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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
ORION ENGINEERED CARBONS S.A.
oec-20220331_g1.jpg
(Exact name of registrant as specified in its charter)
Grand Duchy of Luxembourg001-3656300-0000000
(State or other jurisdiction of incorporation or organization)
(Commission file number)
(I.R.S. Employer Identification No.)
1700 City Plaza Drive, Suite 300
Spring
Texas
77389
(Address of Principal Executive Offices)
(Zip Code)
(281) 318-2959
Registrant's telephone number, including area code

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

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

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

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

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

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

The registrant had 60,749,265 shares of common stock outstanding as of May 2, 2022.



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





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


Condensed Consolidated Statements of Operations
Three Months Ended March 31,
20222021
(In millions, except share and per share amounts)
Net sales$484.5 $360.1 
Cost of sales366.6 257.6 
Gross profit117.9 102.5 
Selling, general and administrative expenses57.5 52.4 
Research and development costs5.5 4.7 
Other expenses, net0.3 2.5 
Income from operations54.6 42.9 
Interest and other financial expense, net8.4 10.0 
Reclassification of actuarial losses from AOCI 1.2 
Income before earnings in affiliated companies and income taxes46.2 31.7 
Income tax expense13.8 8.3 
Earnings in affiliated companies, net of tax0.1 0.1 
Net income$32.5 $23.5 
Weighted-average shares outstanding (in thousands of shares):
Basic60,879 60,648 
Diluted61,019 60,812 
Earnings per share:
Basic$0.53 $0.39 
Diluted$0.53 $0.39 
See accompanying Notes to these Condensed Consolidated Financial Statements


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Orion Engineered Carbons S.A.
Condensed Consolidated Statements of Comprehensive Income
Three Months Ended March 31,
20222021
(In millions)
Net income$32.5 $23.5 
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments11.8 (5.1)
Net gains on derivatives13.0 1.2 
Defined benefit plans, net0.1 1.2 
Other comprehensive income (loss)24.9 (2.7)
Comprehensive income$57.4 $20.8 
See accompanying Notes to these Condensed Consolidated Financial Statements

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Orion Engineered Carbons S.A.
Condensed Consolidated Balance Sheets
March 31, 2022December 31, 2021
(In millions, except share amounts)
ASSETS
Current assets
Cash and cash equivalents$41.3 $65.7 
Accounts receivable, net373.6 288.9 
Inventories, net256.9 229.8 
Income tax receivables8.8 12.1 
Prepaid expenses and other current assets88.7 68.5 
Total current assets769.3 665.0 
Property, plant and equipment, net724.7 707.9 
Right-of-use assets94.8 84.6 
Goodwill76.4 78.0 
Intangible assets, net34.0 36.3 
Investment in equity method affiliates5.3 5.3 
Deferred income tax assets60.9 50.4 
Other assets3.2 3.5 
Total non-current assets999.3 966.0 
Total assets$1,768.6 $1,631.0 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable$208.0 $195.1 
Current portion of long term debt and other financial liabilities202.3 151.7 
Accrued liabilities36.5 50.9 
Income taxes payable19.4 16.9 
Other current liabilities44.6 34.1 
Total current liabilities510.8 448.7 
Long-term debt, net625.0 631.2 
Employee benefit plan obligation73.7 74.4 
Deferred income tax liabilities78.8 61.8 
Other liabilities102.9 95.2 
Total non-current liabilities880.4 862.6 
Commitments and contingencies
Stockholders' equity
Common stock
Authorized: 65,035,579 and 65,035,579 shares with no par value
Issued – 60,992,259 and 60,992,259 shares with no par value
Outstanding – 60,656,076 and 60,656,076 shares
85.3 85.3 
Treasury stock, at cost, 336,183 and 336,183
(6.3)(6.3)
Additional paid-in capital72.9 71.4 
Retained earnings249.1 217.8 
Accumulated other comprehensive loss(23.6)(48.5)
Total stockholders' equity377.4 319.7 
Total liabilities and stockholders' equity$1,768.6 $1,631.0 
TY
See accompanying Notes to these Condensed Consolidated Financial Statements
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Orion Engineered Carbons S.A.
Condensed Consolidated Statements of Cash Flows
878787878787878787
Three Months Ended March 31,
20222021
(In millions)
Cash flows from operating activities:
Net income$32.5 $23.5 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation of property, plant and equipment and amortization of intangible assets and right of use assets27.3 25.6 
Amortization of debt issuance costs0.4 0.5 
Share-based incentive compensation1.5 1.0 
Deferred tax (benefit) provision2.6 (2.1)
Foreign currency transactions(5.6)3.6 
Reclassification of actuarial losses from AOCI 1.2 
Other operating non-cash items, net 0.2 
Changes in operating assets and liabilities, net:
Trade receivables(83.6)(30.5)
Inventories(25.6)(19.8)
Trade payables20.7 11.4 
Other provisions(13.7)(7.9)
Income tax liabilities6.2 4.2 
Other assets and liabilities, net9.5 (9.1)
Net cash (used in) provided by operating activities(27.8)1.8 
Cash flows from investing activities:
Acquisition of intangible assets and property, plant and equipment(48.8)(27.2)
Net cash used in investing activities(48.8)(27.2)
Cash flows from financing activities:
Proceeds from long-term debt borrowings0.9  
Repayments of long-term debt(0.8)(2.1)
Cash inflows related to current financial liabilities90.4 35.5 
Cash outflows related to current financial liabilities(37.9)(7.8)
Dividends paid to shareholders(1.2) 
Net cash provided by financing activities51.4 25.6 
Increase (decrease) in cash, cash equivalents and restricted cash(25.2)0.2 
Cash, cash equivalents and restricted cash at the beginning of the period68.5 67.9 
Effect of exchange rate changes on cash0.7 (2.6)
Cash, cash equivalents and restricted cash at the end of the period44.0 65.5 
Less restricted cash at the end of the period2.7 2.9 
Cash and cash equivalents at the end of the period$41.3 $62.6 
See accompanying Notes to these Condensed Consolidated Financial Statements
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Orion Engineered Carbons S.A.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Common stockTreasury sharesAdditional paid-in capitalRetained earningsAccumulated other comprehensive lossTotal
(In millions, except per share amounts)NumberAmount
Balance at January 1, 202260,656,076 $85.3 $(6.3)$71.4 $217.8 $(48.5)$319.7 
Net income— — — — 32.5 — 32.5 
Other comprehensive income, net of tax— — — — — 24.9 24.9 
Dividends -$0.02per share— — — — (1.2)— (1.2)
Share based compensation— — — 1.5 — — 1.5 
Balance at March 31, 202260,656,076 $85.3 $(6.3)$72.9 $249.1 $(23.6)$377.4 

