UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

FORM 10-Q

_______________

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

For the quarterly period ended ~~June 30, 2019~~March 31, 2020

☐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

Element Solutions Inc

(Exact name of Registrant as specified in its charter)

Delaware

37-1744899

(State or other jurisdiction of incorporation or organization)

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

500 East Broward Boulevard,

Suite 1860

33394

Fort Lauderdale,

Florida

(Zip Code)

(Address of principal executive offices)

Registrant’s telephone number, including area code: (~~561~~) (561) 207-9600

_______________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ESI	New York Stock Exchange

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

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

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



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

Number of shares of common stock outstanding at ~~July 26, 2019: 256,664,544~~April 20, 2020: 248,752,742

TABLE OF CONTENTS


Glossary					Page

			Glossary of Defined Terms		i
			Forward-Looking Statements		ii
			Non-GAAP Financial Measures		ii

~~Glossary~~Part I.				~~Page~~

	~~Glossary of Defined Terms~~	i
	~~Forward-Looking Statements~~	iiFinancial Information
			~~Non-GAAP Financial Measures~~
Item 1.			ii

~~Part I.~~	~~Financial Information~~

~~Item 1.~~	Condensed Consolidated Financial Statements (Unaudited)
			Condensed Consolidated Statements of Operations
			Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~		1
			Condensed Consolidated Statements of Comprehensive (Loss) Income
			Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~		2
			Condensed Consolidated Balance Sheets
			~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019		3
			Condensed Consolidated Statements of Cash Flows
			~~Six~~Three Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~		4
			Condensed Consolidated Statements of Changes in Stockholders' Equity
			Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~		5
			Notes to the Condensed Consolidated Financial Statements		76
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		2217
Item 3.			Quantitative and Qualitative Disclosures About Market Risk		3427
Item 4.			Controls and Procedures		3427

Part II.			Other Information

Item 1.			Legal Proceedings		3528
Item 1A.			Risk Factors		3528
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		3528
Item 3.			Defaults Upon Senior Securities		3529
Item 4.			Mine Safety Disclosures		3529
Item 5.			Other Information		3529
Item 6.			Exhibits		3630

Signatures						3731

GLOSSARY OF DEFINED TERMS



Terms			Definitions
Element Solutions; We; Us; Our; the Company			Element Solutions Inc, a Delaware corporation, and, where the context requires, its subsidiaries or operating businesses.
Arysta			Arysta LifeScience ~~Inc., parent company of the former Agricultural Solutions segment.~~Limited, formerly an Irish private limited company.
Arysta Sale			Sale of 100% of the issued and outstanding shares of common stock of Arysta and its subsidiaries to UPL ~~for net cash proceeds of approximately $4.28 billion, completed~~ on January 31, ~~2019.~~2019 for an aggregate purchase price of $4.28 billion in cash, after post-closing adjustments.
~~Arysta Sale Agreement~~			~~Stock 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.~~
ASU			Accounting Standards Update.
Board			Element Solutions' board of directors.
~~EBITDA~~		~~Earnings before interest, taxes, depreciation and amortization.~~
~~ESPP~~	~~Element Solutions Inc 2014 Employee Stock Purchase Plan.~~
~~Exchange Act~~	~~Securities Exchange Act of 1934, as amended.~~
~~FASB~~	~~Financial Accounting Standard Board.~~
~~Founder Entities~~	~~Mariposa Acquisition, LLC and Berggruen Holdings Ltd. and affiliates, collectively.~~
~~GAAP~~	~~Generally accepted accounting principles in the United States.~~
~~MacDermid~~	~~MacDermid, Incorporated, a Connecticut corporation.~~
~~MacDermid Acquisition~~	~~Element Solutions' acquisition of 100% of the equity of MacDermid Holdings, LLC, completed on October 31, 2013 and March 4, 2014.~~
~~New~~ Credit Agreement		~~Element Solutions' new~~ Credit 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 ~~MacDermid from time to time parties thereto,~~ the lenders from time to time parties thereto, and Barclays Bank PLC, as administrative agent and collateral agent.
~~NYSE~~EBITDA			Earnings before interest, taxes, depreciation and amortization.
ESPP			Element Solutions Inc 2014 Employee Stock Purchase Plan.
Exchange Act			Securities Exchange Act of 1934, as amended.
FASB			Financial Accounting Standards Board.

GAAP			U.S. Generally Accepted Accounting Principles.
MacDermid			MacDermid, Incorporated, a Connecticut corporation.
NYSE			New York Stock Exchange.
OEM			Original Equipment Manufacturer.
PDH			Platform Delaware Holdings, Inc., a former subsidiary of Element Solutions.
~~Prior Senior Notes~~		~~Element Solutions' 6.00% EUR Notes due 2023 and 6.50% USD Notes due 2022, collectively.~~
~~Prior Senior Notes Indenture~~	~~The indenture, dated as of February 2, 2015, governing the Prior Senior Notes prior to their redemption.~~
Quarterly Report		This quarterly report on Form 10-Q for the three ~~and six~~ months ended ~~June 30, 2019.~~March 31, 2020.
~~Retaining Holder~~RSUs			~~Each Holder whose equity interest of MacDermid Holdings, LLC, held immediately prior~~Restricted stock units issued by Element Solutions from time to ~~the closing of the MacDermid Acquisition, was converted into shares of common stock of PDH pursuant to a Retaining Holder Securityholders’ Agreement dated October 31, 2013.~~time under its amended and restated 2013 Incentive Compensation Plan.
SEC			Securities and Exchange Commission.
Series A Preferred Stock			Element Solutions' 2,000,000 shares of ~~Element Solutions'~~ Series A convertible preferred stock, ~~held by the Founder Entities and convertible~~which were converted into shares of Element Solutions' common stock on February 25, 2020, on a one-for-one basis, ~~at any time at the option~~upon request of ~~the Founder Entities.~~Mariposa Acquisition, LLC and Berggruen Holdings Ltd. and affiliates.
UPL			UPL Corporation Ltd., ~~a Mauritius public limited company and~~ a wholly-owned subsidiary of UPL Limited.
~~2018~~2019 Annual Report			Element Solutions' annual report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, filed with the SEC on February 28, ~~2019.~~2020.
5.875% USD Notes Indenture			The indenture, dated November 24, 2017, governing the 5.875% USD Notes due 2025.
5.875% USD Notes due 2025			Element Solutions' $800 million aggregate principal amount of 5.875% senior notes due 2025, denominated in U.S. dollars, issued on November 24, 2017.
~~6.00% EUR Senior Notes due 2023~~			~~Element Solutions’ €350,000,000 aggregate principal amount of 6.00% senior notes due 2023, denominated in euros, issued on February 2, 2015 and redeemed on February 1, 2019.~~
~~6.50% USD Senior Notes due 2022~~	~~Element Solutions’ $1,100,000,000 aggregate principal amount of 6.50% senior notes due 2022, denominated in U.S. dollars, issued on February 2, 2015 and redeemed on February 1, 2019.~~

GLOSSARY OF DEFINED TERMS

~~Discontinued Operations~~

Unless otherwise specified, the results and disclosures presented in this Quarterly Report exclude discontinued operations. Discontinued operations relate to the former Agricultural Solutions business of Element Solutions which consisted of Arysta and its subsidiaries. Accordingly, Agricultural Solutions' assets, liabilities, operating results and cash flows for all periods presented have been classified as discontinued operations within the unaudited Condensed Consolidated Financial Statements. The Arysta Sale was completed on January 31, 2019. See Note 3, ~~Discontinued Operations, to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report for additional information.~~

Forward-Looking Statements

This Quarterly Report contains forward-looking statements that can be identified by words such as "expect," "anticipate," "project," "will," "should," "believe," "intend," "plan," "assume," "estimate," "predict," "seek," "continue," "outlook," "may," "might," "aim," "can have," "likely," "potential," "target," "hope," "goal" or "priority" and variations of such words and similar expressions. ~~Examples~~Many of ~~forward looking~~the forward-looking statements include, but are not limited to, statements, beliefs, projections and expectations regarding our ~~corporate reorganization;~~ business ~~strategy~~ and ~~potential repurchases of our common stock;~~management strategies; share repurchases; cost ~~savings~~containment and ~~efficiencies relating to the Arysta Sale or otherwise;~~cost savings; the impact of new accounting standards and accounting changes; our dividend policy; the effects of global economic ~~conditions~~conditions; the extent of the impact of the coronavirus (COVID-19) outbreak on our business and ~~financial condition;~~stock price; our hedging activities; timing and outcome of environmental and legal matters; ~~our~~ goodwill and other intangible assets; impairments; price volatility and cost environment; ~~our~~ liquidity, cash flows and capital resources; ~~our~~ funding sources; ~~our~~ capital expenditures; ~~our debt;~~debt and debt leverage ratio; off-balance sheet arrangements and contractual obligations; general views about future operating results; ~~our~~expected returns to stockholders; risk management programs; ~~our business and management strategies;~~ 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 ~~actions or events~~ and are subject to risks and uncertainties. If one or more of these risks or uncertainties materialize, or if management’s underlying estimates, assumptions or expectations prove to be inaccurate or are unrealized,our actual results may differ materially from ~~those~~the results contemplated by these statements. A discussion of such risks and uncertainties ~~include,~~includes, without limitation, the risks set forth in Part II, Item 1A, Risk Factors, of this Quarterly Report and in Part I, Item 1A, Risk Factors, of our ~~2018~~2019 Annual Report. Any forward-looking statement ~~made by us in this Quarterly Report~~ is based only on information currently available ~~to us~~ and speaks only as of the date on which it is made. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Please consult any further disclosures on related subjects in our ~~Form 10-K, 10-Q and 8-K reports filed with the SEC.~~SEC filings.

Non-GAAP Financial Measures

This Quarterly Report contains non-GAAP financial measures, such as Adjusted EBITDA and operating results on a constant currency and organic basis. Non-GAAP financial measures should not be considered in isolation from, 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~~their most comparable applicable GAAP measures, see "Non-GAAP Financial Measures" in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in Part I, Item 2, and Note ~~15,~~14, Segment Information, to the unaudited Condensed Consolidated Financial Statements, both included in this Quarterly Report.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(dollars in millions, except per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
	2019			2018			2019			2018				2020		2019
Net sales	$	456.7		$	501.6		$	916.5		$	994.1		Net sales	$	452.6	$	459.8
Cost of sales	263.7			286.9			525.2			568.3			Cost of sales	255.3		261.5
Gross profit	193.0			214.7			391.3			425.8			Gross profit	197.3		198.3
Operating expenses:													Operating expenses:
Selling, technical, general and administrative	126.4			144.3			268.8			285.1			Selling, technical, general and administrative	125.2		142.4
Research and development	11.1			11.2			21.9			22.6			Research and development	17.5		10.8
Total operating expenses	137.5			155.5			290.7			307.7			Total operating expenses	142.7		153.2
Operating profit	55.5			59.2			100.6			118.1			Operating profit	54.6		45.1
Other expense:
Other (expense) income:													Other (expense) income:
Interest expense, net	(18.2		)	(78.3		)	(56.3		)	(155.5		)	Interest expense, net	(16.7)		(38.1)
Foreign exchange (loss) gain	(28.3		)	(2.4		)	(1.2		)	5.1			Foreign exchange (loss) gain	(25.8)		27.1
Other (expense) income, net	(1.1		)	1.9			(49.1		)	13.7
Other income (expense), net													Other income (expense), net	0.4		(48.0)
Total other expense	(47.6		)	(78.8		)	(106.6		)	(136.7		)	Total other expense	(42.1)		(59.0)
Income (loss) before income taxes and non-controlling interests	7.9			(19.6		)	(6.0		)	(18.6		)	Income (loss) before income taxes and non-controlling interests	12.5		(13.9)
Income tax benefit (expense)	6.8			(30.0		)	17.2			(39.9		)
Income tax (expense) benefit													Income tax (expense) benefit	(4.1)		10.4
Net income (loss) from continuing operations	14.7			(49.6		)	11.2			(58.5		)	Net income (loss) from continuing operations	8.4		(3.5)
(Loss) income from discontinued operations, net of tax	(13.3		)	61.4			14.1			108.3
Income from discontinued operations, net of tax													Income from discontinued operations, net of tax	0.2		27.4
Net income	1.4			11.8			25.3			49.8			Net income	8.6		23.9
Net loss (income) attributable to the non-controlling interests	0.1			0.2			(0.6		)	(0.5		)
Net income attributable to non-controlling interests													Net income attributable to non-controlling interests	—		(0.7)
Net income attributable to common stockholders	$	1.5		$	12.0		$	24.7		$	49.3		Net income attributable to common stockholders	$	8.6	$	23.2

Earnings (loss) per share													Earnings (loss) per share
Basic from continuing operations	$	0.06		$	(0.17	)	$	0.04		$	(0.21	)	Basic from continuing operations	$	0.03	$	(0.02)
Basic from discontinued operations	(0.05		)	0.21			0.05			0.38			Basic from discontinued operations	—		0.11
Basic attributable to common stockholders	$	0.01		$	0.04		$	0.09		$	0.17		Basic attributable to common stockholders	$	0.03	$	0.09

Diluted from continuing operations	$	0.06		$	(0.17	)	$	0.04		$	(0.21	)	Diluted from continuing operations	$	0.03	$	(0.02)
Diluted from discontinued operations	(0.05		)	0.21			0.05			0.38			Diluted from discontinued operations	—		0.11
Diluted attributable to common stockholders	$	0.01		$	0.04		$	0.09		$	0.17		Diluted attributable to common stockholders	$	0.03	$	0.09

Weighted average common shares outstanding													Weighted average common shares outstanding
Basic	257.3			288.2			262.7			288.0			Basic	250.3		268.2
Diluted	259.6			288.2			265.3			288.0			Diluted	252.0		268.2

See accompanying notes to the Condensed Consolidated Financial Statements

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(dollars in millions)


	Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
	2019			2018			2019			2018				2020		2019
Net income	$	1.4		$	11.8		$	25.3		$	49.8		Net income	$	8.6	$	23.9

