Company Quick10K Filing
Element Solutions
Price-0.00 EPS0
Shares262 P/E-0
MCap-0 P/FCF-0
Net Debt1,322 EBIT44
TEV1,322 TEV/EBIT30
TTM 2019-09-30, in MM, except price, ratios
10-K 2019-12-31 Filed 2020-02-28
8-K 2020-03-26
8-K 2020-02-26

ESI 10K Annual Report

Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosure
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
EX-4.2 esi10-k20191231ex42.htm
EX-21.1 esi10-k20191231ex211.htm
EX-23.1 esi10-k20191231ex231.htm
EX-24.1 esi10-k20191231ex241.htm
EX-31.1 esi10-k20191231ex311.htm
EX-31.2 esi10-k20191231ex312.htm
EX-32.1 esi10-k20191231ex321.htm

Element Solutions Earnings 2019-12-31

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02018201820192020
Assets, Equity
0.50.40.30.10.0-0.12018201820192020
Rev, G Profit, Net Income
4.22.50.8-0.9-2.6-4.32018201820192020
Ops, Inv, Fin

esi-20191231
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
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-20191231_g2.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
Securities registered pursuant to Section 12(g) of the Act:
None 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ý   No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o  No ý
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  ý   No  o
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  ý   No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer o
Non-Accelerated filer o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes  No ý
The number of shares of common stock outstanding as of February 25, 2020 was 252,440,957. The aggregate market value of the common stock held by non-affiliates as of June 30, 2019 was approximately $2.32 billion, based upon the last reported sales price for such date on the NYSE. All (i) executive officers and directors of the registrant and (ii) all persons who hold 10% or more of the registrant’s outstanding common stock have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
Documents Incorporated By Reference 
Portions of the Company’s definitive 2020 Proxy Statement are incorporated by reference into Part III of this 2019 Annual Report.




Element Solutions Inc
ANNUAL REPORT ON FORM 10-K
For the year ended December 31, 2019

Table of Contents
 
GlossaryPage
   
 
    
 
    
 
 
 
 
 
 
    
 
    
 
 
 
 
 
 
 
 
    
 
    
 
 
 
 
 
    
 
    
 
 

i

GLOSSARY OF DEFINED TERMS

 
TermsDefinitions
Element Solutions;
We; Us; Our; the Company
Element Solutions Inc, a Delaware corporation, and where the context requires, its subsidiaries or operating businesses.
AcquisitionsAlent Acquisition, Arysta Acquisition, Kester Acquisition, MacDermid Acquisition, OMG Acquisition and OMG Malaysia Acquisition, collectively.
AlentAlent plc, a formerly public limited company registered in England and Wales.
Alent AcquisitionAcquisition of a 100% interest in Alent, completed on December 1, 2015 under the U.K. Companies Act 2006, as amended.
ArystaArysta LifeScience Limited, formerly an Irish private limited company.
Arysta AcquisitionAcquisition of a 100% interest in Arysta, completed on February 13, 2015.
Arysta SaleSale of 100% of the issued and outstanding shares of common stock of Arysta and its subsidiaries to UPL on January 31, 2019 for an aggregate purchase price of $4.28 billion in cash, after post-closing adjustments.
Arysta Sale AgreementStock Purchase Agreement, dated July 20, 2018, as amended by Amendment Number One to Stock Purchase Agreement, dated as of January 25, 2019, related to the Arysta Sale.
ASUAccounting Standards Update.
BoardElement Solutions’ board of directors.
Bribery ActThe United Kingdom Bribery Act 2010.
Credit AgreementCredit Agreement, dated as of January 31, 2019, as amended on November 26, 2019, among, inter alia, Element Solutions and MacDermid, as borrowers, certain subsidiaries of Element Solutions and the lenders from time to time parties thereto, and Barclays Bank PLC, as administrative agent and collateral agent.
EBITDAEarnings before interest, taxes, depreciation and amortization.
ESPPElement Solutions Inc 2014 Employee Stock Purchase Plan.
E.U.European Union.
Exchange ActSecurities Exchange Act of 1934, as amended.
FASBFinancial Accounting Standard Board.
FCPAForeign Corrupt Practices Act of 1977.
February 2015 Notes OfferingElement Solutions' private offering of $1.10 billion aggregate principal amount of 6.50% USD Notes due 2022 and €350 million aggregate principal amount of 6.00% EUR Notes due 2023, completed on February 2, 2015.
Founder EntitiesMariposa Acquisition, LLC and Berggruen Holdings Ltd. and its affiliates, collectively.
GAAPU.S. Generally Accepted Accounting Principles.
Kester AcquisitionAcquisition of 100% of the outstanding shares and certain assets of the Kester business on December 2, 2019, a global supplier of advanced technology assembly materials used in electronics assembly and semiconductor application, for $63.9 million net of cash, working capital and other closing adjustments from Illinois Tool Works Inc.
MacDermidMacDermid, Incorporated, a Connecticut corporation.
MacDermid AcquisitionAcquisition on October 31, 2013 of substantially all of the equity of MacDermid Holdings, LLC, which, at the time, owned approximately 97% of MacDermid. Element Solutions acquired the remaining 3% of MacDermid on March 4, 2014, pursuant to the terms of the Exchange Agreement, dated October 25, 2013, between Element Solutions and the fiduciaries of the MacDermid, Incorporated Profit Sharing and Employee Savings Plan.
MacDermid PrintingMacDermid Printing Solutions LLC, now known as MacDermid Graphics Solutions LLC.
NYSENew York Stock Exchange.
OEMOriginal Equipment Manufacturer.
OMGOM Group, Inc. (NYSE:OMG), a Delaware corporation.
OMG BusinessesOMG's Electronic Chemicals and Photomasks businesses, collectively, other than their Malaysian subsidiary acquired separately.
OMG AcquisitionElement Solutions' acquisition of the OMG Businesses completed on October 28, 2015.
OMG MalaysiaOMG Electronic Chemicals (M) Sdn Bhd, a subsidiary of OMG located in Malaysia, acquired separately by Element Solutions in the OMG Malaysia Acquisition.
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GLOSSARY OF DEFINED TERMS

TermsDefinitions
OMG Malaysia AcquisitionElement Solutions' acquisition of 100% interest in OMG Malaysia completed on January 31, 2016.
PCAOBPublic Company Accounting Oversight Board.
PDHPlatform Delaware Holdings, Inc., a former subsidiary of Element Solutions.
Prior Senior NotesElement Solutions' 6.00% EUR Notes due 2023 and 6.50% USD Notes due 2022, collectively.
Prior Senior Notes IndentureThe indenture, dated as of February 2, 2015, governing the Prior Senior Notes.
Retaining HolderEach Holder whose equity interest of MacDermid Holdings, LLC, held immediately prior to the closing of the MacDermid Acquisition, was converted into PDH Common Stock pursuant to a Retaining Holder Securityholders' Agreement dated October 31, 2013.
RSUsRestricted stock units issued by Element Solutions from time to time under the 2013 Plan.
SECSecurities and Exchange Commission.
Securities ActSecurities Act of 1933, as amended.
Series A Preferred StockElement Solutions' 2,000,000 shares of Series A convertible preferred stock, which were converted into shares of Element Solutions' common stock on February 25, 2020, on a one-for-one basis, upon request of the Founder Entities.
Series B Convertible Preferred StockElement Solutions' 600,000 shares of Series B convertible preferred stock issued to Nalozo, L.P., an affiliate of Nalozo S.à.r.l., a Luxembourg limited liability company and the original seller in the Arysta Acquisition. At December 31, 2016, none of the Series B Convertible Preferred Stock remained outstanding.
SERPElement Solutions' Supplemental Executive Retirement Plan for executive officers.
TCJATax Cuts and Jobs Act of 2017.
UPLUPL Corporation Ltd., a wholly-owned subsidiary of UPL Limited.
WACCWeighted Average Cost of Capital.
2013 PlanElement Solutions Inc Amended and Restated 2013 Incentive Compensation Plan.
2018 Annual ReportElement Solutions Inc's annual report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on February 28, 2019.
2019 Annual ReportThis annual report on Form 10-K for the fiscal year ended December 31, 2019.
2017 Notes OfferingsElement Solutions' private offering of 5.875% USD Notes due 2025, completed on November 24, 2017 and December 8, 2017.
2020 Proxy StatementElement Solutions’ definitive proxy statement for its 2020 annual meeting of stockholders expected to be filed no later than 120 days after the Company's fiscal year end of December 31, 2019.
5.875% USD Notes IndentureThe indenture, dated as of November 24, 2017, governing the 5.875% USD Notes due 2025.
5.875% USD Notes due 2025Element Solutions' $800 million aggregate principal amount of 5.875% senior notes due 2025, denominated in U.S. dollars, issued in the 2017 Notes Offering.
6.00% EUR Notes due 2023Element Solutions’ €350 million aggregate principal amount of 6.00% senior notes due 2023, denominated in euros, issued in the February 2015 Notes Offering and redeemed on February 1, 2019.
6.50% USD Notes due 2022Element Solutions’ $1.10 billion aggregate principal amount of 6.50% senior notes due 2022, denominated in U.S. dollars, issued in the February 2015 Notes Offering and redeemed on February 1, 2019.

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Discontinued Operations
Unless otherwise specified, the results and disclosures presented in this 2019 Annual Report exclude discontinued operations which consist of the former Agricultural Solutions segment of Element Solutions sold on January 31, 2019. Accordingly, Agricultural Solutions' assets, liabilities, operating results and cash flows for all periods presented have been classified as discontinued operations within the Consolidated Financial Statements and can be found in Note 5, Discontinued Operations, to the Consolidated Financial Statements included in this 2019 Annual Report.
Forward-Looking Statements
This 2019 Annual 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," "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 our business and management strategies; shares repurchases; cost containment and cost savings; the impact of new accounting standards and accounting changes; our dividend policy; the effects of global economic conditions on our business and financial condition; our hedging activities; timing and outcome of environmental and legal matters; goodwill and other intangible assets; price volatility and cost environment; liquidity and capital resources; funding sources; capital expenditures; debt and debt leverage ratio; 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.
Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. These statements are not guarantees of future performance and the Company's actual results may differ materially from the results contemplated by these statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A, Risk Factors, of this 2019 Annual Report. Any forward-looking statement is based only on information currently available and speaks only as of the date on which it is made. The Company undertakes 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 the Company’s SEC filings.
Non-GAAP Financial Measures
This 2019 Annual 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, as a substitute for, or superior to, performance measures calculated in accordance with GAAP. For definitions of these non-GAAP financial measures and additional information on why they are presented, their respective limitations and reconciliations to the most comparable applicable GAAP measures, see "Non-GAAP Financial Measures" in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 23, Segment Information, to the Consolidated Financial Statements, all included in this 2019 Annual Report.
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Part I
Item 1. Business 
Unless the context otherwise indicates or requires, all product names and trade names used in this 2019 Annual Report are the Company's trademarks, although the “®” and “TM” trademark designations may have been omitted. This 2019 Annual Report contains additional trade names of other companies which should not imply a relationship with, or endorsement or sponsorship of us by, these other companies. Unless otherwise specified, all references to currency, monetary values and dollars shall mean U.S. dollars.
Business Overview
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, the innovative solutions of our businesses enable customers' manufacturing processes in several key industries, including electronic circuitry, semiconductor, communications infrastructure, automotive systems, industrial surface finishing, consumer packaging and offshore energy. Substantially all of our businesses' products are consumed by our 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 a competitive advantage, 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, by continuing to offer high customer value propositions.
We generate revenue through the formulation and sale of our businesses' dynamic chemistry solutions by our extensive global network of specially-trained scientists and engineers. We leverage close relationships with our customers and OEMs to execute our growth strategy and identify opportunities for new products. While our chemistries typically represent only a small portion of our customers’ costs, they are integral to our customers' manufacturing processes and overall product performance.
We believe the majority of our businesses hold strong positions in high-growth markets they serve. Our strategy is based on a balance of operational excellence and prudent capital allocation. To that end, our teams focus on commercial execution through strong sales, marketing, product development and supply chain efficiency; while our senior leadership balances holding business teams responsible for operational execution with prioritizing and executing on capital allocation opportunities. In the future, we may pursue targeted and opportunistic acquisitions in our existing and adjacent end-markets that strengthen our current businesses, expand and diversify our product offering, and enhance our growth and strategic position.
Acquisitions
Kester Acquisition - On December 2, 2019, we completed the Kester Acquisition for $63.9 million net of cash, working capital and other closing adjustments, from Illinois Tool Works Inc. The Kester business, a global supplier of advanced technology assembly materials used in electronics assembly and semiconductor applications, complements our electronic assembly and semiconductor businesses. Kester is included in our Electronics business segment.
OMG Malaysia Acquisition - On January 31, 2016, we completed the OMG Malaysia Acquisition for $124 million. We acquired OMG Malaysia to further enhance our Electronics business segment in which OMG Malaysia is included.
Alent Acquisition - On December 1, 2015, we completed the Alent Acquisition for $1.74 billion in cash and 18.4 million shares of our common stock issued to Alent shareholders. Legacy Alent was a global supplier of specialty chemicals and engineered materials used primarily in electronics, automotive and industrial applications, and a supplier of high performance, consumable products and services. Alent's business is included in our Electronics business segment.
OMG Acquisition - On October 28, 2015, we completed the OMG Acquisition for a total purchase price of $239 million in cash. The acquired OMG Businesses are included in our Electronics business segment. OMG’s Electronic Chemicals business is similar to the legacy MacDermid electronic chemical and surface treatment businesses, as it develops, produces and supplies chemicals for electronic and industrial applications. OMG’s Photomasks products are used by customers to produce semiconductors and related products.
Arysta Acquisition - On February 13, 2015, we completed the Arysta Acquisition for $3.50 billion, consisting of $2.86 billion in cash and the issuance of $600 million of Series B Convertible Preferred Stock. The legacy Arysta business was a solutions-oriented business model which focused on product innovation to address grower needs, offering crop protection solutions,

