10-Q 1 esi-20220331.htm 10-Q esi-20220331
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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                     
 
Commission file number: 001-36272
esi-20220331_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 April 21, 2022: 247,714,192



TABLE OF CONTENTS


Page
   
Three Months Ended March 31, 2022 and 2021
Three Months Ended March 31, 2022 and 2021
March 31, 2022 and December 31, 2021
Three Months Ended March 31, 2022 and 2021
Three Months Ended March 31, 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, 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.
MacDermidMacDermid, Incorporated, a Connecticut corporation and subsidiary of Element Solutions.
Quarterly Report
This quarterly report on Form 10-Q for the three months ended March 31, 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" or "priority" 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; 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; 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 March 31,
 20222021
Net sales$680.2 $550.1 
Cost of sales417.2 309.1 
Gross profit263.0 241.0 
Operating expenses: 
Selling, technical, general and administrative153.4 129.6 
Research and development14.1 11.5 
Total operating expenses167.5 141.1 
Operating profit95.5 99.9 
Other (expense) income:  
Interest expense, net(14.1)(12.9)
Foreign exchange (loss) gain(0.7)28.0 
Other expense, net(4.3)(1.6)
Total other (expense) income(19.1)13.5 
Income before income taxes and non-controlling interests76.4 113.4 
Income tax expense(20.0)(31.1)
Net income56.4 82.3 
Net income attributable to non-controlling interests(0.3) 
Net income attributable to common stockholders$56.1 $82.3 
Earnings per share  
Basic$0.23 $0.33 
Diluted$0.23 $0.33 
Weighted average common shares outstanding 
Basic247.3 247.2 
Diluted249.2 248.6 

See accompanying notes to the Condensed Consolidated Financial Statements
1


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(dollars in millions)
 
Three Months Ended March 31,
 20222021
Net income$56.4 $82.3 
  
Other comprehensive income (loss)
Foreign currency translation:
Other comprehensive loss before reclassifications, net of tax (benefit) expense of $(2.1) and $5.9 for the three months ended March 31, 2022 and 2021, respectively
(13.9)(52.7)
Total foreign currency translation adjustments(13.9)(52.7)
Derivative financial instruments:
Other comprehensive income before reclassifications, net of tax expense of $8.8 and $1.8 for the three months ended March 31, 2022 and 2021, respectively
22.5 3.0 
Reclassifications, net of tax expense of $0.0 for the three months ended March 31, 2022 and 2021, respectively
4.8 4.4 
Total unrealized gain arising on qualified hedging derivatives27.3 7.4 
Other comprehensive income (loss)13.4 (45.3)
Comprehensive income69.8 37.0 
Comprehensive loss attributable to non-controlling interests1.4  
Comprehensive income attributable to common stockholders$71.2 $37.0 
 
See accompanying notes to the Condensed Consolidated Financial Statements
2


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in millions)
March 31,December 31,
 20222021
Assets  
Cash & cash equivalents$218.8 $330.1 
Accounts receivable, net of allowance for doubtful accounts of $13.9 and $12.2 at March 31, 2022 and December 31, 2021, respectively
540.8 492.2 
Inventories323.4 274.4 
Prepaid expenses32.7 29.4 
Other current assets101.2 88.4 
Total current assets1,216.9 1,214.5 
Property, plant and equipment, net275.0 278.1 
Goodwill2,518.6 2,526.3 
Intangible assets, net929.7 956.7 
Deferred income tax assets71.9 81.5 
Other assets116.7 81.3 
Total assets$5,128.8 $5,138.4 
Liabilities and stockholders' equity  
Accounts payable$179.5 $138.4 
Current installments of long-term debt13.7 12.7 
Accrued expenses and other current liabilities206.5 264.1 
Total current liabilities399.7 415.2 
Debt1,892.1 1,894.2 
Pension and post-retirement benefits34.0 36.1 
Deferred income tax liabilities137.9 140.0 
Other liabilities151.6 152.1 
Total liabilities2,615.3 2,637.6 
Commitments and contingencies (Note 9)
Stockholders' equity  
Common stock: 400.0 shares authorized (2022: 264.9 shares issued; 2021: 261.9 shares issued)
2.6 2.6 
Additional paid-in capital4,172.3 4,166.6 
Treasury stock (2022: 17.1 shares; 2021: 15.2 shares)
(201.8)(159.2)
Accumulated deficit(1,295.9)(1,331.9)
Accumulated other comprehensive loss(182.3)(197.4)
Total stockholders' equity2,494.9 2,480.7 
Non-controlling interests18.6 20.1 
Total equity2,513.5 2,500.8 
Total liabilities and stockholders' equity$5,128.8 $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)
Three Months Ended March 31,
 20222021
Cash flows from operating activities:  
Net income$56.4 $82.3 
Reconciliations of net income to net cash flows (used in) provided by operating activities:  
Depreciation and amortization41.6 39.1 
Deferred income taxes2.5 5.2 
Foreign exchange gain(0.1)(28.9)
Incentive stock compensation5.2 4.3 
Other, net4.3 (2.3)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable(49.6)(26.3)
Inventories(47.5)(44.6)
Accounts payable41.2 30.4 
Accrued expenses(49.6)(18.8)
Prepaid expenses and other current assets(10.5)(9.0)
Other assets and liabilities0.5 1.2 
Net cash flows (used in) provided by operating activities(5.6)32.6 
Cash flows from investing activities:  
Capital expenditures(9.5)(8.5)
Acquisition of business, net of cash acquired(22.6) 
Other, net(5.0)19.0 
Net cash flows (used in) provided by investing activities(37.1)10.5 
Cash flows from financing activities:  
Repayments of borrowings(3.1)(1.9)
Repurchases of common stock(18.3) 
Dividends(19.9)(12.4)
Other, net(25.8)0.1 
Net cash flows used in financing activities(67.1)(14.2)
Effect of exchange rate changes on cash and cash equivalents(1.5)(3.3)
Net (decrease) increase in cash and cash equivalents(111.3)25.6 
Cash and cash equivalents at beginning of period
330.1 291.9 
Cash and cash equivalents at end of period
$218.8 $317.5 