Other comprehensive (loss) income													Other comprehensive (loss) income
Foreign currency translation:													Foreign currency translation:
Other comprehensive (loss) income before reclassifications, net of tax (benefit) of $(0.7) and $0.0 for the three months ended June 30, 2019 and 2018, and $0.0 for the six months ended June 30, 2019 and 2018, respectively	(0.1		)	(377.8		)	94.1			(318.6		)
Reclassifications, net of tax of $0.0 for the three and six months ended June 30, 2019 and 2018, respectively	—			—			479.8			—
Other comprehensive (loss) income before reclassifications													Other comprehensive (loss) income before reclassifications	(23.6)		94.2
Reclassifications													Reclassifications	—		479.8
Total foreign currency translation adjustments	(0.1		)	(377.8		)	573.9			(318.6		)	Total foreign currency translation adjustments	(23.6)		574.0
Pension and post-retirement plans:													Pension and post-retirement plans:
Reclassifications, net of tax of $0.0 for the three and six months ended June 30, 2019 and 2018, respectively	—			—			(2.1		)	—
Other comprehensive (loss) income before reclassifications, net of tax expense (benefit) of $0.5 and $0.0 for the three months ended March 31, 2020 and 2019, respectively													Other comprehensive (loss) income before reclassifications, net of tax expense (benefit) of $0.5 and $0.0 for the three months ended March 31, 2020 and 2019, respectively	(0.5)		—
Reclassifications, net of tax expense (benefit) of $0.0 for the three months ended March 31, 2020 and 2019, respectively													Reclassifications, net of tax expense (benefit) of $0.0 for the three months ended March 31, 2020 and 2019, respectively	—		(2.1)
Total pension and post-retirement plans	—			—			(2.1		)	—			Total pension and post-retirement plans	(0.5)		(2.1)
Derivative financial instruments:													Derivative financial instruments:
Other comprehensive (loss) income before reclassifications, net of tax expense (benefit) of $2.4 and $0.9 for the three months ended June 30, 2019 and 2018, and $0.0 and $3.1 for the six months ended June 30, 2019 and 2018, respectively	(18.5		)	10.4			(27.7		)	7.8
Reclassifications, net of tax of $0.00 and $0.0 for the three months ended June 30, 2019 and 2018, and $1.4 and $0.0 for the six months ended June 30, 2019 and 2018, respectively	0.3			(7.8		)	(5.4		)	0.9
Total unrealized (loss) gain arising on qualified hedging derivatives	(18.2		)	2.6			(33.1		)	8.7
Other comprehensive (loss) income before reclassifications, net of tax expense (benefit) of $0.0 and $(2.4) for the three months ended March 31, 2020 and 2019, respectively													Other comprehensive (loss) income before reclassifications, net of tax expense (benefit) of $0.0 and $(2.4) for the three months ended March 31, 2020 and 2019, respectively	(32.0)		(9.2)
Reclassifications, net of tax expense (benefit) of $0.0 and $(1.4) for the three months ended March 31, 2020 and 2019, respectively													Reclassifications, net of tax expense (benefit) of $0.0 and $(1.4) for the three months ended March 31, 2020 and 2019, respectively	1.6		(5.7)
Total unrealized loss arising on qualified hedging derivatives													Total unrealized loss arising on qualified hedging derivatives	(30.4)		(14.9)
Other comprehensive (loss) income	(18.3		)	(375.2		)	538.7			(309.9		)	Other comprehensive (loss) income	(54.5)		557.0
Comprehensive (loss) income	(16.9		)	(363.4		)	564.0			(260.1		)	Comprehensive (loss) income	(45.9)		580.9
Comprehensive loss (income) attributable to the non-controlling interests	—			35.1			(40.2		)	32.8
Comprehensive income attributable to the non-controlling interests													Comprehensive income attributable to the non-controlling interests	—		(40.2)
Comprehensive (loss) income attributable to common stockholders	$	(16.9	)	$	(328.3	)	$	523.8		$	(227.3	)	Comprehensive (loss) income attributable to common stockholders	$	(45.9)	$	540.7

See accompanying notes to the Condensed Consolidated Financial Statements

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(dollars in millions)


	March 31,		December 31,
	2020		2019
Assets
Cash and cash equivalents	$	497.4	$	190.1
Accounts receivable, net of allowance for doubtful accounts of $10.9 and $8.8 at March 31, 2020 and December 31, 2019, respectively	354.1		363.9
Inventories	213.1		199.6
Prepaid expenses	21.0		18.3
Other current assets	53.0		50.3
Current assets of discontinued operations	9.2		11.2
Total current assets	1,147.8		833.4
Property, plant and equipment, net	256.7		264.8
Goodwill	2,127.2		2,179.6
Intangible assets, net	894.5		944.4
Other assets	130.7		95.7
Non-current assets of discontinued operations	6.6		6.5
Total assets	$	4,563.5	$	4,324.4
Liabilities and stockholders' equity
Accounts payable	$	101.8	$	96.8
Current installments of long-term debt and revolving credit facilities	327.7		7.8
Accrued expenses and other current liabilities	156.3		155.1
Current liabilities of discontinued operations	17.3		34.1
Total current liabilities	603.1		293.8
Debt	1,512.2		1,513.2
Pension and post-retirement benefits	49.6		50.8
Deferred income taxes	115.1		119.6
Other liabilities	142.1		127.7

Total liabilities	2,422.1		2,105.1
Commitments and contingencies (Note 11)
Stockholders' Equity
Preferred stock - Series A	—		—
Common stock: 400.0 shares authorized (2020: 260.9 shares issued; 2019: 258.4 shares issued)	2.6		2.6
Additional paid-in capital	4,117.1		4,114.2
Treasury stock (2020: 12.2 shares; 2019: 8.3 shares)	(113.9)		(78.9)
Accumulated deficit	(1,527.9)		(1,536.5)
Accumulated other comprehensive loss	(334.9)		(280.5)
Total stockholders' equity	2,143.0		2,220.9
Non-controlling interests	(1.6)		(1.6)
Total equity	2,141.4		2,219.3
Total liabilities and stockholders' equity	$	4,563.5	$	4,324.4

June 30, December 31,
2019 2018
Assets
Cash and cash equivalents $ 247.6
$ 233.6
Accounts receivable, net of allowance for doubtful accounts of $8.3 and $7.7 at June 30, 2019 and December 31, 2018, respectively 374.7
382.4
Inventories 201.6
188.1
Prepaid expenses 23.7
14.3
Other current assets 69.1
42.5
Current assets of discontinued operations 9.6
1,621.3
Total current assets 926.3
2,482.2
Property, plant and equipment, net 256.7
266.9
Goodwill 2,177.9
2,182.6
Intangible assets, net 967.0
1,024.5
Other assets 105.6
32.9
Non-current assets of discontinued operations 6.8
3,412.4
Total assets $ 4,440.3
$ 9,401.5
Liabilities and stockholders' equity

Accounts payable $ 106.1
$ 100.9
Current installments of long-term debt and revolving credit facilities 57.8
25.3
Accrued expenses and other current liabilities 116.2
189.5
Current liabilities of discontinued operations 57.9
826.8
Total current liabilities 338.0
1,142.5
Debt 1,515.3
5,350.7
Pension and post-retirement benefits 48.6
49.5
Deferred income taxes 120.3
133.0
Other liabilities 186.9
128.5
Non-current liabilities of discontinued operations —
416.2
Total liabilities 2,209.1
7,220.4
Commitments and contingencies (Note 12)

Stockholders' Equity

Preferred stock - Series A —
—
Common stock: 400.0 shares authorized (2019: 258.3 shares issued; 2018: 289.3 shares issued) 2.6
2.9
Additional paid-in capital 4,109.4
4,062.1
Treasury stock (2019: 1.7 shares; 2018: 0.3 shares) (16.8 ) (3.5 )
Accumulated deficit (1,604.0 ) (1,195.4 )
Accumulated other comprehensive loss (258.4 ) (756.9 )
Total stockholders' equity 2,232.8
2,109.2
Non-controlling interests (1.6 ) 71.9
Total equity 2,231.2
2,181.1
Total liabilities and stockholders' equity $ 4,440.3
$ 9,401.5

See accompanying notes to the Condensed Consolidated Financial Statements

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(dollars in millions)


	Three Months Ended March 31,
	2020		2019
Cash flows from operating activities:
Net income	$	8.6	$	23.9
Net income from discontinued operations, net of tax	0.2		27.4
Net income (loss) from continuing operations	8.4		(3.5)
Reconciliation of net income (loss) from continuing operations to net cash flows provided by (used in) operating activities:
Depreciation and amortization	39.9		38.7
Deferred income taxes	(2.4)		(2.0)
Foreign exchange loss (gain)	24.5		(33.0)
Other, net	10.8		75.4
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(2.6)		2.8
Inventories	(19.0)		(14.3)
Accounts payable	8.9		9.5
Accrued expenses	(6.2)		(67.3)
Prepaid expenses and other current assets	(4.4)		(4.6)
Other assets and liabilities	3.3		(33.7)
Net cash flows provided by (used in) operating activities of continuing operations	61.2		(32.0)
Cash flows from investing activities:
Capital expenditures	(10.5)		(6.7)


Proceeds from Arysta Sale (net of cash $148.7 million)	—		4,192.3

Other, net	(5.9)		8.5
Net cash flows (used in) provided by investing activities of continuing operations	(16.4)		4,194.1
Cash flows from financing activities:
Debt proceeds, net of discount	—		749.1
Repayments of borrowings	(2.0)		(4,601.0)
Change in lines of credit, net	320.0		95.3
Repurchases of common stock	(33.1)		(433.6)
Payment of financing fees	—		(39.5)
Other, net	(1.5)		(10.8)
Net cash flows provided by (used in) financing activities of continuing operations	283.4		(4,240.5)
Cash flows from discontinued operations:
Net cash flows used in operating activities of discontinued operations	(14.7)		(115.9)
Net cash flows used in investing activities of discontinued operations	—		(5.0)
Net cash flows provided by financing activities of discontinued operations	—		4.8
Net cash flows used in discontinued operations	(14.7)		(116.1)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(6.2)		9.4
Net increase (decrease) in cash, cash equivalents and restricted cash	307.3		(185.1)
Cash, cash equivalents and restricted cash at beginning of period ⁽¹⁾	190.1		415.5
Cash, cash equivalents and restricted cash at end of period	$	497.4	$	230.4

Six Months Ended June 30,
2019 2018
Cash flows from operating activities:

Net income $ 25.3
$ 49.8
Net income from discontinued operations, net of tax 14.1
108.3
Net income (loss) from continuing operations 11.2
(58.5 )
Reconciliation of net loss from continuing operations to net cash flows used in operating activities:

Depreciation and amortization 77.5
79.8
Deferred income taxes (10.8 ) (18.0 )
Foreign exchange gain (8.6 ) (7.7 )
Other, net 79.8
5.6
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 5.4
(11.3 )
Inventories (13.9 ) (27.1 )
Accounts payable 5.4
12.2
Accrued expenses (93.5 ) 1.0
Prepaid expenses and other current assets (24.9 ) 17.5
Other assets and liabilities (22.3 ) (6.2 )
Net cash flows provided by (used in) operating activities of continuing operations 5.3
(12.7 )
Cash flows from investing activities:

Capital expenditures (11.4 ) (11.0 )
Proceeds from disposal of property, plant and equipment —
1.6
Acquisition of business, net of cash acquired —
(28.2 )
Proceeds from Arysta Sale (net of cash $148.7 million) 4,281.8
—
Proceeds from the sale of equity investment —
25.0
Other, net 7.9
0.8
Net cash flows provided by (used in) investing activities of continuing operations 4,278.3
(11.8 )
Cash flows from financing activities:

Debt proceeds, net of discount 749.1
—
Repayments of borrowings (4,603.0 ) (0.2 )
Change in lines of credit, net 25.1
60.0
Repurchases of common stock (445.1 ) —
Payment of financing fees (39.5 ) (1.0 )
Other, net (8.8 ) 0.3
Net cash flows (used in) provided by financing activities of continuing operations (4,322.2 ) 59.1
Cash flows from discontinued operations:
Net cash flows used in operating activities of discontinued operations (135.3 ) (79.0 )
Net cash flows used in investing activities of discontinued operations (5.0 ) (20.9 )
Net cash flows provided by financing activities of discontinued operations 4.8
44.1
Net cash flows used in discontinued operations (135.5 ) (55.8 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash 6.2
(15.8 )
Net decrease in cash, cash equivalents and restricted cash (167.9 ) (37.0 )
Cash, cash equivalents and restricted cash at beginning of period ⁽¹⁾
415.5
483.9
Cash, cash equivalents and restricted cash at end of period ⁽²⁾
$ 247.6
$ 446.9

⁽¹⁾ Includes cash, cash equivalents and restricted cash of discontinued operations of ~~$181.9~~$0.0 million and ~~$225.4~~$181.9 million at December 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

⁽²⁾
~~Includes cash, cash equivalents and restricted cash of discontinued operations of $166.6 million at June 30, 2018.~~

See accompanying notes to the Condensed Consolidated Financial Statements

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

(dollars in millions, except share amounts)


Three Months Ended March 31, 2020	Preferred Stock							Common Stock							Additional Paid-in Capital		Treasury Stock						Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Total Stockholders' Equity	Non- controlling Interests	Total Equity
		Shares			Amount		Shares			Amount				Shares			Amount
Balance at December 31, 2019	2,000,000		$	—		258,428,333		$	2.6		$	4,114.2	8,277,198		$	(78.9)	$	(1,536.5)	$	(280.5)	$	2,220.9	$	(1.6)	$	2,219.3
Net income	—		—			—		—			—		—		—		8.6		—		8.6		—		8.6
Other comprehensive loss, net of taxes	—		—			—		—			—		—		—		—		(54.4)		(54.4)		—		(54.4)
Exercise/ vesting of share based compensation	—		—			475,987		—			0.2		162,333		(1.9)		—		—		(1.7)		—		(1.7)
Issuance of common stock under ESPP	—		—			28,689		—			0.3		—		—		—		—		0.3		—		0.3
Preferred stock conversion	(2,000,000)		—			2,000,000		—			—		—		—		—		—		—		—		—
Repurchases of common stock	—		—			—		—			—		3,742,488		(33.1)		—		—		(33.1)		—		(33.1)
Equity compensation expense	—		—			—		—			2.4		—		—		—		—		2.4		—		2.4
Balance at March 31, 2020	—		$	—		260,933,009		$	2.6		$	4,117.1	12,182,019		$	(113.9)	$	(1,527.9)	$	(334.9)	$	2,143.0	$	(1.6)	$	2,141.4

