10-Q 1 esi-20220930.htm 10-Q esi-20220930
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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 September 30, 2022
OR
 
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
 
Commission file number: 001-36272
esi-20220930_g1.jpg
Element Solutions Inc
(Exact name of Registrant as specified in its charter)
Delaware37-1744899
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
500 East Broward Boulevard,Suite 186033394
Fort Lauderdale,Florida(Zip Code)
(Address of principal executive offices)
Registrant’s telephone number, including area code: (561) 207-9600
_______________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareESINew 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        No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes        No  
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
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 Exchange Act). Yes ☐   No
Number of shares of common stock outstanding at October 20, 2022: 242,085,552



TABLE OF CONTENTS


Page
   
Three and Nine Months Ended September 30, 2022 and 2021
Three and Nine Months Ended September 30, 2022 and 2021
September 30, 2022 and December 31, 2021
Nine Months Ended September 30, 2022 and 2021
Three and Nine Months Ended September 30, 2022 and 2021
   
 
   
   





GLOSSARY OF DEFINED TERMS


Terms    
Definitions
Element Solutions;
We; Us; Our; the Company
Element Solutions Inc, a Delaware corporation, and, where the context requires, its subsidiaries or operating businesses.
Add-on Term LoansIncremental term loans entered into on September 1, 2021, under the Credit Agreement, in an aggregate principal amount of $400 million through a corresponding increase in the Company's existing senior secured term loans B. All references to "term loans" in this Quarterly Report include the Add-on Term Loans.
Coventya Coventya Holding SAS and its subsidiaries.
Coventya AcquisitionAcquisition of Coventya on September 1, 2021.
Credit AgreementCredit Agreement, dated as of January 31, 2019, as amended from time to time, among, inter alia, Element Solutions and MacDermid, Incorporated, as borrowers, certain subsidiaries of Element Solutions and the lenders from time to time parties thereto.
EBITDAEarnings before interest, taxes, depreciation and amortization.
Exchange ActSecurities Exchange Act of 1934, as amended.
GAAPU.S. Generally Accepted Accounting Principles.
HKW H.K. Wentworth Limited and its subsidiaries.
HKW AcquisitionAcquisition of HKW on May 5, 2021.
HSOHSO Herbert Schmidt GmbH & Co. KG, Dipl.-Ing. W. Schmidt GmbH and HSO Hong Kong Holding Limited and its subsidiary.
HSO AcquisitionAcquisition of HSO on January 26, 2022.
Quarterly Report
This quarterly report on Form 10-Q for the three and nine months ended September 30, 2022.
RSUsRestricted stock units issued by Element Solutions from time to time under its Amended and Restated 2013 Incentive Compensation Plan.
SECSecurities and Exchange Commission.
2021 Annual ReportElement Solutions' annual report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 23, 2022.
3.875% USD Notes due 2028Element Solutions' $800 million aggregate principal amount of 3.875% senior notes due 2028, denominated in U.S. dollars, issued on August 18, 2020.