 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 March 31, 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— — — — — 56.1 — 56.1 0.3 56.4 
Other comprehensive income (loss), net of taxes— — — — — — 15.1 15.1 (1.7)13.4 
Exercise/ vesting of share based compensation2,990,132 — — 1,025,371 (23.8)— — (23.8)— (23.8)
Issuance of common stock under Employee Stock Purchase Plan16,918 — 0.4 — — — — 0.4 — 0.4 
Repurchases of common stock— — — 830,448 (18.8)— — (18.8)— (18.8)
Dividends ($0.08 per share)
— — — — — (20.1)— (20.1)— (20.1)
Equity compensation expense— — 5.3 — — — — 5.3 — 5.3 
Changes in non-controlling interests— — — — — — — — (0.1)(0.1)
Balance at March 31, 2022264,944,559 $2.6 $4,172.3 17,051,344 $(201.8)$(1,295.9)$(182.3)$2,494.9 $18.6 $2,513.5 
Three Months Ended March 31, 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— — — — — 82.3 — 82.3 — 82.3 
Other comprehensive loss, net of taxes— — — — — — (45.3)(45.3)— (45.3)
Exercise/ vesting of share based compensation416,413 — 1.9 84,426 (1.5)— — 0.4 — 0.4 
Issuance of common stock under Employee Stock Purchase Plan22,278 — 0.3 — — — — 0.3 — 0.3 
Repurchases of common stock— — — 1,700 — — — — — — 
Dividends ($0.05 per share)
— — — — — (12.4)— (12.4)— (12.4)
Equity compensation expense— — 4.4 — — — — 4.4 — 4.4 
Balance at March 31, 2021261,768,818 $2.6 $4,129.5 14,315,406 $(139.2)$(1,403.3)$(240.1)$2,349.5 $(1.7)$2,347.8 

See accompanying notes to the Condensed Consolidated Financial Statements

5


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.
Certain 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)March 31, 2022December 31, 2021
Finished goods$184.5 $153.3 
Work in process38.9 33.4 
Raw materials and supplies100.0 87.7 
Total inventories$323.4 $274.4 
6



3. PROPERTY, PLANT AND EQUIPMENT
The major components of property, plant and equipment were as follows:
 (dollars in millions)March 31, 2022December 31, 2021
Land and leasehold improvements$53.8 $54.8 
Buildings and improvements161.7 162.0 
Machinery, equipment, fixtures and software294.0 290.6 
Construction in process39.4 37.7 
Total property, plant and equipment548.9 545.1 
Accumulated depreciation(273.9)(267.0)
Property, plant and equipment, net$275.0 $278.1 
For the three months ended March 31, 2022 and 2021, the Company recorded depreciation expense of $10.6 million and $9.4 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 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 
Foreign currency translation and other(5.3)(9.5)(14.8)
Balance at March 31, 2022$1,286.9 $1,231.7 $2,518.6 
(1) Includes accumulated impairment losses of $46.6 million.
7