Three Months Ended June 30, 2019 Preferred Stock Common Stock Additional
Paid-in
Capital Treasury Stock Accumulated
Deficit Accumulated Other Comprehensive (Loss) Income Total
Stockholders'
Equity Non-
controlling Interests Total Equity
Shares Amount Shares Amount Shares Amount
Balance at March 31, 2019 2,000,000
$ —
257,955,093
$ 2.6
$ 4,105.1
512,956
$ (5.4 ) $ (1,605.5 ) $ (240.1 ) $ 2,256.7
$ (1.5 ) $ 2,255.2
Net income —
—
—
—
—
—
—
1.5
—
1.5
(0.1 ) 1.4
Other comprehensive loss, net of taxes —
—
—
—
—
—
—
—
(18.3 ) (18.3 ) —
(18.3 )
Exercise/ vesting of share based compensation —
—
336,703
—
1.9
—
—
—
—
1.9
—
1.9
Issuance of common stock under ESPP —
—
32,027
—
0.3
—
—
—
—
0.3
—
0.3
Repurchases of common stock —
—
—
—
—
1,154,585
(11.4 ) —
—
(11.4 ) (11.4 )
Equity compensation expense —
—
—
—
2.1
—
—
—
—
2.1
—
2.1
Changes in non-controlling interests —
—
—
—
—
—
—
—
—
—
—
—
Balance at June 30, 2019 2,000,000
$ —
258,323,823
$ 2.6
$ 4,109.4
1,667,541
$ (16.8 ) $ (1,604.0 ) $ (258.4 ) $ 2,232.8
$ (1.6 ) $ 2,231.2


Three Months Ended March 31, 2019	Preferred Stock							Common Stock							Additional Paid-in Capital		Treasury Stock						Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Total Stockholders' Equity	Non- controlling Interests	Total Equity
		Shares			Amount		Shares			Amount				Shares			Amount
Balance at December 31, 2018	2,000,000		$	—		289,316,170		$	2.9		$	4,062.1	341,967		$	(3.5)	$	(1,195.4)	$	(756.9)	$	2,109.2	$	71.9	$	2,181.1
Net income	—		—			—		—			—		—		—		23.2		—		23.2		0.7		23.9
Other comprehensive income, net of taxes	—		—			—		—			—		—		—		—		67.4		67.4		—		67.4
Arysta Sale	—		—			—		—			(5.7)		—		—		—		463.3		457.6		(46.6)		411.0
Exercise/ vesting of share based compensation	—		—			1,592,815		—			—		170,989		(1.9)		—		—		(1.9)		—		(1.9)
Conversion of shares of common stock of PDH into common stock	—		—			4,019,710		0.1			41.1		—		—		—		(13.9)		27.3		(27.3)		—
Issuance of common stock under ESPP	—		—			26,398		—			0.3		—		—		—		—		0.3		—		0.3
Repurchases of common stock	—		—			(37,000,000)		(0.4)			—		—		—		(433.3)		—		(433.7)		—		(433.7)
Equity compensation expense	—		—			—		—			7.3		—		—		—		—		7.3		—		7.3
Changes in non-controlling interests	—		—			—		—			—		—		—		—		—		—		(0.2)		(0.2)
Balance at March 31, 2019	2,000,000		$	—		257,955,093		$	2.6		$	4,105.1	512,956		$	(5.4)	$	(1,605.5)	$	(240.1)	$	2,256.7	$	(1.5)	$	2,255.2

Three Months Ended June 30, 2018 Preferred Stock Common Stock Additional
Paid-in
Capital Treasury Stock Accumulated
Deficit Accumulated Other Comprehensive (Loss) Income Total
Stockholders'
Equity Non-
controlling Interests Total Equity
Shares Amount Shares Amount Shares Amount
Balance at March 31, 2018 2,000,000
$ —
288,115,844
$ 2.9
$ 4,043.6
6,618.0
$ (0.1 ) $ (833.7 ) $ (356.9 ) $ 2,855.8
$ 111.2
$ 2,967.0
Net income (loss) —
—
—
—
—
—
—
12.0
—
12.0
(0.2 ) 11.8
Other comprehensive loss, net of taxes —
—
—
—
—
—
—
(340.4 ) (340.4 ) (34.8 ) (375.2 )
Exercise/ vesting of share based compensation —
—
29,549
—
—
—
—
—
—
—
—
—
Conversion of shares of common stock of PDH into common stock —
—
29,069
—
0.4
—
—
—
—
0.4
(0.4 ) —
Issuance of common stock under ESPP —
—
33,443
—
0.3
—
—
—
—
0.3
—
0.3
Equity compensation expense —
—
—
—
4.3
—
—
—
—
4.3
—
4.3
Changes in non-controlling interests —
—
—
—
—
—
—
—
—
—
(3.8 ) (3.8 )
Balance at June 30, 2018 2,000,000
$ —
288,207,905
$ 2.9
$ 4,048.6
6,618.0
$ (0.1 ) $ (821.7 ) $ (697.3 ) $ 2,532.4
$ 72.0
$ 2,604.4

See accompanying notes to the Condensed Consolidated Financial Statements

~~ELEMENT SOLUTIONS INC AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)~~

~~(Unaudited)~~

~~(dollars in millions, except share amounts)~~

Six Months Ended June 30, 2019 Preferred Stock Common Stock Additional
Paid-in
Capital Treasury Stock Accumulated
Deficit Accumulated Other Comprehensive (Loss) Income Total
Stockholders'
Equity Non-
controlling Interests Total Equity
Shares Amount Shares Amount Shares Amount
Balance at December 31, 2018 2,000,000
$ —
289,316,170
$ 2.9
$ 4,062.1
341,967
$ (3.5 ) $ (1,195.4 ) $ (756.9 ) $ 2,109.2
$ 71.9
$ 2,181.1
Net income —
—
—
—
—
—
—
24.7
—
24.7
0.6
25.3
Other comprehensive income, net of taxes —
—
—
—
—
—
—
—
49.1
49.1
—
49.1
Arysta Sale —
—
—
—
(5.7 ) —
—
—
463.3
457.6
(46.6 ) 411.0
Exercise/ vesting of share based compensation —
—
1,929,518
—
1.9
170,989
(1.9 ) —
—
—
—
—
Conversion of shares of common stock of PDH into common stock —
—
4,019,710
0.1
41.1
—
—
—
(13.9 ) 27.3
(27.3 ) —
Issuance of common stock under ESPP —
—
58,425
—
0.6
—
—
—
—
0.6
—
0.6
Repurchases of common stock —
—
(37,000,000 ) (0.4 ) —
1,154,585
(11.4 ) (433.3 ) —
(445.1 ) —
(445.1 )
Equity compensation expense —
—
—
—
9.4
—
—
—
—
9.4
—
9.4
Changes in non-controlling interests —
—
—
—
—
—
—
—
—
—
(0.2 ) (0.2 )
Balance at June 30, 2019 2,000,000
$ —
258,323,823
$ 2.6
$ 4,109.4
1,667,541
$ (16.8 ) $ (1,604.0 ) $ (258.4 ) $ 2,232.8
$ (1.6 ) $ 2,231.2

Six Months Ended June 30, 2018 Preferred Stock Common Stock Additional
Paid-in
Capital Treasury Stock Accumulated
Deficit Accumulated Other Comprehensive (Loss) Income Total
Stockholders'
Equity Non-
controlling Interests Total Equity
Shares Amount Shares Amount Shares Amount
Balance at December 31, 2017 2,000,000
$ —
287,405,939
$ 2.9
$ 4,032.0
6,618
$ (0.1 ) $ (869.7 ) $ (422.0 ) $ 2,743.1
$ 116.9
$ 2,860.0
Impact of ASU 2016-01 adoption —
—
—
—
—
—
—
(1.3 ) 1.3
—
—
—
Adjusted balance at January 1, 2018 2,000,000
—
287,405,939
2.9
4,032.0
—
(0.1 ) (871.0 ) (420.7 ) 2,743.1
116.9
2,860.0
Net income —
—
—
—
—
—
—
49.3
—
49.3
0.5
49.8
Other comprehensive loss, net of taxes —
—
—
—
—
—
—
—
(276.6 ) (276.6 ) (33.3 ) (309.9 )
Exercise/ vesting of share based compensation —
—
44,549
—
—
—
—
—
—
—
—
—
Conversion of shares of common stock of PDH into common stock —
—
686,610
—
8.6
—
—
—
—
8.6
(8.6 ) —
Issuance of common stock under ESPP —
—
70,807
—
0.6
—
—
—
—
0.6
—
0.6
Equity compensation expense —
—
—
—
7.4
—
—
—
—
7.4
—
7.4
Changes in non-controlling interests —
—
—
—
—
—
—
—
—
—
(3.5 ) (3.5 )
Balance at June 30, 2018 2,000,000
$ —
288,207,905
$ 2.9
$ 4,048.6
6,618
$ (0.1 ) $ (821.7 ) $ (697.3 ) $ 2,532.4
$ 72.0
$ 2,604.4

~~See accompanying notes to the Condensed Consolidated Financial Statements~~

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. BACKGROUND AND BASIS OF PRESENTATION

Background

Element Solutions was incorporated in Delaware in January 2014 and its shares of common stock, par value $0.01 per share, trade on the NYSE under the ticker symbol “ESI.”

Element Solutions is a leading global specialty chemicals company whose ~~operating~~ businesses ~~formulate~~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 the Company's 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. Element Solutions delivers its products to customers through its sales and service workforce, regional distributors and manufacturing representatives.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements ~~include the accounts and transactions of the Company and~~ have been prepared ~~on a basis that is consistent~~in accordance with ~~the accounting principles applied in the Company’s 2018 Annual Report.~~GAAP. In the opinion of management, these unaudited Condensed Consolidated Financial Statements reflect all adjustments that are normal, recurring and necessary for a fair statement of the Company's financial position, results of operations and cash flows for interim periods, but are not necessarily indicative of the results of operations that may be expected for the year ending December 31, ~~2019.~~2020. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the related notes thereto included in the Company’s ~~2018~~2019 Annual Report.

On January 31, 2019, the Company completed the Arysta Sale for net cash proceeds of approximately $4.28 billion, after certain post-closing adjustments. Agricultural Solutions' assets, liabilities, operating results and cash flows for all periods presented have been classified as discontinued operations within the unaudited Condensed Consolidated Financial Statements. See Note 3, ~~Discontinued Operations~~, for additional information. The Company's Prior Senior Notes, 5.875% USD Notes due 2025 and term loans then outstanding under the Company's second amended and restated credit agreement, dated August 6, 2014, as further amended and restated, were not required to be immediately redeemed or repaid in connection with the Arysta Sale. As such, the related liabilities and interest expense are not included in discontinued operations and therefore fully burdened continuing operations.

The process of preparing the Company’s unaudited Condensed Consolidated Financial Statements requires the use of estimates and judgments that affect the reported amount of assets, liabilities, net sales and expenses. These estimates and judgments are based on historical experience, future expectations and other factors as well as assumptions the Company believes to be reasonable under the circumstances. These estimates and judgments are reviewed on an ongoing basis and revised as necessary. Actual amounts may differ materially from these estimates.

Certain other prior year amounts have been reclassified to conform to the current year’s presentation.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Recently ~~Adopted~~Issued Accounting Pronouncements Not Yet Adopted

~~Leases~~Income Taxes (Topic ~~842)~~ 740)- In ~~February 2016,~~December 2019, the FASB issued ASU No. ~~2016-02,~~2019-12, ~~“Leases.”~~ "Simplifying the Accounting for Income Taxes,"This ASU requires lessees to recognize most leases in their balance sheets, but to continue to record expenses on their income statements in a manner similar to current accounting. The ASU is required to be applied to leases in existence as of the date of initial application using a modified retrospective transition approach. The Company adopted the new standard on January 1, 2019. No cumulative-effect adjustment was required which removes certain exceptions related to the ~~opening balance of retained earnings on the adoption date.~~

~~ELEMENT SOLUTIONS INC AND SUBSIDIARIES~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

The Company made updates to its systems, policies and internal controls over financial reporting in preparation of adopting the new guidance. Upon the prospective adoption of ASC 842 during the first quarter of 2019, the Company elected the following package of transition practical expedients:

~~Not to separate non-lease components from lease components and account~~approach for ~~them as a single lease component;~~

~~Not to reassess arrangements entered into prior to January 1, 2019 for whether an arrangement is or contains a lease, the lease classification applied or to separate initial direct costs; and~~

~~To use hindsight in determining the lease term for lease contracts that have historically been renewed or amended.~~

At December 31, 2018, the Company was not a lessor to any significant lease agreements and substantially all of the leases under which the Company was a lessee were classified as operating leases under the existing ASC 840 guidance. As such, consistent with the Company's practical expedient election to not reassess lease classification, substantially all the Company's existing leases will continue to be classified as operating leases under ASC 842. As a lessee, the Company categorizes its operating leases into two general categories: real estate and other.

~~This new standard had no impact on the Company’s Condensed Consolidated Statements of Operations or Cash Flows but its Condensed Consolidated Balance Sheet at June 30, 2019 was impacted by~~intraperiod tax allocation, the recognition of ~~right~~deferred tax liabilities for outside basis differences and clarifies the accounting for transactions that result in a step-up in the tax basis of use (ROU) assets of $64.0 million in "Other Assets" which reflected the present value of remaining operating lease payments under existing lease arrangements, as well as current and non-current lease liabilities of $14.9 million and $49.3 million, reported in "Accrued expenses and other current liabilities" and "Other liabilities," respectively.

~~See Note 11,~~ ~~Leases, for more information.~~

~~Derivatives and Hedging (Topic 815)~~ ~~- In August 2017, the FASB issued ASU No. 2017-12, “Targeted Improvements to Accounting for Hedging Activities.”~~ This ASU improves the financial reporting of hedge relationships by updating hedging designation and measurement guidance. The update also simplifies the application of existing hedge accounting guidance related to assessing hedge effectiveness.goodwill. The guidance is generally effective ~~prospectively~~ as of January 1, ~~2019 and~~2021, with early adoption permitted. The Company is ~~applied to contracts in existence at~~evaluating the ~~date~~impact of ~~adoption. This~~the new guidance ~~did not have a material impact~~ on the ~~Company's unaudited~~ Condensed Consolidated Financial Statements.