Balance at January 1, 202160,487,117 $85.3 $(8.5)$68.5 $84.4 $(48.7)$181.0 
Net income— — — — 23.5 — 23.5 
Other comprehensive loss, net of tax— — — — — (2.7)(2.7)
Share based compensation— — — 1.0 — — 1.0 
Issuance of stock under equity compensation plans103,409 — 1.2 (1.2)— —  
Balance at March 31, 202160,590,526 $85.3 $(7.3)$68.3 $107.9 $(51.4)$202.8 
See accompanying Notes to these Condensed Consolidated Financial Statements

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

oec-20220331_g1.jpg                6

Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
Note A. Organization, Description of the Business and Summary of Significant Accounting Policies    
Orion Engineered Carbons S.A.’s unaudited Condensed Consolidated Financial Statements include Orion Engineered Carbons S.A. and its subsidiaries (“Orion” or the “Company”). The unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the Consolidated Financial Statements included in our Annual Report in Form 10-K for the year ended December 31, 2021.
The accompanying unaudited Condensed Consolidated Financial Statements include all adjustments that are necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year.
Summary of Significant Accounting Policies
Adoption of accounting standards
Government Assistance (Topic 832)—On November 17, 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-10, Disclosures by Business Entities About Government Assistance, which requires business entities to provide certain disclosures when they have received government assistance and use a grant or contribution accounting model by analogy to other accounting guidance (e.g., a grant model under IAS 20, Accounting for Government Grants and Disclosure of Government Assistance; Assistance; ASC 958-605, Not-for-Profit Entities—Revenue Recognition). This ASU creates Accounting Standards Codification (“ASC”) Topic 832 (“ASC 832”). The guidance is effective for financial statements issued for annual periods beginning after December 15, 2021. Entities may apply the ASU’s provisions either (1) prospectively to all transactions within the scope of ASC 832 that are reflected in the financial statements as of the adoption date and all new transactions entered into after the date of adoption or (2) retrospectively.
We adopted this standard prospectively on January 1, 2022. The adoption of this standard did not materially impact our Consolidated Financial Statements or related disclosures.
Note B. Accounts Receivable
Accounts receivable, net of allowance for credit losses, are as follows:
March 31, 2022December 31, 2021
(In millions)
Accounts receivable$376.6 $291.5 
Expected credit losses(3.0)(2.6)
Accounts receivable, net of expected credit losses$373.6 $288.9 

