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☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Grand Duchy of Luxembourg

001-36563

00-0000000

(State or other jurisdiction of incorporation or organization)

(Commission file number)

(I.R.S. Employer Identification No.)

4501 Magnolia Cove Drive Suite 106

Houston,

Texas

77345

(Address of Principal Executive Offices)

(Zip Code)

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Common Shares, no par value			OEC			New York Stock Exchange

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. ☐

PART I - Financial Information						1
Item 1. Financial Statements and Supplementary Data (Unaudited)						1
Consolidated Statements of Operations of Orion Engineered Carbons S.A. (Unaudited)						1
Consolidated Statements of Comprehensive Income of Orion Engineered Carbons S.A. (Unaudited)						2
Consolidated Balance Sheets of Orion Engineered Carbons S.A. (Unaudited)						3
Consolidated Statements of Cash Flows of Orion Engineered Carbons S.A. (Unaudited)						4
Consolidated Statements of Changes in Stockholders’ Equity of Orion Engineered Carbons S.A. (Unaudited)						5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations						25
Item 3. Quantitative and Qualitative Disclosures About Market Risk						37
Item 4. Controls and Procedures						38
PART II - Other Information						38
Item 1. Legal Proceedings						39
Item 1A. Risk Factors						39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						40
Item 3. Defaults Upon Senior Securities						40
Item 4. Mine Safety Disclosures						40
Item 5. Other						40
Item 6. Exhibits						41
SIGNATURES						42

Consolidated Statements of Operations of Orion Engineered Carbons S.A. (Unaudited)

						Three Months Ended September 30,												Nine Months Ended September 30,
						2020						2019						2020						2019
						(In thousands, except per share amounts)
Net sales						$	282,036					$	370,195					$	820,691					$	1,153,925
Cost of sales						202,854						271,481						617,372						853,204
Gross profit						79,182						98,714						203,319						300,721
Selling, general and administrative expenses						43,155						49,636						126,221						157,330
Research and development costs						7,352						4,793						16,757						14,836
Other expenses, net						4,527						3,189						11,529						10,167
Restructuring expenses						—						2,710						—						3,833
Income from operations						24,147						38,386						48,811						114,555
Interest and other financial expense, net						10,769						6,500						28,657						20,509
Reclassification of actuarial losses from AOCI						2,272						—						7,325						—
Income from operations before income tax expense and equity in earnings of affiliated companies						11,106						31,886						12,830						94,046
Income tax expense/(benefit)						2,250						7,767						4,006						26,515
Equity in earnings of affiliated companies, net of tax						141						134						426						424
Net income						$	8,997					$	24,253					$	9,250					$	67,955
Weighted-average shares outstanding (in thousands of shares):
Basic						60,487						60,212						60,408						59,907
Diluted						61,259						61,453						61,296						61,231
Earnings/(loss) per share:
Basic						$	0.15					$	0.40					$	0.15					$	1.13
Diluted						$	0.15					$	0.39					$	0.15					$	1.11
Dividends per share						$	—					$	0.20					$	0.20					$	0.60

						Three Months Ended September 30,												Nine Months Ended September 30,
						2020						2019						2020						2019
						(In thousands)
Net income/(loss)						$	8,997					$	24,253					$	9,250					$	67,955
Other comprehensive loss, net of tax
Foreign currency translation adjustments						(3,620)						(5,097)						(27,060)						(8,478)
Unrealized net gains/(losses) on hedges of a net investment in a foreign operation						(65)						72						(61)						72
Unrealized net losses on cash flow hedges						(1,133)						(396)						(3,399)						(6,996)
Gains on defined benefit plans						990						121						4,432						138
Other comprehensive loss						(3,829)						(5,300)						(26,087)						(15,264)
Comprehensive income/(loss)						$	5,168					$	18,953					$	(16,838)					$	52,691

																								September 30, 2020						December 31, 2019
																								(In thousands, except share amounts)
Current assets
Cash and cash equivalents																								$	97,536					$	63,726
Accounts receivable, net of expected credit losses
			of			$7,955			and			$6,632												215,407						212,565
Other current financial assets																								3,200						11,347
Inventories, net																								125,313						164,799
Income tax receivables																								10,061						17,924
Prepaid expenses and other current assets																								39,091						37,358
Total current assets																								490,606						507,718
Property, plant and equipment, net																								577,776						534,054
Operating lease right-of-use assets																								82,681						27,532
Goodwill																								80,604						77,341
Intangible assets, net																								47,056						50,596
Investment in equity method affiliates																								5,311						5,232
Deferred income tax assets																								60,120						48,720
Other financial assets																								706						2,501
Other assets																								2,971						3,701
Total non-current assets																								857,225						749,676
Total assets																								$	1,347,831					$	1,257,394