3. DISCONTINUED OPERATIONS

On July 20, 2018, the Company agreed to sell to UPL 100% of the then issued and outstanding shares of common stock of Arysta and its subsidiaries pursuant to the terms and conditions of the Arysta Sale Agreement. The Arysta Sale was completed on January 31, 2019 for net cash proceeds of ~~approximately~~ $4.28 billion, after certain post-closing adjustments relating to, among other things, cash, indebtedness and working capital, as finalized with UPL on May 17, 2019.

The Company's former Agricultural Solutions business was previously its own reportable segment and has been presented for all periods as discontinued operations in this Quarterly Report as the Arysta Sale represented a significant strategic shift and was determined to have a major effect on the Company's operations and financial results. Corporate costs previously allocated to the Agricultural Solutions segment were reallocated to the remaining segments for all periods presented as these costs were not clearly identifiable as costs of the former Agricultural Solutions segment.

In the second quarter of 2019, the Company recorded a loss of $18.8 million on the Arysta Sale, for a 2019 year-to-date gain of $2.5 million. The sale resulted in an overall loss of $448 million as an estimated impairment loss of $450 million was recorded in 2018, primarily due to the reclassification of foreign currency translation adjustments from "Accumulated other comprehensive loss" within Stockholders’ Equity into earnings within the Condensed Consolidated Statement of Operations. The Company may record an additional gain or loss in the future as it settles certain tax assets and liabilities associated with the Arysta Sale.

In connection with the Arysta Sale, the Company agreed to retain certain liabilities associated with legal and tax proceedings, primarily related to an Arysta subsidiary in Brazil. The Company does not expect to incur any material losses as a result of these proceedings. However, the resolutions of these matters may take several years and, to the extent not covered by insurance, may adversely impact the Company's financial position or results of operations.

The Company may record an additional gain or loss in the future as it settles certain remaining tax assets and liabilities associated with the Arysta Sale.

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

The following table details the components comprising net ~~(loss)~~ income from the Company's discontinued operations attributable to common stockholders:


	Three Months Ended March 31,
(dollars in millions)	2020		2019 ⁽¹⁾
Net sales	$	—	$	65.3
Cost of sales	—		(45.5)
Selling, technical, general and administrative	—		(36.6)
Research and development	—		(4.6)
Gain on Arysta Sale	—		21.3
Operating loss	—		(0.1)
Other, net	(0.7)		9.3
(Loss) income from discontinued operations, before income taxes	(0.7)		9.2
Income tax benefit	0.9		18.2
Income from discontinued operations, net of tax	0.2		27.4
Net income from discontinued operations attributable to the non-controlling interests	—		(0.1)
Net income from discontinued operations attributable to common stockholders	$	0.2	$	27.3

Three Months Ended June 30, Six Months Ended June 30,
(dollars in millions) 2019 2018
2019 ⁽¹⁾
2018
Net sales $ —
$ 520.9
$ 65.3
$ 992.5
Cost of sales —
(312.7 ) (45.5 ) (590.7 )
Selling, technical, general and administrative (0.8 ) (135.7 ) (37.4 ) (271.9 )
Research and development —
(14.8 ) (4.6 ) (26.9 )
(Loss) gain on Arysta Sale (18.8 ) —
2.5
—
Operating (loss) profit (19.6 ) 57.7
(19.7 ) 103.0
Other, net (0.6 ) (40.9 ) 8.7
15.8
(Loss) income from discontinued operations, before income taxes (20.2 ) 16.8
(11.0 ) 118.8
Income tax benefit (expense) 6.9
44.6
25.1
(10.5 )
(Loss) income from discontinued operations, net of tax (13.3 ) 61.4
14.1
108.3
Net loss (income) from discontinued operations attributable to the non-controlling interests 0.1
(0.4 ) —
0.2
Net (loss) income from discontinued operations attributable to common stockholders $ (13.2 ) $ 61.0
$ 14.1
$ 108.5
⁽¹⁾Includes activity through January 31, 2019, when the Arysta Sale was completed, and certain post-closing adjustments relating to, among


⁽¹⁾ other things, cash, indebtedness and working capital as of the closing date.	Includes activity through January 31, 2019, when the Arysta Sale was completed, and certain post-closing adjustments relating to, among other things, cash, indebtedness and working capital as of the closing date.

The carrying value of major classes of assets and liabilities related to the Company's discontinued operations were as follows:


	March 31,		December 31,
(dollars in millions)	2020		2019
Assets



Other current assets	$	9.2	$	11.2





Other assets	6.6		6.5


Liabilities


Accrued expenses and other current liabilities	17.3		34.1

June 30, December 31,
(dollars in millions) 2019 2018
Assets
Cash and cash equivalents $ —
$ 177.8

Accounts receivable, net —
919.4

Inventories —
369.1

Other current assets 9.6
⁽¹⁾
155.0

Current assets of discontinued operations $ 9.6
$ 1,621.3

Property, plant and equipment, net $ —
$ 172.0

Goodwill —
1,816.9

Intangible assets, net —
1,797.7

Other assets 6.8
(374.2 )
⁽²⁾
Non-current assets of discontinued operations $ 6.8
$ 3,412.4

Liabilities
Accounts payable $ —
$ 365.7

Current installments of revolving credit facilities —
52.5

Accrued expenses and other current liabilities 57.9
408.6

Current liabilities of discontinued operations $ 57.9
$ 826.8

Deferred income taxes $ —
$ 369.9

Other liabilities —
46.3

Non-current liabilities of discontinued operations $ —
$ 416.2


⁽¹⁾	~~Primarily comprised of a receivable from UPL associated with certain post-closing adjustments.~~


⁽²⁾	~~Includes the impairment loss of $450 million on discontinued operations at December 31, 2018.~~

~~ELEMENT SOLUTIONS INC AND SUBSIDIARIES~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

4. INVENTORIES

The major components of inventory, on a net basis, were as follows:


(dollars in millions)	March 31, 2020		December 31, 2019
Finished goods	$	127.1	$	118.5
Work in process	23.3		22.6
Raw materials and supplies	62.7		58.5
Total inventories	$	213.1	$	199.6

(dollars in millions) June 30,
2019 December 31,
2018
Finished goods $ 118.0
$ 109.4
Work in process 17.9
15.3
Raw materials and supplies 65.7
63.4
Total inventories $ 201.6
$ 188.1

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

5. PROPERTY, PLANT AND EQUIPMENT

The major components of property, plant and equipment were as follows:

(dollars in millions) June 30,
2019 December 31,
2018
Land and leasehold improvements $ 67.5
$ 67.8
Buildings and improvements 104.7
101.0
Machinery, equipment, fixtures and software 212.1
207.3
Construction in process 11.7
14.9
Total property, plant and equipment 396.0
391.0
Accumulated depreciation (139.3 ) (124.1 )
Property, plant and equipment, net $ 256.7
$ 266.9


(dollars in millions)	March 31, 2020		December 31, 2019
Land and leasehold improvements	$	66.5	$	68.6
Buildings and improvements	113.5		113.5
Machinery, equipment, fixtures and software	216.4		220.0
Construction in process	19.3		16.0
Total property, plant and equipment	415.7		418.1
Accumulated depreciation	(159.0)		(153.3)
Property, plant and equipment, net	$	256.7	$	264.8

For the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company recorded depreciation expense of ~~$10.4~~$10.5 million and ~~$11.2 million, respectively. For the six months ended June 30, 2019 and 2018, the Company recorded depreciation expense of $20.7 million and $22.9~~$10.3 million, respectively.

6. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The changes in the carrying amount of goodwill were as follows:


(dollars in millions)	Electronics		Industrial & Specialty			Total
Balance at December 31, 2019	$	1,223.4	$	956.2	(1)	$	2,179.6
Foreign currency translation	(19.7)		(32.7)			(52.4)
Balance at March 31, 2020	$	1,203.7	$	923.5		$	2,127.2

(dollars in millions) Electronics Industrial & Specialty Total
Balance at December 31, 2018 (*) $ 1,226.7
$ 955.9
$ 2,182.6
Foreign currency translation (2.4 ) (2.3 ) (4.7 )
Balance at June 30, 2019 (*) $ 1,224.3
$ 953.6
$ 2,177.9

~~(*)~~(1) Includes accumulated impairment losses of $46.6 ~~million associated with the Company's Industrial & Specialty segment.~~million.

Indefinite-Lived Intangible Assets

The carrying value of indefinite-lived intangible assets other than goodwill, which consisted solely of tradenames, was ~~$105~~$68.0 million and ~~$150~~$104 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

During the first quarter of ~~2019,~~2020, the Company determined that the useful life of one of its tradenames no longer met the criteria ~~to be considered~~of an indefinite-lived asset and concluded no indication of impairment. Subsequently, the Company started amortizing

~~ELEMENT SOLUTIONS INC AND SUBSIDIARIES~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

this tradename over 15 years, consistent with other similar finite-lived assets.

Finite-Lived Intangible Assets

Intangible assets subject to amortization were as follows:


	March 31, 2020										December 31, 2019
(dollars in millions)	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Customer lists	$	933.5	$	(359.6)	$	573.9	$	959.1	$	(351.4)	$	607.7
Developed technology	371.9		(199.5)		172.4		380.5		(194.8)		185.7
Tradenames	86.4		(6.2)		80.2		51.5		(4.9)		46.6
Non-compete agreements	—		—		—		1.6		(1.6)		—
Total	$	1,391.8	$	(565.3)	$	826.5	$	1,392.7	$	(552.7)	$	840.0

June 30, 2019 December 31, 2018
(dollars in millions)
Gross Carrying
Amount

Accumulated
Amortization

Net Book
Value

Gross Carrying
Amount

Accumulated
Amortization

Net Book
Value
Customer lists $ 925.7
$ (317.3 ) $ 608.4
$ 927.8
$ (283.2 ) $ 644.6
Developed technology 381.5
(175.1 ) 206.4
381.3
(155.6 ) 225.7
Tradenames 50.8
(3.2 ) 47.6
5.9
(1.6 ) 4.3
Non-compete agreements 1.5
(1.4 ) 0.1
1.5
(1.3 ) 0.2
Total $ 1,359.5
$ (497.0 ) $ 862.5
$ 1,316.5
$ (441.7 ) $ 874.8

For the three months ended June 30, 2019 and 2018, the Company recorded amortization expense on intangible assets of $28.4 million, respectively. For the six months ended June 30, 2019 and 2018, the Company recorded amortization expense on intangible assets of $56.8 million and $56.9 million, respectively.

~~7. DEBT~~

~~The Company’s debt and finance lease obligations consisted of the following:~~

(dollars in millions) Maturity Date Interest Rate June 30,
2019 December 31,
2018
USD Term Loans ⁽¹⁾
2026 LIBOR plus 2.25% $ 736.4
$ —
Senior Notes - USD 800 million ⁽²⁾
2025 5.875% 785.8
784.9
Senior Notes - USD 1.10 billion ⁽²⁾
2022 6.50% —
1,067.1
Senior Notes - EUR 350 million ⁽²⁾
2023 6.00% —
397.4
First Lien Credit Facility - USD Term Loans ⁽¹⁾
2020 > of 3.50% or LIBOR plus 2.50% —
624.3
First Lien Credit Facility - USD Term Loans ⁽¹⁾
2021 > of 4.00% or LIBOR plus 3.00% —
1,124.7
First Lien Credit Facility - Euro Term Loans ⁽¹⁾
2020 > of 3.25% or EURIBOR plus 2.50% —
666.2
First Lien Credit Facility - Euro Term Loans ⁽¹⁾
2021 > of 3.50% or EURIBOR plus 2.75% —
685.3
Borrowings under the Revolving Credit Facility 2024 LIBOR plus 2.25% 50.0
25.0
Other 0.9
1.1
Total debt and finance lease obligations 1,573.1
5,376.0
Less: current installments of long-term debt and revolving credit facilities 57.8
25.3
Total long-term debt and finance lease obligations $ 1,515.3
$ 5,350.7

⁽¹⁾

Term loans, net of unamortized discounts and debt issuance costs of $9.8 million and $22.4 million at June 30, 2019 and December 31, 2018, respectively. Weighted average effective interest rate of 2.4% and 4.6% at June 30, 2019 and December 31, 2018, respectively, including the effects of interest rate swaps and net investment hedges. See Note 8, Financial Instruments, for further information regarding the Company's interest rate swaps and net investment hedges.


⁽²⁾	Senior notes, net of unamortized premium, discounts and debt issuance costs of $14.2 million and $29.9 million at June 30, 2019 and December 31, 2018, respectively. Weighted average effective interest rate of 6.2% ~~and 6.5%~~ ~~at June 30, 2019 and December 31, 2018, respectively.~~

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

For the three months ended March 31, 2020 and 2019, the Company recorded amortization expense on intangible assets of $29.4 million and $28.4 million, respectively.

~~New~~ On March 9, 2020, the Company acquired a new subsea production control fluid designed to complement its Energy Solutions business for a purchase price of $6.3 million in cash. The Company may pay an additional $4.5 million upon the achievement of certain milestones associated with the potential certification and marketing of this product. As the acquisition did not meet the accounting definition of a business and this product is still in development with no alternative future use, the amount paid was expensed to research and development in the Condensed Consolidated Statements of Operations.

7. DEBT

The Company’s debt obligations consisted of the following:


(dollars in millions)	Maturity Date	Interest Rate	March 31, 2020		December 31, 2019
USD Term Loans ⁽¹⁾	2026	LIBOR plus 2.00%	$	731.9	$	733.4
Senior Notes - USD 800 million ⁽²⁾	2025	5.875%	787.2		786.7
Borrowings under the Revolving Credit Facility	2024	LIBOR plus 2.25%	320.0		—

Other			0.8		0.9
Total debt							1,839.9		1,521.0
Less: current installments of long-term debt and revolving credit facilities							327.7		7.8
Total long-term debt							$	1,512.2	$	1,513.2

⁽¹⁾ Term loans, net of unamortized discounts and debt issuance costs of $8.7 million and $9.1 million at March 31, 2020 and December 31, 2019, respectively. Weighted average effective interest rate of 2.2% at March 31, 2020 and December 31, 2019, respectively, including the effects of interest rate swaps and net investment hedges. See Note 8, Financial Instruments, for further information regarding the Company's interest rate swaps and net investment hedges.