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including biosolutions and seed treatment products, to growers worldwide. The legacy Arysta business was included in our historical Agricultural Solutions business segment until the Arysta Sale and the related reclassification of its results into discontinued operations.
Divestitures
Arysta Sale - The Arysta Sale was completed on January 31, 2019 for net cash proceeds of $4.28 billion, after post-closing adjustments. The proceeds of the Arysta Sale were primarily used to pay down our then existing credit facilities under our second amended and restated credit agreement, dated August 6, 2014, as further amended and restated.
Business Segments
Our businesses generate revenue through the formulation and sale of our dynamic chemistry solutions. Our extensive global network of specially-trained scientists and engineers, drawing upon our broad and longstanding intellectual property portfolio and technical expertise, work closely with our customers and OEMs on an ongoing basis to develop proprietary solutions to their manufacturing needs and to ultimately win qualifications and specifications into their supply-chains. We leverage our teams' close relationships to execute our growth strategy by working directly with customers and OEMs to identify opportunities for new product development. Our continuous focus on customer-centric innovation serves as a catalyst to drive specification change and to capitalize on adjacent market opportunities in our industry.
In addition, our employees provide highly technical service and support to our customers and OEMs in conjunction with the sale of products in order to optimize functional performance of the processes used at their manufacturing locations. Our businesses' specialty chemicals and processes are seen as integral to their customers’ product performance. We believe that our customers place significant value on the consistency and quality represented by our brands, which help us secure significant market share, customer loyalty and supply chain access.
In 2019, we achieved sales of $1.84 billion, to which our Electronics and Industrial & Specialty segments contributed approximately 59% and 41%, respectively. Neither segment is subject to significant seasonality, and both share a common focus on attractive niche markets, which we believe will grow faster than the diverse end-markets each segment serves. For further financial information about our operating segments and the geographic areas in which we do business, see Note 23, Segment Information, to the Consolidated Financial Statements included in this 2019 Annual Report.
Electronics
Our Electronics segment researches, formulates and delivers specialty chemicals and materials for all types of electronics hardware, from complex printed circuit board designs to new interconnection materials. In mobile communications, computers, automobiles and aerospace equipment, Electronics' 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 physical circuitry pathways and its "assembly materials," such as solders, pastes, fluxes and adhesives, join those pathways together.
Our Electronics segment provides specialty chemical solutions through the following businesses:
Assembly Solutions - representing approximately 50% of the segment's 2019 net sales. Of our total net sales for Assembly Solutions, approximately 40% is metal content, which we generally pass-through price fluctuations to our customers. As 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. We believe our growth in this business will be driven by the increasing use of electronics in consumer, automotive, telecommunications, memory, medical, aerospace and other markets.
Circuitry Solutions - representing approximately 35% of the segment's 2019 net sales. As 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. We believe our growth in this business will be driven by demand in internet infrastructure, wireless devices, computers and the increasing use of electronics in automobiles.

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Semiconductor Solutions - representing approximately 15% of the segment's 2019 net sales. As 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. We believe our growth in this business will be driven by advanced electronics packaging, memory and the increasing computing complexity in general electronics, automotive and industrial markets.
Products
A selection of Electronics' product offerings is presented below:
Assembly Solutions
Electronic Assembly Materials
Chemicals and materials used in circuit board and electronic device assembly. Our product offering is primarily focused on solder technologies, including solder alloys, wires, pastes and preforms. The portfolio also includes fluxes, adhesives, encapsulants, cleaners and stencils, all of which facilitate wave solder and surface mount assembly activities. Our Argomax line of advanced sinter technology is used in power semiconductor and solid state lighting markets to improve reliability and device performance. Other key brands include Alpha, InnLot, AccuFlux, Powerbond, TrueHeight and HiTech.
Circuitry Solutions
Circuit Board Metallization
Plating products are used to plate holes drilled through printed circuit boards to connect opposite sides of the board and multi-layered printed circuit boards. Products include MacuSpec, M-Copper and M-System.
Circuit Formation ProductsCircuit formation products represent an assortment of products for defining circuit patterns and bonding conductors to insulating materials.
Electronic MaterialsSpecialty products developed for evolving electronic applications including photovoltaics, memory disk and molded interconnect devices manufacturing as well as lead frame and dielectric plating solutions.
Semiconductor Solutions
Semiconductor Materials & Packaging Applications
Our Atrox line of silver-filled die attach adhesives with high thermal and electrical conductive properties is used for semiconductor packaging applications. Our Viaform product family of copper damascene chemistry is used in semiconductor plating applications for creating conductors as narrow as 10 nanometers. Our Microfab family of plating chemistry is used in wafer level packaging applications, including copper pillar, redistribution layers (RDLs), nickel, tin bump, gold bump and thru-silicon via (TSV) applications.
Industrial & Specialty
Our Industrial & Specialty segment provides customers with Industrial Solutions, which include chemical systems that protect and decorate metal and plastic surfaces; Graphics Solutions, which include consumable chemicals that enable printing image transfer on flexible packaging materials; and Energy Solutions, which include chemistries used in water-based hydraulic control fluids in offshore energy production. Industrial & Specialty's fully consumable products are used in the aerospace, automotive, construction, consumer electronics, consumer packaged goods and oil and gas production end markets.
Our Industrial & Specialty segment provides specialty chemical solutions through the following businesses:
Industrial Solutions - representing approximately 70% of the segment's 2019 net sales. As a global supplier of industrial metal and plastic finishing chemistries, our chemical systems protect and decorate metal and plastic surfaces. Some of our precisely formulated high-performance coatings have functional uses, including improving wear and tear, such as hard chrome plating of shock absorbers for cars and special drills used for oil and gas exploration, while others provide corrosion resistance for appliance parts. Alternatively, our chemistries may have decorative performance, such as the application of gloss finishes for parts used in automotive interiors or fashion finishes used on jewelry surfaces. 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. We believe our growth in this industry will be primarily driven by increased worldwide automobile production with elevated fashion elements and content per vehicle.
Graphics Solutions - representing approximately 20% of the segment's 2019 net sales. As 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.

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Flexography is a printing process that utilizes flexible printing plates made of rubber or other flexible plastics. We believe growth in this business will be driven by consumer demand and market shifts favoring the use of package imaging technologies that, like ours, offer a lower cost of ownership to customers.
Energy Solutions - representing approximately 10% of the segment's 2019 net sales. As 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. We believe our growth in this business will be driven by continued capital expenditures in energy exploration and production.
Products
A selection of Industrial & Specialty's product offerings is presented below:
Industrial Solutions
Electroless NickelElectroless nickel is applied to a variety of metal and plastic surfaces to enhance corrosion resistance, wear resistance, solderability and to repair worn or over-machined surfaces in a variety of applications.
Plating Products
The CuMac range of products for applications such as plating on aluminum wheels, plastic substrates and zinc-based die castings, and the ChromKlad and ANKOR range of hard chromium plating processes are utilized in various industrial finishing applications.
Pre-treatment and Cleaning SolutionsPre-treatment and cleaning solutions are applied to prepare the surfaces of a wide variety of industrial products for subsequent treatment. This product family includes a complete line of aqueous and semi-aqueous pre-treatment and cleaning products.
Functional Conversion CoatingsFunctional conversion coatings are applied to metals to enhance corrosion resistance and paint adhesion in a wide spectrum of industrial applications where heavy-duty usage and exposure to unfavorable environments are anticipated.
Hard-coated FilmsHard-coated films are used for the membrane switch in touch screen applications and the emerging technology of formable circuitry for durable human-machine-interface materials.
Water Treatment
Fernox is our water treatment product line used for the filtration, corrosion inhibition, and conditioning of water in residential and commercial boiler systems.
Graphic Solutions
Solid Sheet Printing Elements
Solid sheet printing elements are digital and analog printing sheets, used in the flexographic printing and platemaking processes. Our extensive line of Lux flexographic plates are used in the commercial packaging letterpress newspaper and publication industries.
Liquid Imaging Products
Liquid products are liquid photopolymers used to produce printing plates for transferring images onto commercial packaging. Our key products are MWH photopolymer, MWB 50 photopolymer, and M Stamp 40 photopolymer. We also offer products that are used in the production of liquid photopolymer plates such as substrate, coverfilms and detergents.
Energy Solutions
Offshore FluidsProduction fluids are used to operate valves for the deep-water oil extraction and transportation process, and drilling fluids are used to operate valves for drilling rigs on the ocean floor. Production and drilling fluids are water-based hydraulic fluids used in subsea control systems.
Competitive Strengths
We believe the following competitive strengths differentiate us from competitors and contribute to the ongoing success of both of our businesses:
Industry Leading Positions. We strategically focus on acquiring and maintaining leading positions in niche sectors of high-growth markets by offering innovative products and high value-added services to our customers. We believe our scale and global reach in product development, marketing and formulation provides us with advantages over many competitors, allowing us to maintain strong market share positions and drive profitable growth. Our strong market presence contributes to our ability to attract new customers and successfully enter new end-markets.

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Customer Driven Innovation and Partnerships. We frequently work alongside our customers and other industry participants to develop new products and identify new market opportunities. We participate in a variety of dynamic end-markets where new unmet needs are always materializing. Our sales and technical service teams provide continuous insights that help ensure our research and development efforts are appropriately focused. Customer requirements can lead to improved or uniquely tailored formulations of existing product offerings or to the development of completely new products to satisfy previously unmet needs. Tailoring products for specific OEMs leads to long-term relationships and significant customer switching costs.
Comprehensive Offering of Critical Products. We provide our customers with a comprehensive offering of products that meet many of their specialty chemical needs. In many cases, we offer a full suite of products with complementary capabilities that provide a complete functional solution to the customer. We believe the ability to provide a “end-to-end” product offering is a significant competitive advantage over many of our smaller competitors. Additionally, we believe our businesses' breadth of touchpoints from circuit formation through circuit assembly is unique in the market and allows for a broader dialogue with customers. We also believe that our existing product offerings provide many opportunities for growth in adjacent end-markets.
Stable Cash Flow and Low Capital Requirements. Our businesses typically generate high margins and require low capital expenditures, which translate into high cash flow margins and returns on capital. Instead of large investments in physical assets to sustain business or grow, we dedicate our investments into our technological innovation or sales and services areas. Our business involves the formulation of a broad range of specialty chemicals created by blending raw materials and incorporating them into multi-step technological processes. This model allows us to conservatively manage our investments in fixed assets to both maintain and grow our businesses. We believe our existing fixed asset base is well-maintained and, accordingly, requires low capital expenditures.
Performance-Driven Culture, Experienced Management and Board with Proven Track Record. We place a premium on maintaining an expert and qualified employee base in order to continue to provide innovative products and specialized technical service to our customers. We believe we have outstanding people who can deliver superior performance under the guidance and oversight of proven, experienced leadership. Our culture is performance-driven and decentralized. We empower our business teams and hold them accountable for their outcomes and business judgment. We measure people on financial results, safety, customer satisfaction, legal compliance, and environmental stewardship. We measure our performance against benchmarks and drive operational excellence through continuous improvement. Our experienced management team is complemented by an experienced Board, which includes individuals with proven track records of successfully acquiring and managing businesses. Our business segments are also led by executives that have extensive experience in their respective fields.
Business Strategies
We are building a best-in-class global specialty chemical solutions provider. Our primary long-term measures of success are the value we create for our customers, the growth opportunities we provide for our people and the growth in the intrinsic value of our shares, which is a byproduct of value to customers, a strong, meritocratic culture and prudent capital allocation. We regularly develop new products and processes and leverage our existing technologies and global footprint to profitably enter new markets. Our efforts are directed by the following key business strategies:
Commercial Excellence. We understand that reliably meeting our customers' needs leads to success for all parties. From product development and applications excellence through quality manufacturing and on-time delivery, we demand a customer-focus from all levels of the organization. We believe that we can capitalize on our existing technical capabilities, sophisticated process know-how, and strong industry relationships to enable customer success. A continued focus on service and quality remains a priority across our businesses which serves as a differentiator.
Market Leading Innovation. Our customers participate in dynamic markets driven by innovation, which means that we too must place a strong emphasis on innovation. We work right alongside our customers to develop leading edge products based on our significant intellectual property portfolio, experience-driven know-how, and technical expertise. Building on our core competencies in product innovation, applications development, and technical service should help drive organic growth. Innovation helps enable new high-growth markets and technologies and expand upon our existing portfolio with new products for current and adjacent markets.
Enabling Sustainability. It is both our social responsibility and commercially compelling to develop sustainable solutions that not only meet but exceed the increasingly stringent environmental standards of our customers and regulators. As part of our innovation and product development process, we actively partner with governments,