Current liabilities
Accounts payable												$	105,590					$	156,298
Current portion of long term debt and other financial liabilities												123,483						36,410
Current portion of employee benefit plan obligation												947						908
Accrued liabilities												39,620						44,931
Income taxes payable												19,645						14,154
Other current liabilities												39,148						32,509
Total current liabilities												328,433						285,211
Long-term debt, net												640,027						630,261
Employee benefit plan obligation												74,562						71,901
Deferred income tax liabilities												49,686						43,308
Other liabilities												97,953						40,701
Commitments and contingencies						Note N
Total non-current liabilities												862,228						786,171
Stockholders' equity
Common stock
Authorized: 65,035,579 and 65,035,579 shares with no par value
Issued – 60,992,259 and 60,729,289 shares with no par value
Outstanding – 60,487,117 and 60,224,147 shares												85,323						85,032
Less 505,142 and 505,142 shares of common treasury stock, at cost												(8,515)						(8,515)
Additional paid-in capital												65,311						65,562
Retained earnings												75,501						78,296
Accumulated other comprehensive loss												(60,449)						(34,362)
Total stockholders' equity												157,170						186,013
Total liabilities and stockholders' equity												$	1,347,831					$	1,257,394

						Three Months Ended September 30,												Nine Months Ended September 30,
						2020						2019						2020						2019
						(In thousands)
Cash flows from operating activities:
Net income						$	8,997					$	24,253					$	9,250					$	67,955
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation of property, plant and equipment and amortization of intangible assets						23,999						21,991						69,721						71,490
Amortization of debt issuance costs						530						512						1,531						1,602
Share-based incentive compensation						1,182						2,025						1,242						7,137
Deferred tax (benefit)/provision						(4,725)						3,847						(11,224)						1,773
Foreign currency transactions						(2,013)						2,230						(1,782)						2,520
Reclassification of actuarial losses from AOCI						2,272						—						7,325						—
Other operating non-cash items						(790)						862						118						5,154
Changes in operating assets and liabilities, net of effects of businesses acquired:
(Increase)/decrease in trade receivables						(66,152)						21,323						(6,682)						2,150
(Increase)/decrease in inventories						14,375						(2,210)						39,576						4,889
Increase/(decrease) in trade payables						14,080						(13,902)						(31,662)						(7,038)
Increase/(decrease) in provisions						2,633						3,301						(4,899)						(11,525)
Increase/(decrease) in tax liabilities						7,674						6,150						16,298						3,814
Increase/(decrease) in other assets and liabilities that cannot be allocated to investing or financing activities						(324)						(1,844)						3,541						(7,254)
Net cash provided by operating activities						$	1,738					$	68,538					$	92,352					$	142,667
Cash flows from investing activities:
Cash paid for the acquisition of intangible assets and property, plant and equipment						$	(30,942)					$	(34,452)					$	(120,343)					$	(95,309)
Net cash used in investing activities						$	(30,942)					$	(34,452)					$	(120,343)					$	(95,309)
Cash flows from financing activities:
Payments for debt issue costs						$	—					$	—					$	—					$	(1,721)
Repayments of long-term debt						(2,055)						(1,987)						(6,077)						(6,034)
Cash inflows related to current financial liabilities						39,690						9,724						191,041						88,411
Cash outflows related to current financial liabilities						(58,500)						(25,169)						(110,859)						(84,501)
Dividends paid to shareholders						—						(12,043)						(12,045)						(35,989)
Taxes paid for shares issued under net settlement feature						—						—						(1,202)						(6,475)
Net cash provided by/(used in) financing activities						$	(20,866)					$	(29,475)					$	60,858					$	(46,309)
Increase/(decrease) in cash, cash equivalents and restricted cash						$	(50,070)					$	4,611					$	32,867					$	1,049
Cash, cash equivalents and restricted cash at the beginning of the period						146,108						57,696						68,231						61,604
Effect of exchange rate changes on cash						4,357						(1,999)						(703)						(2,345)
Cash, cash equivalents and restricted cash at the end of the period						$	100,395					$	60,308					$	100,395					$	60,308
Less restricted cash at the end of the period						2,859						4,356						2,859						4,356
Cash and cash equivalents at the end of the period						$	97,536					$	55,952					$	97,536					$	55,952
Cash paid for interest, net						$	(5,246)					$	(6,527)					$	(14,752)					$	(15,693)
Cash (paid)/refund for income taxes						$	1,068					$	1,705					$	1,067					$	(16,175)
Supplemental disclosure of non-cash activity:
Liabilities for leasing - current						$	3,862					$	(1,148)					$	5,826					$	5,778
Liabilities for leasing - non-current						$	51,191					$	1,113					$	57,834					$	25,068