⁽²⁾Senior notes, net of unamortized discount and debt issuance costs of $12.8 million and $13.3 million at March 31, 2020 and December 31, 2019, respectively. Weighted average effective interest rate of 6.2% at March 31, 2020 and December 31, 2019, respectively.

Credit Agreement

The Company is a party to the ~~New~~ Credit Agreement, which 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. ~~On the closing date of the Arysta Sale, the $750 million term loan was borrowed under the New Credit Agreement.~~

The New Credit Agreement replaced the Company's second amended and restated credit agreement, dated August 6, 2014, as further amended and restated, which was terminated on January 31, 2019, the closing date of the Arysta Sale, as the Company paid down its then existing credit facilities, including the first lien credit facility and the revolving credit facility, under this agreement and expensed $22.9 million of unamortized premiums, discounts and debt issuance costs, which was recorded in the Condensed Consolidated Statement of Operations as "Other (expense) income, net."

Borrowings under the ~~New~~ Credit Agreement bear interest at a rate per annum equal to a ~~base rate,~~Base Rate, as defined in the ~~New~~ Credit Agreement, plus, in each case, an applicable rate equal to a spread of ~~1.25%~~1.00% with respect to Base Rate Loans and a spread of ~~2.25%~~2.00% with respect to Eurocurrency Rate Loans. The Company is required to pay a commitment fee in respect of any undrawn portion of the ~~Revolver~~revolving facility of 0.50% per annum, subject to a stepdown to 0.375% based on the Company’s first lien net leverage ratio.

The ~~revolving facility~~Company's obligations under the New Credit Agreement includes borrowing capacity in the form of letters of credit of up to $100 million. In connection with the termination of the Company's second amended and restated credit agreement and entry into the New Credit Agreement, all letters of credit outstanding on January 31, 2019 under the second amended and restated credit agreement were rolled into the New Credit Agreement.

~~The credit facilities under the New~~ Credit Agreement are guaranteed, jointly and severally, by certain of the Company’s domestic subsidiaries and secured by a first-priority security interest in substantially all of the assets of the Company and MacDermid, as borrowers, and the guarantors, including mortgages on material real property, subject to certain exceptions.

Covenants, Events of Default and Provisions

The ~~New~~ Credit Agreement contains customary representations and warranties, and affirmative and negative covenants, including limitations on additional indebtedness, dividends, and other distributions, entry into new lines of business, use of loan proceeds, capital expenditures, restricted payments, restrictions on liens on the assets of the borrowers or any guarantor, transactions with affiliates, amendments to organizational documents, accounting changes, sale and leaseback transactions and dispositions. IfTo the extent the borrowers have total outstanding borrowings under the ~~revolver~~revolving facility (subject to certain exceptions) ~~in excess of~~greater

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

than 30% of the commitment amount under the ~~revolver,~~revolving facility, the ~~revolver requires that the Company maintain a~~Company's first lien net leverage ratio ~~of at least~~should not exceed 5.0 to 1.0, subject to a right to cure.

The ~~New~~ Credit Agreement requires the borrowers to make mandatory prepayments of borrowings, subject to certain exceptions, as described in the ~~New~~ Credit Agreement. In addition, the ~~New~~ Credit Agreement contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, failure to make payment on, or defaults with respect to, certain other material indebtedness, bankruptcy and insolvency events, material judgments and change of control provisions. Upon the occurrence of an event of default, and after the expiration of any applicable grace period, payment of any outstanding loans under the ~~New~~ Credit Agreement may be accelerated and the lenders could foreclose on their security interests in the assets of the borrowers and the guarantors.

At ~~June 30, 2019,~~March 31, 2020, the Company was in compliance with the debt covenants contained in the ~~credit facilities of the New~~ Credit Agreement and ~~in accordance with applicable debt covenants,~~ had full availability of its unused borrowing capacity of ~~$275~~$4.7 million, net of letters of credit, under the revolving facility.

~~ELEMENT SOLUTIONS INC AND SUBSIDIARIES~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Senior Notes~~

~~Prior Senior Notes~~

On ~~February 1, 2019,~~April 20, 2020, the Company ~~completed~~repaid the ~~redemption of all~~$320 million outstanding ~~Prior Senior Notes and, as a result, the Prior Senior Notes Indenture was terminated, releasing the Company and the guarantors named therein from their obligation~~ under the Prior Senior Notes and the Prior Senior Notes Indenture. In connection with this redemption, the Company expensed $44.0 million, consisting of $29.5 million of call premiums and $14.5 million of unamortized premiums, discounts and debt issuance costs, which was recordedrevolving credit facility in the Condensed Consolidated Statement of Operations as "Other (expense) income, net." The Company funded the redemption with a portion of the net proceeds from the Arysta Sale and a portion of the borrowings under the New Credit Agreement. The 5.875% USD Notes due 2025 were not redeemed and remain outstanding.its entirety.

5.875% USD Notes due 2025

The 5.875% USD Notes due 2025 are governed by the 5.875% USD Notes Indenture, which provides, among other things, for customary affirmative and negative covenants, events of default and other customary provisions. The Company also has the option to redeem the 5.875% USD Notes due 2025 prior to their maturity, subject to, in certain cases, the payment of an applicable make-whole premium. The 5.875% USD Notes due 2025 are unsecured, and fully and unconditionally guaranteed on a senior unsecured basis by ~~certain~~generally all of the Company’s domestic subsidiaries that guarantee the obligations of the borrowers under the ~~New~~ Credit Agreement.

Lines of Credit and Other Debt Facilities

The Company has access to various revolving lines of credit, short-term debt facilities and overdraft facilities worldwide which are used to fund short-term cash needs. At ~~June 30, 2019 and December~~March 31, ~~2018,~~2020 the aggregate principal amount outstanding under such facilities totaled ~~$50.0~~$320.0 million and ~~$25.0 million, respectively.~~there were 0 amounts outstanding under such facilities at December 31, 2019. The Company also had letters of credit outstanding of ~~$5.1 million and $10.2~~$5.7 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, of which ~~$4.8 million and $9.7~~$5.3 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, reduced the borrowings available under the various facilities. At ~~June 30,~~March 31, 2020 and December 31, 2019, the availability under these facilities totaled approximately ~~$303~~$29.0 million and $351 million, respectively, net of outstanding letters of credit.

8. FINANCIAL INSTRUMENTS

Derivatives and Hedging

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

Foreign Currency

The Company conducts a significant portion of its business in currencies other than the U.S. dollar and a portion of its business in currencies other than the functional currencies of its subsidiaries. As a result, the Company’s operating results are impacted by foreign currency exchange rate volatility.

At ~~June 30, 2019,~~March 31, 2020, the Company held foreign currency forward contracts to purchase and sell various currencies in order to mitigate such foreign currency exposure ~~primarily~~ with the U.S. dollar and ~~euro.~~British pound. The Company has not designated any foreign

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

currency exchange forward contracts as eligible for hedge accounting and, as a result, changes in the fair value of foreign currency forward contracts are recorded in the Condensed Consolidated Statements of Operations as "Other income (expense) ~~income,~~, net." The total notional value of foreign currency exchange forward contracts held at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 was approximately ~~$148.8~~$123.8 million and ~~$102~~$74.2 million, respectively, with settlement dates generally within one year.

~~ELEMENT SOLUTIONS INC AND SUBSIDIARIES~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Commodities

As part of its risk management policy, the Company enters into commodities futures contracts for the purpose of mitigating its exposure to fluctuations in prices of certain metals used in the production of its finished goods. The Company held futures contracts to purchase and sell various metals, primarily tin and silver, with a notional value of ~~$39.5~~$35.6 million and ~~$28.9~~$28.6 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Substantially all contracts outstanding at ~~June 30, 2019~~March 31, 2020 had delivery dates within one year. The Company has not designated these derivatives as hedging instruments and, accordingly, records changes in their fair values in the Condensed Consolidated Statements of Operations as "Other income (expense) ~~income,~~, net."

~~Unrealized~~Realized gains and losses on derivative contracts are accounted for as "Operating activities" in the Condensed Consolidated Statements of Cash Flows.

Interest Rates

~~During the six months ended June 30, 2019, the Company:~~

~~Terminated and settled interest rate swaps previously~~The Company entered into to effectively fix the floating base rate portion of its interest payments on approximately $1.12 billion of prior U.S. dollar denominated debt and €276 million of prior euro denominated debt at 1.96% and 1.20%, respectively, through June 2020. Upon termination and settlement, the Company received a cash payment of $8.2 million and reclassified $7.1 million of income from "Accumulated other comprehensive loss" to "Other (expense) income, net" in the Condensed Consolidated Statement of Operations. The proceeds are reflected as cash flows from Investing Activities on the Condensed Consolidated Statement of Cash Flows.

~~Entered~~ into interest rate swaps to effectively fix the floating rate of the interest payments associated with its ~~new~~ $750 million term loan under ~~New~~the Credit Agreement through January 2024. These contracts were designated as a cash flow hedge. All interest payments to be paid during the last two years preceding the maturity date of this ~~new~~ term loan (February 2024 to January 2026) will revert back to a floating rate of interest.

The ~~proceeds are reflected as cash flows from Operating Activities on the Condensed Consolidated Statement of Cash Flows.~~

~~Entered~~Company also entered into cross-currency swaps to effectively convert the ~~new~~ $750 million term loan under the ~~New~~ Credit Agreement, a U.S. dollar denominated debt obligation, into fixed-rate euro-denominated debt. Under these contracts, which expire in January 2024, the Company is obligated to make periodic euro-denominated coupon payments to the hedge counterparties on an aggregate initial notional amount of €662 million, in exchange for periodic U.S. dollar-denominated coupon payments from these hedge counterparties on an aggregate initial notional amount of $750 million. The Company has also designated these contracts as a net investment hedge of the foreign currency exposure of a portion of its net investment in its European operations. ~~The proceeds are reflected as cash flows from Operating Activities on the Condensed Consolidated Statement of Cash Flows.~~

The net result of the above hedges is ~~a fixed~~an interest rate of approximately ~~2.4% through January 2024.~~2.2%, which could vary due to changes in the euro and the U.S. dollar exchange rate.

Changes in the fair value of a derivative instrument that is designated as, and meets all the required criteria of, a cash flow hedge are recorded in "Other comprehensive (loss) income" and reclassified from "Accumulated other comprehensive loss" into earnings as the underlying hedged item affects earnings. Amounts reclassified into earnings related to interest rate swaps are included in the Condensed Consolidated Statements of Operations as "Interest expense, net." Changes in the fair value of a derivative instrument that is designated as, and meets all the required criteria of, a net investment hedge are recorded in "Foreign currency translation" in "Accumulated other comprehensive loss" offsetting the translation adjustment attributable to the hedged portion of the Company’s net investment in its European operations.

For the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, the Company's interest rate swaps and cross-currency swaps were deemed highly effective. The Company expects to reclassify ~~$5.1~~$16.0 million of expense from "Accumulated other comprehensive loss" to "Interest expense, net" in the Condensed Consolidated Statements of Operations within the next twelve months.

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Fair Value Measurements

The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis:

(dollars in millions) Balance sheet location Classification June 30,
2019 December 31,
2018
Asset Category
Foreign exchange and metals contracts not designated as hedging instruments Other current assets Level 2 $ 0.6
$ 0.9
Interest rate swaps designated as cash flow hedging instruments Other current assets Level 2 —
6.5
Cross currency swaps designated as net investment hedge Other current assets Level 2 18.2
—
Interest rate swaps designated as cash flow hedging instruments Other assets Level 2 —
2.6
Available for sale equity securities Other assets Level 1 0.3
0.3
Total $ 19.1
$ 10.3

Liability Category
Foreign exchange and metals contracts not designated as hedging instruments Accrued expenses and other liabilities Level 2 $ 2.0
$ 1.2
Interest rate swaps designated as cash flow hedging instruments Accrued expenses and other liabilities Level 2 5.1
0.6
Interest rate swaps designated as cash flow hedging instruments Other liabilities Level 2 22.4
0.3
Cross currency swaps designated as net investment hedge Other liabilities Level 2 18.8
—
Long-term contingent consideration Other liabilities Level 3 20.6
57.4
Total $ 68.9
$ 59.5


(dollars in millions)	Balance sheet location	Classification	March 31, 2020		December 31, 2019
Asset Category
Foreign exchange and metals contracts not designated as hedging instruments	Other current assets	Level 2	$	3.5	$	1.2

Cross currency swaps designated as net investment hedge	Other current assets	Level 2	19.0		18.4

Cross currency swaps designated as net investment hedge	Other assets	Level 2	42.5		—
Available for sale equity securities	Other assets	Level 1	—		0.3
Total			$	65.0	$	19.9

Liability Category
Foreign exchange and metals contracts not designated as hedging instruments	Accrued expenses and other current liabilities	Level 2	$	3.9	$	0.9
Interest rate swaps designated as cash flow hedging instruments	Accrued expenses and other current liabilities	Level 2	16.0		6.9

Interest rate swaps designated as cash flow hedging instruments	Other liabilities	Level 2	40.9		19.7
Cross currency swaps designated as net investment hedge	Other liabilities	Level 2	—		0.3
Total			$	60.8	$	27.8

The following methods and assumptions were used to estimate the fair value of each class of the Company’s financial assets and liabilities:

Derivatives - Derivative assets and liabilities include foreign currency, metals, interest rate swaps and cross currency swaps. The values are determined using pricing models based upon observable market inputs, such as market spot and futures prices on over-the-counter derivative instruments, market interest rates, and consideration of counterparty credit risk.

Available for sale equity securities - Available for sale equity securities classified as Level 1 assets are measured using quoted market prices at the reporting date multiplied by the quantity held.

~~Long-term contingent consideration~~ - The long-term contingent consideration represented a potential liability of up to $100 million tied to the achievement of certain common stock trading price performance metrics and Adjusted EBITDA targets over a seven-year period ending December 2020 in connection with the MacDermid Acquisition. In the first quarter of 2019, the Company paid $40.0 million of this liability related to the achievement of common stock performance targets, reducing the potential contingent consideration liability to $60.0 million. Of the $40.0 million paid in 2019, $30.9 million was reflected as a cash outflow from Operating Activities and $9.1 million was reflected as a cash outflow from Financing Activities on the Condensed Consolidated Statements of Cash Flows. The amount reflected as Financing Activities represented the initial amount recorded in purchase accounting.

