
Note I. Restructuring Expenses
During 2016, the Company ceased operations at its plant in Ambes, France as part of the restructuring of its Rubber business segment. Details of restructuring activities and the related reserves for this facility were as follows:
Personnel
expenses
Demolition and
Removal costs
Ground
remediation
costs
OtherTotal
(In thousands)
Provision at January 1, 2021$3,559 $229 $4,251 $ $8,039 
Charges(322)   (322)
Cost charged against liabilities (assets)     
Cash paid(43)   (43)
Foreign currency translation adjustment(153)(10)(189) (352)
Provision at March 31, 2021$3,041 $219 $4,062 $ $7,321 
Provision at January 1, 2020$3,400 $561 $488 $317 $4,765 
Charges     
Cost charged against liabilities (assets)     
Cash paid(514)(402)(252)(263)(1,432)
Foreign currency translation adjustment(81)(11)(14)(6)(113)
Provision at March 31, 2020$2,805 $147 $221 $48 $3,221 

Note J. Accumulated Other Comprehensive Income/(Loss)
Comprehensive income (loss) combines net income (loss) and other comprehensive income items, which are reported as components of stockholders’ equity in the accompanying Consolidated Balance Sheets.
Changes in each component of Accumulated other comprehensive income (loss) (“AOCI”), net of tax, are as follows for the three months ended March 31, 2021 and 2020.
                11

Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
Currency Translation AdjustmentsHedging Activities AdjustmentsPension and Other Postretirement Benefit Liability AdjustmentTotal
(In thousands)
Balance at January 1, 2021$(26,543)$(13,485)$(8,676)$(48,705)
Other comprehensive loss before reclassifications(4,693)803  (3,890)
Income tax effects before reclassifications(402)(276) (679)
Amounts reclassified from AOCI  1,228 1,228 
Income tax effects on reclassifications  (394)(394)
Currency translation AOCI 632 375 1,007 
Balance at March 31, 2021$(31,638)$(12,327)$(7,467)$(51,432)

Currency Translation AdjustmentsHedging Activities AdjustmentsPension and Other Postretirement Benefit Liability AdjustmentTotal
(In thousands)
Balance at January 1, 2020$(12,281)$(10,891)$(11,189)$(34,362)
Other comprehensive income/(loss) before reclassifications(22,735)(1,241) (23,976)
Income tax effects before reclassifications(1,336)426  (910)
Amounts reclassified from AOCI  2,398 2,398 
Income tax effects on reclassifications  (776)(776)
Currency translation AOCI 195 225 420 
Balance at March 31, 2020$(36,353)$(11,511)$(9,342)$(57,206)
The amounts reclassified out of AOCI and into the Condensed Consolidated Statement of Operations for the three months ended March 31, 2021 and 2020 are as follows:
Affected Line Item in the Condensed Consolidated
Statements of Operations
Three Months Ended March 31,
20212020
(In thousands)
Amortization of actuarial lossesReclassification of actuarial losses from AOCI$1,228 $2,398 
Total before tax1,228 2,398 
Tax impact(394)(776)
Total after tax$834 $1,623 
The amounts recorded in prior years in AOCI exceeding 10% of the defined benefit obligation are recorded ratably as reclassification of actuarial losses over the current year through profit and loss separately from income from operations and amounted to $1.2 million and $2.4 million for the three months ended March 31, 2021 and 2020, respectively.
Note K. 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.
                12

Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
The following table reflects the income and share data used in the basic and diluted EPS computations:
Three Months Ended March 31,
20212020
Net income for the period - attributable to ordinary equity holders of the parent (in thousands)$23,538 $18,032 
Weighted average number of ordinary shares (in thousands of shares)60,648 60,276 
Basic EPS$0.39 $0.30 
Dilutive effect of share based payments (in thousands of shares)164 1,115 
Weighted average number of diluted ordinary shares (in thousands of shares)60,812 61,391 
Diluted EPS$0.39 $0.29 

