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Orion S.A.

Orion S.A.OECEarnings & Financial Report

NYSE · Materials · Miscellaneous Chemical Products

Orion Corporation, founded in 1917 and headquartered at Espoo, Finland, is a globally operating Finnish company which develops, manufactures and markets human and veterinary pharmaceuticals and active pharmaceutical ingredients for global markets. All of the company's manufacturing sites and the majority of its R&D units are in Finland.

What changed in Orion S.A.'s 10-K — 2022 vs 2023

Top changes in Orion S.A.'s 2023 10-K

143 paragraphs added · 246 removed · 122 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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We make careful assessments with respect to production process improvements and decide whether to apply for patents or retain and protect them as trade secrets. In some of the countries in which we operate or sell products, such as China, the laws protecting patent holders are scoped or interpreted differently than in the U.S., the EU and certain other regions.
We make careful assessments with respect to production process improvements and decide whether to apply for patents or retain and protect them as trade secrets. In some of the countries in which we operate or sell products, such as China, the laws protecting patent holders are scoped or interpreted differently than in the U.S., the EU or certain other regions.
Our results of operations have in the past been affected and may in the future be affected by both the transaction effects and the translation effects of foreign currency exchange rate fluctuations.
Our results of operations have in the past been affected and may in the future be affected by both the transaction and translation effects of foreign currency exchange rate fluctuations.
Risks Related to Indebtedness, Currency Exposure and Other Financial Matters Our financial leverage may make it difficult for us to service that debt and operate our businesses. We are leveraged with recurring debt service obligations and expect to continue to have comparable leverage for the foreseeable future. We may also incur more debt in the future.
Risks Related to Indebtedness, Currency Exposure and Other Financial Matters Our financial leverage may make it difficult for us to service that debt and operate our businesses. We are leveraged with recurring debt service obligations and expect to continue to have leverage for the foreseeable future. We may also incur more debt in the future.
In addition, certain of our outstanding debt obligations are denominated, pay interest in and must be repaid in Euro (and certain of our future debt obligations may be denominated in Euro), and therefore expose us to additional exchange rate risks. An appreciation of the Euro would make our financing under Euro-denominated instruments more expensive.
In addition, certain of our outstanding debt obligations are denominated, pay interest in and must be repaid in euros (and certain of our future debt obligations may be denominated in euros), and therefore expose us to additional exchange rate risks. An appreciation of the euro would make our financing under euro-denominated instruments more expensive.
Accordingly, we may be restricted in leveraging the intellectual property that we use on the basis of a license from Evonik or the intellectual property that is subject to the grant-back licenses to expand our business into fields outside of carbon black.
Accordingly, we may be restricted in leveraging the intellectual property that we use on the basis of a license from Evonik or the intellectual property that is subject to the grant-back licenses to expand our business into certain fields outside of carbon black.
We are exposed to currency fluctuation when we convert currencies that we may receive for our products into currencies required to pay our debt, or into currencies in which we purchase raw materials, meet our fixed costs or pay for services, which could result in a gain or loss depending on fluctuations in exchange rates.
We are exposed to currency fluctuation when we convert currencies that we may receive for our products into currencies required to pay our debt, or into currencies in which we purchase raw materials, meet our fixed costs or pay for services, any of which could result in a gain or loss depending on fluctuations in exchange rates.
Currently, eight of our manufacturing sites, including one jointly owned production facility, have some form of co-generation transforming waste heat from combusting exhaust gas, the main by-product of the carbon black production process, into electricity, steam or hot water. Some of this co-generated energy is self-consumed, and the excess may be sold to third parties.
Currently, approximately half of our manufacturing sites, including one jointly owned production facility, have some form of co-generation transforming waste heat from combusting exhaust gas, the main by-product of the carbon black production process, into electricity, steam or hot water. Some of this co-generated energy is self-consumed, and the excess may be sold to third parties.
These restrictions include limitations on our ability to, among other things, merge or consolidate with other companies; sell, lease, transfer or dispose of assets; pay dividends, redeem share capital or redeem or reduce subordinated indebtedness; and make acquisitions or investments.
These restrictions include limitations on our ability to, among other things, merge or consolidate with other companies; sell, lease, transfer or dispose of assets; pay dividends, redeem stock capital or redeem or reduce subordinated indebtedness; and make acquisitions or investments.
This may have negative consequences for our business and investors, including requiring that a substantial portion of the cash flows from our operations be dedicated to debt service obligations; reducing the availability of cash flows to fund internal growth through working capital, capital expenditures, other general corporate purposes and payments of dividends; increasing our vulnerability to economic downturns generally or in our industry; exposing us to interest rate increases on our existing indebtedness and indebtedness that we may incur in the future; placing us at a competitive disadvantage compared to our competitors that have less debt in relation to cash flows; limiting our flexibility in planning for or reacting to changes in our business and our industry; restricting us from pursuing strategic acquisitions or exploiting certain business opportunities; and limiting, among other things, our ability to borrow additional funds or raise equity capital in the future and increasing the costs of such additional financings.
This may have negative consequences for our business and investors, including requiring that a substantial portion of the cash flows from our operations be dedicated to debt service obligations; reducing the availability of cash flows to fund internal growth through working capital, capital expenditures, to fund other general corporate purposes, to pay dividends and to finance stock buy-backs; increasing our vulnerability to economic downturns generally or in our industry; exposing us to interest rate increases on our existing indebtedness and indebtedness that we may incur in the future; placing us at a competitive disadvantage compared to our competitors that have less debt in relation to cash flows; limiting our flexibility in planning for or reacting to changes in our business and our industry; restricting us from pursuing strategic acquisitions or exploiting certain business opportunities; and limiting, among other things, our ability to borrow additional funds or raise equity capital in the future and increasing the costs of such additional financings.
Therefore, our financial results in any given period are materially affected by fluctuations in the value of the U.S. Dollar relative to other currencies, in particular the Euro, the Korean Won and Chinese Renminbi.
Therefore, our financial results in any given period are materially affected by fluctuations in the value of the U.S. dollar relative to other currencies, in particular the euros, the Korean won and Chinese renminbi.
As a result, our shareholders may have more difficulty in protecting their interests in connection with actions taken by our directors and officers than they would as shareholders of a corporation incorporated in the U.S.
As a result, our stockholders may have more difficulty in protecting their interests in connection with actions taken by our directors and officers than they would as stockholders of a corporation incorporated in the U.S.
Luxembourg laws may not be as extensive as those in effect in the U.S., and Luxembourg law and regulations in respect of corporate governance matters might not be as protective of minority shareholders as state corporation laws in the U.S.
Luxembourg laws may not be as extensive as those in effect in the U.S., and Luxembourg law and regulations in respect of corporate governance matters might not be as protective of minority stockholders as state corporation laws in the U.S.
Adverse rulings, judgments or settlements in pending or future litigation, including employment-related litigation, contract litigation, intellectual property disputes, product liability claims, personal injury claims, claims based on alleged exposure to asbestos, chemicals or to carbon black, environmental permitting disputes or in connection with environmental remediation activities or contamination, could have an adverse effect on our business, financial condition, results of operations and cash flows.
Adverse rulings, judgments or settlements in pending or future litigation or administrative proceedings, including employment-related disputes and litigation, contract disputes and litigation, intellectual property disputes and litigation, product liability claims, tort claims and other personal injury claims, claims based on alleged exposure to asbestos, chemicals or to carbon black, environmental permitting disputes or in connection with environmental remediation activities or contamination, could have an adverse effect on our business, financial condition, results of operations and cash flows.
Luxembourg and European insolvency and bankruptcy laws are substantially different from U.S. insolvency laws and may offer our shareholders less protection than they would have under U.S. insolvency and bankruptcy laws. We are subject to Luxembourg insolvency and bankruptcy laws.
Luxembourg and European insolvency and bankruptcy laws are substantially different from U.S. insolvency laws and may offer our stockholders less protection than they would have under U.S. insolvency and bankruptcy laws. We are subject to Luxembourg insolvency and bankruptcy laws.
The rights of our shareholders and the responsibilities of our directors and officers under Luxembourg law are different from those applicable to a corporation incorporated in the U.S.
The rights of our stockholders and the responsibilities of our directors and officers under Luxembourg law are different from those applicable to a corporation incorporated in the U.S.
Our ability to pay dividends on our common shares at historical rates, or at all, is generally dependent on a proposal by our Board of Directors subject to approval by our shareholders and will depend on a number of factors, including, among others, our financial condition and results of future operations, growth opportunities and restrictive covenants in our debt instruments.
Our ability to pay dividends on our common stock at historical rates, or at all, is generally dependent on a proposal by our Board of Directors subject to approval by our stockholders and will depend on a number of factors, including, among others, our financial condition and results of future operations, growth opportunities and restrictive covenants in our debt instruments.
The rights of our shareholders may differ from the rights they would have as shareholders of a U.S. corporation, which could adversely affect trading in our common shares and our ability to conduct equity financings. Our corporate affairs are governed by our Articles of Association and the laws of Luxembourg, including the Luxembourg Company Law.
The rights of our stockholders may differ from the rights they would have as stockholders of a U.S. corporation, which could adversely affect trading in our common stock and our ability to conduct equity financings. Our corporate affairs are governed by our Articles of Association and the laws of Luxembourg, including the Luxembourg Company Law.
In addition, our debt instruments contain cross-default provisions such that a default under one particular financing arrangement could automatically trigger defaults under other financing arrangements and cause such indebtedness to become due and payable, together with 17 Orion Engineered Carbons S.A accrued and unpaid interest.
In addition, our debt instruments contain cross-default provisions such that a default under one particular financing arrangement could automatically trigger defaults under other financing arrangements and cause such indebtedness to become due and payable, together with accrued and unpaid interest.
Insolvency and bankruptcy laws in Luxembourg or the relevant other European country, if any, may offer our shareholders less protection than they would have under U.S. insolvency and bankruptcy laws and make it more difficult for them to recover the amount they could expect to recover in a liquidation under U.S. insolvency and bankruptcy laws. 20 Orion Engineered Carbons S.A Item 1B.
Insolvency and bankruptcy laws in Luxembourg or the relevant other European country, if any, may offer our stockholders less protection than they would have under U.S. insolvency and bankruptcy laws and make it more difficult for them to recover the amount they could expect to recover in a liquidation under U.S. insolvency and bankruptcy laws. Item 1B.
Fluctuations in currency exchange rates could require us to reduce our prices to remain competitive in foreign markets. In each case, the relevant income or expense is reported in the relevant local currency and translated into U.S. Dollar at the applicable currency exchange rate for inclusion in our consolidated financial statements.
Fluctuations in currency exchange rates could require us to reduce our prices to remain competitive in foreign markets. In each case, the relevant income or expense is reported in the relevant local currency and is translated into the U.S. dollar at the applicable currency exchange rate for inclusion in our consolidated financial 17 Table of Contents Orion S.A. statements.
In particular, we could be required to increase our debt or divert resources from other investments in our business in order to discharge any such liabilities. 16 Orion Engineered Carbons S.A We may not be able to protect our intellectual property rights successfully. Our intellectual property rights are important to our success and competitive position.