Intangible Assets
The major components of intangible assets were as follows:
 March 31, 2022December 31, 2021
 (dollars in millions)Gross Carrying
Amount
Accumulated
Amortization
Net Book
Value
Gross Carrying
Amount
Accumulated
Amortization
Net Book
Value
Customer relationships$1,007.0 $(397.9)$609.1 $1,131.3 $(506.7)$624.6 
Developed technology428.4 (257.1)171.3 429.0 (247.4)181.6 
Trade names100.5 (19.2)81.3 102.2 (19.7)82.5 
Indefinite-lived trade name68.0 — 68.0 68.0 — 68.0 
Total$1,603.9 $(674.2)$929.7 $1,730.5 $(773.8)$956.7 
For the three months ended March 31, 2022 and 2021, the Company recorded amortization expense on intangible assets of $31.0 million and $29.7 million, respectively.
5. DEBT
The Company’s debt obligations consisted of the following:
 (dollars in millions)Maturity DateInterest RateMarch 31, 2022December 31, 2021
Term Loans (1)
2026
LIBOR plus 2.00%
$1,110.8 $1,113.0 
Senior Notes - $800 million (2)
20283.875%789.7 789.4 
Other5.3 4.5 
Total debt1,905.8 1,906.9 
Less: current installments of long-term debt13.7 12.7 
Total long-term debt$1,892.1 $1,894.2 

(1) Term loans, net of unamortized discounts and debt issuance costs of $11.9 million and $12.6 million at March 31, 2022 and December 31, 2021, respectively. The effective interest rate was 2.1% at March 31, 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 $10.3 million and $10.6 million at March 31, 2022 and December 31, 2021, respectively. The effective interest rate was 4.1% at March 31, 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, which condition is currently satisfied.
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 MacDermid, as well as the assets of the guarantors, including mortgages on material real property, subject to certain exceptions.
8



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 March 31, 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 $323 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 3.875% per annum, payable semi-annually in arrears, on March 1 and September 1 of each year, and will mature on September 1, 2028, unless earlier repurchased or redeemed. Pursuant to the indenture, the Company has the option to redeem the 3.875% USD Notes due 2028 prior to their maturity, subject to, in certain cases, the payment of an applicable make-whole premium. The 3.875% USD Notes due 2028 are fully and unconditionally guaranteed on a senior unsecured basis by generally all of the Company’s domestic subsidiaries that guarantee the obligations of the borrowers under the Credit Agreement.
Lines of Credit and Other Debt Facilities
The Company has access to various revolving lines of credit, short-term debt facilities and overdraft facilities worldwide which are used to fund short-term cash needs. At March 31, 2022 and December 31, 2021, respectively, there were no amounts outstanding under such facilities. The Company had letters of credit outstanding of $7.0 million and $5.9 million at March 31, 2022 and December 31, 2021, respectively, of which $6.6 million and $5.5 million at March 31, 2022 and December 31, 2021, respectively, reduced the borrowings available under the various facilities. At March 31, 2022 and December 31, 2021, the availability under these facilities totaled approximately $349 million and $354 million, respectively, net of outstanding letters of credit.

6. FINANCIAL INSTRUMENTS
Derivatives and Hedging
In the normal course of business, the Company is exposed to risks relating to changes in foreign currency exchange rates, commodity prices and interest rates. Derivative financial instruments, such as foreign currency exchange forward contracts, commodities futures contracts, interest rate swaps and net investment hedges are used to manage the risks associated with changes in the conditions of those markets. All derivatives are recognized in the Condensed Consolidated Balance Sheets at fair value. The counterparties to the Company’s derivative agreements are primarily major international financial institutions. The Company continually monitors its derivative positions and the credit ratings of its counterparties and does not anticipate nonperformance on their part.
9