												Common stock
(In thousands, except per share amounts)												Number of common shares						Amount						Treasury shares						Additional paid-in capital						Retained earnings						Accumulated other comprehensive loss						Total equity
Balance at January 1, 2020												60,224,147						$	85,032					$	(8,515)					$	65,562					$	78,296					$	(34,362)					$	186,013
Net income												—						—						—						—						18,032						—						18,032
Other comprehensive loss, net of tax												—						—						—						—						—						(22,844)						(22,844)
Dividends paid -						$0.20			per share			—						—						—						—						(12,045)						—						(12,045)
Share based compensation												—						—						—						(2,632)						—						—						(2,632)
Issuance of stock under equity compensation plans												262,970						291						—						—						—						—						291
Balance at March 31, 2020												60,487,117						$	85,323					$	(8,515)					$	62,930					$	84,283					$	(57,206)					$	166,815
Net loss												—						—						—						—						(17,780)						—						(17,780)
Other comprehensive income, net of tax												—						—						—						—						—						585						585
Share based compensation												—						—						—						1,199						—						—						1,199
Balance at June 30, 2020												60,487,117						$	85,323					$	(8,515)					$	64,128					$	66,504					$	(56,621)					$	150,819
Net income												—						—						—						—						8,997						—						8,997
Other comprehensive loss, net of tax												—						—						—						—						—						(3,829)						(3,829)
Share based compensation												—						—						—						1,182						—						—						1,182
Balance at September 30, 2020												60,487,117						$	85,323					$	(8,515)					$	65,311					$	75,501					$	(60,449)					$	157,170

												Common stock
(In thousands, except per share amounts)												Number of common shares						Amount						Treasury shares						Additional paid-in capital						Retained earnings						Accumulated other comprehensive loss						Total equity
Balance at January 1, 2019												59,518,498						$	84,254					$	(8,683)					$	63,544					$	39,409					$	(19,628)					$	158,896
Net income												—						—						—						—						18,954						—						18,954
Other comprehensive loss, net of tax												—						—						—						—						—						(709)						(709)
Dividends paid -						$0.20			per share			—						—						—						—						(11,904)						—						(11,904)
Share based compensation												—						—						—						3,553						—						—						3,553
Balance at March 31, 2019												59,518,498						$	84,254					$	(8,683)					$	67,097					$	46,459					$	(20,337)					$	168,790
Net income												—						—						—						—						24,748						—						24,748
Other comprehensive loss, net of tax												—						—						—						—						—						(9,255)						(9,255)
Dividends paid -						$0.20			per share			—						—						—						—						(12,042)						—						(12,042)
Share based compensation												—						—						—						(5,737)						—						—						(5,737)
Issuance of stock under equity compensation plans												693,710						778						—						43						—						—						821
Balance at June 30, 2019												60,212,208						$	85,032					$	(8,683)					$	61,403					$	59,165					$	(29,592)					$	167,325
Net income												—						—						—						—						24,253						—						24,253
Other comprehensive loss, net of tax												—						—						—						—						—						(5,300)						(5,300)
Dividends paid -						$0.20			per share			—						—						—						—						(12,043)						—						(12,043)
Share based compensation												—						—						—						2,025						—						—						2,025
Balance at September 30, 2019												60,212,208						$	85,032					$	(8,683)					$	63,428					$	71,375					$	(34,892)					$	176,260

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

Note A.    Organization, Description of the Business and Summary of Significant Accounting Policies    

    Orion Engineered Carbons S.A.’s unaudited condensed consolidated financial information 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 on Form 10-K for the fiscal year ended December 31, 2019. 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.

The Company is a leading global manufacturer of carbon black products and is incorporated in Luxembourg. Carbon black is a powdered form of carbon that is used to create the desired physical, electrical and optical qualities of various materials. Carbon black products are primarily used as consumables and additives for the production of polymers, printing inks and coatings (“Specialty Carbon Black” or “Specialties”) and in the reinforcement of rubber polymers (“Rubber Carbon Black” or “Rubber”).

The Company manufactures Specialty Carbon Black for a broad range of specialized applications such as polymers, printing systems and coatings applications. The various production processes result in a wide range of different Specialty Carbon Black pigment grades with respect to their primary particle size, structure surface area and surface chemistry. These parameters affect jetness, tinting strength, undertone, dispersibility, oil absorption, electrical conductivity and other characteristics.

The types of Rubber Carbon Black used in the rubber industry are manufactured according to strict specifications and quality standards. Structure and specific surface area are the key factors in optimizing reinforcement properties in rubber polymers.

    As of September 30, 2020, the Company operates 13 wholly owned production facilities in Europe, North and South America, Asia and South Africa. Additionally, the Company operates a joint venture with one production facility in Germany.

The Company's global presence enables it to supply Specialty Carbon Black customers as well as international customers in the tire and rubber industry with the full range of carbon black grades.

In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments (ASU 2020-03). The amendments in this update affect a wide variety of topics in the codification and represent changes to clarify or improve the codification. The amendments make the codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. Issues 1, 2, 4 and 5 within the standard are conforming amendments and are effective upon issuance of ASU 2020-03. Issue 3 is also a conforming amendment and is effective for fiscal years beginning after December 15, 2019. Issues 6 and 7 relate to ASU No. 2016-13 and are effective for fiscal years beginning after December 15, 2019 since Orion previously adopted ASU No. 2016-13 on January 1 2019. The Company adopted ASU 2020-03 as of January 1, 2020. The adoption of this guidance did not have any impact on the Company’s financial statements.