i


Forward-Looking Statements
This Quarterly Report contains forward-looking statements that can be identified by words such as "expect," "anticipate," "project," "will," "should," "believe," "intend," "plan," "assume," "estimate," "predict," "seek," "continue," "outlook," "may," "might," "aim," "can have," "likely," "potential," "target," "hope," "goal," "priority" or "confident" and variations of such words and similar expressions. Many of the forward-looking statements include, but are not limited to, statements, beliefs, projections and expectations regarding the expected benefits of the Coventya Acquisition; the continuing economic impact of the coronavirus (COVID-19) and its variants on the global economy, our business, financial results, customers, suppliers, vendors and/or stock price, including the impact of related governmental responses; the efficacy of vaccines and treatments targeting COVID-19 and its variants; secular trends; increasing commercial activity and opportunities in printed and in-mold electronics; capital requirements and need for and availability of financing; probability of achievement of the performance target related to certain performance-based RSUs; the impact of new accounting standards and accounting changes; share repurchases; our dividend policy and dividend declarations; our hedging activities; timing and outcome of environmental and legal matters; tax planning strategies and assessments; the impact of tax law changes; impairments, including those on goodwill and other intangible assets; price volatility and cost environment; inflation and fluctuations in foreign exchange rates; our liquidity, cash flows and capital allocation; funding sources; capital expenditures; debt and debt leverage ratio; pension plan contributions; off-balance sheet arrangements and contractual obligations; general views about future operating results; expected returns to stockholders; risk management programs; future prospects; and other events or developments that we expect or anticipate will occur in the future.
Although we believe these forward-looking statements are based upon reasonable assumptions regarding our business and expectations about future events, financial performance and trends, there can be no assurance that our actual results will not differ materially from any results expressed or implied in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Part I, Item 1A, Risk Factors, of our 2021 Annual Report. Certain of these risks may be amplified by the invasion of Ukraine by Russia, the sanctions (including their duration) and other measures being imposed in response to this conflict as well as any escalation or expansion of economic disruption or the conflict’s current scope. In addition, as we operate in a very competitive and rapidly changing environment, new risks may emerge from time to time. Any forward-looking statement included in this Quarterly Report is based only on information currently available and speaks only as of the date on which it is made. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Please consult any further disclosures on related subjects in our SEC filings.

While progress has been made to contain the COVID-19 pandemic, it remains a global challenge. The ultimate extent of the impact of COVID-19 and/or its variants on our business or our future results of operations, financial condition and/or expected cash flows remains unknown as COVID-19 and its variants continue to spread. The long-term impact of the pandemic will depend on numerous and evolving factors that are highly uncertain, vary by market and cannot be quantified at this time, such as the scope, severity and duration of the pandemic.
Non-GAAP Financial Measures
This Quarterly Report contains non-GAAP financial measures, such as Adjusted EBITDA and operating results on a constant currency and organic basis. Non-GAAP financial measures should not be considered in isolation from, a substitute for, or superior to, performance measures calculated in accordance with GAAP. For additional information on these non-GAAP financial measures, including definitions, limitations and reconciliations to their most comparable applicable GAAP measures, see "Non-GAAP Financial Measures" in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in Part I, Item 2, and Note 12, Segment Information, to the unaudited Condensed Consolidated Financial Statements, both included in this Quarterly Report.

ii



PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements
 
ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in millions, except per share amounts)

Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Net sales$618.5 $616.2 $1,975.6 $1,752.9 
Cost of sales396.6 371.7 1,240.9 1,028.9 
Gross profit221.9 244.5 734.7 724.0 
Operating expenses:   
Selling, technical, general and administrative131.4 163.5 431.3 447.8 
Research and development11.3 12.5 38.2 36.8 
Total operating expenses142.7 176.0 469.5 484.6 
Operating profit79.2 68.5 265.2 239.4 
Other (expense) income:    
Interest expense, net(12.3)(13.8)(39.6)(39.6)
Foreign exchange gain (loss)0.9 (0.6)2.9 22.2 
Other income (expense), net2.0 (0.9)5.2 (8.2)
Total other expense(9.4)(15.3)(31.5)(25.6)
Income before income taxes and non-controlling interests69.8 53.2 233.7 213.8 
Income tax expense(16.5)(17.3)(60.4)(16.5)
Net income from continuing operations53.3 35.9 173.3 197.3 
Income from discontinued operations, net of tax  1.8 2.0 
Net income53.3 35.9 175.1 199.3 
Net (income) loss attributable to non-controlling interests(0.1)0.1 (0.6)0.1 
Net income attributable to common stockholders$53.2 $36.0 $174.5 $199.4 
Earnings per share    
Basic from continuing operations$0.22 $0.15 $0.70 $0.80 
Basic from discontinued operations  0.01 0.01 
Basic attributable to common stockholders$0.22 $0.15 $0.71 $0.81 
Diluted from continuing operations$0.22 $0.15 $0.70 $0.79 
Diluted from discontinued operations  0.01 0.01 
Diluted attributable to common stockholders$0.22 $0.15 $0.71 $0.80 
Weighted average common shares outstanding   
Basic244.7 247.6 246.4 247.5 
Diluted245.0 248.0 247.2 248.0 