Note C. Inventories
Inventories, net of reserves, are as follows:
March 31, 2022December 31, 2021
(In millions)
Raw materials, consumables and supplies, net$101.6 $97.1 
Work in process0.3 0.2 
Finished goods, net155.0 132.5 
Total$256.9 $229.8 
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Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
Note D. Debt and Other Obligations
The company financing arrangements are as follows:
March 31, 2022December 31, 2021
(In millions)
Current
Current portion of Term-Loan$3.0 $3.0 
Deferred debt issuance costs - Term-Loan(0.8)(0.8)
Other short-term debt and obligations200.1 149.5 
Current portion of long-term debt and other financial liabilities202.3 151.7 
Non-current
Term-Loan628.6 636.0 
Deferred debt issuance costs - Term Loan(4.5)(4.8)
BOC Term-loan0.9  
Long-term debt, net625.0 631.2 
Total $827.3 $782.9 
a.Revolving credit facility
To fund operating activities and generally safeguard the Company’s liquidity, the Company has entered into a revolving credit facility (“RCF”) of €250 million ($277.5 million). As of March 31, 2022, the total commitment of $278 million was split between an $89 million RCF tranche and $189 million of bilateral ancillary facilities established directly with several banks under the RCF.
As part of the RCF, the Company can establish ancillary credit facilities by converting the commitments of select lenders under the €250 million RCF into bilateral credit agreements. Original borrowings under ancillary credit facilities reduce availability under the RCF. Borrowings under ancillary credit facilities do not count toward debt drawn under the RCF for the purposes of determining whether the financial covenant under the Credit Agreement related to the RCF must be tested.
As of March 31, 2022, $55.5 million was outstanding under the RCF, and there were no borrowings under the RCF as of December 31, 2021. We classify amounts outstanding under the RCF as current in our Consolidated Balance Sheets as the borrowings are for short-term working capital needs, typically for one-month periods, and based on management’s intention to repay the amounts outstanding within one year from the date of drawing.
As of March 31, 2022 and December 31, 2021, unused availability under the RCF was $122.6 million and $166.7 million, respectively.
b.Local bank loans and other short-term borrowings
The local credit lines in Brazil and Korea are with local banks that are not lenders under the RCF and were negotiated bilaterally.
As of March 31, 2022 and December 31, 2021, the Company had the following ancillary facilities and uncommitted lines of credit outstanding:
March 31, 2022December 31, 2021
(In millions)
Ancillary credit facilities
Total capacity (€170 million)
$188.7 $192.5 
OEC GmbH outstanding borrowings$77.8 $103.0 
OEC LLC outstanding borrowings21.6 13.4 
Uncommitted local lines of credit:
Korea (capacity $39.1 million)
4.2 30.8 
Brazil (capacity $3.3 million)
3.3 2.3 
Repurchase agreement37.7  
RCF55.5  
Total of Other short-term debt and obligations$200.1 $149.5 
Repurchase Agreement—On March 15, 2022, we entered into a repurchase agreement to sell European Emission Allowance (“EUA”) certificates. Under the agreement, we sold 450 thousand EUA certificates for €33.5 million cash to a counterparty. The same counterparty has an obligation to resell, and we have the obligation to purchase, the same or substantially the same EUA certificates on January 27, 2023
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Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
for €34.0 million. The difference between the consideration received and the amount of consideration to be paid will be recognized as interest expense. At March 31, 2022, the amount outstanding was $37.7 million. Due to the short maturity, the carrying value approximates the fair value.
Bank of China—To partially finance our Huaibei facility in China, on March 16, 2022, our wholly owned subsidiary, Orion Engineered Carbons (Huaibei) Co., Ltd. (“OECCL”), entered into a 4.5% fixed interest rate, CNY500 million (approximately $80 million), eight year term-loan agreement with Bank of China (‘BOC Term-Loan”) maturing on December 21, 2029. OECCL is required to repay the BOC Term-Loan principal in semi-annual payments beginning June 2024. Interest is payable quarterly, beginning June 2022. The agreement restricts OECCL’s ability to make external investments or make intercompany loan repayments or dividend distributions. The principal repayments under the agreement are: 2% in 2024, 10% in 2025 and 22% each year thereafter, concluding in June 2029. The BOC Term-Loan is secured with the Huaibei facility’s land, construction in progress, and buildings as collateral.
As of March 31, 2022, we are in compliance with our debt covenants.
For additional information relating to our debt, see “Note J. Debt and Other Obligations”, included in our Annual Report in Form 10-K for the year ended December 31, 2021.
Note E. Financial Instruments and Fair Value Measurement
Risk management
We have policies governing the use of derivative instruments and do not enter into financial instruments for trading or speculative purposes.