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industry groups and universities to develop commercially viable, environmentally friendly solutions for our customers use around the world. Enabling our customers to improve their environmental footprint will allow us to do well by doing good.
Decisiveness and Action Orientation. A customer-oriented, customer-service driven organization requires decentralized decision making. We encourage our employees to make decisions and empower them to act swiftly to meet the ever-changing local needs of our customers. Clear communication, strong strategic alignment and a culture that rewards good judgement allow us to ensure the right decisions are being made by our trusted global workforce.
Recruitment and Talent Development. Our success is a by-product of the efforts and capabilities of our people from our R&D laboratories to our customers’ manufacturing floors. Our technical expertise and innovation track records are the result of a specialized, highly-skilled workforce. Our ability to drive profitable growth through technical process know-how, strong customer relationships and industry knowledge relies on our ability to attract, grow and retain a highly-skilled and motivated team at all levels of our organization.
Disciplined and Prudent Capital Allocation. Our capital efficient business model translates to stable, substantial free cash flow. Our ability to grow the intrinsic value of our shares relies on deploying that capital prudently. We intend to be opportunistic with the allocation of our free cash flow and may pursue organic investments in priority markets, measured and strategic acquisitions as well as stockholder-friendly capital returns. Our investment decisions will be driven by comparing relative and absolute risk adjusted returns expectations.
Customers
Our businesses have a diverse customer base and sell products either directly to end-user customers or through intermediaries. We also have collaborative relationships with many OEMs and industry partners, who specify our chemistries and technologies for use in their products or grant us development rights of their intellectual property.
We believe that we are able to attract new customers successfully through our international reach, coupled with our local knowledge and on-the-ground presence, which enables us to meet the needs of our customers. We operate a relatively large number of small and medium-sized facilities located close to our customers throughout the world's major economic regions. This close proximity to our global customers' local sites enables access to all key growth markets and along with our efficient formulation process, allows for "just in time" supply chain management.
We believe that our business is not materially dependent upon any single customer, with no customer representing 10% or more of our consolidated net sales in 2019, 2018 or 2017.
Due to the relatively short cycle times in our business, our order backlog levels are minimal.
Selling & Marketing
We employ a customer-centric and highly-technical sales and marketing force worldwide. These professionals have technical expertise, local market knowledge and intimate customer relationships. Our local sales and marketing teams closely monitor their market trends and maintain active dialogue with our customers to assess and understand their constantly evolving challenges. We use this information from our local sales teams to anticipate future needs and respond rapidly to changing market conditions or technologies in order to deliver customized, value-added solutions to our customers, both locally and globally. This feedback loop is an important source of new product ideas and helps guide our capital allocation decisions and research and development initiatives.
Our methods for selling and marketing our proprietary products vary slightly by geographic region. In total, we generate business through the efforts of regional sales, technical and service personnel, as well as distributors. In addition to regional sales and service staff, we maintain a group of global personnel focused on coordinating sales projects and obtaining design specifications for complex projects involving multiple customers within the manufacturing supply chain.

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Employees
In order to deliver innovative products and highly technical service to our customers, we place a premium on maintaining a highly specialized and high-quality employee base. At December 31, 2019, we employed approximately 4,400 full-time employees, including approximately 200 employees from the Kester Acquisition. We also employed 1,800 research and development chemists, experienced technical service and technical sales personnel. Our full-time employees are based throughout the world, with approximately 80% employed outside of the U.S.
In certain countries where we operate, our employees are also members of unions or are represented by works councils as required by law. We are required to consult and seek the consent or advice of these unions and/or works councils for any changes to our activities or employee benefits.
Our management believes that our relationships with our employees and collective bargaining unions are satisfactory.
Research and Development
Continued investment in research and development ensures that we remain ahead of emerging trends and continue to strengthen our strong positions in our market niches. Our research and development activities are also focused on developing products and improving formulations and processes that will drive growth or otherwise add value to both our core business operations and customers. We accelerate market introductions and increase the impact of our local product offerings through collaboration with partners in the academic and commercial sectors (customers and value-chain partners) and by working with customers and OEMs on tailored application development around the world through our technical service teams. We plan to continue to make meaningful investments in a broad range of research and development efforts.
Our commitment to technological innovation and our extensive intellectual property portfolio enables us to develop differentiated products at the forefront of technological advances. Research resulting in new, proprietary formulations is performed principally in Germany, Great Britain, India, Japan, and the United States. During 2019, our research and development expenses totaled $42.2 million. Substantially all research and development activity was performed internally.
Competitive Environment
Our markets, which are undergoing a consolidation phase, are competitive and subject to rapid changes in technology. Our businesses compete in markets for specialty chemicals for electronic applications, general metal and plastic finishing, offshore oil and gas exploration and production, and printing.
Our businesses compete primarily on the basis of quality, technology, performance, reliability, brand, reputation, range of products and services, and service and support. We maintain extensive support, technical and testing services for our customers and are continuously developing new products. Further consolidation within our industry or other changes in the competitive environment could result in larger competitors that compete with us across several business areas. In addition, some of our competitors may have greater financial, technical and marketing resources than we do and may be able to devote greater resources to promoting and selling certain products. We believe, however, that our ability to manufacture, sell, service and develop new products and applications, enable us to compete successfully. Some large competitors operate globally, as we do, but most operate only locally or regionally. We also face competition from many smaller companies that specialize in particular segments of the markets in which we compete.
The specific competitive environment of each of our segments is described below:
Electronics
Our Electronics segment provides a broad line of proprietary chemical compounds and supporting services, and broadly competes within the specialty chemicals industry. Although competition varies by end-market and geography, our most significant competitors are Atotech Inc., DuPont de Nemours, Inc., Senju Metal Industry Co. and Uyemura International.
Industrial & Specialty
Our Industrial & Specialty segment provides a broad line of proprietary chemical compounds and supporting services, and broadly competes within the specialty chemicals industry. Although competition varies by end-market and geography, our most significant competitors are Atotech Inc., DuPont de Nemours, Inc., BP p.l.c. and Flint Group.

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Raw Materials and Sourcing of Products
Our businesses involve the formulation of a broad range of specialty chemicals which we create by blending raw materials and incorporating them into multi-step technological processes. Our operations depend upon obtaining adequate supplies of raw materials on a timely basis. We typically purchase our major raw materials on an as-needed basis from outside sources. The raw materials that are of greatest importance to our global operations are, in most cases, obtainable from multiple conformant sources worldwide.
Patents, Trademarks and Proprietary Products
Our intellectual property and other proprietary rights are important to our business and are protected by a combination of patents, trade secrets, trademarks and other non-patent strategies. We seek intellectual property and other proprietary rights in major markets and other commercially-relevant jurisdictions worldwide. We implement confidentiality procedures and contractual exclusivity and seek other rights necessary to protect our intellectual property, proprietary formulations, processes and other product-related rights. We rely on confidentiality agreements and patent, trade secret, trademark and copyright law as well as judicial enforcement of all of the foregoing to protect our technologies, processes, product composition, formulations and other intellectual property rights. We also enter into invention or patent assignment agreements, when applicable, with our employees, consultants, contractors and other third-parties who may be engaged in discovery or development of intellectual property and other proprietary rights. Finally, we seek to include provisions in our material transfer agreements, license and development agreements and other agreements that provide for the transfer of intellectual property rights back to us to the greatest extent possible under the circumstances of any specific transaction and development project.
At December 31, 2019, we owned, had applications pending, or licensed the rights to approximately 2,500 domestic and foreign patents, which have remaining lives of varying duration. Although certain of these patents are important to our business, no specific group or groups of intellectual property rights are material. However, we have many proprietary products which are not covered by patents. Further, we hold a number of domestic and foreign trade names and trademark registrations which we consider to be of value in identifying our products.
Environmental Regulations
As a manufacturer and distributor of specialty chemicals throughout the world, we are subject to extensive U.S. and foreign laws and regulations relating to environmental protection and worker health and safety, including those governing discharges of pollutants into the environment, the management, handling, generation, emission, release, discharge, treatment, storage and disposal of hazardous substances and wastes, the cleanup of contaminated properties and occupational safety and health matters. We have and may in the future incur significant costs, including cleanup costs, fines and sanctions and third-party claims for property or natural resource damage or personal injuries as a result of past or future violations of, or liabilities under, such laws and regulations. We believe that we are in material compliance with such laws and regulations, and at December 31, 2019, we believe we had appropriate liabilities recorded for our various environmental matters. Further, the cost of maintaining compliance has not, and we believe in the future, will not, have a material adverse effect on our business, financial condition or results of operations. However, due to the nature of our operations and the frequently changing nature of environmental compliance standards and technology, we cannot predict with any certainty that future material capital or operating expenditures will not be required in order to comply with applicable environmental laws and regulations.
In recent years, there has been a significant increase in the stringency of environmental regulation and enforcement of environmental standards, and the costs of compliance have risen significantly. We expect that the trend of increased regulation will continue in the future. In response to this increased government attention to environmental matters worldwide, we continue to develop proprietary products designed to reduce the discharge of pollutant materials into the environment and eliminate the use of certain targeted raw materials while enhancing the efficiency of customer chemical processes.
Available Information
Our internet website address is www.elementsolutionsinc.com. We make available free of charge, through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act and proxy statements for our annual meeting of stockholders, as soon as reasonably practicable after each such material is electronically filed with or furnished to the SEC. The SEC also makes available at www.sec.gov reports, proxy and information statements and other information filed by issuers with the SEC, such as Element Solutions.

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Copies of our Board of Directors Governance Principles and Code of Conduct; Business Conduct and Ethics Policy; Code of Ethics for Senior Financial Officers; and the charters of the Audit Committee, Compensation Committee and Nominating and Policies Committee of our Board of Directors are posted in the "Investors - Corporate Governance" section of our website.
The information contained on our website is not a part of or incorporated by reference into this 2019 Annual Report.
In addition to the information included in this Part I, Item 1, Business, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 8, Financial Statements and Supplementary Data, as well as Note 1, Background and Basis of Presentation, and Note 23, Segment Information, to the Consolidated Financial Statements, all included in this 2019 Annual Report, for financial and other information relating to our operating segments and the geographic areas in which we do business.
Corporate Information
Our principal executive offices are located at 500 East Broward Boulevard, Suite 1860, Fort Lauderdale, Florida 33394 and our telephone number is (561) 207-9600.

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Item 1A. Risk Factors
The ownership of our securities involves a number of risks and uncertainties. Potential investors should carefully consider the risks and uncertainties described below and the other information in this 2019 Annual Report before deciding whether to invest in our Company. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. The risks described below are not the only ones facing us or our operating businesses. Additional risks that are currently unknown to us or that we currently consider to be immaterial may also impair our business or adversely affect our financial condition or results of operations.
Risks Related to our Business
Operations, Markets and Competition
We may be unable to compete successfully in the competitive markets in which we operate and, as a result, we may experience pricing pressure, fewer customer orders, reduced margins and the loss of market share.
We may be unable to compete successfully in the competitive markets in which we operate. In these markets, we encounter competition from numerous and varied competitors in all areas of our business. Some of our competitors have longer operating histories, greater resources, greater brand recognition, and a larger base of customers than we do. As a result, we may lose business if we are unable to devote greater resources to the research and development, manufacturing, formulation, promotion, sale or support of our products, withstand adverse changes in economic conditions or prices of raw materials, and/or maintain competitive pricing. In addition, our competitors could enter into exclusive arrangements with our existing or potential customers or suppliers which could limit our ability to acquire necessary raw materials or to generate sales and/or significantly increase costs.
In order to compete successfully, we must develop new products and services that offer distinct value to our customers as the markets in which we operate are driven by consumer preferences that are rapidly changing, as well as frequent new product introductions and improvements. We seek to provide tailored products for our customers’ often unique problems, which require an ongoing level of innovation. Our inability to anticipate customers’ changing needs or adapt to emerging technological and business trends accurately, control research and development costs or execute our innovation strategy could adversely affect our ability to sustain our market positions and/or penetrate new markets. Furthermore, some customers may perceive our environmental, social and governance profile to be less robust than that of our competitors, which could influence the selection of their supplier and lead to the loss of market share to our competitors.
Consolidation of our competitors could also place us at a competitive disadvantage and reduce our profitability. We operate in industries which are fragmented on a global scale, but in which there has been a trend toward consolidation in recent years. Consolidations of our competitors may jeopardize the strength of our positions in one or more of our markets which could adversely affect our business, financial condition or results of operations, as well as our growth potential.
If we don't successfully execute our go-to-market strategy, our business and financial performance may suffer.
Our go-to-market strategy is focused on leveraging our existing portfolio of products and services as well as introducing new products and services to meet the demands of a continually changing technological landscape. To successfully execute this strategy, we must emphasize the aspects of our core business where demand remains strong, identify and capitalize on organic growth, and innovate and develop new products and services that will enable us to expand beyond our existing technology categories. Any failure to successfully execute this strategy, including any failure to invest sufficiently in strategic growth areas, could adversely affect our business, financial condition or results of operations.
The process of developing new high-technology products and services and enhancing existing products and services is complex, costly and uncertain. After we develop a product, we must be able to manufacture appropriate volumes quickly while also managing costs and preserving margins. To accomplish this, we must accurately forecast volumes, mixes of products and configurations that meet customer requirements, and we may not succeed at doing so. Any delay in the development, production or marketing of a new product, service or solution could result in us not being among the first to market, which could further harm our competitive position.