In particular, we could be required to increase our debt or divert resources from other investments in our business in order to discharge any such liabilities. We may not be able to protect our intellectual property rights successfully. Our intellectual property rights are important to our success and competitive position.
In addition, we have granted back to Evonik licenses relating to some of our intellectual property rights to use such intellectual property in all fields outside the field of carbon black, which licenses are exclusive, subject to certain exceptions in areas adjacent to carbon black.
In addition, we have granted back to Evonik licenses relating to some of our intellectual property rights to use such intellectual property in all fields outside the field of carbon 16 Table of Contents Orion S.A. black, which licenses are exclusive, subject to certain exceptions in areas adjacent to carbon black.
Item 1. Business, Environmental, Health and Safety Matters .” Market and regulatory changes may affect our ability to sell or otherwise benefit from co-generated energy, which may adversely affect our business, results of operations and cash flows.
Item 1. Business, Environmental, Health and Safety Matters .” 15 Table of Contents Orion S.A. Market and regulatory changes may affect our ability to sell or otherwise benefit from co-generated energy, which may adversely affect our business, results of operations and cash flows.
Awards of punitive damages in actions brought in the U.S. or elsewhere are generally not enforceable in Luxembourg.
Awards of punitive damages in actions brought in the U.S. or elsewhere are generally not enforceable in Luxembourg. 19 Table of Contents Orion S.A.
A deterioration of our financial position or a downgrade of our credit ratings for any reason could increase our borrowing costs and have an adverse effect on our business relationships as well as on the payments and other terms agreeable with customers, suppliers and hedging counterparties.
A deterioration of our financial position or a downgrade of our credit ratings for any reason could adversely affect our ability to find new financing and maintain existing financing sources, maintain or expand our receivables programs, increase our borrowing costs and have an adverse effect on our business relationships as well as on the payments and other terms agreeable with customers, suppliers and hedging counterparties.
As a result, we may not be able to obtain financing for our business and acquisitions or to pursue other business plans or make necessary investments, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Disruptions in the credit markets may result in less credit being made available by banks and other lending institutions. As a result, we may not be able to obtain financing to pursue other business plans or make necessary investments, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially, and in some instances, certain insurance may become unavailable at a reasonable cost or available only for certain risks. We can provide no assurances that we would be able to obtain replacement insurance on acceptable terms or at all.
As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially, and in some instances, certain insurance may become unavailable at a reasonable cost or may be available only for certain risks.
In analyzing the value of our inventory, property, plant and equipment, investments and intangible assets, we have made assumptions about future sales (prices and volume), costs and cash generation.
We may be required to impair or write off certain assets if our assumptions about future sales and profitability prove incorrect. In analyzing the value of our inventory, property, plant and equipment, investments and intangible assets, we have made assumptions about future sales (prices and volume), costs and cash generation.
Additionally, during periods of high profitability in certain industries, there are often calls for increased taxes or surcharges on incremental revenues or profits, often called “ windfall profit ” taxes.
Additionally, during periods of high profitability in certain industries, there are often calls for increased taxes or surcharges on incremental revenues or profits, often called “ windfall profit ” taxes. Governments in various jurisdictions may impose or increase such taxes for certain companies operating in the energy and oil and gas sector.
Furthermore, the inability of our customers to obtain credit facilities or capital market financing may adversely affect our business by reducing our sales and increasing our exposure to bad debt, while the inability of our suppliers to access adequate financing may adversely affect our business by increasing prices for raw materials, energy and transportation. 18 Orion Engineered Carbons S.A We may be required to impair or write off certain assets if our assumptions about future sales and profitability prove incorrect.
Furthermore, the inability of our customers to obtain credit facilities or capital market financing may adversely affect our business by reducing our sales and increasing our exposure to bad debt, while the inability of our suppliers to access adequate financing may adversely affect our business by increasing prices for raw materials, energy and transportation.
A deterioration in our financial position or a downgrade of our ratings by a credit rating agency could increase our borrowing costs and our business relationships could be adversely affected.
A deterioration in our financial position or a downgrade of our ratings by a credit rating agency could adversely affect our ability to find new financing and maintain existing financing sources, ensure the continued access to receivables factoring programs, increase our borrowing costs and our business relationships could be adversely affected.
Risks Related to Ownership of our Common Shares We cannot assure investors that we will pay dividends on our common shares at historical rates or at all.
The imposition of, or increase to, such windfall profit taxes could adversely affect our financial results. Risks Related to Ownership of our Common Stock We cannot assure investors that we will pay dividends on our common stock at historical rates or at all.
We could experience a material adverse effect on our financial condition if the tax authorities were to successfully challenge decisions and assumptions we have made in assessing and complying with our tax obligations.
We can provide no assurances that we would be able to obtain replacement insurance on acceptable terms or at all. 18 Table of Contents Orion S.A. We could experience a material adverse effect on our financial condition if the tax authorities were to successfully challenge decisions and assumptions we have made in assessing and complying with our tax obligations.
Removed
In December 2013, the European Commission opened an in-depth investigation into certain exemptions from an energy surcharge granted under the German Renewable Energies Act (Erneuerbare-Energien-Gesetz or “EEG”). Under the EEG, energy intensive industries are exempted to a large extent from the energy surcharge that aims to balance above-market payments for green energy.
Removed
Another exemption exists for the consumption of self-generated electricity. The German legislature amended the national regulations of the EEG in August 2014. Under these regulations, the exemption regarding self-consumption ( Eigenverbrauch ) of self-produced electricity is grandfathered for power plants that were installed before August 1, 2014.
Removed
Our German production facilities are exempted from the energy surcharge under the current law to the extent that we consume our self-produced energy. However, a potential loss of this benefit due to a future change in legislation or a change in the material setup of any of our plants may adversely affect our business, results of operations and cash flows.
Removed
Disruptions in the credit markets may result in less credit being made available by banks and other lending institutions.
Removed
Governments in various jurisdictions including Italy and the United Kingdom have 19 Orion Engineered Carbons S.A imposed or increased such taxes in the past, including during 2022 for certain companies operating in the energy and oil and gas sector.
Removed
Such taxes may be imposed or increased in the future in these or other jurisdictions in which we have operations or in which we are subject to taxation. The imposition of, or increase to, such windfall profit taxes could adversely affect our financial results.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Our business strategies are based on our assumptions about future demand for our existing products and the new products and applications we are developing, and on our continuing ability to produce our products profitably.
Our business strategies are based on our assumptions about future demand for our existing products, the new products and applications we are developing, and on our continuing ability to produce our products profitably.
The preponderance of the cost of raw material used in the production of carbon black is related to petroleum-based or coal-based feedstock known as carbon black oil, with some additional use of other raw materials, such as acetylene, hydrogen and natural gas. We obtain a considerable portion of our raw materials and energy from selected key suppliers.
The preponderance of raw material cost used in the production of carbon black is related to petroleum-based or coal-based feedstock known as carbon black oil, with some additional use of other raw materials, such as acetylene, hydrogen and natural gas. We obtain a considerable portion of our raw materials and energy from selected key suppliers.
To the extent that, in the future, (i) these organizations re-classify carbon black as a known or confirmed carcinogen, (ii) other organizations or government authorities in other jurisdictions classify carbon black or any of our other finished products, raw materials or intermediates as suspected or known carcinogens or (iii) there is discovery of adverse health effects attributable to the production or use of carbon black or any of our other finished products, raw materials or intermediates, we could be required to incur significantly higher costs to comply with environmental, health and safety laws, or to comply with restrictions on sales of our products, our reputation and business could be adversely affected, and we could become the subject of litigation or enforcement actions.
To the extent that, in the future, (i) these organizations re-classify carbon black as a known or confirmed carcinogen, (ii) other organizations or government authorities in other jurisdictions classify carbon black or any of our other finished products, raw materials or intermediates as suspected or known carcinogens or (iii) there is discovery of adverse health effects attributable to the production or use of carbon black or any of our other finished products, raw materials or intermediates, we could be required to incur significantly higher costs to comply with environmental, health and safety laws, or to comply with restrictions on sales of our products, our reputation and business could be adversely affected, and we could become the subject of liability, litigation or enforcement actions.
Any material disruption in our information technology systems, or delays or difficulties in implementing or integrating new systems or enhancing current systems, could have an adverse effect on our business, financial condition or results of operations. We have experience non-material cybersecurity attacks in the past and may experience additional cybersecurity attacks in the future, potentially with more frequency or sophistication.
Any material disruption in our information technology systems, or delays or difficulties in implementing or integrating new systems or enhancing current systems, could have an adverse effect on our business, financial condition or results of operations. We have experienced non-material cybersecurity attacks in the past and may experience additional cybersecurity attacks in the future, potentially with more frequency or sophistication.
Further, we may also incur additional closure and cleanup costs in connection with the closure of plants or separate feedstock storage sites, including costs relating to decommissioning of equipment, decontamination and clean-up, asbestos removal and relocation or closure of operating equipment such as storage tanks, wastewater treatment systems, ponds and landfills.
Further, we may also incur additional closure and cleanup costs in connection with the closure of plants or separate feedstock storage sites, including costs relating to decommissioning of equipment, decontamination and clean-up, asbestos removal and relocation or closure of operating equipment such as storage tanks, pipelines, wastewater treatment systems, ponds and landfills.
Over the past few decades, the relationship between GHGs and global climate change have resulted in increased levels of scrutiny from regulators, investors and the public alike, and have led to proposed and enacted regulations on both national and supranational levels, to monitor, regulate, control and tax emissions of CO 2 and other GHGs.
Over the past few decades, the relationship between GHGs and global climate change have resulted in increased levels of scrutiny from regulators, investors and the public alike, and have led to proposed and enacted laws and regulations on both national and supranational levels, to monitor, regulate, control and tax emissions of CO 2 and other GHGs.
Business, Environmental, Health and Safety Matters .” In the European Union, in 2022 the European Commission finalized the process on the revision of the nanomaterial definition. With its updated recommendation on June 10, 2022 of the definition of nanomaterial (2022/C 220/01), the status for carbon black remains unchanged in comparison to the previous version (2011/696/EU).
Business, Environmental, Health and Safety Matters .” In the EU, in 2022 the European Commission finalized the process on the revision of the nanomaterial definition. With its updated recommendation on June 10, 2022 of the definition of nanomaterial (2022/C 220/01), the status for carbon black remains unchanged in comparison to the previous version (2011/696/EU).
These hazards and risks include fires, explosions, spills, discharges and other releases, any of which could impact the environment, neighboring community and our employees, which could result in, environmental pollution, personal injury or wrongful death claims, damage to our & neighboring properties and reputational harm.
These hazards and risks include fires, explosions, spills, discharges and other releases or exposures, any of which could impact the environment, neighboring community and our employees, which could result in, environmental pollution, personal injury or wrongful death claims, damage to our and neighboring properties and reputational harm.
In addition, the timely commercialization of products that we are developing may be disrupted or delayed by manufacturing or other technical difficulties, industry acceptance or insufficient industry size to support a new product, competitors’ new products, and difficulties in moving from the experimental stage to the production stage.
In addition, the timely commercialization of products that we are developing may be disrupted or delayed by manufacturing or other technical difficulties, industry acceptance or insufficient industry size to support a new product, competitors’ new products, or difficulties in moving from the experimental stage to the production stage.