See accompanying notes to the Condensed Consolidated Financial Statements

1


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(dollars in millions)
 
Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Net income$53.3 $35.9 $175.1 $199.3 
    
Other comprehensive loss
Foreign currency translation:
Other comprehensive loss before reclassifications, net of tax expense of $5.4 and $5.8 for the three months ended September 30, 2022 and 2021 and $7.8 and $9.7 for the nine months ended September 30, 2022 and 2021, respectively
(107.4)(28.9)(233.8)(47.1)
Total foreign currency translation adjustments(107.4)(28.9)(233.8)(47.1)
Derivative financial instruments:
Other comprehensive income (loss) before reclassifications, net of tax expense of $4.3 and $0.8 for the three months ended September 30, 2022 and 2021 and $16.0 and $3.6 for the nine months ended September 30, 2022 and 2021, respectively
15.1 (0.8)43.7 0.3 
Reclassifications, net of tax expense of $0.0 for the three and nine months ended September 30, 2022 and 2021, respectively
(0.9)4.8 6.9 13.7 
Total unrealized gain arising on qualified hedging derivatives14.2 4.0 50.6 14.0 
Other comprehensive loss(93.2)(24.9)(183.2)(33.1)
Comprehensive (loss) income(39.9)11.0 (8.1)166.2 
Comprehensive loss attributable to non-controlling interests0.1 2.4 1.6 2.4 
Comprehensive (loss) income attributable to common stockholders$(39.8)$13.4 $(6.5)$168.6 
 
See accompanying notes to the Condensed Consolidated Financial Statements
2


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in millions)
September 30,December 31,
 20222021
Assets  
Cash & cash equivalents$234.0 $330.1 
Accounts receivable, net of allowance for doubtful accounts of $12.4 and $12.2 at September 30, 2022 and December 31, 2021, respectively
467.6 492.2 
Inventories309.9 274.4 
Prepaid expenses35.2 29.4 
Other current assets131.9 88.4 
Total current assets1,178.6 1,214.5 
Property, plant and equipment, net263.4 278.1 
Goodwill2,326.2 2,526.3 
Intangible assets, net804.1 956.7 
Deferred income tax assets50.1 81.5 
Other assets247.3 81.3 
Total assets$4,869.7 $5,138.4 
Liabilities and stockholders' equity  
Accounts payable$158.4 $138.4 
Current installments of long-term debt11.9 12.7 
Accrued expenses and other current liabilities183.7 264.1 
Total current liabilities354.0 415.2 
Debt1,886.8 1,894.2 
Pension and post-retirement benefits29.7 36.1 
Deferred income tax liabilities122.9 140.0 
Other liabilities171.6 152.1 
Total liabilities2,565.0 2,637.6 
Commitments and contingencies (Note 9)
Stockholders' equity  
Common stock: 400.0 shares authorized (2022: 265.0 shares issued; 2021: 261.9 shares issued)
2.7 2.6 
Additional paid-in capital4,180.6 4,166.6 
Treasury stock (2022: 22.2 shares; 2021: 15.2 shares)
(299.7)(159.2)
Accumulated deficit(1,217.1)(1,331.9)
Accumulated other comprehensive loss(378.4)(197.4)
Total stockholders' equity2,288.1 2,480.7 
Non-controlling interests16.6 20.1 
Total equity2,304.7 2,500.8 
Total liabilities and stockholders' equity$4,869.7 $5,138.4 