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Industry and consumer trends may cause significant fluctuations in our results of operations and have a material adverse effect on our financial condition.
The specialty chemical industry is subject to constant and rapid technological change, product obsolescence, price erosion, evolving standards, finite product lifecycles, raw material price fluctuations, and changes in product supply and demand. For example, the mobile device market, particularly smartphones and tablets, is characterized by rapidly changing market conditions, frequent product introductions and intense competition based on features and price which could impact our sale volumes and margins. In the automotive industry, demand for our products and services may be affected by technological advances, changing automotive OEM specifications and other factors that impact production levels of our customers that we cannot control, such as interest rates, fuel prices, shifts in vehicle mix (including shifts toward alternative energy vehicles), consumer confidence, regulatory and legislative oversight requirements and trade agreements. In addition, technological changes, in our customers’ products or processes may make our specialty chemicals unnecessary or obsolete. Customers also have found, and may continue to find, alternative materials or processes which no longer require our products. Finally, the specialty chemical industry is currently being affected by globalization and a shift in customers’ businesses. All these factors, consumer trends and industry characteristics may impact the demand for our products which may cause significant fluctuations in our results of operations and adversely affect our financial condition.
The failure to attract and retain key personnel, including our executive officers, or effectively manage succession, could have an adverse impact on our business, financial condition or results of operations.
Our business involves complex operations, and therefore the Company's success depends to a significant degree on the skills, experience and efforts of its executive management and other key personnel and their ability to provide the Company with uninterrupted leadership and direction. In addition, because of the specialized and technical nature of our business, our future performance is dependent on our ability to attract, develop and retain skilled employees, including our specialized research and development and sales and service personnel, in order to maintain our efficient production processes, drive innovation in our product offerings and maintain our deep customer relationships. The failure to attract and retain key personnel, or effectively manage succession, could have an adverse material impact on our business, financial condition or results of operations.
In addition, we are highly dependent on the experience and track records of Martin E. Franklin, the other Board members and our executive leadership team. If one or more of our executive officers or Board members were to cease to be employed by us or to serve as directors, or if we were unable to replace them in a timely manner, our business, financial condition, results of operations and/or stock price could be adversely affected.
Fluctuations in the supply and prices of raw materials may negatively impact our business, financial condition or results of operations.
The unavailability or increased prices of raw materials could have a material adverse impact on our business, financial condition or results of operations. We use a variety of specialty and commodity chemicals in our formulation processes, and such formulation operations depend upon obtaining adequate supplies of raw materials on a timely basis. We typically purchase our major raw materials on a contract or as needed basis from outside sources. The availability and prices of raw materials may be subject to curtailment or change due to, among other things, the financial stability of our suppliers, new laws or regulations, protectionist nationalistic trade policies and practices, changes in exchange rates and worldwide price levels. In some cases, we are limited in our ability to purchase certain raw materials from other suppliers by our supply agreements which contain certain minimum purchase requirements.
In addition, the requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act, relating to the annual disclosure of a company's use of conflict minerals (tin, tantalum, tungsten, or gold) mined from covered countries (Democratic Republic of the Congo and adjoining countries) in its products, could affect the sourcing, pricing, and availability of these conflict minerals. If only a limited pool of our suppliers can demonstrate that they do not source any conflict minerals from the covered countries or as permitted under the conflict minerals rules, we may not be able to obtain conformant conflict minerals in sufficient quantities or at competitive prices.
Further, commodities and energy prices are subject to volatility caused by market fluctuations, supply and demand, currency fluctuations, production and transportation disruptions, and other world events. As we source many of our raw materials globally to help ensure quality control, if the cost of energy, shipping or transportation increases and we are unable to pass along those costs to our customers, our profit margins and working capital would be adversely impacted. Also, increasing our prices to our customers could result in long-term sales declines or loss of market share if our customers find alternative suppliers or choose to reformulate their consumer products to use fewer ingredients which could have an adverse long-term impact on our business, financial condition or results of operations.

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Our reliance on certain key customers, contract manufacturers and suppliers could adversely affect our overall sales and profitability.
Although we believe our business is not materially dependent upon any single customer, we rely on certain key customers, the loss of which may impair our results of operations for the affected earnings periods. In addition, there is limited available manufacturing capacity that meets our quality standards and regulatory requirements. If we are unable to arrange for sufficient production capacity among our contract manufacturers or suppliers, or if our contract manufacturers or suppliers encounter production, quality, financial or other difficulties (including labor or geopolitical disturbances), we may be unable to meet our customers' demands. Finally, we rely on independent distributors to distribute our products and to assist us with the marketing and sale of certain of our products. There can be no assurance that our distributors will focus adequate resources on selling our products to end users, or will be successful in selling our products, which could materially adversely affect our business and results of operations.
We may not realize the anticipated benefits of acquisitions or divestitures which may adversely affect our existing businesses, reputation and financial condition.
We have in the past completed several acquisitions and dispositions and may in the future pursue additional opportunistic strategic transactions. Our ability to benefit from acquisitions or divestitures depends on many factors, including our ability to negotiate favorable transaction terms, close such transactions in a timely and cost-effective manner and successfully integrate any businesses we acquire.
With respect to acquisitions, we may be exposed to successor liability relating to actions taken before the acquisition. The due diligence we conduct in connection with an acquisition, the controls and policies we implement and any contractual guarantees or indemnities that we receive from the sellers of acquired companies or assets may not be sufficient to protect us from, or compensate us for, actual liabilities. Acquisitions also involve other risks, such as differing levels of management and internal control effectiveness, systems integration risks, the risk of impairment charges relating to recorded goodwill and intangible assets, the risk of significant accounting charges and expenses resulting from the completion and integration of a sizable acquisition, the need to fund increased capital expenditures and working capital requirements, our ability to retain and motivate employees and compliance and reputational risks.
In addition to unanticipated delays, costs and other issues, divestitures may expose us to liabilities or claims for indemnification for retained liabilities or indemnification obligations associated with the assets or businesses that we sell. The magnitude of any such retained liability or indemnification obligation may be difficult to quantify at the time of the transaction, including certain liabilities retained in connection with the Arysta Sale and described under Note 5. Discontinued Operations, to the Consolidated Financial Statements included in this 2019 Annual Report. We cannot predict the ultimate resolution of these matters, and there can be no assurance that any such resolution, which may take several years, will not adversely impact our financial position or results of operations.
Intellectual Property and Information Security
If we are unable to protect our intellectual property rights, our business, financial condition or results of operations could be adversely affected.
Protection of our proprietary processes, methods, formulations and other technology is important to our business. We generally rely on patent, trade secret, trademark and copyright laws of the U.S. and certain other countries in which our products are produced or sold, as well as nondisclosure and confidentiality agreements, to protect our intellectual property rights. The laws of other countries may not protect our intellectual property rights to the same extent as the laws of the U.S. Failure to protect our existing intellectual property rights, domestically or internationally, may result in the loss of valuable technologies and our competitors offering similar products, potentially resulting in the loss of one or more competitive advances and decreased sales and/or market shares. Additionally, we rely in some cases upon unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position. While we generally enter into confidentiality agreements with our employees and third-parties to protect our intellectual property, our confidentiality agreements could be breached and may not provide meaningful protection for or adequate remedies to protect our trade secrets or proprietary manufacturing expertise in the event of unauthorized use or disclosure of information.
Further, protecting against the unauthorized use of our products, technology and other proprietary rights is difficult, time-consuming and expensive, and we cannot be certain that the steps that we are taking will prevent or minimize the risks of such unauthorized use. Litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope

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of the proprietary rights of others. Litigation of this type could also result in substantial costs and diversion of resources and could significantly harm our results of operations and reputation.
Additionally, we could face patent infringement claims from our competitors or others alleging that our processes or products infringe on their proprietary technologies. If we are found to be infringing on the proprietary technology of others, we may be liable for material damages and we may be required to change our processes, redesign our products partially or completely, pay to use the technology of others, stop using certain technologies or stop producing the infringing product entirely. Regardless of the merit of these claims, they can be time-consuming, divert the time and attention of our management and technical personnel, and result in costly litigation. Any settlement or adverse judgment resulting from such litigation could also prevent us from offering certain of our products and/or require us to obtain a license to continue to use the intellectual property rights that are the subject of the claim, or otherwise restrict or prohibit our use of such intellectual property rights. Any required licensing fees may not be available to us on acceptable terms, if at all.
Finally, our exposure to risks associated with the use of intellectual property may increase as a result of acquisitions, as we would have a lower level of visibility into the development process with respect to such technology and the steps taken to safeguard against the risks of infringing the rights of third parties.
If we experience a significant disruption in our information technology systems, including security breaches, or if we fail to implement new systems and software successfully, our business operations and financial condition could be adversely affected.
We depend on information technology systems throughout the Company to, among other functions, control our manufacturing processes, process orders and bill, collect and make payments, interact with customers and suppliers, manage inventory and otherwise conduct business. We also depend on these systems to respond to customer inquiries, contribute to our overall internal control processes, maintain records of our property, plant and equipment and record and pay amounts due to vendors and other creditors. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction errors, processing inefficiencies, and the loss of sales and customers. As we upgrade or change systems, we may also experience interruptions in service, loss of data or reduced functionality and other unforeseen material issues which could adversely impact our ability to provide quotes, take customer orders and otherwise run our business in a timely manner. In addition, if our new systems fail to provide accurate and increased visibility into pricing and cost structures, it may be difficult to improve or maximize our profit margins. As a result, our results of operations could be adversely affected.
In addition, cyber-attacks or security breaches could compromise confidential, business critical information, cause a disruption in our operations or harm our reputation. Our information technology systems are subject to potential disruptions, including significant network or power outages, cyberattacks, computer viruses, other malicious codes, and/or unauthorized access attempts, any of which, if successful, could result in data leaks or otherwise compromise our confidential or proprietary information and disrupt our operations. Despite our efforts to protect sensitive information and comply with and implement data security measures, there can be no assurance that any controls and procedures that we have in place will be sufficient to protect us. Further, as cyber threats are continually evolving, our controls and procedures may become inadequate and we may be required to devote additional resources to modify or enhance our systems in the future. We may also be required to expend resources to remediate cyber-related incidents or to enhance and strengthen our cyber security. Any such disruptions to our information technology systems, breaches or compromises of data, and/or misappropriation of information could result in violation of privacy and other laws, litigation, fines, negative publicity, lost sales or business delays, any of which could have a material adverse effect on our business, financial condition or results of operations.
Changes in data privacy and data protection laws and regulations, or any failure to comply with such laws and regulations, could adversely impact our business.
Our global business is subject to a wide variety of domestic and foreign laws and regulations designed to protect the privacy of clients, customers, employees and other third parties. The interpretation and application of such privacy laws and regulations, including but not limited to the General Data Protection Regulation (GDPR) in the E.U. and the California Consumer Protection Act (CCPA) in the U.S., which became effective on January 1, 2020, is uncertain and evolving and it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. Complying with these various laws and regulations is difficult and could require us to incur substantial costs or change our business practices in a manner adverse to our business.
Further, although we have implemented internal controls and procedures designed to ensure compliance with the GDPR, the CCPA and other privacy-related laws, rules and regulations, there can be no assurance that our controls and procedures enable us to be fully compliant. Any failure, or perceived failure, by us to comply with the GDPR, the CCPA or any other applicable

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regulatory requirements or orders, including but not limited to privacy, data protection, information security, or consumer protection-related privacy laws and regulations, in one or more jurisdictions within the E.U., the U.S. or elsewhere, could result in proceedings or actions against us by governmental entities or individuals; subject us to significant fines, penalties, and/or judgments; require us to change our business practices; limit access to our products and services in certain countries; or otherwise adversely affect our business, as we would be at risk to lose both customers and sales, and incur substantial costs.
Finally, as data security events and concerns about privacy abuses by other companies are changing consumer and social expectations for enhanced privacy and data protection, even the perception of noncompliance, whether or not valid, may damage our reputation.
Global Operations and Regulations
Our substantial international operations subject us to risks of doing business in foreign countries which could affect our business, financial condition or results of operations.
Our products are manufactured and formulated, distributed or sold globally, and approximately 76% of our net sales were generated from non-U.S. operations in 2019. The risks inherent in international trade may reduce our international sales and harm our business, including:
fluctuations in currency values and foreign currency exchange rates;
changes in tariff regulations;
political instability, war, terrorism and other political risks;
additional withholding taxes or other taxes on foreign income;
foreign exchange controls or other currency restrictions and limitation on the movement of funds, potentially leading to the inability to readily repatriate earnings from foreign operations effectively;
establishing and maintaining relationships with local distributors and OEMs;
the effects of tariff increases and retaliations, restrictive regulations and potential boycotts;
instability in certain countries and negative impact on the global economy;
import and export control and licensing requirements;
public health crisis, including the occurrence of a contagious disease or illness, such as the coronavirus whose impact on our business and operations is at this time uncertain and which, if it persists for an extended period of time, could disrupt our global supply chain and result in significant expenses and delays outside of our control;
business cultures accepting of various levels of corruption;
compliance with a variety of U.S. laws, including the FCPA and the Bribery Act, the anti-bribery laws of other countries and rules regarding conflict minerals by us, our employees, suppliers or distributors;
compliance with a variety of foreign laws and regulations, including unexpected changes in taxation and regulatory requirements;
greater difficulty in safeguarding intellectual property than in the U.S.;
difficulty in staffing and managing geographically diverse operations; and
challenges in maintaining an effective internal control environment, including language and cultural differences, varying levels of GAAP expertise and internal control over financial reporting.
Any of these risks could impact our ability to manufacture, source, sell or export our products or repatriate profits. We could also experience a loss of sales and profitability from our international operations, and/or a substantial impairment or loss of assets, any of which could have a material adverse impact on our business, financial condition or results of operations.
Additionally, changes in U.S. policy regarding international trade, including import and export regulation and international trade agreements, could negatively impact our business. The U.S. has imposed tariffs on certain goods imported from China and certain other countries, which has resulted in retaliatory tariffs. Despite the "Phase 1" trade agreement signed on January 15, 2020 between the U.S. and China, it remains unclear what the U.S. and China will or will not do with respect to tariffs or other trade agreements and policies. Additional tariffs that may be imposed by the U.S. on a broader range of imports from China or other countries, or further retaliatory trade measures taken by China or other countries in response, could result in an increase in supply chain costs that we may not be able to offset or that otherwise adversely impacts our results of operations.