Although we believe that our relations with our employees are good, there can be no assurance that current agreements may not be terminated, new agreements will be reached or consultations will be completed without union or works council actions or on terms satisfactory to us.
Although we believe that our relations with our employees are good, there can be no assurance that current agreements will not be terminated, new agreements will be reached or consultations completed without union or works council actions or on terms satisfactory to us.
Any new or amended environmental laws and regulations may result in costly measures for matters subject to regulation, including but not limited to more stringent limits or control requirements for our air emissions; new or increased compliance obligations relating to emission of GHG, SO 2 , NOx, and particulate matter; any impact our operations could have on the environment or surrounding community; which, in each case, could have a material adverse effect on our operations and financial condition.
Any new or amended environmental laws and regulations may result in costly measures for matters subject to regulation, including but not limited to more stringent limits or control requirements for our air emissions; new or increased compliance obligations relating to emission of GHG, SO 2 , NOx, and particulate matter; any impact our operations could have on the environment or surrounding community; which, in each case, could have a material adverse effect on our operations and financial condition and cash flows.
Our manufacturing processes consume significant amounts of raw materials and energy, the costs of which are subject to fluctuations in worldwide supply and demand as well as other factors beyond our control.
Our manufacturing processes consume significant amounts of raw materials and energy, the costs of which are subject to fluctuations in local and worldwide supply and demand as well as other factors beyond our control.
If such newly developed or improved products are being offered at lower prices, have preferable features or other advantages, in particular from a regulatory perspective, and we are not able to offer similar new or improved products, we may lose substantial sales volumes or customers, which could have an adverse effect on our business, financial condition, results of operations and cash flows.
If such newly developed or improved products are being offered at lower prices, have preferable features or other advantages, in particular from a regulatory perspective, and we are not able to offer similar new or improved products, we may lose substantial sales volume or customers, which could have an adverse effect on our business, financial condition, results of operations and cash flows.
We are also required to obtain permits or other approvals from various regulatory authorities for our operations, which may be required for matters including air emissions as well as wastewater and storm water discharge, storage, handling and disposal of hazardous substances, remediation of soil or buildings and the operation, maintenance and closure of landfills.
We are also required to obtain permits or other approvals from various regulatory authorities for our operations, which may be required for matters including air emissions as well as wastewater and storm water discharge, storage, handling and disposal of hazardous substances, remediation of soil, tanks, pipelines or buildings and the operation, maintenance and closure of landfills.
Furthermore, some of our competitors may have greater financial and other resources, enhanced access to governmental funding and a larger capitalization than we have.
Furthermore, some of our competitors may have greater financial and other resources, enhanced access to governmental funding or a larger capitalization than we have.
Additionally, raw material sourcing and related infrastructure (e.g., harbor access, cargo or ship availability, pipeline-, tank- or road-access), may be subject to local developments or regulations in certain jurisdictions where we operate that may reduce, delay or halt the physical supply of raw materials.
Additionally, raw material sourcing and related infrastructure (e.g., harbor access, cargo or ship availability, pipeline, tank, rail, waterway or road-access), may be subject to local developments or regulations in certain jurisdictions where we operate that may reduce, delay or halt the physical supply of raw materials.
We are dependent on major customers for a significant portion of our sales, and a significant adverse change in a customer relationship could adversely affect our business, financial condition, results of operations and cash flows. Customer concentration is driven by the consolidated nature of the industries we serve.
We are dependent on major customers for a significant portion of our sales, and a significant adverse change in a customer relationship could negatively affect our business, financial condition, results of operations and cash flows. Customer concentration is driven by the consolidated nature of the industries we serve.
The majority of carbon black grades are defined as a nanomaterial. Furthermore, the International Organization for Standardization (“ISO”) developed the ISO TC 229 “Nanotechnologies,” which considers carbon black a “nano-structured material.” The industry is not yet generally affected by these definitions.
The majority of carbon black grades are defined as nanomaterials. Furthermore, the International Organization for Standardization (“ISO”) developed the ISO TC 229 “Nanotechnologies,” which considers carbon black a “nano-structured material.” The industry is not yet generally affected by these definitions.
While we aim to operate at low cost and are focused on reducing our fixed and variable cost base across our production chain, there may be improvements in the cost competitiveness of other manufacturers relative to us or in the performance properties of substitutable products and raw materials, which could result in advantages for our competitors and adversely affect our business.
While we aim to operate at low cost and are focused on reducing our fixed and variable cost bases across our production chain, there may be improvements in the cost competitiveness of other manufacturers relative to us or in the performance properties of substitutable products and raw materials, which could result in advantages for our competitors that adversely affect our business.
Risks inherent in international operations include the following: changes in the rate of economic growth; unsettled political or economic conditions; expropriation or other governmental actions; social unrest, war, terrorist activities or other armed conflict; national and regional labor strikes; confiscatory taxation or other adverse tax policies, trade and or tariff disputes between countries; deprivation of contract rights; trade regulations affecting production, pricing and marketing of products; reduced protection of intellectual property rights; restrictions on the repatriation of income or capital; exchange controls; inflation, deflation, and currency fluctuations and devaluation; the effect of global environmental, health and safety issues; pandemics or epidemics, respective lock-downs, changes to economic conditions, market opportunities and operating restrictions; changes in foreign laws and tax rates; changes in trade sanctions or embargoes that result in losing access to customers and suppliers in those countries; costs associated with compliance with anti-bribery and anti-corruption laws; nationalization of private enterprises by foreign governments; and changes in financial policy and availability of credit or financing sources.
Risks inherent in international operations include the following: disruption of supply chains and shipping routes, changes in the rate of economic growth; unsettled political or economic conditions; expropriation or other governmental actions; social unrest, war, terrorist activities or other armed conflict; national and regional labor strikes; confiscatory taxation or other adverse tax policies, trade and or tariff disputes between countries; deprivation of contract rights; trade regulations affecting production, pricing and marketing of products; reduced protection of intellectual property rights; restrictions on the repatriation of income or capital; exchange controls; inflation, deflation, and currency fluctuations and devaluation; the effect of global environmental, health and safety issues; pandemics or epidemics, respective lock-downs, changes to economic conditions, market opportunities and operating restrictions; changes in foreign laws and tax rates; changes in trade sanctions or embargoes that result in losing access to customers and suppliers in those countries; costs associated with compliance with anti-bribery and anti-corruption laws; nationalization of private enterprises by foreign governments; and changes in financial policy, free funds flow and availability of credit or financing sources.
The responses of countries and political bodies to Russia’s actions, the larger overarching tensions, and Ukraine’s military defense and the potential for wider conflict may increase energy market volatility generally, have severe adverse effects on regional and global economic markets, and cause volatility in energy and other product prices.
The responses of countries and political bodies to Russia’s actions in Ukraine, the larger overarching tensions, and Ukraine’s military defenses and the potential for wider conflict may generally increase energy market volatility, have severe adverse effects on regional and global economic markets and cause volatility in energy and other product prices.
In periods with significant market turmoil and tightened credit availability, we could experience difficulties in collecting accounts receivable, pricing pressure and reduced global or local business activity.
In periods with significant market turmoil and tightened credit availability, we could experience difficulties in accounts receivable collections, pricing pressure and reduced global or local business activity.
Such events could result in material financial liabilities, civil or criminal law consequences, the temporary or permanent closure of the relevant production or administrative sites or power plants and a negative impact on our financial condition, results of operations and cash flows.
Such events could result in material financial liabilities, civil or criminal law consequences, the temporary or permanent closure or loss of control over the relevant production or administrative sites or power plants and a negative impact on our financial condition, results of operations and cash flows.
The loss of any of our major customers (including due to industry consolidation) or a reduction in volumes sold to them, could adversely affect our results of operations.
The loss of any of our major customers (including due to industry consolidation) or a reduction in volume sold to them, could adversely affect our results of operations.
Risks Related to Our Business Negative or uncertain worldwide economic conditions may result in business volatility and may adversely impact our business, financial condition, results of operations and cash flows. Our operations and performance are materially affected by worldwide economic conditions.
Risks Related to Our Business Negative or uncertain worldwide economic conditions may result in business volatility and may adversely impact our business, financial condition, results of operations and cash flows. Our operations and performance are materially connected to worldwide economic conditions.
In 2022, our top ten customers accounted for approximately 51% of our volume measured in thousand metric tons (“kmt”). Our success in continuing to strengthen relationships and grow our business with our largest customers and retaining their business over extended time periods could affect our future results.
In 2023, our top ten customers accounted for approximately 48% of our volume measured in thousand metric tons (“kmt”). Our success in continuing to strengthen relationships and grow our business with our largest customers and in retaining their business over extended time periods could affect our future results.
Due to the quantity of carbon black oil and finished goods that we typically keep in stock together with the levels of receivables and payables maintained, increases occur gradually over a two to three-month period but can vary depending on inventory levels and working capital levels generally.
Due to the quantity of carbon black oil and finished goods that we typically keep in stock together with the levels of receivables 10 Table of Contents Orion S.A. and payables maintained, increases occur gradually over a two to three-month period but can vary depending on inventory levels and working capital levels, generally.
While their potential effect on our manufacturing operations or financial results cannot be estimated, they could be substantial. There is no way to predict the form that future regulations may take or to estimate any costs that we may be required to incur with respect to these or any other future requirements.
While their potential effect on our manufacturing operations or financial results cannot be estimated, they could be substantial. We cannot reliably predict the form that future regulations may take or to estimate any costs that we may be required to incur with respect to these or any other future requirements.
There are also 14 Orion Engineered Carbons S.A ongoing discussions and regulatory initiatives in other countries, including in Brazil where we have production facilities, regarding GHG emission reduction programs, but those programs have not yet been defined. There is no assurance that, in the future, the current level of regulation will continue in the jurisdictions where we operate.
There are also ongoing discussions and regulatory initiatives in other countries, including in Brazil where we have production facilities, regarding GHG emission reduction programs, but those programs have not yet been defined. There is no assurance that, in the future, the current level of regulation will continue in the jurisdictions where we operate.
In the event of a breach in security that allows third parties access to this personal information, we are subject to a variety of laws on a global basis that require us to provide notification to the data owners, and that subject us to lawsuits, fines and other means of regulatory enforcement.
In the event of a breach in security that allows third parties access to this information, we are subject to a variety of laws on a global basis that require us to provide notification to the data owner, and that may expose us to lawsuits, fines and other means of regulatory enforcement.
Regardless, we may be required to incur non-capital expenditure costs to satisfy climate change and other environmental obligations imposed on us by the various regulations. Certain national and international health organizations have classified carbon black as a possible or suspect human carcinogen.
Regardless, we may be required to incur non-capital expenditure costs to satisfy climate change and other environmental obligations imposed on us by the various regulations. 13 Table of Contents Orion S.A. Certain national and international health organizations have classified carbon black as a possible or suspect human carcinogen.
As a result, we may incur liabilities for contamination or wastes, including hazardous wastes, generated by our 13 Orion Engineered Carbons S.A operations and disposed of onsite or at offsite locations, even if we were not responsible at the time the waste was disposed or the contamination occurred.