By using derivative instruments, we are subject to credit and market risk. To minimize counterparty credit (or repayment) risk, we enter into transactions, primarily with investment grade financial institutions. The market risk exposure is not hedged in a manner to completely eliminate the effects of changing market conditions on earnings or cash flow. No significant concentration of credit risk existed as of March 31, 2022 or December 31, 2021.
Fair value measurement
The following table summarizes outstanding financial instruments that are measured at fair value on a recurring basis:
March 31, 2022December 31, 2021Balance Sheet Classification
Notional AmountFair ValueNotional AmountFair Value
(In millions)
Assets
Derivatives designated as hedges:
Cross currency swaps$197.0 $20.8 $197.0 $4.3 Prepaid expenses and other current assets
Total$197.0 $20.8 $197.0 $4.3 
Liabilities
Derivatives designated as hedges:
Interest rate swaps305.3 2.7 311.5 8.6 Other liabilities (non-current)
Total$305.3 $2.7 $311.5 $8.6 
All financial instruments in the table above are classified as Level 2. We present the gross assets and liabilities of our derivative financial instruments in the Consolidated Balance Sheets.
For financial assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period. There were no transfers of assets measured at fair value between Level 1 and Level 2 and there were no Level 3 investments during fiscal 2022 or 2021.
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Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
The following table presents the carrying value and estimated fair value of our financial instruments that are not measured at fair value on a recurring basis for the periods presented. Short-term and long-term debt are recorded at amortized cost in the Consolidated Balance Sheets.
March 31, 2022December 31, 2021
Notional AmountFair ValueNotional AmountFair Value
(In millions)
Non-derivatives:
Liabilities:
Term loan$639.0 $620.4 $639.0 $637.2 
Term Loan in the table above is classified as Level 2.
At both March 31, 2022 and December 31, 2021, the fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and short term borrowings and variable rate debt approximated their carrying values due to the short-term nature of these instruments.
The following tables summarize the pre-tax effect of derivative and non-derivative instruments recorded in Accumulated other comprehensive income (“AOCI”), the gains (losses) reclassified from AOCI to earnings and additional gains (losses) recognized directly in earnings:
Effect of Financial Instruments
Three Months Ended March 31, 2022
Gain (Loss) Recognized in AOCIGain (Loss) Reclassified from AOCI to IncomeIncome Statement Classification
(In millions)
Derivatives designated as hedges:
Cross currency swaps$12.6 $0.5 Interest and other financial expense, net
Interest rate swaps5.9  Interest and other financial expense, net
Total$18.5 $0.5 
Effect of Financial Instruments
Three Months Ended March 31, 2021
Gain (Loss) Recognized in AOCIGain (Loss) Reclassified from AOCI to IncomeIncome Statement Classification
(In millions)
Derivatives designated as hedges:
Cross currency swaps$0.8 $ Interest and other financial expense, net
Interest rate swaps0.7  Interest and other financial expense, net
Total$1.5 $ 
Our cross currency swaps designated as a cash flow hedge of principal and interest payments related to our Term Loan mature in September 2028. The amount recognized in AOCI related to cash flow hedges that will be reclassified to the Consolidated Statement of Operations in the next twelve months is approximately $1.8 million.
See “Note K. Financial Instruments and Fair Value Measurement”, included in our Annual Report in Form 10-K for the year ended December 31, 2021, for additional information relating to our derivatives instruments.
Note F. Employee Benefit Plans
Provisions for pensions are established to cover benefit plans for retirement, disability and surviving dependents’ pensions. The benefit obligations vary depending on the legal, tax and economic circumstances in various countries in which the Company operates. Generally, the level of benefit depends on the length of service and the remuneration.
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Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
Net periodic defined benefit pension benefit costs include the following:
Three Months Ended March 31,
20222021
(In millions)
Service cost$0.3 $0.3 
Interest cost0.4 0.3 
Amortization of actuarial loss 1.2 
Net periodic pension cost$0.7 $1.8 
Service costs were recorded within Income from operations in Selling, general and administrative expenses, and interest cost in Interest and other financial expense, net.
The amortization of actuarial losses, associated with the pension obligations recorded in prior years, in accumulated other comprehensive income exceeding 10% of the defined benefit obligation are recorded ratably in the Condensed Consolidated Statements of Operations.
Note G. Accumulated Other Comprehensive Income/(Loss)
Changes in each component of Accumulated other comprehensive income (loss) (“AOCI”), net of tax, are as follows:
Currency Translation AdjustmentsHedging Activities AdjustmentsPension and Other Postretirement Benefit Liability AdjustmentTotal
(In millions)
Balance at January 1, 2022$(34.1)$(10.8)$(3.6)$(48.5)
Other comprehensive income before reclassifications11.2 18.7  29.9 
Income tax effects before reclassifications0.6 (6.0) (5.4)
Currency translation AOCI 0.3 0.1 0.4 
Balance at March 31, 2022$(22.3)$2.2 $(3.5)$(23.6)