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Similarly, the U.K.'s exit from the E.U., commonly referred to as "Brexit," has created uncertainties affecting business operations in the U.K. and the E.U., and possibly other countries, including with respect to compliance with the regulatory regimes regarding the labeling and registration of the products we sell in these markets. The U.K. formally left the E.U. on January 31, 2020, starting an 11-month transition period. While we have taken steps to mitigate any disruption to our operations by Brexit, we could face increased regulatory costs, volatility in exchange rates, market instability and other risks, depending on the final terms of the U.K.’s trade deal with the E.U., if any.
Our net sales and gross profit have varied depending on our product, customer and geographic mix for any given period which makes it difficult to forecast future operating results.
Our net sales and gross profit vary among our products, customers and markets, and therefore may be different in future periods from historic or current periods. Overall gross profit margins in any given period are dependent in large part on the product, customer and geographic mix reflected in that period’s net sales. Market trends, competitive pressures, commoditization of products, increased component or shipping costs, regulatory conditions and other factors may also result in reductions in revenue or pressure on the gross profit margins in a given period. The varying nature of our product, customer and geographic mix between periods has materially impacted our net sales and gross profit between periods during certain recessionary times and may lead to difficulties in measuring the potential impact of market, regulatory and other factors on our business. As a result, we may be challenged in our ability to forecast our future operating results.
Changes in tax laws and regulations could adversely affect our financial condition, results of operations and liquidity.
We are subject to U.S. federal and state, and other countries' and jurisdictions' income, payroll, property, sales and use, and other types of taxes. Changes in tax rates, enactment of new tax laws, revisions of tax regulations, and claims or litigation with taxing authorities may require significant judgment in determining the appropriate provision and related accruals for these taxes; and as a result, such changes could result in substantially higher taxes and, therefore, could have a significant adverse effect on our financial condition, results of operations and liquidity.
Currently, a significant amount of our net sales are generated from customers located outside of the U.S., and a large portion of our assets and employees are located outside of the U.S. The U.S., the E.U. and member states along with numerous other countries are currently engaged in establishing fundamental changes to tax laws affecting the taxation of multinational corporations. For example, on December 22, 2017, the U.S. government enacted the TCJA which made significant changes to certain U.S. tax laws relevant to us. While interpretation of some of the provisions of the TCJA continues to be subject to uncertainty, and regulatory guidance on certain aspects of the TCJA has not yet been issued, to date the TCJA has had an adverse effect on the U.S. federal income taxation of our operations, including significantly limiting interest expense deductions and imposing new U.S. taxes on certain earnings of non-U.S. entities on a current basis. These and other changes may have an adverse impact on our financial results and on our cash flows in the future. See Note 11, Income Taxes, to the Consolidated Financial Statements included in this 2019 Annual Report for additional information on the TCJA and its consequences on our business, financial condition or results of operations.
In addition, we are subject to the continual examination of our income tax returns by the U.S. Internal Revenue Service and foreign tax authorities in the countries and jurisdictions in which we operate and we may be subject to assessments or audits in the future. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from that which is reflected in our historical financial statements. An audit or litigation can result in significant additional income taxes payable in the jurisdictions in which we operate which could have an adverse impact on our financial condition and results of operations.
Chemical manufacturing is inherently hazardous and may result in accidents, which may disrupt our operations or expose us to significant losses or liabilities.
The hazards associated with chemical manufacturing and the related storage and transportation of raw materials, products and wastes are inherent in our operations as our research and development, manufacturing, formulating and packaging activities involve the use of hazardous materials and the generation of hazardous waste. We cannot eliminate the risk of accidental contamination, discharge or injury resulting from those materials. Also, our suppliers or contract manufacturers may use and/or generate hazardous materials in connection with producing our products. We may be required to indemnify our suppliers, contract manufacturers or waste disposal contractors against damages and other liabilities arising out of the production, handling or storage of our products or raw materials or the disposal of related wastes. Potential risks include explosions and fires, chemical spills and other discharges or releases of toxic or hazardous substances or gases, and pipeline and storage tank leaks and ruptures. Those hazards may result in personal injury and loss of life, damage to property and contamination of the environment, which may result in a suspension of operations and the imposition of civil or criminal fines, penalties and other

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sanctions, cleanup costs, and claims by governmental entities or third-parties. We are dependent on the continued operation of our production facilities (including third-party manufacturing on a tolling basis), and the loss or shutdown of operations over an extended period could have a material adverse effect on our financial condition or results of operations.
Our operations currently use, and have historically used, hazardous materials and generate, and have historically generated, quantities of hazardous waste. As a result, we are subject to regulatory oversight and investigation, remediation, and monitoring obligations at our current and former Superfund sites, as well as third-party disposal sites, under federal laws and their state and local analogues, including the Resource Conservation and Recovery Act (RCRA), the Clean Water Act, the Clean Air Act, and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), as well as analogous foreign laws. We are also subject to ongoing obligations at active sites in the U.S. and are conducting closure activities pursuant to the RCRA at several of our sites in the U.S. The costs and liabilities associated with these issues may be substantial and, to the extent not covered by insurance, may materially impact the financial health of the Company.
Our products are subject to numerous, complex government regulations and compliance with these regulations could require us to incur additional costs or to reformulate or discontinue certain of our products.
Our products are subject to numerous, complex federal, state, local and foreign customs regulations, imports and international trade laws, export control, antitrust laws, environmental and chemicals manufacturing, global climate change, health and safety requirements and zoning and occupancy laws that regulate manufacturers generally or govern the importation, promotion and sale of our products, the operation of factories and warehouse facilities and our relationship with our customers, suppliers, employees and competitors.
Our products and manufacturing processes are also subject to numerous regulations and ongoing reviews by certain governmental authorities. These regulations include, for example, the European Union REACH (Registration, Evaluation, Authorization, and Restriction of Chemicals) regulation, the REACH regulation’s Substances of Very High Concern (SVHC) program, Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to the use in our products of certain “conflict minerals” that are mined from the Democratic Republic of Congo and adjoining countries, and similar laws in other jurisdictions. These regulations may require us to re-design our products or supply chain to ensure compliance with the applicable standards, for example by requiring the use of different types or sources of materials, which could have an adverse impact on the efficiency of our manufacturing process, the performance of our products, add greater testing lead-times for product introductions or other similar effects, which could materially alter our marketplace position and reputation or otherwise have a material adverse effect on our financial condition and results of operations.
In addition, we have incurred, are incurring and will incur in the future, costs and capital expenditures in complying with environmental, health and safety laws and regulations. For example, we have several product lines that rely on lead-based solder and many others that historically did so. Legal claims have been brought alleging harmful exposures or contamination as a result of lead-based solder, and it is possible that we may face additional claims in the future. We are also currently involved in various environmental investigations due to historic operations. Liability under some environmental laws relating to contaminated sites can be joint and several and imposed retroactively, regardless of fault or the legality of the activities that gave rise to the contamination. Some of our formulating and manufacturing facilities have an extended history of chemical formulating and manufacturing operations or other industrial activities, and contaminants have been detected at some of our sites and offsite disposal locations. Ultimate environmental costs and liabilities are difficult to predict and may significantly vary from current estimates. To the extent available, we maintain what we believe to be adequate insurance coverage. However, there can be assurance that we won’t incur losses beyond the limits or outside the terms of such coverage. In addition, the discovery of additional contaminants, the inability or failure of other liable parties to satisfy their obligations, the imposition of additional cleanup obligations, or the commencement of related third-party claims could result in additional material costs and negatively impact our financial condition or results of operations.
Although it is our policy to comply with such laws and regulations, it is possible that we have not been, or may not be at all times, in material compliance with all such requirements. Additionally, these requirements and their enforcement may become more stringent in the future and the ultimate cost of compliance could be material. In particular, changes in environmental and climate laws or regulations could lead to new or additional investment in production designs and could increase environmental compliance expenditures, for us and our suppliers. Changes in climate change concerns, or in the regulation of such concerns, including greenhouse gas emissions, could also subject us to additional costs and restrictions, including increased energy and raw materials costs which could negatively impact our financial condition and results of operations.

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Our offshore oil industry products are subject to the hazards inherent in the offshore oil production and drilling industry, and we may incur substantial liabilities or losses as a result of these hazards.
In the offshore oil industry, we are subject to the hazards inherent in the offshore oil production and drilling industry. Our offshore business produces water-based hydraulic control fluids for major oil companies and drilling contractors to be used for potentially hazardous offshore deepwater production and drilling applications. Offshore deepwater oil production and drilling are subject to hazards that include blowouts, explosions, fires, collisions, capsizing, sinking and damage or loss to pipeline, subsea or other facilities from severe weather conditions. Those hazards could result in personal injury and loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage and suspension of operations. A catastrophic occurrence at a location where our products are used may expose us to substantial liability for personal injury, wrongful death, product liability or commercial claims. To the extent available, we maintain insurance coverage that we believe is customary in our industry. Such insurance does not, however, provide coverage for all liabilities, and there can be no assurance that our insurance coverage will be adequate to cover claims that may arise or that we will be able to maintain adequate insurance at rates we consider reasonable. The occurrence of a significant offshore deepwater oil production or drilling event that results in liability to us that is not fully insured could have a material adverse effect on our financial condition or results of operations.
Certain of our products may be subject to various export control regulations and exports may require a license from the U.S. Department of State or the U.S. Department of Commerce.
As a global company, we are subject to various laws and regulations relating to the export of products, services, and technology. In the U.S., these laws include, among others, the U.S. Export Administration Regulations (EAR), administered by the U.S. Department of Commerce’s Bureau of Industry and Security, and the International Traffic in Arms Regulations (ITAR), administered by the U.S. Department of State’s Directorate of Defense Trade Controls. Some of our products or technology may have military or strategic applications governed by the ITAR or represent so-called “dual use” items governed by the EAR. Although our relevant products are currently subject to automatic approval and do not require government licenses to be exported to certain jurisdictions or persons, this may change in the future if these laws and regulations are amended or if new laws or regulations are adopted. Any failure to comply with these laws and regulations could result in civil or criminal penalties, fines, investigations, adverse publicity and restrictions on our ability to export our products, which could result in a material adverse effect on our business, financial condition or results of operations.
Failure to comply with the FCPA and other similar anti-corruption laws could subject us to penalties and damage our reputation.
Our international operations are subject to the FCPA, the Bribery Act and similar anti-bribery laws in other jurisdictions, which generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business. Under these laws, companies may also be held liable for actions taken by third-parties acting on their behalf, such as strategic or local partners or representatives. Our policies mandate compliance with these anti-bribery laws, including the requirements to maintain accurate information and internal controls. However, certain of the jurisdictions in which we conduct business have experienced a heightened risk for corruption, extortion, bribery, pay-offs, theft and other improper practices and, despite our training and compliance programs, there is no assurance that our internal control policies and procedures will protect us from acts committed by our employees or agents. Failure by us or our intermediaries to comply with applicable anti-corruption laws may result in civil and/or criminal penalties or other sanctions, including disgorgement of profits and contract suspensions or cancellations, any of which could damage our reputation and have a material adverse effect on our business, financial condition or results of operations.
Failure to comply with international trade restrictions and economic sanctions laws and regulations could adversely affect our business, financial condition or results of operations.
We have operations, assets and/or make sales in countries all over the world, including countries that are or may become the target of trade and economic restrictions from the U.S. and/or other countries, which we refer to collectively as “Economic Sanctions Laws.” Economic Sanctions Laws are complex and change with time as international relationships and confrontations between and among nations evolve. For example, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. State Department administer certain laws and regulations that impose penalties upon U.S. persons and entities and, in some instances, non-U.S. entities, for conducting activities or transacting business with certain countries, governments, entities, or individuals subject to Economic Sanctions Laws. We have established policies and procedures to assist with our compliance with Economic Sanctions Laws and believe we do not unlawfully conduct business in any sanctioned countries. However, given the breadth of our international operations and the scope of our sales globally, including via third-party distributors over whom we may have limited or no control, coupled with the complexity and ever-changing

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nature of Economic Sanctions Laws, there can be no assurance that our controls and procedures have prevented in the past or will prevent at all times in the future a violation of these laws. Failure to comply with Economic Sanctions Laws, or allegations of such failure, could lead to investigations and/or actions being taken against us which could materially and adversely affect our reputation or have a material adverse effect on our business, financial condition or results of operations.
Risks Related to our Financial Results, Finances and Capital Structure
Financial Performance
Unfavorable currency exchange rate fluctuations could adversely affect our results of operations.
The reporting currency for our financial statements is the U.S. dollar. However, we have substantial assets, liabilities, net sales and costs denominated in currencies other than U.S. dollars. To prepare our Consolidated Financial Statements, we must translate those assets, liabilities, revenues and expenses into U.S. dollars at then-applicable exchange rates. Consequently, increases and decreases in the value of the U.S. dollar versus other currencies will affect the amount of these items in our Consolidated Financial Statements, even if their value has not changed in their original currency. These translations could result in significant changes to our results of operations from period to period. Additionally, volatility in currency exchange rates may adversely impact our financial condition, cash flows and liquidity. Although we employ a variety of techniques to mitigate the impact of exchange rate fluctuations, including foreign currency hedging activities, we cannot guarantee that such risk management strategies will be effective, and our financial condition or results of operations could be adversely impacted.
Changes in the method for determining London Interbank Offered Rate (LIBOR) and/or the replacement of LIBOR could adversely affect our results of operations.
Amounts drawn under our Credit Agreement may bear interest rates in relation to LIBOR, depending on our selection of repayment options. In July 2017, the United Kingdom Financial Conduct Authority announced that it would phase out the use of LIBOR as a benchmark by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve is considering replacing U.S. dollar LIBOR with a newly created index called the Secured Overnight Financing Rate, calculated with a broad set of short-term repurchase agreements backed by treasury securities. If LIBOR ceases to exist, we may need to renegotiate our Credit Agreement and may not be able to do so with terms that are favorable to us. The overall financing market may be disrupted as a result of the phase-out or replacement of LIBOR. Disruption in the financial markets or the inability to renegotiate our Credit Agreement with favorable terms could have a material adverse effect on our business, financial position, and operating results.
Any future impairment of our tangible or intangible long-lived assets may materially affect our results of operations.
As a result of our historical Acquisitions, as of December 31, 2019, we had recorded approximately $3.12 billion of intangible assets and goodwill. Under GAAP, we review our intangible assets and long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Additionally, goodwill is subject to an impairment test at least annually. Indicators such as under-performance relative to historical or projected future operating results, changes in our strategy for our overall business or use of acquired assets, unexpected negative industry or economic trends, decreased market capitalization relative to net book values, unanticipated competitive activities, change in consumer demand, loss of key personnel and acts by governments and courts may signal that an asset has become impaired. To the extent any of our acquired assets do not perform as anticipated, whether due to internal or external factors, the value of such assets may be negatively affected and we may be required to record impairment charges. Our results of operations and financial position in future periods could be negatively impacted should future impairments of our long-lived assets, including intangible assets or goodwill, occur.
If we fail to establish and maintain adequate internal controls over financial reporting, we may not be able to report our financial results in a timely and reliable manner, which could harm our business and adversely impact our stock price.
We are required by the SEC to establish and maintain adequate internal control over financial reporting that provides reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with GAAP. We are likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any material changes and material weaknesses in those internal controls. We have in the past experienced, and in the future may experience again, material weaknesses and potential problems in implementing and maintaining adequate internal controls as required by the SEC. If we fail to achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have effective internal controls over financial reporting. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and