As a result, we may incur liabilities for contamination or wastes, including hazardous wastes, generated by our operations and disposed of onsite or at offsite locations, even if we were not responsible at the time the waste was disposed or the contamination occurred.
A global or regional economic downturn has in the past, and may in the future, reduce demand for our products, which would decrease our revenue and could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Global and regional economic downturns have in the past, and may in the future, reduce demand for our products, which have decreased and would decrease our revenue, and could have a material adverse effect on our business, financial condition, results of operations and cash flows.
If we should decide to include precipitated silica in combination with silane in our product portfolio in the future, we may be restricted in our ability to do so under our intellectual property sharing arrangements with Evonik Industries AG (“Evonik”) and its affiliates, one of our previous owners.
If we should decide to include precipitated silica in combination with silane in our product portfolio in the future, we may be restricted in our ability to do so under our intellectual property sharing arrangements with Evonik Industries AG (“Evonik”) and its affiliates, one of our previous owners. 9 Table of Contents Orion S.A.
Carbon black consists of aggregates of primary nano-scale particles. The EPA and other governmental agencies are currently developing a regulatory approach under which they will collect further data on nano-scale materials, including carbon black, under the Toxic Substances Control Act (“TSCA”).
Carbon black consists of aggregates of primary nano-scale particles. The EPA and other governmental agencies are currently developing a regulatory approach under which they will collect further data on nano-scale materials, including carbon black, under the U.S. Toxic 14 Table of Contents Orion S.A. Substances Control Act (“TSCA”).
Such events could disrupt our supply of raw materials or otherwise affect sales, production, transportation and delivery of our products or affect demand for our products. We could incur significant expenditures in connection with such operational risks.
Such events have in the past disrupted, and could in the future disrupt, our supply of raw materials or otherwise affect sales, production, transportation and delivery of our products or affect demand for our products. We could incur significant expenditures in connection with such operational risks.
These may be caused both by external and internal factors noted above as well as war, strikes, official orders, technical interruptions, material defects, accidents 8 Orion Engineered Carbons S.A or mistakes. In all of these cases, our property, third-party property or the environment may sustain damage, or there may be human exposure to hazardous substances, personal injuries or fatalities.
These may be caused both by external and internal factors noted above as well as war, military operations, strikes, official orders, technical interruptions, material defects, accidents or mistakes. In all of these cases, our property, third-party property or the environment may sustain damage, or there may be human exposure to hazardous substances, personal injuries or fatalities.
Although we maintain certain raw material reserves, if any of these suppliers is unable to meet its obligations under supply agreements with us on a timely basis or at all, or if we cannot source sufficient supply, we may be forced to incur higher costs to obtain the necessary raw materials and energy elsewhere, or we may not be able to obtain carbon black oil or raw materials, such as natural gas, at all.
Although we maintain certain raw material reserves, if any of these suppliers is unable to meet its obligations under supply agreements with us on a timely basis or at all, or if we cannot source sufficient supply, we may be forced to incur higher costs to obtain the necessary raw materials and energy elsewhere.
As our technology continues to evolve, we anticipate that we will collect and store even more data in the future, and that our systems will increasingly use remote cloud based solutions and communication features that are sensitive to both willful and unintentional security breaches.
As our technology continues to evolve, we anticipate that we will collect and store even more data in the future, and that our systems will increasingly use remote cloud-based 11 Table of Contents Orion S.A. solutions and communication features that are sensitive to both willful and unintentional security breaches.
Legal and Regulatory Risks Our operations are subject to environmental, health and safety laws and regulations. We have been and may in the future be subject to investigations by regulatory authorities in respect of alleged violations and may incur significant costs to maintain compliance with, and to address liabilities under, these laws and regulations and respective litigation and proceedings.
We have been and may in the future be subject to investigations by regulatory authorities in respect of alleged violations and may incur significant costs to maintain compliance with, and to address liabilities under, these laws and regulations and respective litigation and proceedings.
In addition, such attacks or breaches could require significant management attention and resources, and result in the diminution of the value of the Company’s investment in research and development and other assets.
In addition, such attacks or breaches could require significant management attention and resources, and result in the diminution of the value of the Company’s intellectual property and other assets.
Significant volumes of CO 2 , a GHG, are emitted in carbon black manufacturing processes.
Despite our efforts to control, significant volumes of CO 2 , a GHG, are emitted in our carbon black manufacturing processes.
The EPA has promulgated regulations applicable to operations involving GHG above certain thresholds, and the United States and certain states within the United States have enacted, or are considering, limitations on GHG emissions.
For instance, the EU has enacted GHG legislation and continues to expand the scope of such legislation. The EPA has promulgated regulations applicable to operations involving GHG above certain thresholds, and the United States and certain states within the United States have enacted, or are considering, limitations on GHG emissions.
In addition, the occurrence of material operating problems at our facilities due to any of these hazards may result in loss of production, which in turn, may make it difficult for us to meet customer needs.
If operational risks materialize, they could result in injury or loss of life, damage to the environment or damage to property. In addition, the occurrence of material operating problems at our facilities due to any of these hazards may result in loss of production, which in turn, may make it difficult for us to meet customer needs.
The trend in environmental regulation is to impose increasingly stringent restrictions on activities that may affect the environment. Such future regulations may include legislation designed to reduce emissions of GHG, SO 2 , NOx, particulate matter and other air pollutants. For instance, the European Union has enacted GHG legislation and continues to expand the scope of such legislation.
The trend in environmental regulation is to impose increasingly stringent restrictions on activities that may affect the environment. Such regulations have in the past included, and may in the future include, laws and rules designed to reduce emissions of GHG, SO 2 , NOx, particulate matter and other air pollutants.
Net Working Capital swings are particularly significant in an environment of high price volatility. Any failure to realize benefits from investments, joint ventures, acquisitions or alliances could adversely affect our business, financial condition, results of operations and cash flows. We have made, and may continue to make, investments and acquisitions and enter into joint ventures and collaborations.
This could have an adverse impact on our business, financial condition, results of operations and cash flows. Any failure to realize benefits from investments, joint ventures, acquisitions or alliances could adversely affect our business, financial condition, results of operations and cash flows. We have made, and may continue to make, investments and acquisitions and enter into joint ventures and collaborations.
Our inability to source quality raw materials or energy in a timely fashion and at costs that we anticipate or that are acceptable to us, or an inability to pass-through any cost increases to our customers, could have an adverse impact on our business, financial condition, results of operations and cash flows.
Our inability to source energy or quality raw materials like carbon black oil, including due to the Russia-Ukraine war, Hamas-Israel conflict and China’s relations with the U.S. and with the EU, or otherwise, in a timely fashion and at costs that we anticipate or that are acceptable to us, or an inability to pass-through any cost increases to our customers, could have an adverse impact on our business, financial condition, results of operations and cash flows.
The continuation or escalation of events like the Ukrainian war could decrease our production volumes and margins and may adversely impact our business operations, financial condition and results of operations.
The continuation or escalation of events like the war in Russia-Ukraine war or the Hamas-Israel conflict could decrease our production volumes and margins and may adversely impact our business operations, financial condition and results of operations and are difficult to predict.
In addition, our ability to expand capacity depends in part on economic and political conditions in the regions we focus on and, in some cases, on our ability to establish operations, construct additional manufacturing capacity or form strategic business alliances.
In addition, our ability to expand capacity depends in part on economic and political conditions in the regions we focus on and, in some cases, on our ability to establish operations, construct additional manufacturing capacity or form strategic business alliances. We may be subject to information technology systems failures, network disruptions, cybersecurity attacks and breaches of data security.
These factors could adversely affect our business, financial condition, results of operations and cash flows. Our business, financial condition and results of operations have been and could in the future be adversely affected by disruptions in the carbon black oil and natural gas supplies caused by the ongoing conflict between Russia and Ukraine.
Our business, financial condition and results of operations have in the past and could in the future be adversely affected by disruptions in the carbon black oil and natural gas supplies, including disruptions caused by the ongoing Russia-Ukraine war, Hamas-Israel conflict and the growing geopolitical tension between China and Taiwan.
Global prices of crude oil and natural gas are primarily a function of global production and demand. Long term impacts from sanctions, shipping disruptions, collateral war damage, and a potential continuation or expansion of the conflict between Russia and Ukraine could further disrupt the availability of crude oil and natural gas supplies.
The sanctions, shipping disruptions, collateral war damage, and the potential continuation or expansion of the conflict between Russia and Ukraine, or the conflict between Hamas and Israel, could further disrupt the availability of crude oil and natural gas supplies.
The operation of a chemical manufacturing business as well as the sale and distribution of chemical products involve safety, health and environmental risks. For example, the production and processing of carbon black and other chemicals involves the storage, handling, transportation, manufacture or use of certain substances or components that may be considered toxic or hazardous.
For example, the production and processing of carbon black and other chemicals involves the storage, handling, transportation, manufacture or use of certain substances or components that may be considered toxic or hazardous. Our manufacturing processes and the storage and transportation of chemical products entail risks such as leaks, fires, explosions, toxic releases or mechanical failures.
A breakdown in existing controls and procedures around the Company’s cybersecurity and security prevention environment may prevent us from detecting, reporting or responding to cybersecurity incidents in a timely manner and could have a material adverse effect on our financial condition or the market price of our securities. 11 Orion Engineered Carbons S.A In addition to supporting our operations, we use our systems to collect and store confidential and sensitive data, including information about our know-how, technology and business, as well as about our customers and our employees.
A breakdown in existing controls and procedures around the Company’s cybersecurity and security prevention environment may prevent us from detecting, reporting or responding to cybersecurity incidents in a timely manner and could have a material adverse effect on our financial condition or the market price of our securities.
This development may significantly affect our business in a manner we cannot predict, including by increasing the costs of doing business or decreasing the marketability of our products. Our operations have the potential to cause environmental and other damage as well as personal injury.
This development may significantly affect our business in a manner we cannot predict, including by increasing the costs of doing business or decreasing the marketability of our products. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our operations are subject to hazards inherent in chemicals manufacturing and the related use, storage, transportation and disposal of feedstocks, products and wastes, including, but not limited to, fires and explosions, accidents, accidental oil or products releases, severe weather and natural disasters (including hurricanes, tornadoes, ice storms, droughts, floods and earthquakes, some of which are significantly increasing in likelihood because of climate change), pandemics or epidemics, mechanical failures, unscheduled downtime at our production facilities or at facilities that supply raw materials to us, transportation interruptions, disruption to harbor-, road-, pipeline- or storage tank-access, pipeline, tank and silos leaks and ruptures, quality problems, technical difficulties, energy grid shutdowns, discharges or releases of toxic or hazardous substances or gases, other environmental risks, sabotage, acts of terrorism or other acts of violence as well as potential boycotts, strikes, sanctions or blockades.
COVID-19) or epidemics, mechanical failures, unscheduled downtime at our production facilities or at facilities that supply raw materials to us, transportation interruptions, disruption to harbor-, road-, pipeline- or storage tank-access, pipeline, tank and silos leaks and ruptures, quality problems, technical difficulties, energy grid shutdowns, discharges or releases of toxic or hazardous substances or gases, other environmental risks, sabotage, acts of terrorism or other acts of violence as well as potential boycotts, strikes, sanctions or blockades.