Balance at January 1, 2021$(26.5)$(13.5)$(8.7)$(48.7)
Other comprehensive loss before reclassifications(4.7)0.9  (3.8)
Income tax effects before reclassifications(0.4)(0.3) (0.7)
Amounts reclassified from AOCI  1.2 1.2 
Income tax effects on reclassifications  (0.4)(0.4)
Currency translation AOCI 0.6 0.4 1.0 
Balance at March 31, 2021$(31.6)$(12.3)$(7.5)$(51.4)
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Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
Note H. Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income attributable to Orion by the weighted average number of common stock outstanding during the period. Diluted EPS equals net income attributable to Orion divided by the weighted average number of common stock outstanding during the period, adjusted for the dilutive effect of our stock–based and other equity compensation awards.
The following table reflects the income and share data used in the basic and diluted EPS computations:
Three Months Ended March 31,
20222021
(In millions, except share and per share amounts)
Net income attributable to ordinary equity holders$32.5 $23.5 
Weighted average number of ordinary shares60,879 60,648 
Basic EPS$0.53 $0.39 
Dilutive effect of share based payments140 164 
Weighted average number of diluted ordinary shares61,019 60,812 
Diluted EPS$0.53 $0.39 
Note I. Income Taxes
The Company records its tax provision or benefit on an interim basis using an estimated annual effective tax rate. This rate is applied to the current period ordinary income to determine the income tax provision or benefit allocated to the interim period. Losses from jurisdictions for which no benefit can be recognized, and the income tax effects of unusual and infrequent items are excluded from the estimated annual effective tax rate and are recognized in the impacted interim period as discrete items. Valuation allowances are provided against any future tax benefits that arise from losses in jurisdictions for which no benefit can be recognized. The estimated annual effective tax rate may be significantly impacted by nondeductible expenses and by the Company’s projected earnings mix by tax jurisdiction. Adjustments to the estimated annual effective income tax rate are recognized in the period when such estimates are revised.
Income tax expense for the three months ended March 31, 2022 and 2021 were $13.8 million and $8.3 million, respectively.
Our effective income tax rates were as follows:
Three Months Ended March 31,
20222021
Effective income tax rates29.8 %26.0 %
The increase in our effective tax rate for the three months ended March 31, 2022 as compared to the three-months ended March 31, 2021, was primarily attributable to the projected earnings mix by geography and tax jurisdiction.
Note J. Commitments and Contingencies
Environmental Matters
Restructuring—In 2016, the Company ceased operations at its plant in Ambes, France as part of the restructuring of its Rubber business segment. Expenses related to the closing include personnel costs, demolition, removal costs and remediation costs. Total estimated and recognized costs and total remaining costs to be paid as of March 31, 2022 are $44.3 million and $7.8 million, respectively. Orion's reserves for restructuring of its Rubber segment in 2022 are reflected in Accrued liabilities on the Consolidated Balance Sheets. Orion has accrued liabilities for personnel expenses of $2.3 million and $2.6 million, and for ground remediation costs of $5.5 million and $6.7 million, as of March 31, 2022 and December 31, 2021, respectively.
Environmental Reserves—Our accrued liability for future environmental reserves at our current and former plant sites and other sites totaled $6.6 million and $7.8 million as of March 31, 2022 and December 31, 2021, respectively. Environmental-related costs are expected to occur over a number of years and are not concentrated in any single year. In our opinion, it is reasonably possible that losses in excess of the liabilities recorded will be incurred. However, we cannot estimate any amount or range of such possible additional losses. New information about sites, new technology or future developments, such as involvement in investigations by regulatory agencies, could require us to reassess our potential exposure related to environmental matters.
Legal Proceedings—We are subject to various lawsuits and claims including, but not limited to, matters involving contract disputes, environmental damages, personal injury and property damage. We vigorously defend ourselves and prosecute these matters as appropriate.
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Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
We regularly assess the adequacy of legal accruals based on our professional judgment, experience and the information available regarding our cases.
Based on a consideration of all relevant facts and circumstances, we do not believe the ultimate outcome of any currently pending lawsuit against us will have a material adverse effect upon our operations, financial condition or Consolidated Financial Statements.
EPA Action—During 2008 and 2009, the U.S. Environmental Protection Agency (“EPA”) contacted all U.S. carbon black producers as part of an industry-wide EPA initiative, requesting extensive and comprehensive information under Section 114 of the U.S. Clean Air Act. The EPA used that information to determine, for each facility, that either: (i) the facility has been in compliance with the Clean Air Act; (ii) violations have occurred, and enforcement litigation may be undertaken; or (iii) violations have occurred, and a settlement of an enforcement case is appropriate. In response to information requests received by the Company’s U.S. facilities, the Company furnished information to the EPA on each of its U.S. facilities. The EPA subsequently sent notices under Section 113(a) of the Clean Air Act in 2010 alleging violations of Prevention of Significant Deterioration (“PSD”) and Title V permitting requirements under the Clean Air Act at the Company’s Belpre (Ohio) facility. In October 2012, the Company received a corresponding notice and finding of violation (a “NOV”) alleging the failure to obtain PSD and Title V permits reflecting Best Available Control Technology (“BACT”) at several units of the Company’s Ivanhoe (Louisiana) facility, and in January 2013, the Company also received an NOV issued by the EPA for its facility in Borger (Texas) alleging the failure to obtain PSD and Title V permits reflecting BACT during the years 1996 to 2008. A comparable NOV for the Company’s U.S. facility in Orange (Texas) was issued by the EPA in February 2013, and the EPA issued an additional NOV in March 2016 alleging more recent non-PSD air emissions violations primarily at the dryers and the incinerator of the Orange facility.
In 2013, Orion began discussions with the EPA and the U.S. Department of Justice (“DOJ”) about a potential settlement to resolve the NOVs received, which ultimately led to a consent decree executed between Orion Engineered Carbons LLC (“Orion LLC” for purposes of this Note J.) and the United States (on behalf of the EPA), as well as the Louisiana Department of Environmental Quality. The consent decree (the “EPA CD”) became effective on June 7, 2018. The EPA CD resolves and settles the EPA’s claims of noncompliance set forth in the NOVs and in a respective complaint filed in court against Orion by the United States immediately prior to the filing of the consent decree.