See accompanying notes to the Condensed Consolidated Financial Statements
3


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in millions)
Nine Months Ended September 30,
 20222021
Cash flows from operating activities:  
Net income$175.1 $199.3 
Net income from discontinued operations, net of tax1.8 2.0 
Net income from continuing operations173.3 197.3 
Reconciliations of net income from continuing operations to net cash flows provided by operating activities:  
Depreciation and amortization122.0 120.7 
Deferred income taxes3.9 (37.4)
Foreign exchange gain(1.0)(13.1)
Incentive stock compensation12.8 33.8 
Other, net10.7 11.1 
Changes in assets and liabilities, net of acquisitions:
Accounts receivable(23.3)(59.0)
Inventories(63.1)(78.5)
Accounts payable32.1 41.6 
Accrued expenses(47.9)13.2 
Prepaid expenses and other current assets(22.0)(15.8)
Other assets and liabilities(2.1)(9.2)
Net cash flows provided by operating activities 195.4 204.7 
Cash flows from investing activities:  
Capital expenditures(32.8)(27.7)
Proceeds from disposal of property, plant and equipment3.4  
Acquisition of business, net of cash acquired(22.6)(536.5)
Other, net(9.9)14.0 
Net cash flows used in investing activities(61.9)(550.2)
Cash flows from financing activities:  
Debt proceeds, net of discount 398.0 
Repayments of borrowings(11.9)(6.7)
Repurchases of common stock(113.5)(1.7)
Dividends(59.2)(42.1)
Payment of financing fees (5.1)
Other, net(27.0)(6.2)
Net cash flows (used in) provided by financing activities (211.6)336.2 
Net cash flows provided by (used in) operating activities of discontinued operations1.8 (0.4)
Effect of exchange rate changes on cash and cash equivalents(19.8)(2.9)
Net decrease in cash and cash equivalents(96.1)(12.6)
Cash and cash equivalents at beginning of period
330.1 291.9 
Cash and cash equivalents at end of period
$234.0 $279.3 

 See accompanying notes to the Condensed Consolidated Financial Statements
4


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(dollars in millions, except share amounts)
Three Months Ended September 30, 2022Common StockAdditional
Paid-in
Capital
Treasury StockAccumulated
Deficit
Accumulated Other Comprehensive (Loss) IncomeTotal
Stockholders'
Equity
Non-
controlling Interests
Total Equity
SharesAmountSharesAmount
Balance at June 30, 2022265,013,065 $2.7 $4,176.4 19,221,388 $(244.9)$(1,250.6)$(285.4)$2,398.2 $17.0 $2,415.2 
Net income— — — — — 53.2 — 53.2 0.1 53.3 
Other comprehensive loss, net of taxes— — — — — — (93.0)(93.0)(0.2)(93.2)
Exercise/ vesting of share based compensation851 — — 266 — — — — — — 
Issuance of common stock under Employee Stock Purchase Plan21,610 — 0.3 — — — — 0.3 — 0.3 
Repurchases of common stock— — — 3,018,851 (54.8)— — (54.8)— (54.8)
Dividends ($0.08 per share)
— — — — — (19.7)— (19.7)— (19.7)
Equity compensation expense— — 4.1 — — — — 4.1 — 4.1 
Changes in non-controlling interests— — (0.2)— — — — (0.2)(0.3)(0.5)
Balance at September 30, 2022265,035,526 $2.7 $4,180.6 22,240,505 $(299.7)$(1,217.1)$(378.4)$2,288.1 $16.6 $2,304.7 
Three Months Ended September 30, 2021Common StockAdditional
Paid-in
Capital
Treasury StockAccumulated
Deficit
Accumulated Other Comprehensive (Loss) IncomeTotal
Stockholders'
Equity
Non-
controlling Interests
Total Equity
SharesAmountSharesAmount
Balance at June 30, 2021261,885,181 $2.6 $4,146.9 14,326,433 $(139.4)$(1,337.1)$(203.0)$2,470.0 $(1.7)$2,468.3 
Net income (loss)— — — — — 36.0 — 36.0 (0.1)35.9 
Other comprehensive loss, net of taxes— — — — — — (22.6)(22.6)(2.3)(24.9)
Exercise/ vesting of share based compensation13,651 — — 4,300 (0.1)— — (0.1)— (0.1)
Issuance of common stock under Employee Stock Purchase Plan15,621 — 0.3 — — — — 0.3 — 0.3 
Repurchases of common stock— — — 83,992 (1.7)— — (1.7)— (1.7)
Dividends ($0.06 per share)
— — — — — (14.9)— (14.9)— (14.9)
Acquisition of non-controlling interest with Coventya Acquisition— — — — — — — — 39.6 39.6 
Equity compensation expense— — 12.6 — — — — 12.6 — 12.6 
Balance at September 30, 2021261,914,453 $2.6 $4,159.8 14,414,725 $(141.2)$(1,316.0)$(225.6)$2,479.6 $35.5 $2,515.1 