Accordingly, these hazards and their consequences could have a material adverse effect on our business, financial condition, results of operations and cash flows, both during and after the period of operational difficulties, and could harm our reputation. The European Union REACH legislation or similar legislation in other countries may affect our ability to manufacture and sell certain products.
Accordingly, these hazards and their consequences could have a material adverse effect on our business, financial condition, results of operations and cash flows, both during and after the period of operational difficulties, and could harm our reputation. Environmental, social and governance matters and any related reporting obligations may impact our businesses.
Investors and other financial institutions are also focused on sustainability and climate change as it relates to their investment and financing decisions. Increased awareness in the investment community and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry could harm our reputation.
Increased awareness in the investment community and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry could also harm our reputation. The international community continues to negotiate a binding treaty that would require reductions in GHG emissions by developed countries.
The extent or length of any adverse effects of the war in Ukraine on the supply of oil and natural gas and the quality and availability of carbon black oil is difficult to quantify, however, current events as recent as July 2022 further 12 Orion Engineered Carbons S.A increase concerns about the stability of the natural gas supply in Europe.
The extent or length of any adverse effects of the war in Ukraine or the Hamas-Israel conflict on the supply of oil and natural gas and the quality and availability of carbon black oil is difficult to quantify.
We cannot guarantee that we will successfully implement our business strategies or that implementing these strategies will sustain or improve and not harm our results of operations.
We cannot guarantee that we will successfully implement our business strategies or that implementing these strategies will sustain or improve and not harm our results of operations. We may not be able to increase or sustain our manufacturing efficiency or asset utilization, enhance our current portfolio of products or achieve other fixed or variable cost savings.
It has also caused, and may continue to cause, disruptions in supply chains and curtailed or delayed spending by our customers’ customers, in particular in the automotive industry, and increases in the risk of customer defaults or delays in payments.
The war in Ukraine has caused and may continue to cause curtailed or delayed spending by our customers’ customers, particularly in the automotive industry, and increases the risk of customer defaults or delays in payments. The Hamas-Israel conflict or any escalation thereof could adversely impact our margins. 12 Table of Contents Orion S.A.
Our information technology systems are an important element for effectively operating our business.
We rely on information technology systems to manage and operate our production facilities, to process transactions, and to summarize our operating results. Our information technology systems are an important element for effectively operating our business.
The success of acquisitions of existing facilities, new technologies, companies and products, or arrangements with third parties is not always predictable, and we may not achieve our anticipated objectives. 10 Orion Engineered Carbons S.A Plant capacity expansions and site development projects may be delayed, cost more than anticipated and/or may not achieve the expected benefits.
Plant capacity expansions and site development projects may be delayed, cost more than anticipated and/or may not achieve the expected benefits.
War and other geopolitical events, including but not limited to Russia and Ukraine, may cause volatility in crude oil and natural gas prices, due to the region’s importance to these markets, the potential impacts to global transportation and shipping, and other supply chain disruptions. These events are unpredictable and may lead to extended periods of price volatility.
The impacts of war and other geopolitical events, including but not limited to the war in Ukraine and the Hamas-Israel conflict, the growing geopolitical tensions between China and Taiwan, are difficult to predict. For example, the conflict in Ukraine has previously caused, and may continue to cause, volatility in crude oil and natural gas prices.
We may not be able to increase or sustain our manufacturing efficiency or asset utilization, enhance our current portfolio of products or achieve other fixed or variable cost 9 Orion Engineered Carbons S.A savings. In addition, the costs involved in implementing our strategies may be significantly higher than we currently anticipate.
In addition, the costs involved in implementing our strategies may be significantly higher than we currently anticipate.
Removed
The capital expenditures we might need to make under the EPA consent decree may increase; timing, target levels and other factors could also affect our ability to meet target emission levels and target dates under the EPA consent decree.
Added
Our operations are subject to hazards inherent in chemicals manufacturing and the related use, storage, transportation and disposal of feedstocks, products and wastes, including, but not limited to, fires and explosions, accidents, accidental oil or products releases, severe 8 Table of Contents Orion S.A. weather and natural disasters (including hurricanes, tornadoes, ice storms, droughts, floods and earthquakes, some of which are significantly increasing in likelihood because of climate change), pandemics (e.g.
Removed
On June 7, 2018, a consent decree (the “EPA CD”) between Orion Engineered Carbons LLC and the United States on behalf of the EPA, as well as the Louisiana Department of Environmental Quality, became effective. See “Note Q.
Added
Net Working Capital swings are particularly significant in an environment of high price volatility. We may also be subject to volatility in the cost, quality and availability of raw materials and energy due to factors beyond our control, such as geopolitical conflict.
Removed
Commitments and Contingencies ” to the Company’s audited financial statements included in this Annual Report in Form 10-K for a description of the EPA CD. We have four plant sites that fall under the EPA CD, of which the construction projects at our Ivanhoe (Louisiana) and Orange (Texas) facilities have been completed.
Added
See “Our business, financial condition and results of operations could in the future be adversely affected by disruptions in the carbon black oil and natural gas supplies, including disruptions caused by the ongoing war between Russia in Ukraine, the Hamas-Israel conflict and the growing geopolitical tensions between China and Taiwan.
Removed
In the fourth quarter of 2022, mechanical installation of emissions control technology at Borger (Texas) was complete. We estimate the installations of monitoring and pollution control equipment at the remaining plant at Belpre (Ohio), will require capital expenditure totaling approximately $25 million. This estimate could be further revised subject to scope design and estimation efforts presently underway.
Added
The success of acquisitions of existing facilities, new technologies, companies and products, or arrangements with third parties is not always predictable, and we may not achieve our anticipated objectives. Failure to achieve our respective goals could have an adverse impact on our business, financial condition, results of operations and cash flows.
Removed
The actual total capital expenditures we might need to incur in order to fulfill the requirements of the EPA CD therefore remain uncertain.
Added
In addition to supporting our operations, we use our systems to collect and store confidential and sensitive data, including information about our know-how, technology and business, as well as about our customers and our employees.
Removed
The solutions Orion ultimately chooses to implement at its remaining facility may differ in scope and operation from those it currently anticipates for such facility, and factors such as timing, target levels, contractor workforce availability, changing cost estimates and local regulations, could cause actual capital expenditures and their timing to significantly exceed 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.
Added
These factors could adversely affect our business, financial condition, results of operations and cash flows.
Removed
Noncompliance with applicable emissions limits could lead to payments to the EPA or other penalties. We may be subject to information technology systems failures, network disruptions, cybersecurity attacks and breaches of data security. We rely on information technology systems to manage and operate our production facilities, to process transactions, and to summarize our operating results.
Added
These and other conflicts may also lead to increased physical terrorist or cyberattacks, damage to global supply chains, and have other consequences that impact our business, financial condition and results of operations. Legal and Regulatory Risks Our operations are subject to environmental, health and safety laws and regulations.
Removed
In late February 2022, Russia invaded Ukraine, significantly amplifying already existing geopolitical tensions among Russia and other countries in the region and in the West.
Added
These could adversely affect our business, financial condition, results of operations and cash flows. Investors and other financial institutions are also focused on sustainability and climate change as it relates to their investment and financing decisions.

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Item 2. Properties

Properties — owned and leased real estate

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The map provides an overview of the geographical footprint of our production network as of December 31, 2022:
The map provides an overview of the geographical footprint of our production network as of December 31, 2023:
Item 2. Properties Production Facilities We currently operate 14 wholly owned production facilities in Europe, North and South America, South Africa and Asia, including Huaibei, China (to begin commercial production in 2023 ) , and one jointly-owned production facility at Dortmund, Germany. Most of our production facilities are ISO 9001, Quality Management and ISO 14001, Environmental Management certified.
Item 2. Properties Production Facilities We currently operate 14 wholly owned production facilities in Europe, North and South America, South Africa and Asia, and one jointly owned production facility at Dortmund, Germany. Most of our production facilities are ISO 9001, Quality Management and ISO 14001, Environmental Management certified.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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We note that the outcome of legal proceedings is inherently uncertain, and we offer no assurances as to the outcome of any of these current or future matters or their effect on the Company. Item 4. Mine Safety Disclosures Not applicable. 21 Orion Engineered Carbons S.A PART II
We note that the outcome of legal proceedings is inherently uncertain, and we offer no assurances as to the outcome of any of these current or future matters or their effect on the Company. For information regarding our material legal proceedings and regulatory matters, see Item 8. Financial Statements and Supplemental Data, Note Q. Commitments and Contingencies . Item 4.
Removed
With respect to our settlement of the EPA’s enforcement initiative and the settled arbitration proceedings with Evonik related to respectively limited indemnities please see Item 8. Financial Statements and Supplementary Data, Note Q. Commitments and Contingencies.
Added
Mine Safety Disclosures Not applicable. 22 Table of Contents Orion S.A. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The graph below shows the relative investment performance of Orion Engineered Carbons S.A.'s common stock, the S&P Smallcap 600 Index and S&P Small Cap Chemicals Index since December 31, 2017. The graph assumes that $100 was invested on December 31, 2017 and any dividends paid were reinvested at the date of payment.
The graph below shows the relative investment performance of Orion Engineered Carbons S.A.'s common stock, the S&P Smallcap 600 Index and S&P Small Cap Chemicals Index since December 31, 2018. The graph assumes that $100 was invested on December 31, 2018 and any dividends paid were reinvested at the date of payment.
Generally, any dividend approved by a general meeting of shareholders would be paid out shortly after the meeting. Luxembourg withholding tax at a rate of 15% is deducted from dividend payments, subject to certain exemptions and reductions in certain circumstances.
Generally, any dividend approved by a general meeting of stockholders would be paid out shortly after the meeting. Luxembourg withholding tax at a rate of 15% is deducted from dividend payments, subject to certain exemptions and reductions in certain circumstances.
The information required by Item 201(d) of Regulation S-K is incorporated by reference to the Proxy Statement (as defined in Item 10 below) under the heading “ Equity Compensation Plan Information at December 31, 2022 .” Dividend Policy In accordance with the Luxembourg Company Law, the general meeting of shareholders has the power to make a resolution on the payment of dividends upon the recommendation of the Board of Directors.
The information required by Item 201(d) of Regulation S-K is incorporated by reference to the Proxy Statement (as defined in Item 10 below) under the heading “ Equity Compensation Plan Information at December 31, 2023 .” Dividend Policy In accordance with the Luxembourg Company Law, the general meeting of stockholders has the power to make a resolution on the payment of dividends upon the recommendation of the Board of Directors.
As of February 17, 2023, there were approximately 11 record holders of our common stock, i.e. stockholders directly registered under their name in the Company’s physical share ledger in Luxembourg. During the fiscal year ended December 31, 2022, we did not sell any equity securities that were not registered under the Securities Act.
As of February 9, 2024, there were approximately 12 record holders of our common stock, i.e. stockholders directly registered under their name in the Company’s physical stock ledger in Luxembourg. During the fiscal year ended December 31, 2023, we did not sell any equity securities that were not registered under the Securities Act.
The authorization may be suspended or discontinued at any time and does not obligate us to acquire any specific amount of common stock.