Interest Rate and Cross-Currency Swaps
The Company uses interest rate swaps and cross-currency swaps to reduce its exposure to interest rate risk and foreign currency risk. The Company designates the interest rate swaps as cash flow hedges and the cross-currency swaps as net investment hedges. The proceeds from these contracts are reflected as "Cash flows from operating activities" in the Condensed Consolidated Statement of Cash Flows. For interest rate swaps, changes in fair value are recorded in "Accumulated other comprehensive loss" and reclassified to "Interest expense, net" in the Condensed Consolidated Statements of Operations as the underlying hedged item affects earnings. For cross-currency swaps, changes in fair value are recorded in "Foreign currency translation" in "Accumulated other comprehensive loss." These cross-currency swaps effectively convert the Company's term loans under the Credit Agreement, which are U.S. dollar denominated debt obligations, into fixed-rate euro-denominated debt through the expiration of the swaps.
In 2021, the Company entered into forward starting interest rate swaps with an effective date of September 1, 2021 to effectively fix the floating rate of the interest payments associated with the $400 million Add-on Term Loans through January 2025. These contracts were designated as a cash flow hedge. The Company also entered into forward starting cross-currency swaps to effectively convert the $400 million Add-on Term Loans, which are U.S. dollar denominated debt obligations, into fixed-rate euro-denominated debt through January 2025. The Company designated these contracts as a net investment hedge of the foreign currency exposure of a portion of its net investment in certain euro functional subsidiaries.
In 2019, the Company entered into interest rate swaps to effectively fix the floating rate of the interest payments associated with the initial $750 million term loans under the Credit Agreement through January 2024. These contracts were designated as a cash flow hedge. The Company also entered into cross-currency swaps to effectively convert the $750 million term loans, which are U.S. dollar denominated debt obligations, into fixed-rate euro-denominated debt through January 2024. The Company designated these contracts as a net investment hedge of the foreign currency exposure of a portion of its net investment in certain euro functional subsidiaries.
The net result of the above hedges, which expire in January 2024 and 2025, respectively, is an interest rate of approximately 2.1% at March 31, 2022, which could vary in the future due to changes in the euro and the U.S. dollar exchange rate.
For the three months ended March 31, 2022, the Company's interest rate swaps and cross-currency swaps were deemed highly effective. The Company expects to reclassify $0.6 million of expense from "Accumulated other comprehensive loss" to "Interest expense, net" in the Condensed Consolidated Statements of Operations within the next twelve months.
Foreign Currency
The Company conducts a significant portion of its business in currencies other than the U.S. dollar and certain subsidiaries conduct business in currencies other than their functional currency, which is typically their local currency. As a result, the Company’s operating results are impacted by foreign currency exchange rate volatility.
At March 31, 2022, the Company held foreign currency forward contracts to purchase and sell various currencies to mitigate foreign currency exposure primarily with the U.S. dollar and British pound. The Company has not designated any foreign currency exchange forward contracts as eligible for hedge accounting and, as a result, changes in the fair value of foreign currency forward contracts are recorded in the Condensed Consolidated Statements of Operations as "Other expense, net." The total notional value of foreign currency exchange forward contracts held at March 31, 2022 and December 31, 2021 was approximately $27.4 million and $64.6 million, respectively, with settlement dates generally within one year. The market value of the foreign currency forward contracts was a $0.1 million net current liability at March 31, 2022 and December 31, 2021.
10



Commodities
As part of its risk management policy, the Company enters into commodity derivative contracts for the purpose of mitigating its exposure to fluctuations in prices of certain metals used in the production of its finished goods. The Company held derivative contracts to purchase and sell various metals, primarily tin and silver, for a notional amount of $74.4 million and $56.1 million at March 31, 2022 and December 31, 2021, respectively. The market value of the metals derivative contracts was a $2.8 million net current liability at March 31, 2022 and a $1.1 million net current liability at December 31, 2021. Substantially all contracts outstanding at March 31, 2022 had delivery dates within one year. The Company has not designated these derivatives as hedging instruments and, accordingly, records changes in their fair values in the Condensed Consolidated Statements of Operations as "Other expense, net."
Realized gains and losses on derivative contracts are accounted for as "Operating activities" in the Condensed Consolidated Statements of Cash Flows.
Fair Value Measurements
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis:
 (dollars in millions)Balance sheet locationClassificationMarch 31, 2022December 31, 2021
Asset Category    
Foreign exchange contracts not designated as hedging instrumentsOther current assetsLevel 2$0.1 $0.1 
Metals contracts not designated as hedging instrumentsOther current assetsLevel 22.0 1.2 
Interest rate swaps designated as cash flow hedging instrumentsOther current assetsLevel 24.7  
Cross-currency swaps designated as net investment hedgeOther current assetsLevel 222.8 22.2 
Interest rate swaps designated as cash flow hedging instrumentsOther assetsLevel 218.5 6.6 
Cross-currency swaps designated as net investment hedgeOther assetsLevel 211.1 5.8 
Available-for-sale debt securitiesOther assetsLevel 35.0  
Total$64.2 $35.9 
Liability Category
Foreign exchange contracts not designated as hedging instrumentsAccrued expenses and other current liabilitiesLevel 2$0.2 $0.2 
Metals contracts not designated as hedging instrumentsAccrued expenses and other current liabilitiesLevel 24.8 2.3 
Interest rate swaps designated as cash flow hedging instrumentsAccrued expenses and other current liabilitiesLevel 25.3 15.1 
Interest rate swaps designated as cash flow hedging instrumentsOther liabilitiesLevel 2 9.6 
Cross-currency swaps designated as net investment hedgeOther liabilitiesLevel 2 2.8 
Total$10.3 $30.0 
The fair values of derivative assets and liabilities are determined using pricing models based upon observable market inputs, such as market spot and futures prices on over-the-counter derivative instruments, market interest rates and consideration of counterparty credit risk.
There were no significant transfers of financial instruments between the fair value hierarchy levels for the three months ended March 31, 2022.
11