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our stock price could drop significantly. Likewise, if our financial statements are not filed on a timely basis as required by the SEC and the NYSE, we could face severe consequences from those authorities, and our reputation could be harmed which in turn could affect the value of our securities.
Indebtedness
Our Credit Agreement and other debt agreements contain restrictions that limit our flexibility in operating our business.
The Credit Agreement, the 5.875% USD Notes Indenture and other debt agreements governing our outstanding debt contain restrictive clauses which may limit our activities and operational and financial flexibility, including, among other things, our ability to grant liens, pay cash dividends, enter new lines of business, repurchase our shares of common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. In addition, the Credit Agreement includes customary remedies, including the right of the lenders to take action with respect to the collateral securing outstanding loans, that would apply should we default or otherwise be unable to satisfy our debt obligations. These covenants may restrict our flexibility in operating our business. We may also not be able to borrow under the Credit Agreement if an event of default under the terms of this agreement occurs. As a result, we may be unable to pursue certain business initiatives or certain transactions that might otherwise be advantageous, meet extraordinary capital needs, finance future operations, plan for or react to market conditions, or otherwise take actions that we believe are in the best interest of our business which, in turn, may adversely impact our business prospects, financial condition or results of operations.
In addition, the Credit Agreement requires that we meet certain financial ratios, including a first lien net leverage ratio based on net debt to EBITDA. EBITDA is a non-GAAP measures of liquidity defined in the Credit Agreement. Our ability to meet these financial covenants depends upon the future successful operating performance of our businesses. If we fail to comply with the Credit Agreement covenants, we would be in default under the term loan and revolving credit facility, and the maturity of our outstanding debt could be accelerated unless we were able to obtain waivers from our lenders. If we were found to be in default under the term loan and revolving credit facility, it could adversely impact our results of operations, financial position and cash flows.
We and our subsidiaries may be able to incur significant additional indebtedness in the future, which would result in additional restrictions upon our business and impact our financial condition.
The Credit Agreement provides for senior secured credit facilities in an aggregate principal amount of $1.08 billion, consisting of a revolving facility in an aggregate principal amount of $330 million maturing in 2024 and a term loan in an aggregate principal amount of $750 million maturing in 2026. At December 31, 2019, we had $733.4 million outstanding under the term loan and full capacity under the revolver. Despite our current level of indebtedness, we and our subsidiaries may be able to incur significant additional indebtedness in the future. Although the Credit Agreement contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and any indebtedness incurred in compliance with these restrictions could be substantial. Any significant indebtedness incurred by us or our subsidiaries could have the following material consequences:
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund acquisitions, working capital, capital expenditures, dividends, research and development efforts and other general corporate purposes;
increase the amount of our interest expense, because our borrowings include instruments with variable rates of interest, which, if interest rates increase, would result in higher interest expense;
increase our vulnerability to general adverse economic and industry conditions;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
limit our ability to make strategic acquisitions, introduce new technologies or exploit business opportunities;
place us at a competitive disadvantage compared to our competitors that have less indebtedness; and
limit, among other things, our ability to borrow additional funds.
We may also enter into additional debt transactions or credit facilities, including equipment loans, working capital lines of credit, senior notes and other long-term debt, which may increase our indebtedness and result in additional restrictions upon our businesses. In addition, major debt rating agencies regularly evaluate our debt based on a number of factors, including our degree of leverage. There can be no assurance that we will be able to maintain our existing debt ratings, and failure to do so could adversely affect our cost of funds, liquidity and access to capital markets.

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Risks Related to Ownership of our Common Stock and Senior Notes
We have numerous equity instruments outstanding that could require the future issuance of additional shares of common stock, which issuance could result in significant dilution of ownership interests and have an adverse effect on our stock price.
We have a number of equity instruments outstanding that could require us to issue additional shares of our common stock. Depending on the equity instrument, these additional shares may either be issued for no additional consideration or based on a fixed amount of additional consideration. Specifically, at December 31, 2019, we had outstanding the following:
4,484,757 RSUs which were granted to employees under our 2013 Plan with each RSU representing a contingent right to receive one share of our common stock (assuming performance-based RSUs vest at target level) or multiple shares depending upon the Company's performance;
349,009 options which are exercisable to purchase shares of our common stock, on a one-for-one basis, at any time at the option of the holder; and
$60 million of potential contingent consideration agreed upon in connection with the MacDermid Acquisition which, at our option, may be paid in shares of our common stock.
At December 31, 2019, we had 7,212,987 shares available under the 2013 Plan (subject to increase in accordance with the terms of the 2013 Plan), net of the outstanding RSUs and options noted above, and 4,596,112 shares available under the ESPP.
At December 31, 2019, we also had 2,000,000 shares of Series A Preferred Stock, which were convertible at any time into shares of our common stock at the option of their holders. All outstanding Series A Preferred Stock were converted into shares of our common stock, on a one-for-one basis, on February 25, 2020.
Volatility of our stock price could adversely affect us and our stockholders.
Fluctuations in the price of our common stock could negatively affect us and contribute to the loss of all or part of a stockholder’s investment in our Company. The market price of our common stock could fluctuate significantly as a result of:
our operating and financial performance and prospects;
quarterly or annual variations in our operating results;
the public's reaction to our press releases and filings with the SEC;
changes in, or failure to meet, earnings estimates, or the publication of research reports by analysts who track our common stock or the stock of other companies in our industry;
operating and securities price performance of companies that investors deem comparable to us;
speculation in the press or investment community;
changes in laws and regulations affecting our businesses;
strategic actions by us, our customers or our competitors, such as acquisitions, divestitures, restructuring or other material events, or market rumors regarding such actions;
sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur;
shares repurchases or issuance of additional shares of common stock by the Company;
additional debt we may incur in the future;
changes in key personnel or business strategy;
material litigation or governmental investigations;
actions by stockholders; and
the realization of any risk factors set forth in this 2019 Annual Report.
Many of the factors listed above are beyond our control and may cause the market price of our common stock to decline, regardless of our financial condition, results of operations, business or prospects. Repurchases of our shares of common stock would also reduce the number of our outstanding shares and might incrementally increase the potential for volatility in our stock by reducing the potential volumes at which our shares may trade in the public markets. There can be no assurance that the market price of our common stock will not decline in the future. Further, in the past, market fluctuations and price declines

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in a company's stock have led to securities class action litigation. If such a suit were to arise, it could have a substantial cost and divert our resources regardless of the outcome.
Future sales, or the perception of future sales, of our common stock may depress the price of our common stock.
If any of our executive officers, directors or stockholders sells a large number of shares of our common stock, or if we issue a large number of shares of common stock in connection with future acquisitions, financings or other circumstances, the market price of our common stock could decline significantly. Moreover, the perception in the public market that we or our stockholders might sell shares of common stock could depress the market price of those shares.
We cannot predict the size of future issuances of our shares of common stock or the effect, if any, that future issuances or sales of our shares will have on the market price of such shares. Sales of substantial amounts of our shares, including sales by significant stockholders, and shares issued in connection with any acquisition, or the perception that such sales could occur, may adversely affect prevailing market prices for our shares of common stock. Decline in the stock price of our common stock may also may make it more difficult for us to finance acquisitions with shares of common stock and/or sell additional equity or equity-related securities in future offerings at a time and price we deem necessary or appropriate.
We may issue preferred stock in the future, and the terms of the preferred stock may reduce the value of our common stock.
Our Board is authorized to create and issue one or more additional series of preferred stock, and, with respect to each series, to determine the number of shares constituting the series and the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof, which may include dividend rights, conversion or exchange rights, voting rights, redemption rights and terms and liquidation preferences, without stockholder approval. If we create and issue one or more additional series of preferred stock, it could affect the rights of our common stockholders or reduce the value of our outstanding common stock. Our Board could, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our common stock and which could have certain anti-takeover effects.
There can be no assurance that we will declare dividends or have available cash to make dividend payments.

To the extent the Board, in its sole discretion, decides to pay dividends on our common stock, we will pay dividends at the times and in the amounts as the Board determines appropriate. Should any dividend be declared, we may, however, reduce or discontinue entirely the payment of such dividends at any time. Paying dividends will depend upon many factors, including our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements and access to capital markets, covenants associated with the Credit Agreement and other debt obligations, contractual, legal, tax and regulatory restrictions and other factors that the Board may deem relevant. Therefore, there can be no assurance that we will have the ability and/or sufficient funds to pay dividends or as to the amounts of these dividends, if any.
We have redeemed in the past, and may redeem or repurchase in the future, our outstanding debt securities which could impact the market for our senior notes and/or negatively affect our liquidity.
We may from time to time seek to repurchase, redeem or refinance our outstanding debt securities, including the 5.875% USD Notes due 2025, in open market purchases, accelerated repurchase programs, privately negotiated transactions, tender offers, partial or full calls for redemption or otherwise. Any such repurchases or redemptions and the timing and amount thereof would depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. Depending on such timing and amount, our liquidity could be negatively affected.
We are dependent on cash flows from our operating subsidiaries to fund our debt obligations, capital expenditures and ongoing operations.
We do not have any material assets or operations other than ownership of equity interests of our operating subsidiaries. Our operations are conducted almost entirely through our subsidiaries, and our ability to generate cash to meet our obligations or to pay dividends, if any, is highly dependent on the earnings of, and receipt of funds from, our subsidiaries through dividends or intercompany loans, in particular from MacDermid. As a result, we are dependent on the income generated by our subsidiaries, and to some degree on our ability to repatriate earnings from our foreign operations effectively, to meet our debt service obligations, expenses and operating cash requirements. The amount of distributions and dividends, if any, which may be paid to us from each of our subsidiaries depends on many factors, including the results of operations and financial condition of our subsidiaries, limits on dividends or otherwise under applicable law, constitutional documents of our subsidiaries, documents governing their indebtedness, and other factors which may be outside our control. If our subsidiaries are unable to generate

21


sufficient cash flows or if we are unable to repatriate earnings effectively, we may be unable to service our debt obligations, pay our expenses and/or meet our operating cash requirements.
We are governed by Delaware law, which has anti-takeover implications.
We are governed by Delaware law, the application of which may have the effect of deterring hostile takeover attempts or a change in control. In particular, Section 203 of the Delaware General Corporation Law imposes certain restrictions on merger, business combinations and other transactions between us and holders of 15% or more of our common stock. A Delaware corporation may opt out of that provision either with an express provision in its original certificate of incorporation or in an amendment to its certificate of incorporation or by-laws approved by its stockholders. We have not opted out of this provision. Section 203 could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us, which may negatively affect our stock price.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate offices are located in a leased facility in Fort Lauderdale, Florida. At December 31, 2019, our physical presence included 42 manufacturing sites, 9 of which include research facilities, and 8 stand-alone research centers. Of our manufacturing facilities, 9 are located in the U.S. with the remaining international facilities located primarily in Asia and Europe. We own 23 of our manufacturing facilities, 4 of our manufacturing facilities that include research facilities and 5 of our stand-alone research centers. In addition to the remaining manufacturing and research facilities, we lease the majority of our office, warehouse and other physical locations. Among our two business segments, Electronics and Industrial & Specialty utilize 21 and 8 of our manufacturing facilities, respectively, with the remaining 13 manufacturing facilities being shared between the two segments.
We believe that all of our facilities and equipment are in good condition, well-maintained, adequate for our present operations, and utilized for their intended purposes. See Note 7, Property, Plant and Equipment, to the Consolidated Financial Statements included in this 2019 Annual Report for amounts invested in land, buildings, machinery, and equipment, and Note 17, Leases, to the Consolidated Financial Statements included in this 2019 Annual Report, for information about our operating lease commitments.
Item 3. Legal Proceedings
In the ordinary course of business, we are involved in various legal disputes, investigations and claims and other legal proceedings, including, but not limited to, product liability claims, contractual disputes, premises claims, tax examinations, and employment, environmental, and health and safety matters. Where appropriate, we may establish loss contingencies for such proceedings based on an assessment of whether the risk of loss is remote, reasonably possible or probable. We also maintain insurance to mitigate certain of such risks. Although we cannot predict with certainty the ultimate resolution of our various legal proceedings, investigations and/or claims asserted against us, we believe that the resolution of these claims will not, individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations. Due to their inherent uncertainty, however, there can be no assurance as to the ultimate outcome of current or future litigation, proceedings, investigations or claims and it is possible that a resolution of one or more such proceedings could result in fines and penalties that could adversely affect our business, financial condition or results of operations.
In addition, we are involved in various claims relating to environmental matters at a number of current and former plant sites and waste management sites. We engage or participate in remedial and other environmental compliance activities at certain of these sites. At other sites, we have 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. Based on currently available information, we do not anticipate any material losses in excess of the liabilities recorded. However, it is possible that, as additional information becomes available, the impact of an adverse determination could have a different effect. For additional information regarding environmental matters and liabilities, see Note 18, Contingencies, Environmental and Legal Matters, to the Consolidated Financial Statements included in this 2019 Annual Report.
Item 4. Mine Safety Disclosure
Not applicable.