In February 2020, the FASB issued ASU No. 2020-02, Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842)- Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) (SEC Update) (ASU 2020-02). The new standard as it relates to Topic 326 is effective upon a registrant’s adoption of FASB ASC Topic 326 (adopted by Orion on January 1, 2019). The new standard is as it relates to Topic 842 is not applicable. The adoption of ASU 2020-02 did not have any impact on the Company’s financial statements.

In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses (ASU 2019-11). The amendments in this update represents changes to clarify, correct errors in, or improve the codification, and make the codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. For entities that have adopted ASU 2016-13, the amendments in ASU 2019-11 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in any interim period after the issuance of ASU 2019-11 as long as the entity has adopted the amendments in ASU No. 2016-13. The Company adopted ASU 2019-11 as of January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU No 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. The guidance changes the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. It eliminates requirements for certain disclosures that are no longer considered cost beneficial and requires new ones that the FASB considers pertinent. The guidance is effective for financial statements issued for fiscal years ending after December 15, 2020 for public business entities and fiscal years ending after December 15, 2021 for all other entities. Early adoption is permitted. Entities will apply the amendments retrospectively. The Company adopted ASU No 2018-14 as of January 1, 2020 The adoption of this guidance did not have a significant impact on the Company's financial statements.

Principles of consolidation

The consolidated financial statements include all subsidiaries indirectly or directly controlled by Orion. Entities are consolidated from the date Orion obtains control, which generally is the acquisition date, and are deconsolidated when control is lost.

Control is achieved when Orion is exposed, or has the right, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Orion re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of these three elements of control.

The Company’s consolidated financial statements are prepared in accordance with uniform accounting policies. Income and expenses, intercompany profits and losses, and receivables and liabilities between consolidated subsidiaries are eliminated.

Use of estimates

The preparation of consolidated financial statements in conformity U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.

Foreign currency translation

Foreign currency transactions are measured at the exchange rate at the date of initial recognition. Any gains or losses resulting from the valuation of foreign currency monetary assets and liabilities using the currency exchange rates as of the reporting date are recognized in other expenses, net.

Currency exchange differences relating to financing activities are recognized in interest and other financial income and interest and other financial expense.

The assets and liabilities of foreign operations with functional currencies different from the presentation currency U.S. dollars are translated using closing rates as of the reporting date. Income and expense items are translated at average monthly exchange rates for the respective period. The translation of equity is performed using historical exchange rates. The overall foreign currency impact from translating the statement of financial position and income statement of all the foreign entities is recognized in accumulated other comprehensive income (loss) ("AOCI").

Note B. Recent Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04). The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the potential impact the adoption of this standard will have on its financial statements.

In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments in this update clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments in this update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the potential impact the adoption of this standard will have on its financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

Note C. Leases

Orion has entered into lease contracts as a lessee and is not acting as a lessor. The vast majority of Orion’s lease contracts are concerning operational items such as rail cars, company cars, offices and office equipment.

The recorded right-of-use assets as of September 30, 2020 amounted to $82.7 million, and the corresponding lease liabilities amounted to $84.2 million, of which $11.5 million was recorded within other current liabilities and $72.7 million as other liabilities.    

The weighted remaining average minimum lease period is 17.0 years.

The undiscounted minimum lease payments are due in and reconcile to the discounted lease liabilities as follows:

						September 30, 2020
						(In thousands)
Next 12 months						$	11,550
1 to 2 years						10,804
2 to 3 years						10,519
3 to 4 years						9,529
4 to 5 years						8,989
More than 5 years						40,940
Total undiscounted minimum lease payments						92,330
Discount						(8,130)
Lease liability (current and non-current)						$	84,200

In September 2020, Orion commenced a district heating project with the utilities provider of its Cologne, Germany neighbor city of Hürth. The power plant is operated by Orion on a finance lease basis over a period of 25 years. During the third quarter of 2020 Orion recorded a right-of-use asset and a respective lease liability in an amount of $54.8 million. Finance lease costs for the three and nine months ended September 30, 2020 amounted to $0.6 million and $0.9 million and were immaterial for the three and nine months ended September 30, 2019, respectively. Operating lease costs for the three and nine months ended September 30, 2020 amounted in total to $2.9 million and $8.4 million, respectively, and were recorded as operating expenses under cost of sales, selling, general and administrative expenses and under research and development cost. The operating lease costs for the three and nine months ended September 30, 2019 recorded as operating expenses amounted in total to $2.7 million and $8.0 million, respectively, and were recorded under cost of sales, selling, general and administrative expenses and under research and development cost. Cash paid for amounts included in the measurement of lease liabilities from operating leases was $2.6 million and $2.3 million for the three months September 30, 2020 and 2019, respectively, and $7.0 million and $7.6 million for the nine months ended September 30, 2020 and 2019, respectively. Cash paid for finance leases was immaterial during the same periods.

In addition to the above, Orion entered into a forward-starting lease agreement in May 2020 for a new warehouse at our facility in Cologne, Germany. The lessor, a logistics and distribution service provider, is currently constructing the warehouse at our location, with the lease scheduled to commence by the end of 2020 after construction is completed. The lease agreement will have a total of approximately $6 million in undiscounted future lease payments over the 10-year term of the lease.