The carrying value and estimated fair value of the Company’s long-term debt totaled $1.90 billion and $1.87 billion, respectively, at March 31, 2022. At December 31, 2021, the carrying value and estimated fair value totaled $1.90 billion and $1.93 billion, respectively. The carrying values noted above include unamortized discounts and debt issuance costs. The estimated fair value of long-term debt is measured using quoted market prices for similar instruments at the reporting date multiplied by the gross carrying amount of the related debt, which excludes unamortized discounts and debt issuance costs. Such instruments are valued using Level 2 inputs.
7. STOCKHOLDERS’ EQUITY
Repurchases of Common Stock
During the three months ended March 31, 2022, as part of its $750 million stock repurchase program, as amended, the Company repurchased, and allocated to treasury shares, approximately 0.8 million shares of its common stock for approximately $18.8 million, at an average price of approximately $22.56 per share. The repurchases were funded from cash on hand. The remaining authorization under the Company's stock repurchase program was approximately $713 million at March 31, 2022. Shares withheld by the Company to satisfy tax withholding requirements related to the vesting of RSUs are not considered share repurchases under our stock repurchase program. During the three months ended March 31, 2022, the Company withheld approximately 1.0 million shares in connection with vesting events for approximately $23.8 million, which is included in "Other, net" in the Condensed Consolidated Statements of Cash Flows as a cash outflow from financing activities.
8. EARNINGS PER SHARE
Basic and diluted earnings per share are based on the weighted average number of shares of the Company's common stock and potential common stock outstanding during the period. Potential common stock, for purposes of determining diluted earnings per share, assumes the issuance of all potentially dilutive share equivalents using the treasury stock method.
A computation of earnings per share and weighted average shares of the Company's common stock outstanding for the three months ended March 31, 2022 and 2021 is as follows:
Three Months Ended March 31,
 (dollars in millions, except per share amounts)20222021
Net income$56.4 $82.3 
Net income attributable to non-controlling interests(0.3) 
Net income attributable to common stockholders $56.1 $82.3 
Basic weighted average common shares outstanding247.3 247.2 
Denominator adjustments for diluted EPS:
Number of stock options and RSUs1.9 1.4 
Denominator adjustments for diluted EPS1.9 1.4 
Diluted weighted average common shares outstanding249.2 248.6 
Earnings per share attributable to common stockholders:  
Basic$0.23 $0.33 
Diluted$0.23 $0.33 
For the three months ended March 31, 2022 and 2021, the following securities were not included in the computation of diluted shares outstanding because either the effect would be anti-dilutive or performance targets were not yet met for awards contingent upon such measures:
Three Months Ended March 31,
 (shares in millions)20222021
Shares issuable upon vesting of RSUs and exercise of stock options3.6 3.0 
12



9. CONTINGENCIES, ENVIRONMENTAL AND LEGAL MATTERS
Environmental Matters
The Company is involved in various claims relating to environmental matters at current and former plants and waste management sites. At certain of these sites, the Company engages or participates in remedial and other environmental compliance activities. At other sites, the Company has been named as a potential responsible party pursuant to the federal Superfund Act and/or state Superfund laws comparable to the federal law for site remediation. After analyzing each individual site, considering the number of parties involved, the level of its potential liability or contribution relating to the other parties, the nature and magnitude of the hazardous waste involved, the method and extent of remediation, the potential insurance coverage, the estimated legal and consulting expense with respect to each site and the time period over which any costs would likely be incurred, the Company estimates the clean-up costs and related claims for each site. The estimates are based in part on discussions with other potential responsible parties, governmental agencies and engineering firms.
The Company accrues for environmental matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current laws and existing technologies. The accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. The Company's environmental liabilities, which are included in the Condensed Consolidated Balance Sheets as "Accrued expenses and other current liabilities" and "Other liabilities," totaled $13.2 million and $13.1 million at March 31, 2022 and December 31, 2021, respectively, primarily driven by environmental remediation, clean-up costs and monitoring of sites that were either closed or disposed of in prior years. While uncertainty exists with respect to the amount and timing of its ultimate environmental liabilities, the Company does not currently anticipate any material losses in excess of the amount recorded. However, new information about the sites, such as results of investigations, could make it necessary for the Company to reassess its potential exposure related to these environmental matters.
As of the date hereof, the Company believes it is not practicable to provide an estimated range of reasonably possible environmental losses in excess of its recorded liabilities, and, as a result, the Company is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact that may be associated with these matters.
Legal Matters
From time to time, the Company is involved in various legal proceedings, investigations and/or claims in the normal course of its business. Although it cannot predict with certainty the ultimate resolution of these matters, which involve judgments that are inherently subjective, the Company believes that their resolutions, to the extent not covered by insurance, will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or cash flows.
10. INCOME TAXES
The Company's quarterly income tax provision is measured using an estimate of its consolidated annual effective tax rate, adjusted for discrete items, within the periods presented. The comparison of the Company's income tax provision between periods can be significantly impacted by the level and mix of earnings and losses by tax jurisdiction and discrete items.
For the three months ended March 31, 2022 the Company recognized income tax expense of $20.0 million resulting in an effective tax rate of 26%, as compared to income tax expense of $31.1 million resulting in an effective tax rate of 27% in the same period for 2021. The decrease in income tax expense between these periods is primarily attributable to lower pre-tax earnings. Tax expense for both periods includes the negative impact of foreign withholding tax accruals and uncertain tax positions.
13