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Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for our Common Stock
Our common stock is traded on the NYSE under the symbol “ESI.” On February 25, 2020, there were approximately 282 registered holders of record of our common stock, par value $0.01 per share. On February 25, 2020, the closing price of our common stock was $10.67.
Dividends
We have never declared or paid any cash dividends on our common stock. We anticipate that we will retain all of our future earnings, if any, for use in the development and expansion of our business, including future acquisitions, and for general corporate purposes, including for the repayment of debt. Our Credit Agreement and the 5.875% USD Notes Indenture governing our existing 5.875% USD Notes also contain restrictions, which may prohibit or limit our ability to pay dividends. As a holding company, our ability to pay dividends is highly dependent on receipts of funds from our subsidiaries. See Part I, Item 1A.—Risk Factors— "We are dependent on cash flows from our operating subsidiaries to fund our debt obligations, capital expenditures and ongoing operations."
Prior to their conversion into shares of our common stock on February 25, 2020, the holders of our Series A Preferred Stock were entitled to receive an annual dividend on their Series A Preferred Stock in the form of shares of our common stock. For 2019, 2018 and 2017, no stock dividend had been declared with respect to the Series A Preferred Stock on the basis of the last dividend price used in calculating the Series A Preferred Stock dividends of $22.85.
In addition to the restrictions described above, we may become subject to additional covenants should we incur any additional indebtedness, which may prohibit or further limit our ability to pay dividends.
Performance Graph
The following performance graph and related information shall not be deemed "soliciting material" or to be "filed" with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.
This graph compares cumulative total stockholder return on our common stock from December 31, 2014 through December 31, 2019 with the cumulative total return of (i) the Standard and Poor's 500 Index, and (ii) the S&P 500 Specialty Chemicals Index, assuming a $100 investment made on December 31, 2014. The stock performance shown on this graph is based on historical data and is not indicative of, or intended to forecast, possible future performance of our common stock.

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esi-20191231_g3.jpg
Equity Compensation Plan Information
The information regarding our equity compensation plans will be included in the 2020 Proxy Statement under the heading "Executive Compensation Tables - Equity Compensation Plan Information," and is incorporated by reference into this 2019 Annual Report.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
During the three months ended December 31, 2019, the Company repurchased the following shares of its common stock:
PeriodTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of a Publicly Announced Repurchase Program
Approximate Dollar Value of Shares that May Yet be Purchased Under the Repurchase Program (1) (in millions)
October 1 - October 31—  $—  —  
November 1 - November 30—  —  —  
December 1 - December 31981,657  

11.16  981,657  
Total
981,657  $11.16  981,657  $243  
(1) In July 2018, the Board authorized a program to repurchase up to $750 million of the Company's common stock, of which approximately $507 million had been utilized as of December 31, 2019. The Company's share repurchase program does not require the repurchase of any specific number of shares, and share repurchases are made opportunistically at the discretion of the Company.

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Item 6. Selected Financial Data
Element Solutions’ Selected Consolidated Financial Information
The following selected consolidated historical financial data is derived from our consolidated financial statements. This financial information, included below and elsewhere in this 2019 Annual Report, is not necessarily indicative of future results and should be read in conjunction with the sections entitled “Financial Statements and Supplementary Data” included in Part II, Item 8 of this 2019 Annual Report, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of this 2019 Annual Report.
Year Ended December 31,
(dollars in millions, except per share data)
2019 (1)
2018 (2)
2017 (3)
2016 (4)
2015 (5)
Statement of Operations Data
Net sales$1,835.9  $1,961.0  $1,878.6  $1,770.1  $800.7  
Gross profit788.3  837.6  813.8  777.3  387.4  
Operating profit249.1  248.5  200.2  89.4  22.1  
Income (loss) before income taxes, non-controlling interests and dividends on preferred shares140.9  (53.2) (260.4) (231.8) (252.6) 
Income tax (expense) benefit(61.3) (23.8) 68.6  41.3  3.9  
Net income (loss) from continuing operations79.6  (77.0) (191.8) (190.5) (248.7) 
Income (loss) from discontinued operations, net of tax13.3  (242.9) (103.8) 113.8  (55.7) 
Net income (loss)$92.9  $(319.9) $(295.6) $(76.7) $(304.4) 
Earnings (loss) per share
Basic from continuing operations$0.31  $(0.27) $(0.68) $(0.62) $(1.22) 
Basic from discontinued operations0.05  (0.86) (0.36) 0.45  (0.30) 
Basic attributable to common stockholders$0.36  $(1.13) $(1.04) $(0.17) $(1.52) 
Diluted from continuing operations$0.30  $(0.27) $(0.68) $(1.06) $(1.22) 
Diluted from discontinued operations0.05  (0.86) (0.36) 0.41  (0.30) 
Diluted attributable to common stockholders$0.35  $(1.13) $(1.04) $(0.65) $(1.52) 
Adjusted EBITDA (6)
$416.7  $420.7  $401.2  $368.4  $188.3  

December 31,
(dollars in millions)20192018201720162015
Balance Sheet Data
Cash and cash equivalents$190.1  $233.6  $258.4  $236.1  $176.9  
Working capital (7)
562.5  545.2  581.7  469.4  520.6  
Total assets
Continuing operations4,306.7  4,367.8  4,651.7  4,487.6  4,701.6  
Discontinued operations17.7  5,033.7  5,600.7  5,566.5  5,488.6  
Total4,324.4  9,401.5  10,252.4  10,054.1  10,190.2  
Total debt1,521.0  5,376.0  5,447.2  5,150.2  5,210.9  
Total equity$2,219.3  $2,181.1  $2,860.0  $2,889.8  $2,273.3  
Comparability of the statement of operations data for continuing operations within the table above is affected by the following acquisitions: Kester in December 2019, OMG Malaysia in January 2016, Alent in December 2015 and OMG Businesses in October 2015. Comparability of the balance sheet data within the table above is affected by the previously mentioned acquisitions, as well as the Arysta Acquisition in February 2015. Arysta is presented as discontinued operations in each of the periods presented.

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(1) In addition to the impact of the 2019 acquisition and related valuation of intangible assets, the results presented include the following significant items affecting comparability for the year ended December 31, 2019:
debt refinancing charges of $62.0 million;
restructuring costs of $14.1 million, primarily related to severance;
foreign exchange gain on foreign denominated external and internal long-term debt of $31.9 million;
non-cash mark-to-market gain related to the contingent consideration in connection with the MacDermid Acquisition of $17.4 million;
net interest expense of $90.7 million, which decreased from 2018 primarily due to the pay down of our existing credit facilities on January 31, 2019 in connection with the Arysta Sale; and
tax expense changed primarily due to the increase in pre-tax income and the net impact of change in valuation allowances. In addition, 2018 includes a net benefit of $41.8 million associated with finalizing the accounting for the impact of the TCJA that did not recur in 2019. Both years reflect the negative impact of U.S. taxation of global intangible low-taxed income (“GILTI”) and U.S. interest deduction limitations.
(2) The results presented include the following significant items affecting comparability for the year ended December 31, 2018:
acquisition and integration related costs of $12.1 million, primarily comprised of facility integration and employee-related costs;
restructuring costs of $6.3 million, primarily related to severance;
foreign exchange loss on foreign denominated external and internal long-term debt of $6.0 million;
other expenses of $14.4 million, primarily comprised of employee-related expenses associated with the Arysta Sale that do not qualify for discontinued operations, non-cash changes in the fair value of contingent consideration and certain professional consulting fees;
non-cash mark-to-market gain related to the contingent consideration in connection with the MacDermid Acquisition of $21.8 million;
gain on sale of an investment of $11.3 million;
net interest expense of $311 million, which decreased from 2017 primarily due to a full year's benefit related to the 2017 redemption of our 10.375% senior notes due 2021 and the 2017 repricing of portions of our term loans; and
tax expense changed primarily due to i) the impact of the reduction in pre-tax losses, ii) the TCJA rate change from 35% to 21%, iii) the net change due to enactment of foreign statutory tax rates and iv) the net impact of change in valuation allowances.
(3) The results presented include the following significant items affecting comparability for the year ended December 31, 2017:
debt refinancing charges of $83.1 million;
foreign exchange loss on foreign denominated external and internal long-term debt of $53.4 million;
restructuring costs of $23.5 million, primarily related to severance;
net interest expense of $337 million, primarily related to interest charges resulting from incremental debt facilities, including term loans, bonds and revolving credit borrowings, impacted by the repricing of our term debt; and
tax expense changed primarily due to i) the benefit related to the provisional estimate under the TCJA in 2017, ii) the 2016 settlement gain of the Series B Convertible Preferred Stock which was treated as a non-taxable purchase price adjustment and iii) net change due to enactment of foreign statutory tax rates.
(4)  In addition to the impact of the 2016 and 2015 acquisitions and related valuation of intangible assets, the results presented include the following significant items affecting comparability for the year ended December 31, 2016:
gains relating to the amendment of the Series B Convertible Preferred Stock and the related execution of a settlement agreement totaling $32.9 million and $103 million, respectively;
goodwill impairment charge of $46.6 million related to our Energy Solutions reporting unit within our Industrial & Specialty segment;
foreign exchange loss on foreign denominated external and internal long-term debt of $25.8 million;
acquisition and integration related costs of $25.1 million, primarily comprised of professional fees;
restructuring costs of $25.0 million, primarily related to severance;

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debt refinancing charges of $19.7 million;
amortization of inventory step-up of $11.7 million charged to cost of sales;
net interest expense of $372 million, primarily related to interest charges resulting from incremental debt facilities, including term loans, bonds and revolving credit borrowings, used to fund our acquisitions; and
tax expense changed primarily due to the 2016 settlement gain of the Series B Convertible Preferred Stock which was treated as a non-taxable purchase price adjustment.
(5) In addition to the impact of the 2015 acquisitions and related valuation of intangible assets, the results presented include the following significant items affecting comparability for the year ended December 31, 2015:
fair value loss on foreign exchange forward contract related to the Alent Acquisition of $73.7 million;
acquisition and integration related costs of $47.2 million, primarily comprised of professional fees;
amortization of inventory step-up of $18.5 million charged to cost of sales;
restructuring costs of $6.7 million, primarily related to severance, professional and consulting fees;
foreign exchange loss on foreign denominated external and internal long-term debt of $12.7 million;
non-cash mark-to-market charge related to the contingent consideration in connection with the MacDermid Acquisition of $6.8 million;
legal settlement income of $16.0 million; and
net interest expense of $207 million, primarily related to interest charges resulting from incremental debt facilities, including term loans, bonds and revolving credit borrowings, used to fund our acquisitions.
(6) Adjusted EBITDA is a non-GAAP financial measure and as such, should not be considered in isolation from, a substitute for, or superior to, performance measures calculated in accordance with GAAP. For a definition of Adjusted EBITDA and additional information on why we present this measure, its limitations and a reconciliation to the most comparable applicable GAAP measure, see "Non-GAAP Financial Measures" in the Management's Discussion and Analysis of Financial Condition and Results of Operations section included in Part II, Item 7, and Note 23, Segment Information, to the Consolidated Financial Statements, all included in this 2019 Annual Report.
(7) Working capital is defined as current assets less current liabilities from continuing operations.