Note D. Inventories

Inventories, net of obsolete, unmarketable and slow-moving reserves are as follows:

			September 30, 2020						December 31, 2019
			(In thousands)
Raw materials, consumables and supplies, net			$	56,235					$	69,168
Work in process			201						148
Finished goods, net			68,876						95,483
Total			$	125,313					$	164,799

Orion periodically reviews inventories for both obsolescence and loss in value. In this review, Orion makes assumptions about the future demand for and the future market value of the inventory and, based on these assumptions, estimates the amount of obsolete, unmarketable or slow-moving inventory.

The company had the following accounts receivable as of September 30, 2020 and December 31, 2019:

			September 30, 2020						December 31, 2019
			(In thousands)
Accounts receivable			$	223,362					$	219,197
Expected credit losses			(7,955)						(6,632)
Accounts receivable, net of expected credit losses			$	215,407					$	212,565

The expected credit losses developed as follows in the periods indicated:

			Fiscal Year 2020						Fiscal Year 2019
			(In thousands)
Allowance for credit losses as of January 1,			$	(6,632)					$	(5,081)
Credit loss expense			(3,725)						(1,530)
Credit loss income and utilization			2,295						968
Foreign currency translation effects			106						295
Allowance for credit losses as of September 30,			$	(7,955)					$	(5,348)

Note F. Debt and Other Obligations

The company had the following debt arrangements in place as of September 30, 2020 and December 31, 2019:

			September 30, 2020						December 31, 2019
			(In thousands)
Current
Term loan			$	8,254					$	8,057
Deferred debt issuance costs - term loan(1)			(1,441)						(1,409)
Other short-term debt and obligations			116,670						29,762
Current portion of long term debt and other financial liabilities			123,483						36,410
Non-current
Term loan			643,883						634,994
Deferred debt issuance costs - term loan(1)			(3,856)						(4,733)
Long-term debt, net			640,027						630,261
Total			$	763,511					$	666,671

On July 25, 2014, Orion entered into a refinancing of its indebtedness. The initial term loan credit facility in U.S. Dollars of $895.0 million was allocated to a term loan facility denominated in U.S. Dollars of $358.0 million and a term loan facility denominated in Euros of €399.0 million with both having an original maturity date of July 25, 2021 (the “Term Loans”). Initial interest was calculated based on three-month EURIBOR (for the Euro denominated loan), or three-month USD-LIBOR (for the USD denominated loan) plus a 3.75% - 4.00% margin depending on the Company’s net leverage ratio. For both EURIBOR and USD-LIBOR a floor of 1.0% applied. At least 1% of the principal amount is required to be repaid per annum; Orion may make additional voluntary repayments. In the years 2015 to 2017 Orion executed several voluntary repayments totaling €56.0 million and $58.0 million.

Transaction costs incurred directly in connection with the incurrence of the Euro and U.S. Dollar denominated term loans, thereby reducing their carrying amount, are amortized as finance costs over the term of the loans. Transaction costs incurred in connection with the modifications of the term loan in the years 2016 to 2018 were directly expensed as incurred as the modified terms were not substantially different. In connection with the repricing described above further transaction costs of $0.7 million in 2018 and $3.5 million equivalent in 2017 and $2.1 million equivalent in 2016 were incurred and directly expensed. For the three and nine months ended September 30, 2020, an amount of $0.4 million and $1.1 million equivalent, respectively, related to capitalized transaction costs was amortized and recognized as finance costs in this regard (prior year: $0.4 million and $1.1 million equivalent, respectively).

On May 11, 2018, Orion entered into a $235.0 million cross currency swap to synthetically convert its U.S. Dollar liabilities into Euros to mitigate foreign currency risk. This swap transaction impacted both principal and interest payments associated with debt service and resulted in annual interest savings of approximately $4.7 million. The swap became effective on May 15, 2018 and will expire on July 25, 2024, in line with maturity of the term loan.

A portion of the U.S. Dollar-denominated term loan was designated as a hedge of the net investment in a foreign operation to reduce the Company's foreign currency exposure. Since January 1, 2015 the Company had designated $180.0 million of the total U.S. Dollar-denominated term loan held by a Germany based subsidiary as the hedging instrument to hedge the change in net assets of a US subsidiary, which is held by a Germany based subsidiary, to manage foreign currency risk. Due to the new hedging approach utilizing cross currency swap as described above, hedge accounting for the net investment hedge was discontinued in May, 2018. An unrealized loss of $2.2 million remains within other comprehensive income until it is recycled through profit and loss upon divestment of the hedged item.

The carrying value of the Term Loans as of September 30, 2020 includes their nominal amounts plus accrued unpaid interest less deferred debt issuance costs of $5.3 million (December 31, 2019: $6.1 million).

To fund operating activities and generally safeguard the Company’s liquidity, the Company has entered into a revolving credit facility (“RCF”).