Under the EPA CD, Orion LLC is installing certain pollution control technology in order to further reduce emissions at its four U.S. manufacturing facilities in Ivanhoe (Louisiana), Belpre (Ohio), Borger (Texas), and Orange (Texas) over approximately five years. The EPA CD also requires continuous monitoring of emissions reductions that Orion LLC will need to comply with over a number of years. In addition, the EPA CD required Orion LLC to pay a fine of $0.8 million and perform other environmental mitigation projects that are not anticipated to be material. As part of Orion LLC’s compliance plan under the EPA CD, in April 2018, Orion LLC signed a contract with Haldor Topsoe group to install its SNOXTM emissions control technology to remove SO2, NOx and dust particles from tail gases at Orion LLC’s Ivanhoe, Louisiana Carbon Black production plant. In 2021, the construction projects at the Ivanhoe (Louisiana) and Orange (Texas) facilities were completed. Under the EPA CD, Orion LLC can choose either its Belpre or Borger facilities as the next site for installation of pollution control equipment with comparable effectiveness. We have started construction on both the Belpre and Borger facilities.
While the construction at Orange was completed according to schedule, the construction at the Ivanhoe facility was subject to COVID-19 and Hurricane Ida-related delays. As a result, we have declared force majeure with respect to the EPA CD and received an extension of the timeline for completion of installations. Orion has successfully commissioned the new emissions control equipment at Ivanhoe within the extended timeline under the amended EPA CD.
As of March 31, 2022, we have spent $229 million on capital expenditures related to the EPA CD of which approximately $80 million was received as an indemnity payment from Evonik. For further discussion refer to “Note Q. Commitments and Contingencies”, included in our Annual Report in Form 10-K for the year ended December 31, 2021.
Pledges and guarantees
The Company has pledged the majority of its assets (amongst others shares in affiliates, bank accounts and receivables) within the different regions excluding China as collateral under the debt agreements. As of March 31, 2022, the Company had guarantees totaling $15.5 million issued by various financial institutions.
Note K. Financial Information by Segment
Segment information
We disclose the results of each of our operating segments in accordance with ASC 280, Segment Reporting. We manage our business in two operating segments as follows:
Rubber Carbon Black—Used in the reinforcement of rubber in tires and mechanical rubber goods.
Specialties—Used as pigments and performance additives in coatings, polymers, batteries, printing and special applications.
Corporate includes income and expenses that cannot be directly allocated to the business segments or that are managed at the corporate level including: finance income and expenses, taxes and items with less bearing on the underlying core business.
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Orion Engineered Carbons S.A
Notes to the Condensed Consolidated Financial Statements—(continued)
Discrete financial information is available for each of the segments, and the Chief Operating Decision Maker (“CODM”) uses operating results of each operating segment for performance evaluation and resource allocation.
Our CODM uses Adjusted EBITDA as the primary measure for reviewing our segment profitability. We define Adjusted EBITDA as income from operations before depreciation and amortization, restructuring expenses, consulting fees related to Company strategy, gain related to legal settlements, and includes equity earnings (loss) in affiliated companies, net of tax.
The CODM does not review reportable segment asset or liability information for purposes of assessing performance or allocating resources.
Segment operating results for the three months ended March 31, 2022 and 2021 are as follows:
RubberSpecialtiesCorporateTotal Segments
(In millions)
2022
Net sales from external customers$306.9 $177.6 $ $484.5 
Adjusted EBITDA40.7 42.5  83.2 
Corporate charges— — (1.2)(1.2)
Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment(16.5)(10.8)— (27.3)
Excluding equity in earnings of affiliated companies, net of tax(0.1)— — (0.1)
Interest and other financial expense, net(8.4)(8.4)
Income before earnings in affiliated companies and income taxes$46.2 
2021
Net sales from external customers$215.9 $144.2 $ $360.1 
Adjusted EBITDA31.2 39.7  70.9 
Corporate charges— — (2.3)(2.3)
Depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment(14.3)(11.3)— (25.6)
Excluding equity in earnings of affiliated companies, net of tax(0.1)— — (0.1)
Interest and other financial expense, net(10.0)(10.0)
Reclassification of actuarial losses from AOCI(1.2)(1.2)
Income before earnings in affiliated companies and income taxes$31.7 
Expense from operations before income taxes and finance costs of the segment “Corporate” comprises the following:
Three Months Ended March 31,
20222021
(In millions)
Long Term Incentive Plan$1.5 $1.0 
EPA-related expenses 1.7 
Other non-operating(0.3)(0.4)
Corporate Charges1.2 2.3 
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Orion Engineered Carbons S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis summarizes the significant factors affecting our results of operations and financial condition during the three months ended March 31, 2022 and 2021 and should be read in conjunction with the information included under Item 1. Financial Statements and Supplementary Data (Unaudited) elsewhere in this report. We prepare our financial statements in accordance with accounting principles generally accepted in the United States (‘GAAP”).
PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION
Non-GAAP Financial Measures
We present certain financial measures that are not prepared in accordance with GAAP or the accounting standards of any other jurisdiction and which may not be comparable to other similarly titled measures of other companies. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, see section Reconciliation of Non-GAAP Financial Measures below.
These non-GAAP measures are, but are not limited to, Contribution Margin, Contribution Margin per metric ton (collectively, “Contribution Margins”), Adjusted EBITDA, Net Working Capital and Capital Expenditures. We define Contribution Margin as revenue less variable costs (such as raw materials, packaging, utilities and distribution costs). We define Contribution Margin per Metric Ton as Contribution Margin divided by volume measured in metric tons. We define Adjusted EBITDA as income from operations before depreciation and amortization, restructuring expenses, consulting fees related to Company strategy, gain related to legal settlement, and includes equity earnings (loss) in affiliated companies, net of tax. Adjusted EBITDA is used by our management to evaluate our operating performance and make decisions regarding allocation of capital, because it excludes the effects of items that have less bearing on the performance of our underlying core business. We define Net Working Capital as inventories plus current trade receivables minus trade payables. We define Capital Expenditures as cash paid for the acquisition of intangible assets and property, plant and equipment as shown in the Condensed Consolidated Financial Statements.