The maximum number of shares of our Common stock that may yet be purchased is not necessarily an indication of the number of stock that will ultimately be purchased. Each authorization may be suspended or discontinued at any time and does not obligate us to acquire any specific amount of common stock.
We started the purchase of equity securities in December of 2022 which were as follows: Period Total number of stock purchased Average price paid per stock Total dollar value of stocks purchased as part of publicly announced plans ($ in millions) Maximum approximate dollar value of stocks yet be purchased ($ in millions) December 1 — 31, 2022 244,032 $ 17.61 $ 4.3 $ 45.7 22 Orion Engineered Carbons S.A Performance Graph The performance graph and the information contained in this section is not “soliciting material,” is being furnished, not filed, with the SEC and is not to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing.
Performance Graph The performance graph and the information contained in this section is not “soliciting material,” is being furnished, not filed, with the SEC and is not to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing.
The graph is presented pursuant to SEC rules and is not meant to be an indication of our future performance. 2017 2018 2019 2020 2021 2022 Orion Engineered Carbons S.A. $ 100.00 $ 101.51 $ 80.77 $ 73.01 $ 78.21 $ 76.34 S&P Smallcap 600 100.00 91.52 112.37 125.05 158.59 133.06 S&P Small Cap Chemicals Index 100.00 84.93 98.59 116.93 146.59 125.45 Item 6.
The graph is presented pursuant to SEC rules and is not meant to be an indication of our future performance. 2018 2019 2020 2021 2022 2023 Orion S.A. $ 100.00 $ 79.57 $ 71.93 $ 77.05 $ 75.21 $ 117.50 S&P Smallcap 600 100.00 122.78 136.64 173.29 145.39 168.73 S&P Small Cap Chemicals Index 100.00 116.09 137.69 172.61 147.72 157.00
Removed
Stock Repurchase Program On November 3, 2022, our Board of Directors, in line with the respective authorization of the shareholders, resolved in the Company’s annual general meeting of shareholders dated June 30, 2022, approved a stock repurchase program with the authorization to management to purchase up to $50 million of its outstanding common stock.
Added
Stock Repurchase Program In accordance with the authority granted by the Orion stockholders to the Board of Directors through stockholder resolution, on May 5, 2023, our Board of Directors approved a new stock repurchase program with authorization to management to purchase up to approximately 6.9 million stock of our outstanding common stock from time to time through open market purchases or public tender offers, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in accordance with applicable securities laws and other restrictions, at any time through June 2027 (“Stock Repurchase Program”).
Removed
Our stock repurchases may occur through open market purchases or trading plans pursuant to Rule 10b5-1 of the Exchange Act.
Added
This new stock repurchase program is in addition to our previous stock repurchase program, which was adopted by our Board of Directors in 2022 and authorized management to purchase up to $50 million of our Common stock (“Prior Stock Repurchase Program”). The common stock repurchases, under the prior Repurchase Program , was completed during the second quarter of 2023.
Removed
The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements, the thresholds contained in the above referred shareholder authorization by the Board of Directors, may be restricted by payment capacity under our debt instruments and other factors.
Added
Period Total number of Common stocks purchased Average price paid per share Total number of Common stock purchased as part of publicly announced plans Maximum number of Common stock yet be purchased as part of publicly announced plans Stock Repurchase Program October 1 — 31, 2023 178,652 $ 20.37 178,652 6,157,434 November 1 — 30, 2023 106,488 21.91 106,488 6,050,946 December 1 — 31, 2023 29,669 25.28 29,669 6,021,277 Common stock Repurchased in 2023 fourth quarter 314,809 314,809 6,021,277 23 Table of Contents Orion S.A.
Removed
Reserved 23 Orion Engineered Carbons S.A Item 7. 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 years ended December 31, 2022 and 2021, and should be read in conjunction with the information included under Item 1.
Removed
Business and Item 8. Financial Statements and Supplementary Data included elsewhere in this Annual Report. We prepare our financial statements in accordance with accounting principles generally accepted in the United States (“GAAP” or “U.S. GAAP”) and in U.S. Dollars. This section discusses year-to-year comparisons between 2022 and 2021, except as noted below.
Removed
For discussions on year-to-year comparison between 2021 and 2020, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report in Form 10-K, which was filed with the United States Securities and Exchange Commission (“SEC”) on February 17, 2022 (the “Prior Annual Report”).
Removed
As described under “Reconciliation of Non-GAAP Financial Measures” below, we implemented certain changes to our financial reporting structure during the fourth quarter of 2022, including the use of new non-GAAP measures (Gross profit per ton) to evaluate our performance, which measures are not discussed in the Prior Annual Report.
Removed
Accordingly, this section also includes a discussion of year-to-year comparisons of these measures for 2022 compared to 2021, and for 2021 compared to 2020.
Removed
Overview In 2022, our net sales were $2,030.9 million, sales volume was 962.9 kmt, net income was $106.2 million, and Adjusted EBITDA was $312.3 million. • Specialty Carbon Black Segment —Adjusted EBITDA was $143.9 million, and the Adjusted EBITDA Margin was 21.3%.
Removed
This segment accounted for 33.3% of our total revenue, 46.1% of total Adjusted EBITDA and 23.3% of our total volume in kmt in 2022. • Rubber Carbon Black Segment —Adjusted EBITDA was $168.4 million, and Adjusted EBITDA Margin was 12.4%.
Removed
This segment accounted for 66.7% of our total revenue, 53.9% of total Adjusted EBITDA and 76.7% of our total volume in kmt in 2022. Key Factors Affecting Our Results of Operations We believe certain factors had, and will continue to have, a material effect on our results of operations and financial condition.
Removed
As many of these factors are beyond our control and certain of these factors have historically been volatile, past performance will not necessarily be indicative of future performance, and it is difficult to predict future performance with any degree of certainty.
Removed
In addition, important factors that could cause our actual results of operations or financial conditions to differ materially from those expressed or implied below, include, but are not limited to, factors indicated under “ Item 1A.
Removed
Risk Factors ” and “ Cautionary Statement for the Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995 ” elsewhere in this Annual Report. Recent Developments and Certain Known Trends General Economic Conditions, Cyclicality and Seasonality Our 2022 operating results reflect strong demand for Rubber Carbon Black compared to our 2021 fiscal year.
Removed
However, this was partly offset by lower demand for our Specialty Carbon Black in 2022 compared with our 2021 fiscal year.
Removed
Operating results were driven by a favorable product mix in both segments and Rubber segment volume growth, as well as our ability to adjust sales prices to conform to energy prices, raw material costs and cost of utilities, to deliver products that drive enhanced performance in customers’ applications, and to increase global and regional capacity utilization.
Removed
Our ability to generate a financial return on our Rubber Carbon Black business, investments in debottlenecking, yield improvement technologies, etc., including U.S. Environmental Protection Agency (“EPA”) related projects, contributed to improved operating results. In late February 2022, Russia invaded Ukraine, significantly amplifying already existing geopolitical tensions among Russia and other countries in the region and in the West.
Removed
Currently, the conflict has impacted exports of Russian crude oil and natural gas. The volatility, trading volumes, and prices in global crude oil and natural gas are expected to continue indefinitely.
Removed
The extent or length of any adverse effects of the war in Ukraine on the supply of oil and natural gas and the quality and availability of carbon black oil is difficult to quantify.
Removed
We are monitoring the stability of the natural gas supply in Europe though there is less concern this winter as many businesses and households have reduced consumption. The European Union (“EU”) has proposed a voluntary gas demand reduction target of 15% to be achieved between August 1, 2022 and March 31, 2023.
Removed
To reach that target, Member States were encouraged to decrease gas consumption by the public sector and businesses, as well as households. We have identified investments and operational changes which we believe would allow us to achieve between 35% and 40% reduction in natural gas without significantly affecting our production levels.
Removed
Reconciliation of 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.
Removed
For a reconciliation of these non-GAAP financial measures to their nearest comparable GAAP measures, see section Reconciliation of Non-GAAP Financial Measures below. 24 Orion Engineered Carbons S.A These non-GAAP measures include, but are not limited to, Gross profit per metric ton, Adjusted EBITDA, Net Working Capital, Capital Expenditures and Segment Adjusted EBITDA Margin (in percentage).
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
Reconciliation of Non-GAAP Financial Measures Gross profit per metric ton (A Non-GAAP Financial Measure) In the fourth quarter of 2022, we implemented certain changes to our financial reporting structure. We now use Gross profit and Gross profit per metric ton to evaluate our performance instead of Contribution margin and Contribution margin per metric ton.
Removed
This change had no impact on our historical Consolidated Financial Statements or the Footnotes to the Consolidated Financial Statements. This change was made because we believe Gross profit and Gross profit per metric ton better reflect the overall operation of our business.
Removed
Reconciliation of Gross profit per metric ton is as follows: Year Ended December 31, Year-Over-Year 2022 2021 2020 Delta 2022 vs. 2021 2021 vs 2020 (In millions, except per ton data and percentage) Net sales $ 2,030.9 $ 1,546.8 $ 1,136.4 $ 484.1 31.3 % $ 410.4 36.1 % Cost of sales (1,582.1) (1,160.2) (844.1) (421.9) 36.4 % (316.1) 37.4 % Gross profit $ 448.8 $ 386.6 $ 292.3 $ 62.2 16.1 % $ 94.3 32.3 % Volume (in kmt) 962.9 964.3 866.8 (1.4) (0.1) % 97.5 11.2 % Gross profit per metric ton $ 466.1 $ 400.9 $ 337.3 $ 65.2 16.3 % 63.6 18.9 % 25 Orion Engineered Carbons S.A Reconciliation of Net income to Adjusted EBITDA (A Non-GAAP financial Measure) Reconciliation of Net income to Adjusted EBITDA is as follows: Year Ended December 31, Year-Over-Year 2022 2021 Delta (In millions) % Net income $ 106.2 $ 134.7 $ (28.5) (21.2) % Add back Income tax expense 51.5 51.7 (0.2) (0.4) % Add back Earnings in affiliated companies, net of tax (0.5) (0.7) 0.2 (28.6) % Income before earnings in affiliated companies and income taxes 157.2 185.7 (28.5) (15.3) % Add back Interest and other financial expense, net 39.9 38.0 1.9 5.0 % Add back Reclassification of actuarial losses from AOCI — 4.8 (4.8) (100.0) % Income from operations 197.1 228.5 (31.4) (13.7) % Add back Depreciation of property, plant and equipment and amortization of intangible assets and right of use assets 105.7 104.1 1.6 1.5 % EBITDA 302.8 332.6 (29.8) (9.0) % Earnings in affiliated companies, net of tax 0.5 0.7 (0.2) (28.6) % Gain related to litigation settlement — (82.9) 82.9 (100.0) % Long term incentive plan 7.7 5.2 2.5 48.1 % EPA-related expenses — 2.3 (2.3) (100.0) % Environmental reserve accrual (0.4) 7.2 (7.6) (105.6) % Other adjustments 1.7 3.3 (1.6) (48.5) % Adjusted EBITDA $ 312.3 $ 268.4 $ 43.9 16.4 % Specialty Carbon Black Adjusted EBITDA $ 143.9 $ 148.4 $ (4.5) (3.0) % Rubber Carbon Black Adjusted EBITDA $ 168.4 $ 120.0 $ 48.4 40.3 % 26 Orion Engineered Carbons S.A Operating Result s 2022 Compared to 2021 Operating results for the periods discussed are as follows: Year Ended December 31, Year-Over-Year 2022 2021 Delta (In millions) % Net sales $ 2,030.9 $ 1,546.8 $ 484.1 31.3% Cost of sales 1,582.1 1,160.2 421.9 36.4% Gross profit 448.8 386.6 62.2 16.1% Selling, general and administrative expenses 227.1 210.4 16.7 7.9% Research and development costs 21.7 22.0 (0.3) (1.4)% Gain related to litigation settlement — (82.9) 82.9 (100.0)% Other expenses, net 2.9 8.6 (5.7) (66.3)% Income from operations 197.1 228.5 (31.4) (13.7)% Interest and other financial expense, net 39.9 38.0 1.9 5.0% Reclassification of actuarial losses from AOCI — 4.8 (4.8) (100.0)% Income before earnings in affiliated companies and income taxes 157.2 185.7 (28.5) (15.3)% Income tax expense 51.5 51.7 (0.2) (0.4)% Earnings in affiliated companies, net of tax 0.5 0.7 (0.2) (28.6)% Net income $ 106.2 $ 134.7 $ (28.5) (21.2)% Net sales Net sales increased by $484.1 million, or 31.3%, from $1,546.8 million in 2021 to $2,030.9 million in 2022, driven primarily by improved base price, passing through higher feedstock costs, impact of favorable product mix across both segments, plus higher volume in the Rubber Carbon Black segment.