The estimated fair value of the Adjusted EBITDA performance metric is derived using the income approach with unobservable inputs, based on present value and multi-year forecast assumptions, which include a discount rate of 10.50% and probability weighted Adjusted EBITDA assessments of expected future payment values of $0.0 million, $30.0 million and $60.0 million. At June 30, 2019, based on the most recent multi-year forecast, the Company continues to determine there is a higher probability of achieving the Adjusted EBITDA target that will result in an expected payment of $30.0 million. An increase or a decrease in the probability weighted Adjusted EBITDA assessments of future payment values of 10.0% changes the estimated fair value measure of the performance metric by approximately $2.3 million.

~~ELEMENT SOLUTIONS INC AND SUBSIDIARIES~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Changes in the estimated fair value of the long-term contingent consideration are recorded in the Condensed Consolidated Statements of Operations as "Selling, technical, general and administrative" expenses.

There were no significant transfers between the fair value hierarchy levels for the three ~~and six~~ months ended ~~June 30, 2019.~~March 31, 2020.

The carrying value and estimated fair value of the Company’s long-term debt totaled $1.52 billion and ~~$1.58~~$1.44 billion, respectively, at ~~June 30, 2019.~~March 31, 2020. At December 31, ~~2018,~~2019, the carrying value and estimated fair value ~~each~~ totaled ~~$5.35 billion.~~$1.52 billion and $1.58 billion, respectively. The carrying values noted above include unamortized ~~premiums,~~ discounts and debt issuance costs. The estimated fair value of long-term debt is measured using quoted market prices at the reporting date multiplied by the gross carrying amount of the related debt, which excludes unamortized ~~premiums,~~ discounts and debt issuance costs. Such instruments are valued using Level 2 inputs.

9. STOCKHOLDERS’ EQUITY

Preferred Stock

The Company is authorized to issue ~~5,000,000~~5 million shares of preferred stock. The Board ~~has~~had designated ~~2,000,000~~2 million of those shares as "Series A Preferred Stock." At ~~June 30, 2019 and~~ December 31, ~~2018,~~2019, a total of ~~2,000,000~~2 million shares of Series A Preferred Stock were issued and outstanding. Shares of preferred stock have no voting rights, except in respect of any amendment to the Company's Certificate of Incorporation, as amended, that would alter or change their rights or privileges. Each share of Series A Preferred Stock is convertible into one share of the Company's common stock at the option of the holders until December 31, 2020. All outstanding shares of Series A Preferred Stock ~~will be automatically~~were converted into shares of the Company's common stock on a one-for-one basis (i) in the event of a change of control of the Company or (ii) on December 31, 2020 (which may be extended by the Board for three additional years).

As holders of the Series A Preferred Stock, the Founder Entities are entitled to receive dividends in the form of shares of the Company's common stock. The dividend amount is calculated based on the appreciated stock price compared to the highest dividend price previously used in calculating the Series A Preferred Stock dividends, which is currently $22.85 per share.

~~Non-Controlling Interest~~

~~In connection with the MacDermid Acquisition, approximately $97.5 million was raised in new equity consisting of 8,774,527~~ shares of common stock of ~~PDH. The shares of common stock of PDH were recorded in~~the Company on February 25, 2020.

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

Notes to the Condensed Consolidated Balance Sheets as "Non-controlling interests." On March 29, 2019, the Company completed the merger of PDH with and into Element Solutions, with Element Solutions continuing as the surviving entity. As a result of this merger and without any action on the part of the Retaining Holders, each share of common stock of PDH outstanding at March 29, 2019 was converted into the right to receive one share of the Company's common stock, and all shares of common stock of PDH were subsequently converted.Financial Statements

As a result of the merger, there was no allocation of net income to the Retaining Holders for the three months ended June 30, 2019. For the three months ended June 30, 2018, approximately $0.6 million of net loss had been allocated to the Retaining Holders, as included in the Condensed Consolidated Statements of Operations. For the six months ended June 30, 2019 and 2018, approximately $0.5 million and $0.6 million, respectively, of net income had been allocated to the Retaining Holders, as included in the Condensed Consolidated Statements of Operations.(Unaudited)

Repurchases of Common Stock

~~On February 8, 2019,~~During the three months ended March 31, 2020, as part of the Company's previously-announced ~~share~~$750 million stock repurchase program, the Company repurchased 37approximately 3.7 million shares of its common stock for a per share purchase price of $11.72, the last sale price reported for the Company's shares as of the 4 pm close of trading on the NYSE on Friday, February 1, 2019, or an aggregate purchase price of $434 million. These repurchased shares, which represented approximately ~~13% of the Company's then outstanding common stock, were retired on the repurchase date. The repurchases were funded from cash on hand and borrowings under the New Credit Agreement.~~

~~During the three months ended June 30, 2019, the Company repurchased approximately 1.2 million shares of its common stock under the share repurchase program for approximately $11.4~~$33.1 million, at an average price of ~~$9.89~~approximately $8.82 per share. The repurchases were allocated to treasury shares and were funded from cash on hand.

~~ELEMENT SOLUTIONS INC AND SUBSIDIARIES~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

The remaining authorization under the share repurchase program was approximately ~~$305~~$210 million at ~~June 30, 2019.~~March 31, 2020.

10. EARNINGS (LOSS) PER SHARE

Basic and diluted earnings (loss) per share are based on the weighted average number of shares of common stock and potential common stock outstanding during the period. Potential common stock, for purposes of determining diluted earnings per share, assumes the issuance of all potentially dilutive share equivalents using the if-converted or treasury stock method.

A computation of earnings (loss) per share from continuing operations and weighted average shares of the Company's common stock outstanding for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ is as follows:

Three Months Ended June 30, Six Months Ended June 30,
(dollars in millions, except per share amounts) 2019 2018 2019 2018
Net income (loss) from continuing operations $ 14.7
$ (49.6 ) $ 11.2
$ (58.5 )
Net loss (income) attributable to the non-controlling interests —
0.6
(0.6 ) (0.7 )
Net income (loss) from continuing operations attributable to common stockholders $ 14.7
$ (49.0 ) $ 10.6
$ (59.2 )

Basic weighted average common shares outstanding 257.3
288.2
262.7
288.0
Denominator adjustments for diluted EPS:
Number of shares issuable upon conversion of founder preferred stock 2.0
—
2.0
—
Number of stock options, RSUs and shares issued through ESPP 0.3
—
0.6
—
Denominator adjustments for diluted EPS 2.3
—
2.6
—
Diluted weighted average common shares outstanding 259.6
288.2
265.3
288.0

Earnings (loss) per share from continuing operations attributable to common stockholders:

Basic $ 0.06
$ (0.17 ) $ 0.04
$ (0.21 )
Diluted $ 0.06
$ (0.17 ) $ 0.04
$ (0.21 )


	Three Months Ended March 31,
(dollars in millions, except per share amounts)	2020		2019
Net income (loss) from continuing operations	$	8.4	$	(3.5)
Net income attributable to the non-controlling interests	—		(0.6)
Net income (loss) from continuing operations attributable to common stockholders	$	8.4	$	(4.1)






Basic weighted average common shares outstanding	250.3		268.2
Denominator adjustments for diluted EPS:
Number of shares issuable upon conversion of Series A Preferred Stock	1.2		—


Number of stock options and RSUs	0.5		—
Denominator adjustments for diluted EPS	1.7		—
Diluted weighted average common shares outstanding	252.0		268.2

Earnings (loss) per share from continuing operations attributable to common stockholders:
Basic	$	0.03	$	(0.02)
Diluted	$	0.03	$	(0.02)

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive or because performance targets and/or market conditions were not yet achieved for RSUs contingent upon performance:


	Three Months Ended March 31,
(shares in millions)	2020	2019
Shares issuable for the contingent consideration	—	5.3
Shares issuable upon conversion of Series A Preferred Stock	—	2.0
Shares issuable upon vesting of RSUs and exercise of stock options	4.9	1.5
Total	4.9	8.8

Three Months Ended June 30, Six Months Ended June 30,
(shares in millions) 2019 2018 2019 2018
Shares issuable for the contingent consideration 5.0
7.4
5.1
8.0
Shares issuable upon conversion of Series A Preferred Stock —
2.0
—
2.0
Shares issuable upon vesting of RSUs 0.6
1.5
0.5
1.3
Shares issuable upon conversion of the shares of common stock of PDH —
4.1
—
4.2
Total 5.6
15.0
5.6
15.5

~~11. LEASES~~

The Company determines if an arrangement is a lease at inception. Right-of-Use (ROU) assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses its incremental borrowing rate based on the information available at the beginning of each fiscal quarter in determining the present value of future payments as most of its leases do not provide an implicit rate. ROU assets also include any lease payments made and exclude lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

~~the lease when it is reasonably certain that it will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.~~

ROU assets, current and non-current lease liabilities are reported as "Other assets," " Accrued expenses and other current liabilities" and "Other liabilities" in the Condensed Consolidated Balance Sheets, respectively. Finance leases are not material and are included in the Condensed Consolidated Balance Sheets as "Property, plant and equipment, net" and "Debt and lease obligations."

For the three and six months ended June 30, 2019, operating lease expense are primarily included in "Selling, technical, general and administrative" in the Condensed Consolidated Statements of Operations and totaled $5.2 million and $10.3 million, respectively.

Six Months Ended June 30,
(dollars in millions) 2019
Supplemental Cash Flow Information for Operating Leases
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 10.4

ROU assets obtained in exchange for operating lease obligations $ 2.5
Weighted average remaining lease term 8 years
Weighted average discount rate 5.3%

~~Maturities of lease liabilities by fiscal year for operating leases at June 30, 2019 were as follows:~~

(dollars in millions)
Remainder of 2019 $ 9.6
2020 15.2
2021 12.3
2022 10.4
2023 7.2
Thereafter 25.0
Total future minimum lease payments 79.7
Less: imputed interest (15.5 )
Present value of lease liabilities $ 64.2

~~Minimum future non-cancelable operating lease commitments at December 31, 2018 were as follows:~~

(dollars in millions)
2019 $ 19.2
2020 15.5
2021 11.9
2022 9.7
2023 7.7
Thereafter 27.9
Total $ 91.9

~~ELEMENT SOLUTIONS INC AND SUBSIDIARIES~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~12.~~11. CONTINGENCIES, ENVIRONMENTAL AND LEGAL MATTERS

Environmental Matters

The Company is involved in various claims relating to environmental matters at current and former plants and waste management sites. The Company engages or participates in remedial and other environmental compliance activities at certain of these sites. At other sites, it has been named as a potential responsible party pursuant to the federal Superfund Act and/or state Superfund laws comparable to the federal law for site remediation. The Company analyzes each individual site, considering the number of parties involved, the level of its potential liability or contribution relating to the other parties, the nature and magnitude of the hazardous wastes involved, the method and extent of remediation, the potential insurance coverage, the estimated legal and consulting expense with respect to each site and the time period over which costs are likely to be incurred. Based on this analysis, the Company estimates the clean-up costs and related claims for each site. The estimates are based in part on discussions with other potential responsible parties, governmental agencies and engineering firms.

The Company accrues for environmental matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current laws and existing technologies. The accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. The Company's environmental liabilities, which are included in the Condensed Consolidated Balance Sheets as "Accrued expenses and other current liabilities" and "Other liabilities," totaled ~~$16.5~~$11.3 million and ~~$18.3~~$12.0 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, primarily driven by environmental remediation, clean-up costs and monitoring of sites that were either closed or disposed of in prior years. While uncertainty exists with respect to the amount and timing of its ultimate environmental liabilities, the Company does not currently anticipate any material losses in excess of the amount recorded. However, it is possible that new information about the sites, such as results of investigations, could make it necessary for the Company to reassess its potential exposure related to these environmental matters.

~~As of the date of this Quarterly Report, the~~The Company believes it is not possible to develop an estimate of the range of reasonably possible environmental ~~losses~~loss in excess of the Company's recorded liabilities and is unable to ascertain the ultimate aggregate amount of monetary liabilities or financial impacts with respect to these matters.

Legal Matters

From time to time, the Company is involved in various legal proceedings, investigations and/or claims in the normal course of its business. Although it cannot predict with certainty the ultimate resolution of these matters, which involve judgments that are inherently subjective, the Company believes that their resolutions, to the extent not covered by insurance, will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or cash flows.

~~13.~~12. INCOME TAXES

The Company's quarterly income tax provision is measured using an estimate of its consolidated annual effective tax rate, adjusted in the current period for discrete income tax items, within the periods presented. The comparison of the Company's income tax provision between periods is significantly impacted by the level and mix of earnings and losses by tax jurisdiction, foreign income tax rate differentials and discrete items.

For the three months ended ~~June 30, 2019,~~March 31, 2020, the Company recognized an income tax ~~benefit~~expense of ~~$6.8~~$4.1 million, as compared to an income tax ~~expense~~benefit of ~~$30.0~~$10.4 million in the prior year. The tax ~~benefit~~expense for the three months ended ~~June 30, 2019~~March 31, 2020 represented ~~a benefit~~tax on the Company's pre-tax income based on its estimated full year annual effective tax rate, which includes the negative impact of U.S. global intangible low-taxed income provisions and ~~an accrual~~a benefit for the release of a valuation allowance on interest limitation carryforwards ~~and~~as a ~~benefit from~~result of the ~~release of a valuation allowance in a non-U.S. jurisdiction.~~recently enacted increased U.S. deductible interest limitation. The tax provision for the three months ended June 30, 2018 was negatively impacted by the country mix of earnings and the Company's inability to recognize additional deferred tax assets in various jurisdictions related to its current-year operating results, primarily the United States.

~~ELEMENT SOLUTIONS INC AND SUBSIDIARIES~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

on the Company's pre-tax loss based on its estimated full year annual effective tax rate, which ~~includes~~included the negative impact of U.S. global intangible low-taxed income provisions and an accrual of a valuation allowance on interest limitation carryforwards, and a benefit from the ~~release~~expiration of a ~~valuation allowance in a non-U.S. jurisdiction. The tax provision for~~statute of limitations.