We also use Segment Adjusted EBITDA Margin, which we define as Adjusted EBITDA for the relevant segment divided by the revenue for that segment.
We use Adjusted EBITDA as an internal measure of performance to benchmark and compare performance among our own operations. We use these measures, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of our business. We believe these measures are useful measures of financial performance, in addition to consolidated net income for the period, income from operations and other profitability measures under GAAP, because they facilitate operating performance comparisons from period to period and company to company and, with respect to Contribution Margin, eliminate volatility in feedstock prices. By eliminating potential differences in results of operations between periods or companies caused by factors such as depreciation and amortization methods, historic cost and age of assets, financing and capital structures and taxation positions or regimes, Adjusted EBITDA provides a useful additional basis for comparing the current performance of the underlying operations being evaluated. For these reasons, EBITDA-based measures are often used by the investment community as a means of comparison of companies in our industry. By deducting variable costs (such as raw materials, packaging, utilities and distribution costs) from revenue, we believe that Contribution Margins can provide a useful basis for comparing the current performance of the underlying operations being evaluated by indicating the portion of revenue that is not consumed by these variable costs and therefore contributes to the coverage of all costs and profits.
Different companies and analysts may calculate measures based on EBITDA, contribution margins and working capital differently, so making comparisons among companies on this basis should be done carefully. Adjusted EBITDA, Contribution Margins and Net Working Capital are not measures of performance under GAAP and should not be considered in isolation or construed as substitutes for revenue, consolidated net income for the period, income from operations, gross profit or other GAAP measures as an indicator of our operations in accordance with GAAP.
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Orion Engineered Carbons S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Reconciliation of Non-GAAP Financial Measures
Contribution Margin and Contribution Margin per Metric Ton (Non-GAAP Financial Measures)
Reconciliation of Contribution margin and Contribution margin per metric ton to Gross profit is as follows:
Three Months Ended March 31,
20222021
(In millions, unless otherwise indicated)
Revenue
$484.5 $360.1 
Variable costs
317.2 213.0 
Contribution margin167.3 147.1 
Freight27.4 22.5 
Fixed costs
(76.8)(67.1)
Gross profit$117.9 $102.5 
Volume (in kmt)253.2 254.1 
Contribution margin per metric ton $660.7 $578.9 
Gross profit per metric ton$465.6 $403.5 
Adjusted EBITDA (A Non-GAAP Financial Measure)
Reconciliation of Adjusted EBITDA to consolidated Net income is as follows:
Three Months Ended March 31,
20222021
(In millions)
Net income$32.5 $23.5 
Add back income tax expense13.8 8.3 
Add back equity in earnings of affiliated companies, net of tax(0.1)(0.1)
Income before earnings in affiliated companies and income taxes46.2 31.7 
Add back interest and other financial expense, net8.4 10.0 
Add back reclassification of actuarial losses from AOCI— 1.2 
Income from operations54.6 42.9 
Add back depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment27.3 25.6 
EBITDA 81.9 68.5 
Equity in earnings of affiliated companies, net of tax0.1 0.1 
Long term incentive plan1.5 1.0 
EPA-related expenses— 1.7 
Other adjustments(0.3)(0.4)
Adjusted EBITDA$83.2 $70.9 
Adjusted EBITDA Specialty Carbon Black
$42.5 $39.7 
Adjusted EBITDA Rubber Carbon Black
$40.7 $31.2 
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Orion Engineered Carbons S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Operating Results
For the three months ended March 31, 2022 compared to three months ended March 31, 2021
The table below presents our historical results derived from our Condensed Consolidated Financial Statements for the periods indicated.
Condensed Consolidated Statement of Operations DataThree Months Ended March 31,Year-Over Year
20222021Delta
(In millions)%
Net sales$484.5 $360.1 $124.4 34.5 
Cost of sales366.6 257.6 109.0 42.3 
Gross profit117.9102.515.415.0 
Selling, general and administrative expenses57.552.45.19.7 
Research and development costs5.54.70.817.0 
Other expenses, net0.32.5(2.2)(88.0)
Income from operations54.642.911.727.3 
Interest and other financial expense, net8.410.0(1.6)(16.0)
Reclassification of actuarial losses from AOCI1.2(1.2)(100.0)
Income before earnings in affiliated companies and income taxes46.231.714.545.7 
Income tax expense13.88.35.566.3 
Earnings in affiliated companies, net of tax0.10.1— 
Net income$32.5 $23.5 $9.0 38.3 
Net sales
Net sales increased by $124.4 million, or 34.5%, in the first quarter of 2022 to $484.5 million, compared to the first quarter of 2021, primarily driven by pricing and favorable product mix in both segments, partially offset by lower Specialty Carbon Black sales volume and impact of unfavorable foreign currency translation.
Volume decreased by 0.9 kmt in the first quarter of 2022 to 253.2 kmt, compared to the first quarter of 2021, primarily due to lower volume in the Specialty Carbon Black segment, partially offset by higher demand in our Rubber Carbon Black segment.
Cost of sales
Cost of sales increased by $109.0 million, or 42.3%, to $366.6 million in the first quarter of 2022, compared to the first quarter of 2021, primarily due to higher raw material and production associated costs.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $5.1 million, or 9.7%, to $57.5 million in the first quarter of 2022, compared to the first quarter of 2021.
The increase was primarily driven by higher freight costs.
Income from operations
Income from operations increased by $11.7 million to $54.6 million in the first quarter of 2022, year over year, driven primarily by higher margins and favorable product mix, partially offset by lower sales volume in our Specialty Carbon Black segment and higher selling, general and administrative costs. Higher margins per ton resulted from price increases to recover environmental and reliability-related capital expenditures.
Income before earnings in affiliated companies and income taxes
Income from operations before income taxes and equity in earnings of affiliated companies in the first quarter of 2022 increased by $14.5 million, year over year, driven primarily by higher margins and favorable product mix, partially offset by lower sales volume in our Specialty Carbon Black segment and higher selling, general and administrative costs.
Provision for income taxes