As part of the July 25, 2014 refinancing the then-existing revolving facility was replaced by a €115.0 million multicurrency RCF with an original maturity date July 25, 2019. Interest is calculated based on EURIBOR (for EUR drawings), and USD-LIBOR (for USD drawings) plus 2.5% - 3.0% margin (depending on leverage ratio). Transaction costs of $3.3 million originally incurred in connection with the RCF were recorded as deferred expenses and amortized as finance costs on a straight-line basis over the term of the facility (until July 25, 2019).

An amendment to the Credit Agreement entered into on May 5, 2017 (i) reduced the commitment fee paid on the unused commitments from 40% of the Applicable Rate (as defined in the Credit Agreement) to 35% of the Applicable Rate, (ii) extended the maturity date for the RCF to April 25, 2021 and (iii) increased the aggregate amount of revolving credit commitments to €175.0 million. All other terms of the Credit Agreement remained unchanged.

Transaction costs in conjunction with the RCF of $2.3 million related to the 2017 amendment to the Credit Agreement are recorded as deferred expenses and amortized as finance costs on a straight-line basis over the term of the facility (until April 25, 2021).

On April 2, 2019, the Company entered into the eighth amendment (the “Eighth Amendment”) to the Credit Agreement, among the Company and certain of its subsidiaries, as Borrowers or Guarantors, the Lenders from time to time party thereto and Goldman Sachs Bank US, as administrative agent for the Lenders. The Eighth Amendment related to the RCF provided by the Credit Agreement and became effective on April 10, 2019.

(iii) reduced revolving credit interest expense by way of a revised pricing grid with lower Applicable Rates (credit spreads). As of September 30, 2020, the Company’s net leverage ratio was 3.4x, which corresponds to an Applicable Margin of 2.70%.

All other terms of the Credit Agreement relating to the RCF remained substantially unchanged, including the commitment fee, which remains at 35% of applicable margin. As of September 30, 2020, no RCF borrowings, as defined in the Credit Agreement, had been drawn, while $74.6 million in borrowings under ancillary facilities reduced the overall amount available under the RCF. For further details see Note F. (c) Local bank loans and other short-term borrowings.

During the three and nine months ended September 30, 2020, transaction costs of $0.2 million and $0.5 million, respectively, were amortized (prior year: $0.1 million and $0.5 million, respectively). Unamortized transaction costs that were incurred in conjunction with the RCF in July 2014, the amendment on May 30, 2017 and the amendment on April 2, 2019, amount to $3.0 million as of September 30, 2020. Unamortized transaction costs as of December 31, 2019 amounted to $3.4 million and were incurred in conjunction with the RCF in July 2014 and the amendment on May 30, 2017.

As of September 30, 2020, the Company had fully drawn its uncommitted local credit lines in Korea of $40.6 million and Brazil amounting to $1.4 million. Neither facility had any borrowings as of December 31, 2019.

The Company had also established ancillary credit facilities by converting the commitments of select lenders under the €250 million RCF into bilateral credit agreements (usually overdraft facilities). Borrowings under ancillary lines reduce availability under the RCF but do not count toward debt drawn under the RCF for the purposes of determining whether the financial covenant under the Credit Agreement must be tested.

As of September 30, 2020, the ancillary facilities had $74.6 million (as of December 31, 2019: $28.6 million) outstanding. The general terms of these ancillary credit facilities are linked to the terms in the RCF.

During the second quarter 2020 the Company established two additional ancillary facilities in an aggregate amount of €40 million (bringing the number of RCF banks with whom ancillary facilities have been established to six out of ten banks and total ancillary borrowings to €170 million). As of September 30, 2020, the Company had converted 68% of its RCF into ancillary capacity, resulting in an ability to borrow the full amount of commitments under the RCF at any net leverage level. Using exchange rates applicable for the quarter ended September 30, 2020, the €250 million RCF amounted to approximately $293 million.

Note G. Financial Instruments and Fair Value Measurement

The Company measures financial instruments, such as derivatives, at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the following fair value hierarchy based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 — Unadjusted quoted market prices in active markets for identical assets or liabilities that the entity can access at the measurement date.

Level 2 — Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices such as quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves), and market-corroborated inputs.

Level 3 — Unobservable inputs for the asset or liability.

For financial assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period.

The following table shows the fair value measurement at September 30, 2020 and December 31, 2019. All measurements are based on observable inputs such as interest rates and are classified as Level 2 within the fair value hierarchy:

			Fair Value Hierarchy						September 30, 2020						December 31, 2019
									(In thousands)
Receivables from hedges / derivatives									$	2					$	8,436
Prepaid expenses and other current assets			Level 2						—						8,434
Other financial assets (non-current)			Level 2						2						1
Liabilities from derivatives									$	16,911					$	9,425
Other current liabilities			Level 2						24						109
Other liabilities (non-current)			Level 2						16,887						9,316
Term loan			Level 2						$	652,138					$	643,051
Local bank loans			Level 2						$	116,670					$	29,762

			Three Months Ended September 30,												Nine Months Ended September 30,
			2020						2019						2020						2019
			(In thousands)
Service cost			$	287					$	301					$	856					$	1,030
Interest cost			298						419						875						1,276
Amortization of actuarial loss			2,272						—						7,325						—
Net periodic pension cost			$	2,857					$	720					$	9,056					$	2,306

Service costs were recorded within income from operations under selling, general and administrative expenses, interest cost in interest and other financial expense, net.