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

Notes to the six months ended June 30, 2018 was negatively impacted by the country mix of earnings and the Company's inability to recognize additional deferred tax assets in various jurisdictions related to its current-year operating results, primarily the United States.Condensed Consolidated Financial Statements

As a result of the Arysta Sale, the deferred tax assets, valuation allowance and deferred tax liabilities of discontinued operations of $173 million, $75 million and $450 million, respectively, at December 31, 2018 were written off as part of the sale.(Unaudited)

~~14.~~

13. RELATED PARTY TRANSACTIONS

The Company is a party to an Advisory Services Agreement with Mariposa Capital, LLC, an affiliate of one of its founder directors, whereby Mariposa Capital, LLC is entitled to receive an annual fee ~~which is accrued quarterly and payable in quarterly installments,~~of $3 million and reimbursement for expenses. This agreement is automatically renewed for successive ~~one-year~~one-year terms unless either party notifies the other party in writing of its intention not to renew no later than 90 days prior to the expiration of the applicable term. ~~Effective February 1, 2019, Mariposa Capital, LLC's annual advisory fee was increased from $2.0 million to $3.0 million. This~~The fee is recorded in the Condensed Consolidated Statements of Operations as "Selling, technical, general and administrative" expense.

~~15.~~14. SEGMENT INFORMATION

The Company's operations are organized into ~~two~~2 reportable segments: Electronics and Industrial & Specialty. These segments represent businesses for which separate financial information is utilized by the chief operating decision maker, or CODM, for purposes of allocating resources and evaluating performance.

The Company allocates resources and evaluates the performance of its operating segments based primarily on net sales and Adjusted EBITDA. Adjusted EBITDA for each segment is defined as earnings before interest, taxes, depreciation and amortization, as further adjusted for additional items included in GAAP earnings which the Company believes are not considered to be representative or indicative of each of its segments' ongoing business or are considered to be associated with its capital structure. Adjusted EBITDA for each segment also includes an allocation of corporate costs, such as compensation expense and professional fees.

~~ELEMENT SOLUTIONS INC AND SUBSIDIARIES~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Results of Operations

The following table summarizes financial information regarding each reportable segment’s results of operations, including disaggregated external net sales by product category:


	Three Months Ended March 31,
(dollars in millions)	2020		2019
Net sales:
Electronics
Assembly Solutions	$	126.0	$	133.0
Circuitry Solutions	92.9		90.8
Semiconductor Solutions	50.0		42.1
Total Electronics	268.9		265.9
Industrial & Specialty
Industrial Solutions	125.9		138.0
Graphics Solutions	38.6		35.7
Energy Solutions	19.2		20.2
Total Industrial & Specialty	183.7		193.9
Total net sales	$	452.6	$	459.8

Adjusted EBITDA:
Electronics	$	66.5	$	56.4
Industrial & Specialty	43.6		42.2
Total Adjusted EBITDA	$	110.1	$	98.6

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
(dollars in millions) 2019 2018 2019 2018
Net Sales:
Electronics
Assembly Solutions $ 137.4
$ 149.8
$ 270.4
$ 289.6
Circuitry Solutions 92.2
102.1
183.0
208.1
Semiconductor Solutions 38.3
43.8
80.4
86.0
Total Electronics 267.9
295.7
533.8
583.7
Industrial & Specialty
Industrial Solutions 132.5
142.0
270.5
287.5
Graphics Solutions 37.3
40.7
73.0
79.4
Energy Solutions 19.0
23.2
39.2
43.5
Total Industrial & Specialty 188.8
205.9
382.7
410.4
Total net sales $ 456.7
$ 501.6
$ 916.5
$ 994.1

Adjusted EBITDA:

Electronics $ 60.4
$ 65.0
$ 116.8
$ 125.1
Industrial & Specialty 40.1
44.4
82.3
88.4
Total Adjusted EBITDA $ 100.5
$ 109.4
$ 199.1
$ 213.5

The following table reconciles "~~Net~~"Net income attributable to common ~~stockholders~~"stockholders" to Adjusted EBITDA:


	Three months ended March 31,
(dollars in millions)	2020		2019
Net income attributable to common stockholders	$	8.6	$	23.2
Add (subtract):
Net income attributable to the non-controlling interests	—		0.7
Income from discontinued operations, net of tax	(0.2)		(27.4)
Income tax expense (benefit)	4.1		(10.4)
Interest expense, net	16.7		38.1
Depreciation expense	10.5		10.3
Amortization expense	29.4		28.4
EBITDA	69.1		62.9
Adjustments to reconcile to Adjusted EBITDA:
Amortization of inventory step-up	1.4		—
Restructuring expense	1.0		2.6
Acquisition and integration costs	6.6		1.4
Foreign exchange loss (gain) on foreign denominated external and internal long-term debt	29.1		(28.3)
Debt refinancing costs	—		60.7
Change in fair value of contingent consideration	—		2.4
Other, net	2.9		(3.1)
Adjusted EBITDA	$	110.1	$	98.6

Three months ended June 30, Six Months Ended June 30,
(dollars in millions) 2019 2018 2019 2018
Net income attributable to common stockholders $ 1.5
$ 12.0
$ 24.7
$ 49.3
Add (subtract):
Net (loss) income attributable to the non-controlling interests (0.1 )
(0.2 )
0.6

0.5
Loss (income) from discontinued operations, net of tax 13.3
(61.4 ) (14.1 ) (108.3 )
Income tax (benefit) expense (6.8 )
30.0

(17.2 )
39.9
Interest expense, net 18.2
78.3
56.3
155.5
Depreciation expense 10.4
11.2
20.7
22.9
Amortization expense 28.4
28.4
56.8
56.9
EBITDA 64.9

98.3

127.8

216.7
Adjustments to reconcile to Adjusted EBITDA:
Restructuring expense 2.8

1.6

4.0

3.3
Integration costs 0.3

3.5

1.7

4.5
Foreign exchange loss (gain) on foreign denominated external and internal long-term debt 28.7

4.6

0.4

(3.1 )
Debt refinancing costs 0.3
—
61.0
—
Change in fair value of contingent consideration 0.5
1.0
2.9
1.5
Gain on sale of equity investment —
—
—
(11.3 )
Other, net 3.0

0.4

1.3

1.9
Adjusted EBITDA $ 100.5

$ 109.4

$ 199.1

$ 213.5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and related notes included in this Quarterly Report, and the Consolidated Financial Statements, related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations section and other disclosures contained in our ~~2018~~2019 Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed ~~under the~~in "Forward-Looking Statements” ~~section~~and Part II, Item 1A, "Risk Factors" of this Quarterly Report, and in Part I, Item 1A, "Risk Factors" of our ~~2018~~2019 Annual Report.

Overview

Our Business

Element Solutions Inc, incorporated in Delaware in January 2014, is a leading global specialty chemicals company whose ~~operating~~ businesses ~~formulate~~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. ~~Those~~Our customers use our ~~innovations~~innovation as competitive advantages, relying on us to help them navigate through fast-paced, high-growth markets. Our product development and product extensions are expected to continue to drive sales growth in both new and existing markets, while expanding margins, by continuing to offer high customer value propositions.

We generate revenue through the formulation and sale of our businesses' ~~dynamic~~ chemistry solutions ~~and~~ by ~~providing highly technical service to our customers and OEMs through~~ our extensive global network of specially-trained scientists and engineers. While our ~~dynamic~~ 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 ~~represented by~~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

Our operations are organized into two ~~reportable~~ 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~~Electronics' products are an integral part of the electronics manufacturing process and the functionality of ~~their goods.~~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						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.
Circuitry Solutions						As a global supplier of chemical formulations to the electronics industry, we design and manufacture proprietary liquid chemical processes ("~~bath"~~baths") used by our customers to manufacture printed circuit boards. Our product portfolio is focused on specialized consumable chemical processes, such as surface treatments, circuit formation, primary metallization, electroplate and final finishes.
Semiconductor Solutions						As a global supplier ofto the semiconductor ~~materials and packaging technologies,~~industry, we provide advanced copper interconnects, die attachment, wafer bump processes and photomask technologies to our customers for integrated circuit fabrication and semiconductor packaging.

Industrial & Specialty – The Industrial & Specialty segment 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 ~~dynamic~~ chemistries used in water-based hydraulic control fluids ~~for~~in offshore ~~deep-water drilling. Its~~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.

The segment provides specialty chemical solutions through the following businesses:



Industrial Solutions						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.
Graphics Solutions						As a supplier of consumable materials used to transfer images on to ~~printed substrates,~~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 ~~commercial~~consumer packaging and printing industries.
Energy Solutions						As a global supplier of specialized fluids to the offshore energy industry, we produce ~~market and support~~ water-based hydraulic control fluids for major oil and gas companies and drilling contractors ~~for~~to be used in offshore deep-water production and drilling applications.

Recent Developments

~~Arysta Sale~~COVID-19 Update

~~The Arysta Sale~~In December 2019, a novel strain of coronavirus was ~~completed on January 31, 2019 for net cash proceeds~~reported in Wuhan, China which has since spread throughout the world. In an effort to contain COVID-19 or slow its spread, governments in multiple countries have enacted various measures in response to the pandemic. These actions and the global health crisis caused by COVID-19 have negatively impacted, and continue to negatively impact, business activity across the globe. We also took certain proactive actions, including heightened sanitary and social distancing policies at our locations around the world to protect the health and safety of ~~approximately $4.28 billion, after post-closing adjustments. The proceeds~~our employees. Due to the impact of the ~~Arysta Sale were primarily used to pay down~~pandemic and related actions, we anticipate declining demand in the near-term in many of our ~~then existing credit facilities,~~key end-markets, especially Automotive & Industrial, as business and consumer activity decelerate around the world. The ultimate extent of the impact of COVID-19 on our business or our future results of operations, financial condition, expected cash flows and/or stock price is currently unknown and will depend on numerous and evolving factors that are highly uncertain and cannot be accurately predicted or quantified at this time, including the ~~first lien credit facility~~duration and spread of the outbreak, new information concerning its transmission and severity, actions taken or that might be taken to contain or reduce its repercussions and the general impact of the outbreak on our customers, employees, suppliers, vendors, stakeholders and operations, as well as the demand for our products and services. A prolonged decline in the value of our stock price could result in an impairment of goodwill or intangible assets.

On March 25, 2020, as a precautionary measure considering the uncertain state of the global economy and capital markets, we drew down $320 million under our revolving credit ~~facility under our second amended and restated credit agreement, dated August 6, 2014, as further amended and restated.~~

~~Recapitalization~~

facility. On the closing date of the Arysta Sale, we paid down our then existing credit facilities with the proceeds of the Arysta Sale, as indicated above, and entered into the New Credit Agreement, which provides for new senior secured credit facilitiesApril 20, 2020, this amount was repaid 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 New Credit Agreement. In addition, on February 1, 2019, we used a portion of the net proceeds from the Arysta Sale and a portion of borrowings under the New Credit Agreement to redeem all outstanding Prior Senior Notes. The 5.875% USD Notes due 2025 were not redeemed and remain outstanding.

its entirety.

Repurchases of our ~~common stock~~Common Stock

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, as part of our previously-announced $750 million share repurchase program, we repurchased approximately ~~38.2~~3.7 million ~~shares~~ of our common stock for an aggregate purchase price of approximately ~~$445 million.~~$33.1 million, at an average price of approximately $8.82 per share. The remaining authorization under the share repurchase program was approximately ~~$305~~$210 million at ~~June 30, 2019.~~March 31, 2020. The repurchases were funded from cash on ~~hand~~hand.

Retirement of President and ~~proceeds~~Chief Operating Officer

On April 28, 2020, Scot R. Benson has informed the Board of his intention to retire from ~~borrowings under~~his current role as President and Chief Operating Officer of Element Solutions, effective June 15, 2020. Mr. Benson will, however, continue to serve on the ~~New Credit Agreement.~~Board and will stand for reelection as a director at the Company's 2020 annual meeting of stockholders.

Recent Accounting Pronouncements

A summary of recent accounting pronouncements is included in Note 2, Recent Accounting Pronouncements, to our unaudited Condensed Consolidated Financial Statements included in this Quarterly 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.~~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 Quarterly Report and not to rely on any single financial measure to evaluate our business.

Constant Currency

We disclose operating results, from net sales through operating profit and Adjusted EBITDA, on a constant currency basis by 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 estimated impact of foreign currency translation.

OrganicNet 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 "Net Sales" 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~~"Net income attributable to common ~~stockholders~~"stockholders" to Adjusted EBITDA, and more information about the adjustments made, see Note ~~15,~~14, Segment Information, to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report.

Results of Operations

Three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 as compared to the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019


	Three Months Ended March 31,							% Change
(dollars in millions)	2020			2019			Reported	Constant Currency	Organic
Net sales	$	452.6		$	459.8		(2)%	0%	(3)%
Cost of sales	255.3			261.5			(2)%	(1)%
Gross profit	197.3			198.3			(1)%	1%
Gross margin	43.6		%	43.1		%	50 bps	50 bps
Operating expenses	142.7			153.2			(7)%	(5)%
Operating profit	54.6			45.1			21%	24%
Operating margin	12.1		%	9.8		%	230bps	230bps
Other expense, net	(42.1)			(59.0)			(29)%
Income tax (expense) benefit	(4.1)			10.4			(nm)
Net income (loss) from continuing operations	8.4			(3.5)			(nm)
Income from discontinued operations, net of tax	0.2			27.4			(99)%
Net income	$	8.6		$	23.9		(64)%

Adjusted EBITDA	$	110.1		$	98.6		12%	14%
Adjusted EBITDA margin	24.3		%	21.4		%	290bps	310bps

(nm) Calculation not meaningful.