Removed
Those were partially offset by lower volume in the Specialty Carbon Black segment, and unfavorable foreign currency translation impacted both segments. Increased cogeneration revenue, a by-product, also benefited both segments. Volumes decreased by 1.4 kmt, or 0.1%, to 962.9 kmt, year-over-year.
Removed
Cost of sales Cost of sales increased by $421.9 million, or 36.4%, from $1,160.2 million in 2021 to $1,582.1 million in 2022, primarily due to higher raw material costs and production-associated costs.
Removed
Gross profit 2022 Gross profit increased by $62.2 million or 16.1%, from $386.6 million in 2021 to $448.8 million in 2022, and gross profit per metric ton increased by 16.3% or $65.2 to $466.1. The increase was primarily driven by improved base price, favorable product mix in both segments and higher volume in the Rubber Carbon Black segment.
Removed
Those were partially offset by lower volume in the Specialty Carbon Black segment. Higher margins per ton resulted from price increases to recover environmental and reliability-related capital expenditures. 2021 Gross profit increased by $94.3 million or 32.3% from $292.3 million in 2020 to $386.6 million in 2021 and gross profit per metric ton increased by 18.9% or $63.6 to $400.9.
Removed
The increase was primarily driven by passing through of higher feedstock costs, higher sales volume due to sharp global recovery from COVID-19 across all regions and segments, favorable product mix and higher energy sales.
Removed
Selling, general and administrative expenses Selling, general and administrative expenses increased by $16.7 million, or 7.9%, from $210.4 million in 2021 to $227.1 million in 2022 driven primarily by higher freight and personnel costs, partially offset by the impact of foreign currency translation.
Removed
Gain related to litigation settlement During the second quarter of 2021, Evonik agreed to make a one-time cash payment of €66.55 million ($79.5 million) to settle a dispute which originated from the acquisition of the carbon black business by Rhône Capital and Triton Partners in 2011.
Removed
The 2011 acquisition 27 Orion Engineered Carbons S.A agreement provided for a partial indemnity from Evonik against various exposures, including capital investments, fines and costs arising in connection with U.S. Clean Air Act violations that occurred prior to the closing of the 2011 acquisition (i.e., under Evonik’s control).
Removed
In addition, we released $3.4 million of net legal reserves related to this dispute. This was not repeated in 2022. Income tax expense Income tax expense was $51.5 million and $51.7 million in 2022 and 2021, respectively. The 2022 effective income tax rate was 32.7% compared with 27.7% in 2021.
Removed
The increase in the effective tax rate was mainly due to change in valuation allowance and tax rate differences. Those were partially offset by the effects of earnings in various countries with lower statutory tax rates and tax-free income. For details regarding this deviation, see Item 8. Financial Statements and Supplementary Data and Note P.
Removed
Income Taxes to the audited Consolidated Financial Statements. Adjusted EBITDA (A Non-GAAP Financial Measure) Adjusted EBITDA increased by $43.9 million, or 16.4%, from $268.4 million in 2021 to $312.3 million in 2022. The increase was primarily due to improved base price, impact of favorable product mix across both segments and higher volume in the Rubber Carbon Black segment.
Removed
Those were partially offset by lower volume in the Specialty Carbon Black segment and the unfavorable impact of foreign currency translation. Increased cogeneration revenue, a by-product, also benefited both segments.
Removed
Comprehensive Income Year Ended December 31, Year-Over-Year 2022 2021 2020 Delta 2022 vs. 2021 2021 vs 2020 (In millions) Comprehensive income $ 142.2 $ 134.9 $ 3.8 $ 7.3 $ 131.1 2022 vs 2021 ―Comprehensive income increased by $7.3 million, from $134.9 million to $142.2 million, primarily due to: • $32.5 million related to financial derivative instruments primarily driven by net periodic changes in cross currency and interest rate swaps, and • $9.1 million related to net changes in defined pension and other post-retirement benefits driven by discount rates and higher actual returns.
Removed
Those increases were partially offset by • $28.5 million of lower net income; 2021 net income included gain related to litigation legal settlement not repeated in 2022, and • $5.8 million of net unfavorable impacts of unrealized changes in foreign currency translation adjustments.
Removed
Relative to the U.S. dollar, the value of the euro weakened during 2022, resulting in net losses related to unrealized changes in foreign currency translation which are reflected in the Consolidated Statements of Comprehensive Income. 2021 vs 2020 ―Comprehensive income increased by $131.1 million from $3.8 million to $134.9 million, primarily due to: • $116.5 million of higher net income; 2021 net income included gain related to litigation legal settlement not included in 2020, • $6.7 million net favorable impacts of unrealized changes in foreign currency translation adjustments.
Removed
Relative to the U.S. dollar, the value of the euro increased during 2021, resulting in net gain related to unrealized changes in foreign currency translation which are reflected in the Consolidated Statements of Comprehensive Income, • $5.3 million of net favorable impacts of financial derivative instruments primarily driven by periodic changes in cross currency and interest rate swaps and • $2.6 million of net favorable changes in defined pension and other post-retirement benefits. 28 Orion Engineered Carbons S.A Segment Discussion Our business operations are divided into two operating segments—Specialty Carbon Black and Rubber Carbon Black.
Removed
We use Segment Adjusted EBITDA as measures of segment performance and profitability. The table below presents our segment results for 2022, and 2021.
Removed
Year Ended December 31, Year-Over-Year 2022 2021 Delta (In millions, unless otherwise indicated) % Specialty Carbon Black Net sales $ 675.4 $ 598.2 $ 77.2 12.9 % Cost of sales (474.7) (400.6) (74.1) 18.5 % Gross profit $ 200.7 $ 197.6 $ 3.1 1.6 % Volume (kmt) (1) 224.3 263.2 (38.9) (14.8) % Adjusted EBITDA $ 143.9 $ 148.4 $ (4.5) (3.0) % Adjusted EBITDA Margin (%) 21.3 24.8 (3.5) (14.1) % Rubber Carbon Black Net sales $ 1,355.5 $ 948.6 $ 406.9 42.9 % Cost of sales (1,107.4) (759.6) (347.8) 45.8 % Gross profit $ 248.1 $ 189.0 $ 59.1 31.3 % Volume (kmt) 738.6 701.1 37.5 5.3 % Adjusted EBITDA $ 168.4 $ 120.0 $ 48.4 40.3 % Adjusted EBITDA Margin (%) 12.4 12.7 (0.3) (2.4) % Specialty Carbon Black 2022 Compared to 2021 Net sales of the Specialty Carbon Black segment increased by $77.2 million, or 12.9%, from $598.2 million in 2021 to $675.4 million in 2022.
Removed
The net sales increase in 2022 was primarily driven by improved base price and favorable product mix, partially offset by lower sales volume and an unfavorable impact of foreign currency translation. Volume of the Specialty Carbon Black segment decreased by 38.9 kmt, or 14.8%, from 263.2 kmt in 2021 to 224.3 kmt in 2022.
Removed
The volumes were lower due to customer destocking and lower demand, primarily in polymers, related to the weakening economy. Gross profit of the Specialty Carbon Black segment increased marginally by $3.1 million, or 1.6%, from $197.6 million in 2021 to $200.7 million in 2022, primarily driven by higher margins and favorable product mix.
Removed
Adjusted EBITDA of the Specialty Carbon Black segment decreased by $4.5 million, or 3.0%, from $148.4 million in 2021 to $143.9 million in 2022. Adjusted EBITDA decrease was due to lower volume, impact of unfavorable foreign currency translation and higher selling, general and administrative costs. Those were partially offset by higher profit margins and favorable product mix.
Removed
Rubber Carbon Black 2022 Compared to 2021 Net sales of the Rubber Carbon Black segment increased by $406.9 million, or 42.9%, from $948.6 million in 2021 to $1,355.5 million in 2022.
Removed
The increase was primarily due to improved base price, pass through of feed stock costs, higher volume and favorable product mix, partially offset by the impact of unfavorable foreign currency translation. Volume of the Rubber Carbon Black segment increased by 37.5 kmt, or 5.3%, from 701.1 kmt in 2021 to 738.6 kmt in 2022.
Removed
The increase reflects higher demand in Americas and Europe/Middle East/Africa. Gross profit of the Rubber Carbon Black segment increased by $59.1 million, or 31.3%, from $189.0 million in 2021 to $248.1 million in 2022.
Removed
The increase in the period was primarily driven by higher profit margins, higher volume and favorable product mix, partially offset by the impact of unfavorable foreign currency translation. Higher profit margins resulted from base price increases to recover environmental and reliability-related capital expenditures.
Removed
Adjusted EBITDA of the Rubber Carbon Black segment increased by $48.4 million, or 40.3%, from $120.0 million in 2021 to $168.4 million in 2022.
Removed
The increase was primarily due to pricing, higher volume and product mix, partially offset by the impact of unfavorable foreign currency translation and higher selling, general and administrative costs. 29 Orion Engineered Carbons S.A Liquidity and Capital Resources Historical Cash Flows The table below presents cash flows derived from our Consolidated Financial Statements.
Removed
Year Ended December 31, 2022 2021 (In millions) Net cash provided by operating activities $ 81.0 $ 145.2 Net cash used in investing activities (232.8) (214.7) Net cash provided by financing activities 149.3 73.3 2022 Operating Activities —Cash provided by operating activities primarily reflected our Net income, adjusted for non-cash items and changes in working capital.
Removed
Investing Activities— Cash used by investing activities primarily reflects $165.8 million expenditures for safety, maintenance and growth investments and $67.0 million to install emissions reduction technology to meet the Environmental Protection Agency (“EPA”) requirements in the U.S. See “ Note Q.
Removed
Commitments and Contingencies ” to the accompanying Consolidated Financial Statements for further discussion of the Company’s commitments and contingencies relating to the EPA.