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Item 7. 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 “Financial Statements and Supplementary Data” included in Part II, Item 8 of this 2019 Annual Report, “Selected Financial Data” included in Part II, Item 6 of this 2019 Annual Report, and our audited Consolidated Financial Statements and notes thereto included elsewhere in this 2019 Annual Report. The following “Overview of our Business” and "Recent Developments" sections below is a brief presentation of our business and certain significant items addressed in this section or elsewhere in this 2019 Annual Report. This section and the relevant portions of this 2019 Annual Report should be read in their entirety for a complete discussion of the events and items summarized below.
Business Overview
Element Solutions Inc, 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, the innovative solutions of our businesses enable customers' manufacturing processes in several key industries, including electronic circuitry, semiconductor, communications infrastructure, automotive systems, industrial surface finishing, consumer packaging and offshore energy. Substantially all of our businesses' products are consumed by our 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 innovations 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, by continuing to offer high customer value propositions.
We believe the majority of our businesses hold strong positions in the high-growth markets they serve. Our strategy is based on a balance of operational excellence and prudent capital allocation. To that end, our teams focus on commercial execution through strong sales, marketing, product development and supply chain efficiency; while our senior leadership balances holding business teams responsible for operational execution with prioritizing and executing on capital allocation opportunities. In the future, we may pursue targeted and opportunistic acquisitions in our existing and adjacent end-markets that strengthen our current businesses, expand and diversify our product offering, and enhance our growth and strategic position.
We generate revenue through the formulation and sale of our businesses' dynamic chemistry solutions by our extensive global network of specially-trained scientists and engineers. While our chemistries typically represent only a small portion of our customers’ costs, they are integral to our customers' manufacturing processes and overall product performance. We leverage these close relationships with our customers and OEMs to execute our growth strategy and identify opportunities for new products. These new products are developed and created by drawing upon our intellectual property portfolio and technical expertise. We believe that our customers place significant value on the consistency and quality of our brands, which we capitalize on 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 are organized into two segments: Electronics and Industrial & Specialty, which are each described below:
Electronics – The Electronics segment researches, formulates and delivers specialty chemicals and materials for all types of electronics hardware, from complex printed circuit board designs to new interconnection materials. 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 physical circuitry pathways and its "assembly materials," such as solders, pastes, fluxes and adhesives, join those pathways together. The segment provides specialty chemical solutions through the following businesses: Assembly Solutions, Circuitry Solutions and Semiconductor Solutions.
Industrial & Specialty – The Industrial & Specialty segment provides customers with Industrial Solutions, which include chemical systems that protect and decorate metal and plastic surfaces; Graphics Solutions, which include consumable chemicals that enable printing image transfer on flexible packaging materials; and Energy Solutions, which include chemistries used in water-based hydraulic control fluids in offshore energy production. Its fully consumable products are used in the aerospace, automotive, construction, consumer electronics, consumer packaged goods and oil and gas production end markets.
Our operating segments include significant foreign operations. There are certain risks associated with our foreign operations. See Part I, Item 1A. Risk Factors— "Our substantial international operations subject us to risks of doing business in foreign

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countries which could affect our business, financial condition or results of operations." and "Unfavorable currency exchange rate fluctuations could adversely affect our results of operations."
Summary of 2019 Significant Activities
Arysta Sale - On January 31, 2019, the Arysta Sale to UPL was completed for net cash proceeds of $4.28 billion, after post-closing adjustments. The proceeds of the Arysta Sale were primarily used to pay down our then existing credit facilities under our second amended and restated credit agreement, dated August 6, 2014, as further amended and restated.
Recapitalization - On the closing date of the Arysta Sale, we paid down our then existing credit facilities with the proceeds of the Arysta Sale and entered into the Credit Agreement, which provides for senior secured credit facilities in an aggregate principal amount of $1.08 billion. On the closing date of the Arysta Sale, the $750 million term loan was borrowed under the Credit Agreement. In addition, on February 1, 2019, we used a portion of the net proceeds from the Arysta Sale and a portion of the borrowings under the Credit Agreement to redeem all outstanding Prior Senior Notes. The 5.875% USD Notes due 2025 were not redeemed and remain outstanding.
Launch of Element Solutions - On the closing date of the Arysta Sale, the Company changed its name from "Platform Specialty Products Corporation" to "Element Solutions Inc" and, effective February 1, 2019, its shares of common stock began trading on the NYSE under the ticker symbol "ESI." The Company also launched a new corporate website: www.elementsolutionsinc.com.
Repurchases of Common Stock - During the year ended December 31, 2019, we repurchased approximately 44.8 million shares of our common stock for an aggregate purchase price of approximately $507 million. The remaining authorization under the previously-announced $750 million stock repurchase program was approximately $243 million at December 31, 2019. The repurchases were funded from cash on hand and proceeds from borrowings under the Credit Agreement.
Kester Acquisition - On December 2, 2019, we completed the Kester Acquisition for $63.9 million, net of cash, working capital and other closing adjustments from Illinois Tool Works Inc. The Kester business, a global supplier of advanced technology assembly materials used in electronics assembly and semiconductor applications, complements our assembly and semiconductor businesses. Kester is included in our Electronics segment.
Acquisitions
In the future, we may pursue targeted and opportunistic acquisitions in our existing end-markets with product offerings that complement our product portfolio or geographic footprint. We expect to achieve commercial and distribution efficiencies by expanding into related categories that can be marketed through our existing distribution channels or provide us with new distribution channels for our existing products. Furthermore, to the extent we pursue future acquisitions, we expect that acquisition candidates would demonstrate a combination of attractive margins, strong cash flow characteristics, niche leading positions and consumable products that generate recurring revenue. We believe the diversity of the niche-end markets we serve will enable us to continue our growth and maintain strong cash flow generation throughout economic cycles and mitigate the impact of a downturn in any single market. We will only pursue a candidate when it is deemed to be fiscally prudent and that meets our acquisition criteria. We anticipate that any future acquisitions would be financed through a combination of cash on hand, operating cash flow, availability under our Credit Agreement and/or new debt or equity offerings.
Foreign Currency Exposure
Approximately 76% of our net sales from continuing operations originated outside of the U.S. and were denominated in numerous currencies, including the euro, Chinese yuan, British pound, and Taiwan dollar. Therefore, changes in foreign exchange rates in any given reporting period may positively or negatively impact our financial performance. Foreign exchange translation negatively impacted 2019 net sales performance by approximately 3%.
In addition, our foreign subsidiaries are subject to foreign currency risk relating to receipts from customers, payments to suppliers and intercompany transactions that are not in their functional currency, which is typically their local currency. As a result, our foreign subsidiaries enter into foreign exchange hedges from time to time and on an ongoing basis to protect against transaction exposures. We actively assess our hedging programs in order to mitigate foreign exchange risk exposures. This includes programs to hedge our foreign currency denominated balance sheet exposures as well as foreign currency anticipated cash flows.

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Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments regarding uncertainties, and, as a result, may significantly impact our financial results. We base our estimates and judgments on historical experience, current conditions, as well as other reasonable factors and assumptions. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. Actual results may differ from these estimates and assumptions and could be material to our financial statements.
We consider the accounting estimates discussed below to be critical to the understanding of our financial statements and involve difficult, subjective, or complex judgments that could potentially affect reported results. See Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included in this 2019 Annual Report for a detailed discussion of the application of these and other accounting policies.
Revenue Recognition
We recognize revenue either upon shipment or delivery of product depending on when it is reasonably assured that both title and the risks and rewards of ownership have been passed on to the customer, our performance obligations have been fulfilled and collectability is probable. Estimates for sales rebates, incentives and discounts, as well as sales returns and allowances, are accounted for as reductions of revenue when the earnings process is complete. Differences between estimated expense and actual costs are typically immaterial and are recognized in earnings in the period such differences are determined.
Most performance obligations relate to contracts with a duration of less than one year, in which we have the right to invoice the customer at the time the performance obligation is satisfied for the amount of revenue recognized at that time. Accordingly, we have elected the practical expedient available under ASC Topic 606, Revenue from Contracts with Customers, not to disclose remaining performance obligations under our contracts. We have also elected the practical expedient to expense incremental costs for obtaining contracts with terms of less than one year.
Business Combinations
Purchase price allocations of acquisitions to tangible and intangible assets acquired, liabilities assumed and non-controlling interests in the acquiree are based on estimated fair value at the acquisition date. The excess of the acquisition price over those estimated fair values is recorded as goodwill. Changes to the acquisition date provisional fair values prior to the end of the measurement period are recorded as adjustments to the associated goodwill. Acquisition-related expenses and restructuring costs, if any, are expensed as incurred.
Goodwill
Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or when events or changes in circumstances indicate that goodwill might be impaired. Our reporting units are determined based upon our organizational structure in place at the date of the goodwill impairment test. The fair value of each reporting unit is determined based equally on market multiples and the present value of discounted future cash flows. The discounted cash flows are prepared based upon cash flows at the reporting unit level and involve significant judgments related to future growth rates and discount rates, among other considerations, from the vantage point of a market participant.  
The primary components of and assumptions used in the assessment consist of the following:
Valuation Techniques - we use a discounted cash flow analysis, which requires assumptions about short and long-term net cash flows, growth rates and discount rates. Additionally, we consider guideline company and guideline transaction information, where available, to aid in the valuation of the reporting units.
Growth Assumptions - Multi-year financial forecasts of revenue and the resulting cash flows for periods of five to seven years, including an estimated terminal growth rate at the end of the forecasted period, are developed for each reporting unit by considering several key business drivers such as new business initiatives, client service and retention standards, market share changes, historical performance and industry and economic trends, among other considerations.
Discount Rate Assumptions - Discount rates are estimated based on the WACC, which combines the required return on equity and considers the risk-free interest rate, market risk premium, small stock risk premium and a company specific risk premium, with the cost of debt, based on Baa-rated U.S. corporate bonds, adjusted using an income tax factor.
Estimated Fair Value and Sensitivities - The estimated fair value of each reporting unit is derived from the valuation

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techniques described above. The estimated fair value of each reporting unit is analyzed in relation to numerous market and historical factors, including current economic and market conditions, company-specific growth opportunities and guideline company information.
If the fair value of a reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired and no further testing is required. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, the goodwill impairment loss is calculated as the difference between these amounts, limited to the amount of goodwill allocated to the reporting unit. 
As part of our 2019 goodwill impairment test in the fourth quarter of 2019, we determined that the excess of the fair value of the Energy Solutions reporting unit within our Industrial & Specialty segment exceeded its carrying value by less than 20%. Goodwill assigned to the Energy Solutions reporting unit was approximately $250 million as of the assessment date. The estimated fair value of this reporting unit is highly sensitive to changes in these estimates and assumptions; therefore, in some instances, changes in these assumptions may impact whether the fair value of a reporting unit is greater than its carrying value. We performed sensitivity analysis around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values. Based on a sensitivity analysis performed for the Energy Solutions reporting unit, a 100 basis point increase in the WACC or 100 basis point decrease in the terminal growth rate, without any other changes to the valuation, would not result in the carrying value being greater than the fair value. Future impairments of this reporting units may occur if the business does not achieve its expected cash flows or macroeconomic conditions result in an increase in the WACC used to estimate fair value.
In 2019, we also determined that the fair values of the remaining reporting units were considered substantially in excess of their respective carrying values.
See Note 8, Goodwill and Intangible Assets, to the Consolidated Financial Statements included in this 2019 Annual Report for additional information.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets are reviewed for potential impairment on an annual basis in the fourth quarter, or more frequently when events or circumstances indicate that such assets may be impaired, by comparing their estimated fair values to their carrying values. An impairment charge is recognized when the carrying value of an indefinite-lived intangible asset exceeds its estimated fair value. We use the “relief from royalty” method to estimate the fair value of trade name intangible assets for impairment. The primary assumptions used to estimate the present value of cash flows from such assets include sales projections and growth rates being applied to a prevailing market-based royalty rate, the effects of which are then tax effected and discounted using the WACC from the vantage point of a market participant. Assumptions concerning sales projections are impacted by the uncertain nature of global and local economic conditions in the various markets we serve.
No material impairments of indefinite-lived intangible assets were identified during 2019, 2018 and 2017.
Long-Lived Assets Including Finite-Lived Intangible Assets
Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, which currently range from 8 to 25 years for customer lists, 3 to 10 years for developed technology, 5 to 20 years for trade names and up to 5 years for non-compete agreements. If circumstances require a long-lived asset group to be tested for possible impairment, we first determine whether the estimated undiscounted pre-tax future cash flows expected to result from the use of the asset plus the net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When an impairment is identified, the carrying value of the asset is reduced to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values.
No material impairments of long-lived assets, including finite-lived intangible assets, were identified during 2019, 2018 and 2017.
Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement basis and the tax basis of assets, liabilities, net operating losses and tax carryforwards. A valuation allowance is required to be recognized to reduce the recorded deferred tax asset to the amount that will more likely than not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income by jurisdiction during the periods in which those temporary

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differences become deductible or when carryforwards can be utilized. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in this assessment. If these estimates and related assumptions change in the future, we may be required to record additional valuation allowances against our deferred tax assets resulting in additional income tax expense. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.
We are subject to income taxes in the U.S. and in various states and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. The first step in evaluating the tax position for recognition is to determine the amount of evidence that supports a favorable conclusion for the tax position upon audit. In order to recognize the tax position, we must determine whether it is more likely than not that the position is sustainable. The final evaluation step is to measure the tax benefit as the largest amount that has a more than 50% chance of being realized upon final settlement. Although we believe that the positions taken on income tax matters are reasonable, we establish tax reserves in recognition that various taxing authorities may challenge certain of those positions taken, potentially resulting in additional tax liabilities.
Recent Accounting Pronouncements
A summary of recent accounting pronouncements is included in Note 3, Recent Accounting Pronouncements, to the Consolidated Financial Statements included in this 2019 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 each of 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 reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures included in this 2019 Annual Report and not to rely on any single financial measure to evaluate our businesses.
Constant Currency
We disclose operating results, from net sales through operating profit and Adjusted EBITDA, on a constant currency basis by adjusting to exclude 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 impact of foreign currency translation.

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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 reported net sales growth to organic net sales growth, see the "Net Sales" captions within the "Results of Operations" section below.
Adjusted EBITDA
We define Adjusted EBITDA as EBITDA (earnings before interest, provision for income taxes, depreciation and amortization), excluding the impact of additional items included in GAAP earnings which we believe are not representative or indicative of our ongoing business 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 (loss) attributable to common stockholders" to Adjusted EBITDA and more information about the adjustments made, see Note 23, Segment Information, to the Consolidated Financial Statements included in this 2019 Annual Report.
Results of Operations
Change - 2019 vs 2018Change - 2018 vs 2017
(dollars in millions)20192018ReportedConstant CurrencyOrganic2017ReportedConstant CurrencyOrganic
Net sales$1,835.9  $1,961.0  (6)% (4)% (4)% $1,878.6  4%  3%  3%  
Cost of sales1,047.6  1,123.4  (7)% (4)% 1,064.8  6%  4%  
Gross profit