See accompanying notes to the Condensed Consolidated Financial Statements




5




ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(dollars in millions, except share amounts)
Nine Months Ended September 30, 2022Common StockAdditional
Paid-in
Capital
Treasury StockAccumulated
Deficit
Accumulated Other Comprehensive (Loss) IncomeTotal
Stockholders'
Equity
Non-
controlling Interests
Total Equity
SharesAmountSharesAmount
Balance at December 31, 2021261,937,509 $2.6 $4,166.6 15,195,525 $(159.2)$(1,331.9)$(197.4)$2,480.7 $20.1 $2,500.8 
Net income— — — — — 174.5 — 174.5 0.6 175.1 
Other comprehensive loss, net of taxes— — — — — — (181.0)(181.0)(2.2)(183.2)
Exercise/ vesting of share based compensation3,040,841 0.1 — 1,033,035 (24.0)— — (23.9)— (23.9)
Issuance of common stock under Employee Stock Purchase Plan57,176 — 1.0 — — — — 1.0 — 1.0 
Repurchases of common stock— — — 6,011,945 (116.5)— — (116.5)— (116.5)
Dividends ($0.24 per share)
— — — — — (59.7)— (59.7)— (59.7)
Equity compensation expense— — 13.1 — — — — 13.1 — 13.1 
Changes in non-controlling interests— — (0.1)— — — — (0.1)(1.9)(2.0)
Balance at September 30, 2022265,035,526 $2.7 $4,180.6 22,240,505 $(299.7)$(1,217.1)$(378.4)$2,288.1 $16.6 $2,304.7 
Nine Months Ended September 30, 2021Common StockAdditional
Paid-in
Capital
Treasury StockAccumulated
Deficit
Accumulated Other Comprehensive (Loss) IncomeTotal
Stockholders'
Equity
Non-
controlling Interests
Total Equity
SharesAmountSharesAmount
Balance at December 31, 2020261,330,127 $2.6 $4,122.9 14,229,280 $(137.7)$(1,473.2)$(194.8)$2,319.8 $(1.7)$2,318.1 
Net income (loss)— — — — — 199.4 — 199.4 (0.1)199.3 
Other comprehensive loss, net of taxes— — — — — — (30.8)(30.8)(2.3)(33.1)
Exercise/ vesting of share based compensation528,061 — 2.0 99,753 (1.8)— — 0.2 — 0.2 
Issuance of common stock under Employee Stock Purchase Plan56,265 — 0.8 — — — — 0.8 — 0.8 
Repurchases of common stock— — — 85,692 (1.7)— — (1.7)— (1.7)
Dividends ($0.17 per share)
— — — — — (42.2)— (42.2)— (42.2)
Acquisition of non-controlling interest with Coventya Acquisition— — — — — — — — 39.6 39.6 
Equity compensation expense— — 34.1 — — — — 34.1 — 34.1 
Balance at September 30, 2021261,914,453 $2.6 $4,159.8 14,414,725 $(141.2)$(1,316.0)$(225.6)$2,479.6 $35.5 $2,515.1 