The actuarial losses associated with the pension obligations recorded in prior years in accumulated other comprehensive income exceeding 10% of the defined benefit obligation are recorded ratably over the current year through profit and loss separately from income from operations and amounted to $7.3 million in the nine months ended September 30, 2020.

There are also defined contribution pension plans in Germany and the United States for which our Group companies make regular contributions to off-balance sheet pension funds managed by third party insurance companies.

In South Korea, the Company’s pension plan provides, at the option of employees, for either projected benefit or defined contribution benefits. Plan assets relating to this plan reduce the pension provision disclosed.

Note I. Stock-Based Compensation

On an annual basis since 2015, the Company has implemented a long-term incentive plan ("LTIP") which grants awards to employees and officers selected by the Compensation Committee of the Board of Directors (the “Compensation Committee”). Performance-based Restricted Stock Unit (PSU) awards are earned based on achievement against one or more performance metrics established by the Compensation Committee in respect of a specified performance period. Earned PSUs range from zero to a specified maximum percentage of a participant’s target award based on the performance of applicable performance metrics, and are subject to vesting terms based on continued employment.

The first performance period ran from January 1, 2015 through December 31, 2017, with PSUs earned based on achievement of EBITDA metrics established by the Compensation Committee and total shareholder return relative to a peer group. Once earned and vested, PSUs were settled in one common share per vested PSU (or, at the Company’s election, cash equal to the fair market value thereof). There was no exercise price. The first vesting period ran through March 31, 2018 (the “2015 Plan”). All PSUs are granted under, and are subject to the terms and conditions of, the Company’s 2014 Omnibus Incentive Compensation Plan, and do not increase the number of shares previously reserved for issuance under that plan. On August 2, 2016 the Compensation Committee established a consecutive LTIP (the “2016 Plan”) having consistent terms as compared to the 2015 Plan. On March 31, 2019 the vesting period ended for the “2016 Plan” and earned and vested PSUs settled in one common share of the Company per vested PSU - issued to participants on April 30, 2019, except for certain PSUs settled in cash at fair market value to cover wage taxes or as substitute for share transfer restrictions. On July 31, 2017 the Compensation Committee established another consecutive LTIP (the "2017 Plan") having consistent terms as compared to the 2015 and 2016 Plan. On July 12, 2018 the Compensation Committee established a consecutive LTIP (the "2018 Plan") and on July 16, 2019 the Compensation Committee established a consecutive LTIP (the “2019 Plan”). The achievement metrics have changed for the 2019 Plan from EBITDA performance to a return on capital employed and a total shareholder return target. All PSUs are granted under, and are subject to the terms and conditions of, the Company’s 2014 Omnibus Incentive Compensation Plan (the “Omnibus Plan”).

In its 2019 Plan, in addition to PSUs, the Company also issued a tranche of restricted share units (“RSUs”) for select employees and officers. The RSUs vest by one-third on each of the first, second and third anniversary of the grant date. The RSUs are subject to certain further restrictions after vesting. Settlement of selected employees and officer RSUs is within 75 days following the third anniversary of the grant date.

The following table provides detail as to expenses recorded within operating income with respect to stock-based compensation:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2020						2019						2020						2019
			(In thousands)
2016 Plan			$	—					$	—					$	—					$	1,083
2017 Plan			—						725						—						1,826
Stock compensation plan for Board of Directors			—						—						—						488
2018 Plan			831						666						351						2,842
Sign on RSU incentive			29						96						297						360
2019 Plan			323						538						594						538
Total expenses			$	1,182					$	2,025					$	1,242					$	7,137

Due to lowered expectations for EBITDA and ROCE for the full year 2020 and upcoming year 2021, performance conditions of the 2018 Plan and the 2019 Plan are no longer expected to be met. As a result, expenses recorded in prior years for the 2018 Plan and the 2019 Plan were partly reversed for the nine months ended September 30, 2020.

The following table summarizes the activity of our PSUs for the nine months ended September 30, 2020:

Period granted						Performance period						PSUs outstanding at January 1,						PSUs granted						Performance based adjustment						PSUs settled						PSUs forfeited						PSUs outstanding at September 30,						PSUs expected to vest						Weighted average grant date fair value
2017						2017 - 2019						418,252						—						(40,087)						(378,165)						—						—						—						$	24.89
2018						2018 - 2020						355,766						—						—						—						(4,360)						351,406						173,076						$	39.24
2019						2019 - 2021						229,727						—						—						—						(4,349)						225,378						108,459						$	11.48
2020						2020 - 2022						—						288,244						—						—						—						288,244						268,783						$	11.60
						Total 2020						1,003,745						288,244						(40,087)						(378,165)						(8,709)						865,028						550,318