For the three months ended March 31, 2022, the Company recognized income before provision for income taxes of $46.3 million, compared to $31.8 million in the three months ended March 31, 2021. The provision for income taxes was an expense of $13.8 million for the three months ended March 31, 2022, and $8.3 million for the three months ended March 31, 2021. The effective tax rate for the three
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Orion Engineered Carbons S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
months ended March 31, 2022, was 30%, as compared to 26% for the three months ended March 31, 2021. The increase in our effective tax rate for the three months ended March 31, 2022, relative to the three months ended March 31, 2021, was primarily attributable to the projected earnings mix by geography and tax jurisdiction as compared to the prior period.
Net income
Net income in the first quarter of 2022 increased by $9.0 million, year over year, primarily driven by higher margins and favorable product mix, partially offset by lower sales volumes in our Specialty Carbon Black segment, higher selling, general and administrative costs, and higher income taxes.
Contribution Margin and Contribution Margin per Metric Ton (Non-GAAP Financial Measures)
Contribution margin increased in the first quarter of 2022 by $20.2 million, or 13.7%, to $167.3 million, year over year. Contribution margin per metric ton increased by 14.1% to $660.7 per metric ton in the three months ended March 31, 2022.
The increase was primarily driven by higher margins and the impact of favorable product mix, partially offset by unfavorable impact of foreign currency translation.
Adjusted EBITDA (A Non-GAAP Financial Measure)
Adjusted EBITDA increased in the first quarter of 2022 by $12.3 million, or 17.3%, to $83.2 million, year over year.
The increase was driven by higher margins and the impact of favorable product mix, partially offset by lower Specialty Carbon Black sales volume and higher selling, general and administrative costs.
Segment Discussion
Our operations are managed through two reportable segments— Specialty Carbon Black and Rubber Carbon Black. We use Segment Adjusted EBITDA as measures of segment performance and profitability.
The table below presents our segment results derived from our unaudited Condensed Consolidated Financial Statements for the periods indicated.
Three Months Ended March 31,Year-Over Year
20222021Delta
(In millions, unless otherwise indicated)%
Specialty Carbon Black
Net sales$177.6 $144.2 $33.4 23.2 
Cost of sales120.0 90.8 29.2 32.2 
Gross profit$57.6 $53.4 $4.2 7.9 
Volume (kmt)65.6 71.4 (5.8)(8.1)
Adjusted EBITDA$42.5 $39.7 $2.8 7.1 
Adjusted EBITDA Margin (%)23.9 27.5 (3.6)(13.1)
Rubber Carbon Black
Net sales$306.9 $215.9 $91.0 42.1 
Cost of sales246.6 166.8 79.8 47.8 
Gross profit$60.3 $49.1 $11.2 22.8 
Volume (kmt)187.6 182.7 4.9 2.7 
Adjusted EBITDA$40.7 $31.2 $9.5 30.4 
Adjusted EBITDA Margin (%)13.3 14.4 (1.2)(8.2)
Specialty Carbon Black
Three months ended March 31, 2022 compared to three months ended March 31, 2021
Net sales of the Specialty Carbon Black segment increased by $33.4 million, or 23.2%, to $177.6 million, year over year, primarily driven by pricing and the impact of favorable product mix, partially offset by lower sales volume and the impact of unfavorable foreign currency translation.
Specialty Carbon Black segment volumes decreased by 5.8 kmt, or 8.1%, to 65.6 kmt, year over year. During the first quarter of 2022,
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Orion Engineered Carbons S.A.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
focus on high margin rubber products and supply chain issues resulted in lower specialty black volumes. During the first quarter of 2021, higher demand was driven by a sharp global economic recovery from 2020 COVID-19 induced economic downturn.
Gross profit of the Specialty Carbon Black segment increased by $4.2 million, or 7.9%, to $57.6 million, year over year, primarily driven by higher margins and the impact of favorable product mix, partially offset by lower sales volumes reflecting a decrease across nearly all applications. Higher margins per ton resulted from price increases to recover environmental and reliability-related capital expenditures.
Adjusted EBITDA of the Specialty Carbon Black segment increased by $2.8 million, or 7.1%, to $42.5 million, year over year, primarily driven by higher margins, and the impact of favorable product mix, partially offset by lower sales volume, and higher selling, general and administrative costs.
Year over year, Adjusted EBITDA margin decreased 360 basis points to 23.9%.
Rubber Carbon Black
Three months ended March 31, 2022 compared to three months ended March 31, 2021
Net sales increased by $91.0 million, or 42.1%, to $306.9 million, year over year, primarily due to pricing, impact of higher volume, and the impact of favorable product mix.
Rubber Carbon Black segment volumes increased by 4.9 kmt, or 2.7%, to 187.6 kmt, year over year.
Gross profit of the Rubber Carbon Black segment increased by $11.2 million, or 22.8%, to $60.3 million, year over year, primarily driven by higher margins, the impact of higher volume, and the impact of favorable product mix. Higher margins per ton resulted from price increases to recover environmental and reliability-related capital expenditures.
Rubber Carbon Black Adjusted EBITDA increased by $9.5 million, to $40.7 million, year over year, primarily due to higher margins, the impact of higher volume, and the impact of favorable product mix, partially offset by higher selling, general and administrative costs.
Adjusted EBITDA margin decreased 120 basis points to 13.3%, year over year, reflecting dilution from higher input costs..
Liquidity and Capital Resources
Historical Cash Flows
The tables below present our historical cash flows derived from our unaudited Condensed Consolidated Financial Statements for the periods indicated.
Three Months Ended March 31,
20222021
(In millions)
Net cash (used in) provided by operating activities$(27.8)$1.8 
Net cash used in investing activities(48.8)(27.2)
Net cash provided by financing activities51.4 25.6 
2022
Net cash used in operating activities during the three months ended March 31, 2022, was $27.8 million. The cash used in operating activities primarily reflects changes in working capital, partially offset by higher net income.
Net cash used in investing activities in the three months ended March 31, 2022, amounted to $48.8 million. These expenditures were comprised of a combination of safety, maintenance-related, and growth investments, as well as expenditures associated with our ongoing efforts to install emissions reduction technology to meet EPA requirements in the U.S.
Net cash provided by financing activities during the three months ended March 31, 2022, amounted to $51.4 million. Cash inflows during the three months of $52.5 million were primarily related to net drawings under our senior secured revolving credit facilities (“RCF”), partially offset by scheduled debt repayments. See “Note J. Debt and Other Obligations” included in the Annual Report in Form 10-K for the year ended December 31, 2021 for further discussion on Term-loan refinancing.
2021
Net cash provided by operating activities for the three months ended March 31, 2021, amounted to $1.8 million. The cash pro