See accompanying notes to the Condensed Consolidated Financial Statements

6


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

1. BACKGROUND AND BASIS OF PRESENTATION
Background
Element Solutions was incorporated in Delaware in January 2014 and its shares of common stock, par value $0.01 per share, trade on the New York Stock Exchange under the ticker symbol “ESI.”
Element Solutions is a leading global specialty chemicals company whose businesses supply a broad range of solutions that enhance the performance of products people use every day. Developed in multi-step technological processes, these innovative solutions enable customers' manufacturing processes in several key industries, including consumer electronics, power electronics, semiconductor fabrication, communications and data storage infrastructure, automotive systems, industrial surface finishing, consumer packaging and offshore energy. Our businesses provide products that, in substantially all cases, are consumed by customers as part of their production process, providing us with reliable and recurring revenue streams as the products are replenished in order to continue production. Element Solutions delivers its products to customers through its sales and service workforce, regional distributors and manufacturing representatives.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with GAAP. In the opinion of management, these unaudited Condensed Consolidated Financial Statements reflect all adjustments that are normal, recurring and necessary for a fair statement of the Company's financial position, results of operations and cash flows for interim periods, but are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the related notes included in the Company’s 2021 Annual Report.
The process of preparing the Company’s unaudited Condensed Consolidated Financial Statements requires the use of estimates that affect the reported amount of assets, liabilities, net sales and expenses. These estimates include assumptions and judgements based on historical experience, current conditions, future expectations and other factors the Company considers to be reasonable. These estimates are reviewed on an ongoing basis and revised as necessary. Actual amounts may differ materially from these estimates.
In the second quarter of 2022, the Company transferred operational responsibility of its Films business from its Industrial business within its Industrial & Specialty segment to its Circuitry business in its Electronics segment. This change was made in response to the increasing commercial activity and opportunities we anticipate in printed and in-mold electronics. Historical information has been reclassified to include the Films business in the Electronics segment for all periods presented in this Quarterly Report.
Certain other prior year amounts have been reclassified to conform to the current year’s presentation.
2. INVENTORIES
The major components of inventory, on a net basis, were as follows:
 (dollars in millions)September 30, 2022December 31, 2021
Finished goods$181.7 $153.3 
Work in process26.7 33.4 
Raw materials and supplies101.5 87.7 
Total inventories$309.9 $274.4 
7



3. PROPERTY, PLANT AND EQUIPMENT
The major components of property, plant and equipment were as follows:
 (dollars in millions)September 30, 2022December 31, 2021
Land and leasehold improvements$49.8 $54.8 
Buildings and improvements155.0 162.0 
Machinery, equipment, fixtures and software288.4 290.6 
Construction in process45.3 37.7 
Total property, plant and equipment538.5 545.1 
Accumulated depreciation(275.1)(267.0)
Property, plant and equipment, net$263.4 $278.1 
For the three months ended September 30, 2022 and 2021, the Company recorded depreciation expense of $10.6 million and $9.6 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company recorded depreciation expense of $31.5 million and $28.7 million, respectively.
4. GOODWILL AND INTANGIBLE ASSETS
HSO Acquisition
On January 26, 2022, the Company completed the HSO Acquisition for approximately $23 million, net of cash. HSO is a multi-national developer of technology and chemistry for decorative and functional surface finishing with a focus on environmentally sustainable products, especially in the field of plating on plastics. HSO is included in our Industrial Solutions business line within our Industrial & Specialty segment and was not material to our unaudited Condensed Consolidated Financial Statements. In connection with this acquisition, the Company recorded approximately $11.7 million of finite-lived intangible assets, primarily customer relationships.
Goodwill
The changes in the carrying amount of goodwill by segment were as follows:
 (dollars in millions)ElectronicsIndustrial & SpecialtyTotal
Balance at December 31, 2021$1,292.2 $1,234.1 (1)$2,526.3 
HSO Acquisition 7.1 7.1 
Transfer of Films business (2)
80.4 (80.4) 
Foreign currency translation and other(111.6)(95.6)(207.2)
Balance at September 30, 2022$1,261.0 $1,065.2 $2,326.2 
(1) Includes accumulated impairment losses of $46.6 million.
(2) Goodwill was reallocated using a relative fair value approach and assessed for impairment both before and after the allocation. See Note 1, Background and Basis of Presentation, to the unaudited Condensed Consolidated Financial Statements for further information.
8