The following table summarizes the activity of our RSUs for the nine months ended September 30, 2020:

Period granted						Vesting period						RSUs outstanding January 1,						RSUs granted						Performance based adjustment						RSUs settled						RSUs forfeited						RSUs outstanding at September 30,						RSUs expected to vest						Weighted average grant date fair value
Sign-on RSUs:
2018						2018 - 2020						23,878						—						—						—						—						23,878						23,878						$	25.81
2019						2019 - 2021						45,257						—						—						—						—						45,257						45,257						$	15.89
2019 & 2020 Plan:
2019						2019 - 2021						128,447						—						—						—						(4,348)						124,099						121,770						$	14.74
2020						2020 - 2022						—						161,269						—						—						—						161,269						155,825						$	12.51
						Total 2020						197,582						161,269						—						—						(4,348)						354,503						346,730

Certain members of our Board of Directors receive compensation in the form of restricted shares (“RSs”) in accordance with the 2014 Non-employee Director Plan. Under this plan 88,488 RSs are currently outstanding.

At September 30, 2020, we had unrecognized compensation cost of $7.8 million, based on the target amounts, related to unvested PSUs, RSUs and RSs, which is expected to be recognized over a weighted average period of 1.3 years. The closing price of the Company's shares and therefore the intrinsic value of one PSU or RSU outstanding was $12.51 as of September 30, 2020, $16.71 as of September 30, 2019 and $32.10 as of September 30, 2018. Total intrinsic value of PSUs and RSUs amounted to $15.3 million, $22.6 million and $51.2 million as of September 30, 2020, September 30, 2019 and September 30, 2018, respectively.

The following table lists the inputs to the valuation model used for calculating the grant date fair values under the 2020, 2019, 2018 and 2017 Plans:

															2017 Plan						2018 Plan						2019 Plan PSU						2020 Plan PSU
Expected term (in years)															3						3						3						3
Dividend yield (%)															1.88%						1.94%						4.65%						—%
Expected volatility OEC (%)															33.77%						30.22%						33.30%						60.84%
Expected volatility peer group (%)															17.30%						20.09%						17.62%						33.22%
Correlation															0.4574						0.3659						0.5205						0.7227
Risk-free interest rate (%)															1.45%						1.46%						1.83%						0.14%
Model used															Monte Carlo						Monte Carlo						Monte Carlo						Monte Carlo
Weighted average fair value of PSUs granted															$24.89						$39.24						$11.48						$11.60

In March 2020, 378,165 PSUs (after a performance adjustment reduction of 40,087 PSUs) were settled for the 2017 Plan. In April 2019, 977,106 PSUs (including performance adjustment of 299,499 PSUs) were settled for the 2016 Plan. The expected term of share awards represents the weighted average period the share awards are expected to remain outstanding. The remaining contractual terms of share units outstanding is March 2021 for the 2018 Plan and December 2021 for the 2019 Plan.

The Company used a combination of historical and implied volatility of its traded shares, or blended volatility, in deriving the expected volatility assumption. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of stock options. The dividend yield assumption is based on the Company's history.

Stock-based compensation expense is comprised of the following line items:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2020						2019						2020						2019
			(In thousands)
Cost of sales			$	66					$	55					$	158					$	66
Selling expenses			263						246						233						1,105
General and administrative expenses			801						1,604						808						5,588
Research and development costs			53						120						44						378
Stock-based compensation expense			$	1,182					$	2,025					$	1,242					$	7,137

The assumption for estimating expected forfeitures is based on previous experience and based on a 3% leavers rate per year. Actual forfeitures are recorded as they occur. For the nine months ended September 30, 2020 expenses recorded in prior years for 2018 and 2019 Plan were partly reversed as the performance condition for the EBITDA and ROCE metrics are no longer expected to be met.

Note J. Restructuring Expenses

Details of restructuring activities and the related reserves for September 30, 2020 were as follows:

			Personnel expenses						Demolition and Removal costs						Ground remediation costs						Other						Total
			(In thousands)
Provision at January 1, 2020			$	3,400					$	561					$	488					$	317					$	4,765
Charges			—						—						—						—						—
Cost charged against liabilities (assets)			—						—						—						—						—
Cash paid			(514)						(402)						(252)						(263)						(1,432)
Foreign currency translation adjustment			(81)						(11)						(14)						(6)						(113)
Provision at March 31, 2020			$	2,805					$	147					$	221					$	48					$	3,221
Charges			—						—						—						—						—
Cost charged against liabilities (assets)			—						—						—						—						—
Cash paid			(486)						(74)						(148)						—						(708)
Foreign currency translation adjustment			53						2						2						1						59
Provision at June 30, 2020			$	2,373					$	75					$	75					$	49					$	2,572
Charges			—						—						—						—						—
Cost charged against liabilities (assets)			—						—						—						—						—
Cash paid			(814)						—						(48)						—						(862)
Foreign currency translation adjustment			107						3						3						2						116
Provision at September 30, 2020			$	1,666					$	79					$	30					$	51					$	1,826