11. RELATED PARTY TRANSACTIONS
The Company is party to an Advisory Services Agreement with Mariposa Capital, LLC, an affiliate of one of its founder directors, whereby Mariposa Capital, LLC is entitled to receive an annual fee of $3 million and reimbursement for expenses. This agreement is automatically renewed for successive one-year terms unless either party notifies the other in writing of its intention not to renew no later than 90 days prior to the expiration of the applicable term. Amounts paid under this agreement are recorded in the Condensed Consolidated Statements of Operations as "Selling, technical, general and administrative" expense.
12. SEGMENT INFORMATION
The Company's operations are organized into two reportable segments: Electronics and Industrial & Specialty. These segments represent businesses for which separate financial information is utilized by the chief operating decision maker (or CODM) for purposes of allocating resources and evaluating performance.
The Company allocates resources and evaluates the performance of its operating segments based primarily on net sales and Adjusted EBITDA. Adjusted EBITDA for each segment is defined as EBITDA, as further adjusted for additional items included in earnings which the Company believes are not representative or indicative of each of its segments' ongoing business, including unrealized gains/losses on metals derivative contracts, or are considered to be associated with the Company's capital structure. Adjusted EBITDA for each segment also includes an allocation of corporate costs, such as compensation expense and professional fees.
Results of Operations
The following table summarizes financial information regarding each reportable segment’s results of operations, including disaggregated external net sales by product category:
 Three Months Ended March 31,
 (dollars in millions)20222021
Net sales:  
Electronics  
Assembly Solutions$234.5 $189.0 
Circuitry Solutions120.5 108.3 
Semiconductor Solutions71.9 56.2 
     Total Electronics426.9 353.5 
Industrial & Specialty
Industrial Solutions203.1 146.3 
Graphics Solutions34.3 34.7 
Energy Solutions15.9 15.6 
     Total Industrial & Specialty253.3 196.6 
Total net sales$680.2 $550.1 
Adjusted EBITDA:  
Electronics$97.3 $92.4 
Industrial & Specialty47.5 45.4 
Total Adjusted EBITDA$144.8 $137.8 
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The following table reconciles "Net income attributable to common stockholders" to Adjusted EBITDA:
 Three Months Ended March 31,
 (dollars in millions)20222021
Net income attributable to common stockholders$56.1 $82.3 
Add (subtract):
Net income attributable to non-controlling interests0.3  
Income tax expense20.0 31.1 
Interest expense, net14.1 12.9 
Depreciation expense10.6 9.4 
Amortization expense31.0 29.7 
EBITDA132.1 165.4 
Adjustments to reconcile to Adjusted EBITDA:
Inventory step-up0.5  
Restructuring expense1.9 2.3 
Acquisition and integration expense (income)2.9 (2.7)
Foreign exchange loss (gain) on internal debt1.6 (28.0)
Adjustment of stock compensation previously not probable1.3  
Unrealized loss (gain) on metals derivative contracts1.8 (0.1)
Other, net2.7 0.9 
Adjusted EBITDA$144.8 $137.8 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and related notes included in this Quarterly Report, and the Consolidated Financial Statements, related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations section and other disclosures contained in our 2021 Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed in "Forward-Looking Statements” of this Quarterly Report, and in Part I, Item 1A, "Risk Factors" of our 2021 Annual Report.
Overview
Our Business
Element Solutions, incorporated in Delaware in January 2014, 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. Our customers use our innovation as competitive advantages, relying on us to help them navigate through fast-paced, high-growth markets. Our product development and product extensions are expected to continue to drive sales growth in both new and existing markets, while expanding margins, through a consistent focus on increasing customer value propositions.
We generate revenue from the development, formulation and sale of our chemistry solutions globally. Our extensive global teams of specially trained scientists and engineers develop our products and our expert sales and service organizations ensure our customers' needs are met every day. We draw upon our broad and longstanding intellectual property portfolio and technical expertise while working closely with both customers and original equipment manufacturers on an ongoing basis to develop proprietary solutions tailored to their manufacturing needs. We also leverage these close relationships to execute our growth strategy and identify opportunities for new products. Our specialty chemicals and processes are seen as integral to customer product performance. We believe that our customers place significant value on the consistency and quality of our brands, on which we capitalize through significant market share, customer loyalty and supply chain access. Lastly, operational risks and switching costs make it difficult for our customers to change suppliers which allows us to retain customers and maintain our market positions.
Our Operations
Our operations are organized into two segments: Electronics and Industrial & Specialty, which are each described below:
Electronics – The Electronics segment researches, formulates and sells specialty chemicals and materials for all types of electronics hardware, from complex printed circuit board designs to advanced semiconductor packaging. In mobile communications, computers, automobiles and aerospace equipment, its products are an integral part of the electronics manufacturing process and the functionality of end-products. The segment's "wet chemistries" for metallization, surface treatments and solderable finishes form the physical circuitry pathways and its "assembly materials," such as solders, pastes, fluxes and adhesives, join those pathways together.
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The segment provides specialty chemical solutions through the following businesses:
Assembly SolutionsAs a global supplier of solder technologies, fluxes, cleaners and other attachment materials for the electronics assembly industry, we develop innovative materials that join electronic circuits in high volume device manufacturing. Our high-performing interconnect materials are used to assemble consumer electronics from circuit boards, discrete electronic components, connectors and integrated circuit substrates.
Circuitry SolutionsAs a global supplier of chemical formulations to the electronics industry, we design and manufacture proprietary liquid chemical processes ("baths") used by our customers to manufacture printed circuit boards. Our product portfolio is focused on specialized consumable chemical processes, such as surface treatments, circuit formation, primary metallization, electroplate and final finishes.
Semiconductor SolutionsAs a global supplier to the semiconductor industry, we provide advanced copper interconnects, die attachment, wafer bump processes and photomask technologies to our customers for integrated circuit fabrication and semiconductor packaging.
Industrial & Specialty – The Industrial & Specialty segment researches, formulates and sells specialty chemicals that enhance surfaces or improve industrial processes in diverse industrial sectors from automotive trim to transcontinental infrastructure and from high-speed printing to high-design faucets. Its products include chemical systems that protect and decorate metal and plastic surfaces; consumable chemicals that enable printing image transfer on flexible packaging materials; and chemistries used in water-based hydraulic control fluids in offshore energy production. These fully consumable products are used in the aerospace, automotive, construction, consumer electronics, consumer packaged goods and oil and gas production end markets.
The segment provides specialty chemical solutions through the following businesses:
Industrial SolutionsAs a global supplier of industrial metal and plastic finishing chemistries, we primarily design and manufacture chemical systems that protect and decorate surfaces. Our high-performance functional coatings improve resistance to wear and tear, such as hard chrome plating of shock absorbers for cars or provide corrosion resistance for appliance parts. Our decorative performance coatings apply finishes for parts in various end markets such as automotive interiors or jewelry surfaces. As part of our broader sustainable solutions platform, we also provide both chemistry and equipment for turnkey wastewater treatment and recycle and reuse solutions. Our industrial customer base is highly diverse and includes customers in the following end markets: appliances and electronics equipment; automotive parts; industrial parts; plumbing goods; construction equipment and transportation equipment.
Graphics SolutionsAs a supplier of consumable materials used to transfer images on to consumer packaging materials, our products are used to improve print quality and printing productivity. We produce and market photopolymers through an extensive line of flexographic plates that are used in the consumer packaging and printing industries. Photopolymers are molecules that change properties upon exposure to light. Flexography is a printing process that utilizes flexible printing plates made of rubber or other flexible plastics.
Energy SolutionsAs a global supplier of specialized fluids to the offshore energy industry, we produce water-based hydraulic control fluids for major oil and gas companies and drilling contractors to be used in offshore deep-water production and drilling applications.
Recent Developments
HSO Acquisition
On January 26, 2022, we 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.
Russia and Ukraine Conflict
The invasion of Ukraine by Russia in early 2022 and the sanctions and other measures being imposed in response to this conflict have increased the level of economic and political uncertainty. While neither Russia nor Ukraine constitutes a material portion of our business and we do not have physical assets in these countries, a significant escalation or expansion of economic
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disruption or the conflict's current scope could disrupt the global supply chain and increase our costs.
Recent Accounting Pronouncements
Our recent accounting pronouncements have not changed materially from the summary disclosed in Note 3, Recent Accounting Pronouncements, to the Consolidated Financial Statements included in our 2021 Annual Report.
Non-GAAP Financial Measures