Intangible Assets
The major components of intangible assets were as follows:
 September 30, 2022December 31, 2021
 (dollars in millions)Gross Carrying
Amount
Accumulated
Amortization
Net Book
Value
Gross Carrying
Amount
Accumulated
Amortization
Net Book
Value
Customer relationships$933.0 $(403.2)$529.8 $1,131.3 $(506.7)$624.6 
Developed technology391.4 (256.4)135.0 429.0 (247.4)181.6 
Trade names92.5 (21.2)71.3 102.2 (19.7)82.5 
Indefinite-lived trade name68.0 — 68.0 68.0 — 68.0 
Total$1,484.9 $(680.8)$804.1 $1,730.5 $(773.8)$956.7 
For the three months ended September 30, 2022 and 2021, the Company recorded amortization expense on intangible assets of $29.2 million and $31.9 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company recorded amortization expense on intangible assets of $90.5 million and $92.0 million, respectively.
5. DEBT
The Company’s debt obligations consisted of the following:
 (dollars in millions)Maturity DateInterest RateSeptember 30, 2022December 31, 2021
Term Loans (1)
2026
LIBOR plus 2.00%
$1,106.6 $1,113.0 
Senior Notes - $800 million (2)
20283.875%790.5 789.4 
Other1.6 4.5 
Total debt1,898.7 1,906.9 
Less: current installments of long-term debt11.9 12.7 
Total long-term debt$1,886.8 $1,894.2 

(1) Term loans, net of unamortized discounts and debt issuance costs of $10.3 million and $12.6 million at September 30, 2022 and December 31, 2021, respectively. The effective interest rate was 1.6% and 2.1% at September 30, 2022 and December 31, 2021, respectively, including the effects of interest rate swaps and net investment hedges. See Note 6, Financial Instruments, to the unaudited Condensed Consolidated Financial Statements for further information regarding the Company's interest rate swaps and net investment hedges.
(2) Senior notes, net of unamortized debt issuance costs of $9.5 million and $10.6 million at September 30, 2022 and December 31, 2021, respectively. The effective interest rate was 4.1% at September 30, 2022 and December 31, 2021, respectively.
Credit Agreement
The Company is a party to the Credit Agreement, which provides for senior secured credit facilities in an aggregate initial principal amount of $1.48 billion, consisting of a revolving credit facility in an aggregate principal amount of $330 million maturing in 2024 and term loans B in an aggregate principal amount of $1.15 billion maturing in 2026.
The Company's outstanding term loans bear interest at a per annum rate based on an adjusted one-month LIBOR (as described in the Credit Agreement) plus a spread of 2.00%. The Company is required to pay a commitment fee in respect of any undrawn portion of the revolving credit facility of 0.50% per annum, subject to a step-down to 0.375% based on the Company’s first lien net leverage ratio.
The Company's obligations under the Credit Agreement are guaranteed, jointly and severally, by certain of the Company’s domestic subsidiaries and secured by a first-priority security interest in substantially all of the assets of the co-borrowers, namely the Company and its subsidiary, MacDermid, Incorporated, as well as the assets of the guarantors, including mortgages on material real property, subject to certain exceptions.
9



Covenants, Events of Default and Provisions
The Credit Agreement contains customary representations and warranties, and affirmative and negative covenants, including limitations on additional indebtedness, dividends, and other distributions, entry into new lines of business, use of loan proceeds, capital expenditures, restricted payments, restrictions on liens on the assets of the borrowers or any guarantor, transactions with affiliates, amendments to organizational documents, accounting changes, sale and leaseback transactions and dispositions. Subject to certain exceptions, to the extent the borrowers have total outstanding borrowings under the revolving credit facility greater than 30% of the commitment amount under the revolving credit facility, the Company's first lien net leverage ratio should not exceed 5.0 to 1.0, subject to a right to cure.
The Credit Agreement requires the borrowers to make mandatory prepayments of borrowings, subject to certain exceptions, as described in the Credit Agreement. In addition, the Credit Agreement contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, failure to make payment on, or defaults with respect to, certain other material indebtedness, bankruptcy and insolvency events, material judgments and change of control provisions. Upon the occurrence of an event of default, and after the expiration of any applicable grace period, payment of any outstanding loans under the Credit Agreement may be accelerated and the lenders could foreclose on their security interests in the assets of the borrowers and the guarantors.
At September 30, 2022, the Company was in compliance with the debt covenants contained in the Credit Agreement and had full availability of its unused borrowing capacity of $324 million, net of letters of credit, under the revolving credit facility.
3.875% USD Notes due 2028
The indenture governing the 3.875% USD Notes due 2028 provides for, among other things, customary affirmative and negative covenants, events of default and other customary provisions. The notes accrue interest at a rate of