Note L. 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 the future tax benefits that arise from the losses in jurisdictions for which no benefit can be recognized. The estimated annual effective tax rate may be significantly impacted by nondeductible expenses and 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 March 31, 2021 amounted to $8.3 million compared to $7.6 million for the three months ended March 31, 2020, reflecting the income during this current period.
Our effective income tax rate for the three months ended March 31, 2021, was 26.0%, compared with 29.8% for the corresponding period of 2020. The decrease in our effective tax rate was primarily attributable to the positive effects of discrete tax items from a deferred tax gain of $0.7 million due to the reassessment of recoverability of deferred tax assets in Brazil and the U.S.
Our effective income tax rate for the three months ended March 31, 2020 was 29.8%, compared with 33.4% for the corresponding period of 2019. The decrease in our effective tax rate was primarily attributable to the discrete tax gain of $0.7 million due to the refund of prior year taxes in connection with the land sale in South Korea during 2018, offset by the unfavorable deferred tax expense of $0.8 million due to the revaluation of the realizability of deferred tax assets and the earnings mix by geography and tax jurisdiction.
The effective income tax rate for the three months ended March 31, 2021 varied from the German overall tax rate of 32.0%, due to the Company’s reassessment of the recoverability of deferred tax assets and its projected earnings mix by geography and tax jurisdiction.
The effective income tax rate of 29.8% for the three months ended March 31, 2020 varied from the German overall tax rate of 32.0%, due to the Company’s reassessment of the recoverability of deferred tax assets and its projected earnings mix by geography and tax jurisdiction.
The effective income tax rate of 26.0% for the three months ended March 31, 2021 deviated from the estimated annual tax rate of 28.2% for 2021, due to the impact of discrete tax items.
The effective tax rate of 29.8% for the three months ended March 31, 2020 deviated from the estimated annual tax rate of 29.2% for 2020, due to the impact of discrete tax items.
Note M. Commitments and Contingencies
Environmental Matters
EPA Action
During 2008 and 2009, the U.S. Environmental Protection Agency (“EPA”) contacted all U.S. carbon black producers as part of an industry-wide EPA initiative, requesting extensive and comprehensive information under Section 114 of the U.S. Clean Air Act. The EPA used that information to determine, for each facility, that either: (i) the facility has been in compliance with the Clean Air Act; (ii) violations have occurred and enforcement litigation may be undertaken; or (iii) violations have occurred and a settlement of an enforcement case is appropriate. In response to information requests received by the Company’s U.S. facilities, the Company furnished information to the EPA on each of its U.S. facilities. EPA subsequently sent notices under Section 113(a) of the Clean Air Act in 2010 alleging violations of Prevention of Significant Deterioration (“PSD”) and Title V permitting requirements under the Clean Air Act at the Company’s Belpre (Ohio) facility. In October 2012, the Company received a corresponding notice and finding of violation (a “NOV”) alleging the failure to obtain PSD and Title V permits reflecting Best Available Control Technology (“BACT”) at several units of the Company’s Ivanhoe
                13

Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
(Louisiana) facility, and in January 2013 the Company also received a NOV issued by the EPA for its facility in Borger (Texas) alleging the failure to obtain PSD and Title V permits reflecting BACT during the years 1996 to 2008. A comparable NOV for the Company’s U.S. facility in Orange (Texas) was issued by the EPA in February 2013; and EPA issued an additional NOV in March 2016 alleging more recent non-PSD air emissions violations primarily at the dryers and the incinerator of the Orange facility.
In 2013, Orion began discussions with the EPA and the U.S. Department of Justice about a potential settlement to resolve the NOVs received, which ultimately led to a consent decree executed between Orion Engineered Carbons LLC (for purpose of this note M. “Orion”) and the United States (on behalf of the EPA), as well as the Louisiana Department of Environmental Quality. The consent decree (the “EPA CD”) became effective on June 7, 2018. The EPA CD resolves and settles the EPA’s claims of noncompliance set forth in the NOVs and in a respective complaint filed in court against Orion by the United States immediately prior to the filing of the consent decree.
All five U.S. carbon black producers have settled with the U.S. government.

Under Orion’s EPA CD, Orion is installing certain pollution control technology in order to further reduce emissions at its four U.S. manufacturing facilities in Ivanhoe (Louisiana), Belpre (Ohio), Borger (Texas), and Orange (Texas) over approximately five years. The EPA CD also requires the continuous monitoring of emissions reductions that Orion will need to comply with over a number of years. Orion has commenced the installation works for its Ivanhoe and Orange facilities. While the construction at Orange has been completed according to schedule despite COVID-19 related impacts, the construction at the Ivanhoe facility has been subject to COVID-19-related delays, and as a result we have declared force majeure with respect to the EPA CD and requested an extension of the timeline for completion of installations. The EPA has not confirmed our extension request but has deferred judgment on it at this time. In line with EPA’s respective request, Orion continues to provide regular updates to the EPA on the Ivanhoe installation works timeline and respective COVID-19 related impacts and mitigation measures.