Removed
Financing Activities— $149.3 million of cash provided by financing activities primarily reflects $91.0 million of net borrowings under our Revolving credit facilities (“RCF”) and ancillary facilities, $47.8 million to partially finance the construction of our Huaibei facility, China, $36.3 million proceeds from Repurchase agreement, and Other short-term debt and obligations, net.
Removed
Those were partially offset by a $30.2 million reduction in local uncommitted credit lines, scheduled debt repayments, dividend distributions and stock buybacks. See Note J.
Removed
Debt and Other Obligations to the accompanying Consolidated Financial Statements for further information regarding the Company’s indebtedness. 2021 Operating Activities —The cash provided by operating activities primarily reflected our Net income, adjusted for non-cash items, changes in working capital and $82.9 million related to Evonik legal settlement gain.
Removed
Investing Activities— Approximately $119.8 million related to capital expenditures comprises a combination of safety, maintenance, sustainability and growth investments. Additionally, approximately $94.9 million was associated with our ongoing efforts to install emissions reduction technology to meet EPA requirements.
Removed
Financing Activities— Net cash provided by financing activities is composed primarily of net borrowings under our revolving credit facility of $75.8 million for our working capital. Our financing activity included refinancing of our Term-loan and associated costs. See Note J. Debt and Other Obligations to the accompanying Consolidated Financial Statements for further discussion on our Term-loan refinancing.
Removed
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.
Removed
We believe our anticipated future operating cash flow, 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.
Removed
As of December 31, 2022, the Company had liquidity of $292.2 million, including cash and equivalents of $60.8 million, $165.9 million in availability remaining under our revolving credit facility, including ancillary lines, $25.0 million undrawn on the term-loan for Huaibei, China, and $40.5 million under other available credit lines. 30 Orion Engineered Carbons S.A Net Working Capital (Non-GAAP Financial Measure) We define Net Working Capital as the total of Inventories, net and Accounts receivable, net, less Accounts payable.

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Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments and Certain Known Trends. 31 Orion Engineered Carbons S.A Critical Accounting Policies and Estimates The preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments and Certain Known Trends. 30 Table of Contents Orion S.A Critical Accounting Policies and Estimates The preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities.
Further changes to these valuation allowances may impact our future provision for income taxes, which will include no tax benefit with respect to 32 Orion Engineered Carbons S.A losses incurred and no tax expense with respect to income generated in these countries until the respective valuation allowance is eliminated.
Further changes to these valuation allowances may impact our future provision for income taxes, which will include no tax benefit with respect to losses incurred and no tax expense with respect to income generated in these countries until the respective valuation allowance is eliminated.
ACCOUNTING AND REPORTING CHANGES For a discussion of the potential impact of new accounting pronouncements on our Consolidated Financial Statements, see Note B. Recent Accounting Pronouncements to the accompanying Consolidated Financial Statements.
ACCOUNTING AND REPORTING CHANGES For a discussion of the potential impact of new accounting pronouncements on our Consolidated Financial Statements, see Note B. Recent Accounting Pronouncements to the accompanying Consolidated Financial Statements. 31 Table of Contents Orion S.A
However, if actual market conditions are less favorable than those projected by management at the time of the assessment, additional inventory write-downs may be required, which could reduce our gross profit and our earnings. Goodwill Impairment —We record goodwill for the excess of the cost of an acquisition over the fair value of the net assets of the acquired business.
However, if actual market conditions are less favorable than those projected by management at the time of the assessment, additional inventory write-downs may be required, which could reduce our gross profit and our earnings. Loss Contingencies —We record liabilities for loss contingencies when it is probable that a liability has been incurred and the amount of loss is reasonably estimable.
This discussion should be read in conjunction with our Consolidated Financial Statements and related notes included in this Annual Report in Form 10-K.
This discussion should be read in conjunction with our Consolidated Financial Statements and related notes included in this Annual Report in Form 10-K. Inventories —W e account for our raw materials, work-in-progress and finished goods inventories using average cost method of accounting.
Removed
Use of Estimates —We consider an accounting estimate to be critical to the financial statements if (i) the estimate is complex in nature or requires a high degree of judgment and (ii) if different estimates and assumptions were used, the results could have a material impact on the Consolidated Financial Statements.
Removed
Estimates and assumptions are based on information available at the time such estimates and assumptions are made. Adjustments made with respect to the use of these estimates and assumptions often relate to information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Consolidated Financial Statements.
Removed
We evaluate our estimates and the application of our policies on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. Inventories —W e account for our raw materials, work-in-progress and finished goods inventories using average cost method of accounting.
Removed
Goodwill is reviewed for impairment at least annually or more frequently if an event or change in circumstance indicates that an impairment may have occurred. We also have the option to proceed directly to the quantitative impairment test.
Removed
Under the quantitative impairment test, the fair value of each reporting unit, calculated using a discounted cash flow model, is compared to its carrying value including goodwill. The discounted cash flow model inherently utilizes a significant number of estimates and assumptions including operating margins, tax rates, discount rates, capital expenditures and working capital changes.
Removed
If the carrying value of the reporting unit including goodwill exceeds its fair value, an impairment charge equal to the excess would be recognized, up to a maximum amount of goodwill allocated to that reporting unit. For 2022 and 2021, we performed a qualitative impairment assessment of our reporting units.
Removed
Both periods indicated the fair value of our reporting units was greater than their carrying value including goodwill. Accordingly, a quantitative goodwill impairment test was not required and no goodwill impairment was recognized in 2022 or 2021.
Removed
Loss Contingencies —We record liabilities for loss contingencies when it is probable that a liability has been incurred and the amount of loss is reasonably estimable.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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A significant portion of our volume, approximately 70%, is sold based on formula-driven price adjustment mechanisms for changes in costs of raw materials. Sales prices under non-indexed contracts are reviewed on a quarterly basis to reflect raw material and market fluctuation.
A significant portion of our volume, approximately 65%, is sold based on formula-driven price adjustment mechanisms for changes in costs of raw materials. Sales prices under non-indexed contracts are reviewed on a quarterly basis to reflect raw material and market fluctuation.
A fluctuation of the euro/U.S. dollar exchange rate of 10% as of December 31, 2022, with other conditions remaining unchanged, would have the following effect on our Income before earnings in affiliated companies and income taxes: December 31, 2022 Value of the U.S.
A fluctuation of the euro/U.S. dollar exchange rate of 10% as of December 31, 2023, with other conditions remaining unchanged, would have the following effect on our Income before earnings in affiliated companies and income taxes: December 31, 2023 Value of the U.S.
At December 31, 2022, 2021, and 2020, a 10% fluctuation compared to the U.S. dollar in the underlying currencies that have no central bank or other currency restrictions related to non-hedged monetary assets, net would have resulted in an additional impact to earnings of approximately $11.0 million, $8.3 million, and $4.2 million, respectively.
At December 31, 2023, 2022, and 2021, a 10% fluctuation compared to the U.S. dollar in the underlying currencies that have no central bank or other currency restrictions related to non-hedged monetary assets, net would have resulted in an additional impact to earnings of approximately $2.8 million, $11.0 million, and $8.3 million, respectively.
Interest and other financial expense, net, in the Consolidated Statements of Operations reflected net exchange rate foreign currency losses of $3.5 million, $6.4 million and $15.2 million in 2022, 2021, and 2020, respectively. Commodity Risk Commodity risk results from changes in market prices for raw materials, mainly carbon black oil. Raw materials are primarily purchased to meet our production requirements.
Interest and other financial expense, net, in the Consolidated Statements of Operations reflected net exchange rate foreign currency losses of $4.0 million, $3.5 million and $6.4 million in 2023, 2022, and 2021, respectively. Commodity Risk Commodity risk results from changes in market prices for raw materials, mainly carbon black oil. Raw materials are primarily purchased to meet our production requirements.
For example, changes in USD/EUR currency rate would have an impact on our interest exposure and vice versa. Changes in interest rates would also have a related impact on our foreign currency (USD) exposure.
For example, changes in U.S. dollar (“USD”)/EUR currency rate would have an impact on our interest exposure and vice versa. Changes in interest rates would also have a related impact on our foreign currency (USD) exposure.
To minimize the effects of our net currency exchange exposures, we enter into foreign exchange contracts and cross-currency swaps. Our net position in foreign currencies is monitored daily. We maintain risk management control practices to monitor foreign currency risk attributable to our intercompany and third party outstanding foreign currency balances.
To minimize the effects of our net currency exchange exposures, we enter into foreign exchange contracts and cross-currency swaps. Our net position in foreign currencies is monitored daily. 32 Table of Contents Orion S.A We maintain risk management control practices to monitor foreign currency risk attributable to our intercompany and third party outstanding foreign currency balances.
Dollar in relation to the Euro (1) Increase by 10% Decrease by 10% In thousands FX gain (loss) in financial result $ 9.0 $ (11.0) (1) As of December 31, 2022: €1 = $1.0666 (U.S.). Some of our operations enter into transactions that are not denominated in their functional currency.
Dollar in relation to the Euro (1) Increase by 10% Decrease by 10% In thousands FX gain (loss) in financial result $ 8.8 $ (10.7) (1) As of December 31, 2023: €1 = $1.105 (U.S.). Some of our operations enter into transactions that are not denominated in their functional currency.
The effect of this hypothetical change in the interest rate of the variable rate loan on our consolidated Income before earnings in affiliated companies and income taxes ("income before taxes" in this section) for the year ended December 31, 2022 is as follows: December 31, 2022 Increase by 0.50% Decrease by 0.50% In millions (Increase) decrease in interest expense $ (0.7) $ 0.8 Increase (decrease) in total comprehensive income before taxes 0.7 (0.8) 33 Orion Engineered Carbons S.A Foreign Currency Risk A significant portion of our reporting entities use the euro as their functional currency.
The effect of this hypothetical change in the interest rate of the variable rate loan to our Consolidated Statements of Operations, Income before earnings in affiliated companies and income taxes ("income before taxes" in this section) is as follows: December 31, 2023 Increase by 0.50% Decrease by 0.50% In millions (Increase) decrease in interest expense $ (4.3) $ 4.4 Increase (decrease) in total comprehensive income before taxes 4.3 (4.4) Foreign Currency Risk A significant portion of our reporting entities use the euro as their functional currency.
We believe that our contracts enable us to generally maintain our Segment Adjusted EBITDA Margins. 34 Orion Engineered Carbons S.A
We believe that our contracts enable us to generally maintain our Segment Adjusted EBITDA Margins. 33 Table of Contents Orion S.A
The table below shows the sensitivity of our interest expense to changes in the interest rate, after the impact of hedge accounting. It shows the change resulting from a hypothetical fluctuation in the three-month LIBOR of 50 basis points (0.50%) as of December 31, 2022, assuming that all other variables remain unchanged.
It shows the change resulting from a hypothetical fluctuation of 50 basis points (0.50%) in the three-month LIBOR and the USD Term SOFR 3M + CAS (Credit Adjustment Spread) as of December 31, 2023, assuming that all other variables remain unchanged.
Added
The table below shows the sensitivity of our interest expense to changes in the interest rate, after the impact of hedge accounting.

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