To supplement our financial results presented in accordance with GAAP in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section, we present certain non-GAAP financial measures, such as operating results on a constant currency and organic basis and Adjusted EBITDA. Management internally reviews these non-GAAP measures to evaluate performance on a comparative period-to-period basis in terms of absolute performance, trends and expected future performance with respect to our business. We believe these non-GAAP financial measures, which are each further described below, provide investors with an additional perspective on trends and underlying operating results on a period-to-period comparable basis. We also believe that investors find this information helpful in understanding the ongoing performance of our operations separate from items that may have a disproportionate positive or negative impact on our financial results in any particular period or are considered to be associated with our capital structure.
These non-GAAP financial measures, however, have limitations as analytical tools and should not be considered in isolation from, or a substitute for, or superior to, the related financial information that we report in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in our financial statements and may not be comparable to similarly titled measures of other companies due to potential differences in calculation methods. In addition, these measures are subject to inherent limitations as they reflect the exercise of judgment by management about which items are excluded or included in determining these non-GAAP financial measures. Investors are encouraged to review the definitions and reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures included in this Quarterly Report and not to rely on any single financial measure to evaluate our business.
Constant Currency
We disclose operating results, from net sales through operating profit and Adjusted EBITDA, on a constant currency basis by excluding the impact of changes due to the translation of foreign currencies of our international locations into U.S. dollars. Management believes this non-GAAP financial information facilitates period-to-period comparison in the analysis of trends in business performance, thereby providing valuable supplemental information regarding our results of operations, consistent with how we internally evaluate our financial results.
The impact of foreign currency translation is calculated by converting our current-period local currency financial results into U.S. dollars using the prior period's exchange rates and comparing these adjusted amounts to our prior period reported results. The difference between actual growth rates and constant currency growth rates represents the estimated impact of foreign currency translation.
Organic Net Sales Growth
Organic net sales growth is defined as net sales excluding the impact of foreign currency translation, changes due to the pass-through pricing of certain metals and acquisitions and/or divestitures, as applicable. Management believes this non-GAAP financial measure provides investors with a more complete understanding of the underlying net sales trends by providing comparable net sales over differing periods on a consistent basis.
For a reconciliation of GAAP net sales growth to organic net sales growth, see "Net Sales" within the "Results of Operations" section below.
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Adjusted EBITDA
We define Adjusted EBITDA as EBITDA, excluding the impact of additional items included in GAAP earnings which we believe are not representative or indicative of our ongoing business, including unrealized gains/losses on metals derivative contracts, or are considered to be associated with our capital structure. Management believes Adjusted EBITDA provides investors with a more complete understanding of the long-term profitability trends of our business and facilitates comparisons of our profitability to prior and future periods.
For a reconciliation of "Net income attributable to common stockholders" to Adjusted EBITDA, and more information about the adjustments made, see Note 12, Segment Information, to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report.
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Results of Operations
Three months ended March 31, 2022 compared to three months ended March 31, 2021
Three Months Ended March 31,% Change
 (dollars in millions)20222021ReportedConstant CurrencyOrganic
Net sales$680.2 $550.1 24%28%7%
Cost of sales417.2 309.1 35%40%
Gross profit263.0 241.0 9%12%
Gross margin38.7 %43.8 %(510) bps(540) bps
Operating expenses167.5 141.1 19%21%
Operating profit95.5 99.9 (4)%0%
Operating margin14.0 %18.2 %(420)bps(400)bps
Other (expense) income, net(19.1)13.5 (nm)
Income tax expense(20.0)(31.1)(36)%
Net income$56.4 $82.3 (31)%
Adjusted EBITDA$144.8 $137.8 5%9%
Adjusted EBITDA margin21.3 %25.0 %(370)bps(370)bps
(nm) Calculation not meaningful.
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Net Sales
Net sales in the first quarter of 2022 increased by 24% on a reported basis, 28% on a constant currency basis and 7% on an organic basis. Electronics' consolidated results were positively impacted by $44.0 million of pass-through metals pricing and $10.2 million of acquisitions and Industrial & Specialty's consolidated results were positively impacted by $64.3 million of acquisitions.
The following table reconciles GAAP net sales growth to constant currency and organic net sales growth:
Three Months Ended March 31,% Change
 (dollars in millions)20222021Reported Net Sales GrowthImpact of CurrencyConstant CurrencyPass-Through Metals PricingAcquisitionsOrganic Net Sales Growth
Electronics:
Assembly Solutions$234.5 $189.0 24%4%28%(23)%—%5%
Circuitry Solutions120.5 108.3 11%2%13%—%—%13%
Semiconductor Solutions71.9 56.2 28%1%29%—%(18)%11%
Total426.9 353.5 21%3%23%(12)%(3)%8%
Industrial & Specialty:
Industrial Solutions203.1 146.3 39%10%49%