Under the EPA CD, Orion can choose either its Belpre or Borger facilities as the next site for installation of pollution control equipment with comparable effectiveness. We expect the capital expenditures for installation of pollution control equipment in the remaining Orion facilities to decrease due to economies of scale and synergies from prior installations. We also expect that the third and fourth plants will require significantly less costly pollution control equipment given the requirements of the EPA CD. We estimate the installations of monitoring and pollution control equipment at all four Orion plants in the U.S. will require capital expenditures in an approximate range between $230 million to $270 million of which approximately $133 million has been spent to date. To narrow this range, the Company is pursuing further scope design and estimation efforts. However, the actual total capital expenditures we might need to incur to fulfill the requirements of the EPA CD remain uncertain. The EPA CD allows some flexibility for Orion to choose among different technology solutions for reducing emissions and the locations where these solutions are implemented. The solutions Orion ultimately chooses to implement at its facilities other than Ivanhoe (Louisiana) and Orange (Texas), may differ in scope and operation from those it currently anticipates (including those discussed in the next paragraph) and, for any and all of its still affected three facilities, factors, such as timing, locations, target levels, changing cost estimates and local regulations, could cause actual capital expenditures to exceed or be lower than current expectations or affect Orion’s ability to meet the agreed target emission levels or target dates for installing required equipment as anticipated or at all. Orion also agreed to and paid a civil penalty of $0.8 million and agreed to perform environmental mitigation projects totaling $0.6 million. Noncompliance with applicable emissions limits could lead to further penalty payments to the EPA.
As part of Orion’s compliance plan under the EPA CD, in April 2018 Orion signed a contract with Haldor Topsoe group to install its SNOXTM emissions control technology to remove SO2, NOx and dust particles from tail gases at Orion’s Ivanhoe, Louisiana Carbon Black production plant. The SNOXTM technology has not been used previously in the carbon black industry.
                14

Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
Orion’s Share Purchase Agreement with Evonik in connection with the acquisition of the carbon black business line from Evonik Industries AG, completed on July 29, 2011 (“Acquisition), provides for a partial indemnity from Evonik against various exposures, including, but not limited to, capital investments, fines and costs arising in connection with Clean Air Act violations that occurred prior to July 29, 2011. Except for certain less relevant allegations contained in the second NOV received for the Company’s facility in Orange (Texas) in March 2016, all of the other allegations made by the EPA with regard to all four of the Company’s U.S. facilities - as discussed above - relate to alleged violations before July 29, 2011. The indemnity provides for a recovery from Evonik of a share of the costs (including fines), expenses (including reasonable attorney’s fees, but excluding costs for maintenance and control in the ordinary course of business and any internal cost of monitoring the remedy), liabilities, damages and losses suffered and is subject to various contractual provisions including provisions set forth in the Share Purchase Agreement with Evonik, such as a de minimis clause, a basket, overall caps (which apply to all covered exposures and all covered environmental exposures, in the aggregate), damage mitigation and cooperation requirements, as well as a statute of limitations provision. Due to the cost-sharing and cap provisions in Evonik’s indemnity, the Company expects that substantial costs it has already incurred and will incur in this EPA enforcement initiative and the EPA CD likely will substantially exceed the scope of the indemnity. In addition, Evonik signaled that it is not honoring Orion’s claims under the indemnity. In June 2019, Orion initiated arbitration proceedings to enforce its rights against Evonik. Evonik in turn has submitted certain counterclaims related to a tax indemnity and cost reimbursement against Orion, which counterclaims we do not believe to be material. Although Orion believes that it is entitled to the indemnity and that its rights thereunder are enforceable, there is no assurance that the Company will be able to recover costs or expenditures incurred under the indemnity as it expects or at all.
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 Credit Agreement. As of March 31, 2021, the Company had guarantees totaling $18.8 million issued by various financial institutions.
Note N. 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, Rubber Carbon Black and Specialty Carbon Black.
Rubber carbon black—Used in the reinforcement of rubber in tires and mechanical rubber goods.
Specialties—Used as pigments and performance additives in coatings, polymers, printing and special applications.
The CEO, CFO and certain other senior management members, together, are the chief operating decision maker (“CODM”). Discrete financial information is available for each of the segments, and the CODM uses operating results of each operating segments for performance evaluation and resource allocation.
Our CODM uses Adjusted EBITDA as the primary measure for reviewing our segment profitability. We define segment Adjusted EBITDA as Income from operations before depreciation and amortization, adjusted for acquisition related expenses, restructuring expenses, consulting fees related to Company strategy, share of profit or loss of joint venture and certain other items.
The CODM does not review reportable segment asset or liability information for purposes of assessing performance or allocating resources.
The following table shows the percent of revenue recognized in each of the Company’s reportable segment:
Three Months Ended March 31,
20212020
Rubber60 %64 %
Specialty40 %36 %
Adjustment items are not allocated to the individual segments as they are managed on a group basis.
                15

Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
Segment reconciliation for the three months ended March 31, 2021 and 2020:
RubberSpecialtiesCorporateTotal segments
(In thousands)
2021
Net sales from external customers$215,918 $144,159 $ $360,077 
Adjusted EBITDA$31,171 $39,680 $ $70,851 
Corporate charges— — (2,225)(2,225)
Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment(14,291)(11,336)— (25,627)
Excluding equity in earnings of affiliated companies, net of tax(146)— — (146)
Interest and other financial expense, net(9,959)(9,959)
Reclassification of actuarial losses from AOCI(1,228)(1,228)
Pre-tax income before equity in earnings of affiliated companies31,666 
2020
Net sales from external customers$216,228 $119,779 $ $336,007 
Adjusted EBITDA$35,768 $28,076 $ $63,844 
Corporate charges— — (2,323)(2,323)
Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment(15,293)(8,552)— (23,845)
Excluding equity in earnings of affiliated companies, net of tax(133)— — (133)
Interest and other financial expense, net(9,610)(9,610)
Reclassification of actuarial losses from AOCI(2,398)(2,398)
Pre-tax income before equity in earnings of affiliated companies25,534 
The sales information noted above relates to external customers only. “Corporate” includes income and expense that cannot be directly allocated to the business segments or are managed on corporate level and includes finance income and expenses, taxes and items with less bearing on the underlying core business.
                16

Orion Engineered Carbons S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
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 months ended March 31, 2021 and 2020 and should be read in conjunction with the information included under Item 1. Financial Statements and Supplementary Data (Unaudited) included elsewhere in this report. We prepare our financial statements in accordance with accounting principles generally accepted in the United States.
PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION

Non-GAAP Financial Measures
In this report, we present certain financial measures that are not recognized by the accounting principles generally accepted in the United States (“GAAP”). The non-GAAP financial measures contained in this report are unaudited and have not been prepared in accordance with GAAP and may not be comparable to other similarly titled measures of other companies. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, see below.
The non-GAAP financial measures used in this report are Contribution Margin, Contribution Margin per Metric Ton (collectively, “Contribution Margins”), Adjusted EBITDA, Net Working Capital and Capital Expenditures. We define Contribution Margin as revenue less variable costs (such as raw materials, packaging, utilities and distribution costs). We define Contribution Margin per Metric Ton as Contribution Margin divided by volume measured in metric tons. We define Adjusted EBITDA as income from operations before depreciation and amortization, adjusted for acquisition related expenses, restructuring expenses, consulting fees related to Company strategy, share of profit or loss of joint venture and certain other items. Adjusted EBITDA is defined similarly in the Credit Agreement. Adjusted EBITDA is used by our management to evaluate our operating performance and 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 define Net Working Capital as inventories plus current trade receivables minus trade payables. We define Capital Expenditures as cash paid for the acquisition of intangible assets and property, plant and equipment as shown in the Condensed Consolidated Financial Statements.
We also use Segment Adjusted EBITDA Margin, which we define as Adjusted EBITDA for the relevant segment divided by the revenue for that segment.
We use Adjusted EBITDA, Contribution Margins and Net Working Capital, as well as Adjusted EBITDA by segment and Segment Adjusted EBITDA Margin, as internal measures of performance to benchmark and compare performance among our own operations. We use these measures, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of our business. We believe these measures are useful measures of financial performance in addition to consolidated net income for the period, income from operations and other profitability measures under GAAP because they facilitate operating performance comparisons from period to period and company to company and, with respect to Contribution Margin, eliminate volatility in feedstock prices. By eliminating potential differences in results of operations between periods or companies caused by factors such as depreciation and amortization methods, historic cost and age of assets, financing and capital structures and taxation positions or regimes, we believe Adjusted EBITDA provides a useful additional basis for comparing the current performance of the underlying operations being evaluated. For these reasons, we believe EBITDA-based measures are often used by the investment community as a means of comparison of companies in our industry. By deducting variable costs (such as raw materials, packaging, utilities and distribution costs) from revenue, we believe that Contribution Margins can provide a useful basis for comparing the current performance of the underlying operations being evaluated by indicating the portion of revenue that is not consumed by these variable costs and therefore contributes to the coverage of all costs and profits.
Different companies and analysts may calculate measures based on EBITDA, contribution margins and working capital differently, so making comparisons among companies on this basis should be done carefully. Adjusted EBITDA, Contribution Margins and Net Working Capital are not measures of performance under GAAP and should not be considered in isolation or construed as substitutes for revenue, consolidated net income for the period, income from operations, gross profit and other GAAP measures as an indicator of our operations in accordance with GAAP.
                17

Orion Engineered Carbons S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Reconciliation of Non-GAAP Financial Measures
Contribution Margin and Contribution Margin per Metric Ton (Non-GAAP Financial Measures)

The following table reconciles Contribution Margin and Contribution Margin per Metric Ton to gross profit:
Three Months Ended March 31,
20212020
(In millions, unless otherwise indicated)
Revenue
$360.1 $336.0 
Variable costs(1)
(213.0)(204.1)
Contribution margin147.1 131.9 
Freight22.5 19.2 
Fixed Costs(2)
(67.1)(60.8)
Gross profit$102.5 $90.2 
Volume (in kmt)254.1 235.1 
Contribution margin per metric ton $578.9 $560.8 
Gross profit per metric ton$403.5 $383.6 
1.Includes costs such as raw materials, packaging, utilities and distribution.
2.Includes costs such as depreciation, amortization and impairment of intangible assets, right of use assets, and property, plant and equipment, personnel and other production related costs.
Adjusted EBITDA (Non-GAAP Financial Measure)
The following table presents a reconciliation of Adjusted EBITDA to consolidated net income for each of the periods indicated:
Three Months Ended March 31,
20212020
(In millions)
Net income$23.5 $18.0 
Add back income tax expense8.3 7.6 
Add back equity in earnings of affiliated companies, net of tax(0.1)(0.1)
Pre-tax income before equity in earnings of affiliated companies31.7 25.5 
Add back interest and other financial expense, net10.0 9.6 
Add back reclassification of actuarial losses from AOCI1.2 2.4 
Income from operations42.9 37.5 
Add back depreciation, amortization and impairment of intangible assets, right of use assets, and property, plant and equipment25.6 23.8 
EBITDA 68.5 61.4 
Equity in earnings of affiliated companies, net of tax0.1 0.1 
Long term incentive plan1.1 (1.1)
EPA-related expenses1.7 2.6 
Other adjustments(0.6)0.9 
Adjusted EBITDA$70.9 $63.8 
Thereof Adjusted EBITDA Specialty Carbon Black
$39.7 $28.1 
Thereof Adjusted EBITDA Rubber Carbon Black
$31.2 $35.8 

                18

Orion Engineered Carbons S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Operating Results
For the three months ended March 31, 2021 compared to three months ended March 31, 2020
The table below presents our historical results derived from our Condensed Consolidated Financial Statements for the periods indicated.     
Statement of operations dataThree Months Ended March 31,
20212020
(In millions)
Net sales$360.1 $336.0 
Cost of sales257.6 245.8 
Gross profit102.590.2
Selling, general and administrative expenses52.444.5 
Research and development costs4.85.0 
Other expenses, net2.63.2 
Income from operations42.937.5
Interest and other financial expense, net