~~The following table summarizes our results of operations for the three and six months ended June 30, 2019 and 2018:~~

Three Months Ended
June 30,
% Change Six Months Ended June 30, % Change
(dollars in millions) 2019 2018 Reported Constant Currency Organic 2019 2018 Reported Constant Currency Organic
Net sales $ 456.7
$ 501.6
(9)% (5)% (6)% $ 916.5
$ 994.1
(8)% (4)% (4)%
Cost of sales 263.7
286.9
(8)% (4)% 525.2
568.3
(8)% (3)%
Gross profit 193.0
214.7
(10)% (7)% 391.3
425.8
(8)% (4)%
Gross margin 42.3 % 42.8 % (50) bps (70) bps 42.7 % 42.8 % (10) bps (30) bps
Operating expenses 137.5
155.5
(12)% (9)% 290.7
307.7
(6)% (2)%
Operating profit 55.5
59.2
(6)% (1)% 100.6
118.1
(15)% (9)%
Operating margin 12.2 % 11.8 % 40bps 50bps 11.0 % 11.9 % (90)bps (70)bps
Other expense, net (47.6 ) (78.8 ) (40)%
(106.6 ) (136.7 ) (22)%

Income tax benefit (expense) 6.8
(30.0 ) (nm)
17.2
(39.9 ) (nm)

Net income (loss) from continuing operations 14.7
(49.6 ) (nm)
11.2
(58.5 ) (nm)

(Loss) income from discontinued operations, net of tax (13.3 ) 61.4
(122)%
14.1
108.3
(87)%

Net income $ 1.4
$ 11.8
(88)%
$ 25.3
$ 49.8
(49)%

Adjusted EBITDA $ 100.5
$ 109.4
(8)% (4)% $ 199.1
$ 213.5
(7)% (2)%
Adjusted EBITDA margin 22.0 % 21.8 % 20bps 30bps 21.7 % 21.5 % 20bps 30bps


~~(nm)~~	~~Calculation not meaningful.~~

Net Sales

Net sales in the ~~second~~first quarter of ~~2019~~2020 decreased by 9%2% on a reported basis, 5%remained flat on a constant currency basis and 6%decreased 3% on an organic basis. ~~Electronics~~Electronics' and our consolidated results were positively impacted by ~~$1.0~~$14.4 million of acquisitions and ~~$0.7~~negatively impacted by $2.1 million of pass-through metals pricing.

The following table reconciles GAAP net sales growth to constant currency and organic net sales growth:


	Three Months Ended June 30,				% Change							Three Months Ended March 31,					% Change
(dollars in millions)	2019		2018		Reported Net Sales Growth	Impact of Currency	Constant Currency	Pass-Through Metals Pricing	Acquisitions/Dispositions	Organic Net Sales Growth	(dollars in millions)	2020		2019		Reported Net Sales Growth	Impact of Currency	Constant Currency	Pass-Through Metals Pricing	Acquisitions	Organic Net Sales Growth
Electronics:											Electronics:
Assembly Solutions	$	137.4	$	149.8	(8)%	4%	(4)%	0%	(1)%	(5)%	Assembly Solutions	$	126.0	$	133.0	(5)%	2%	(3)%	2%	(9)%	(11)%
Circuitry Solutions	92.2		102.1		(10)%	4%	(6)%	—%	—%	(6)%	Circuitry Solutions	92.9		90.8		2%	1%	4%	—%	—%	4%
Semiconductor Solutions	38.3		43.8		(13)%	1%	(11)%	—%	—%	(11)%	Semiconductor Solutions	50.0		42.1		19%	0%	19%	—%	(6)%	13%
Total	$	267.9	$	295.7	(9)%	4%	(6)%	0%	0%	(6)%	Total	$	268.9	$	265.9	1%	1%	3%	1%	(5)%	(2)%

Industrial & Specialty:											Industrial & Specialty:
Industrial Solutions	$	132.5	$	142.0	(7)%	4%	(3)%	—%	—%	(3)%	Industrial Solutions	$	125.9	$	138.0	(9)%	2%	(7)%	—%	—%	(7)%
Graphics Solutions	37.3		40.7		(8)%	2%	(6)%	—%	—%	(6)%	Graphics Solutions	38.6		35.7		8%	2%	10%	—%	—%	10%
Energy Solutions	19.0		23.2		(18)%	3%	(15)%	—%	—%	(15)%	Energy Solutions	19.2		20.2		(5)%	3%	(2)%	—%	—%	(2)%
Total	$	188.8	$	205.9	(8)%	4%	(5)%	—%	—%	(5)%	Total	$	183.7	$	193.9	(5)%	2%	(3)%	—%	—%	(3)%

Total	$	456.7	$	501.6	(9)%	4%	(5)%	0%	0%	(6)%	Total	$	452.6	$	459.8	(2)%	2%	0%	0%	(3)%	(3)%

Electronics' net sales in the ~~second~~first quarter of ~~2019 declined~~2020 increased by 9%1% on a reported basis and 6%decreased by 2% on an organic basis.

•

~~Assembly Solutions:~~ net sales declined by 8% on a reported basis and 5% on an organic basis. The decrease was primarily due to weakness in both the mobile phone markets in Asia, primarily China and Taiwan, and automotive markets in North America, partially offset by increased demand for assembly products in electronic vehicles.

•Assembly Solutions: net sales declined by 5% on a reported basis and 11% on an organic basis. The decrease was primarily due to weak demand related to COVID-19 production slowdown in Asia, particularly China.

•Circuitry Solutions: net sales increased by 2% on a reported basis and 4% on an organic basis. The increase was primarily due to strong demand from memory disk customers, as well as continued strength in 5G-related products, partially offset by COVID-19 related weakness in China.

•Semiconductor Solutions: net sales increased by 19% on a reported basis and 13% on an organic basis. The increase was primarily due to growth in advanced packaging, particularly in Asia and Europe, as well as advanced assembly products, due to increased demand from 5G infrastructure and data center markets.


•	~~Circuitry Solutions:~~ net sales declined by 10% on a reported basis and 6% on an organic basis. The decrease was due to continued weakness within the mobile phone markets in Asia, primarily China and Taiwan, as well as lower demand from memory disk customers.


•	~~Semiconductor Solutions:~~ net sales declined 13% on a reported basis and 11% on an organic basis. The decrease was due to weakness in the semiconductor market, partially offset by continued strength in advanced assembly products.

Industrial & Specialty's net sales in the ~~second~~first quarter of ~~2019~~2020 declined by 8%5% on a reported basis and 5%3% on an organic basis.


•	•Industrial Solutions: net sales declined by 7% on a reported basis and 3% on an organic basis. The decrease was primarily due to softness in the European industrial and automotive markets partially offset by increased sales of Fernox products primarily in the United Kingdom.


•	~~Graphics Solutions:~~ ~~net sales declined by 8% on a reported basis and 6% on an organic basis. The decrease was primarily due to lower newspaper revenues and weakness in North America.~~

•

~~Energy Solutions:~~ net sales declined 18% on a reported basis and 15% on an organic basis. The decrease was primarily due to the loss of certain business with a specific customer in the first quarter which had a negative impact of approximately 10% on organic net sales growth, as well as weakness in North America, partially offset by growth in Europe, including lower net fill activity in the current period.

On a year-to-date basis, net sales decreased by 8% on a reported basis and 4% on both a constant currency and organic basis. Electronics and our consolidated results were positively impacted by $3.6 million of acquisitions and $1.6 million of pass-through metals pricing.

~~The following table reconciles GAAP net sales growth to constant currency and organic net sales growth:~~

Six Months Ended June 30, % Change
(dollars in millions) 2019 2018 Reported Net Sales Growth Impact of Currency Constant Currency Pass-Through Metals Pricing Acquisitions/Dispositions Organic Net Sales Growth
Electronics:
Assembly Solutions $ 270.4
$ 289.6
(7)% 5% (2)% (1)% (1)% (4)%
Circuitry Solutions 183.0
208.1
(12)% 4% (8)% —% —% (8)%
Semiconductor Solutions 80.4
86.0
(6)% 1% (5)% —% —% (5)%
Total $ 533.8
$ 583.7
(9)% 4% (5)% 0% (1)% (6)%

Industrial & Specialty:
Industrial Solutions $ 270.5
$ 287.5
(6)% 5% (1)% —% —% (1)%
Graphics Solutions 73.0
79.4
(8)% 3% (5)% —% —% (5)%
Energy Solutions 39.2
43.5
(10)% 5% (5)% —% —% (5)%
Total $ 382.7
$ 410.4
(7)% 4% (2)% —% —% (2)%

Total $ 916.5
$ 994.1
(8)% 4% (4)% 0% 0% (4)%

~~On a year-to-date basis, Electronics'~~ net sales declined by 9% on a reported basis and 6%7% on an organic basis. The decrease was primarily due to demand weakness in construction and manufacturing markets in Europe, as well as automotive production slowdown due to COVID-19 in Asia. We expect weaker demand for the remainder of 2020 as the COVID-19 pandemic impacts our business in Europe and the Americas.

•

~~Assembly~~

•Graphics Solutions: net sales increased by 8% on a reported basis and 10% on an organic basis. The increase was primarily due to higher volumes of consumer packaged goods in Europe and the Americas primarily due to COVID-19-related demand.

•Energy Solutions: net sales declined by 7% on a reported basis and 4% on an organic basis. The decrease was due to weakness in the mobile phone markets in Asia, primarily China and Taiwan, partially offset by increased demand for assembly products in electronic vehicles.


•	~~Circuitry Solutions:~~ net sales declined by 12% on a reported basis and 8% on an organic basis. The decrease was due to weakness within the mobile phone markets in Asia, primarily China and Taiwan, as well as lower demand from memory disk customers.


•	~~Semiconductor Solutions:~~ net sales declined 6% on a reported basis and 5% on an organic basis. The decrease was due to weakness in the semiconductor market and mobile phone market, partially offset by continued strength in advanced assembly products.

~~Industrial & Specialty's~~ net sales declined by 7%5% on a reported basis and 2% on an organic basis.

•

~~Industrial Solutions:~~ Growth in the U.S. was offset by declines in Latin America, which was impacted by the loss of certain business in March of 2019 which had a negative impact of approximately 6% on organic net sales growth. net sales declined by 6% on a reported basis and 1% on an organic basis. The decrease was due to softness in the European industrial markets and Asian automotive markets, partially offset by increased sales of Fernox products primarily in the United Kingdom.


•	~~Graphics Solutions:~~ ~~net sales declined by 8% on a reported basis and 5% on an organic basis. The decrease was primarily due to lower newspaper revenues and weakness in North America.~~

•

~~Energy Solutions:~~ net sales declined 10% on a reported basis and 5% on an organic basis. The decrease was primarily due to the loss of certain business with a specific customer in the first quarter which had a negative impact of approximately 7% on organic net sales growth, as well as weakness in North America, partially offset by growth in Europe, including lower net fill activity. The loss of certain business with a specific customer is expected to negatively impact organic net sales growth for the remainder of 2019.

Gross Profit


	Three Months Ended June 30,						% Change		Six Months Ended June 30,						% Change			Three Months Ended March 31,							% Change
(dollars in millions)	2019			2018			Reported	Constant Currency	2019			2018			Reported	Constant Currency	(dollars in millions)	2020			2019			Reported	Constant Currency
Gross profit																	Gross profit
Electronics	$	108.1		$	118.9		(9)%	(6)%	$	217.7		$	234.2		(7)%	(4)%	Electronics	$	112.4		$	109.5		3%	4%
Industrial & Specialty	84.9			95.8			(11)%	(8)%	173.6			191.6			(9)%	(5)%	Industrial & Specialty	84.9			88.8			(4)%	(2)%
Total	$	193.0		$	214.7		(10)%	(7)%	$	391.3		$	425.8		(8)%	(4)%	Total	$	197.3		$	198.3		(1)%	1%

Gross margin																	Gross margin
Electronics	40.4		%	40.2		%	20 bps	—	40.8		%	40.1		%	70 bps	40 bps	Electronics	41.8		%	41.2		%	60 bps	60 bps
Industrial & Specialty	44.9		%	46.5		%	(160) bps	(170) bps	45.4		%	46.7		%	(130) bps	(140) bps	Industrial & Specialty	46.2		%	45.8		%	40 bps	40 bps
Total	42.3		%	42.8		%	(50) bps	(70) bps	42.7		%	42.8		%	(10) bps	(30) bps	Total	43.6		%	43.1		%	50 bps	50 bps

Electronics' gross profit in the ~~second~~first quarter of ~~2019 decreased~~2020 increased by 9%3% on a reported basis and 6%4% on a constant currency basis. The constant currency increase in gross profit was primarily driven by growth in advanced packaging, semiconductor and metallization products related to telecom infrastructure and data center markets. The increase in gross margin benefited from favorable product mix, primarily due to the strength in 5G-related products.

Industrial & Specialty's gross profit in the first quarter of 2020 decreased by 4% on a reported basis and 2% on a constant currency basis. The constant currency decrease in gross profit was primarily driven by lower net sales ~~volumes.~~in Industrial Solutions. The ~~change in gross margin for the period was relatively flat as the decline in gross profit was at a similar rate as the decline in net sales.~~

Industrial & Specialty's gross profit in the second quarter of 2019 decreased by 11% on a reported basis and 8% on a constant currency basis. The constant currency decrease in gross profit was primarily driven by lower net sales volumes. The decreaseincrease in gross margin was primarily due to strong growth in flexible packaging in Graphics Solutions and lower ~~net sales~~raw material prices.

Operating Expenses


	Three Months Ended March 31,							% Change
(dollars in millions)	2020			2019			Reported	Constant Currency
Selling, technical, general and administrative	$	125.2		$	142.4		(12)%	(11)%
Research and development	17.5			10.8			62%	65%
Total	$	142.7		$	153.2		(7)%	(5)%

Operating expenses as % of Net sales
Selling, technical, general and administrative	27.7		%	31.0		%	(330) bps	(340) bps
Research and development	3.9		%	2.3		%	160 bps	160 bps
Total	31.5		%	33.3		%	(180) bps	(190) bps

Operating expenses in ~~Energy Solutions, which products have higher gross margins.~~

~~On a year-to-date basis, Electronics' gross profit~~the first quarter of 2020 decreased by 7% ~~on a reported basis and 4% on a constant currency basis. The constant currency decrease in gross profit was primarily driven by lower net sales partially offset by favorable product mix.~~

~~On a year-to-date basis, Industrial & Specialty's gross profit decreased by 9%~~ on a reported basis and 5% on a constant currency basis. The ~~constant currency~~ decrease ~~in gross profit~~ was driven primarily by ~~lower net sales volumes. The decrease~~cost containment initiatives across the business to mitigate the impact of COVID-19 related slowdowns, as well as generally weak end-market conditions in ~~gross margin~~Electronics and Industrial Solutions. This was ~~primarily due~~partially offset by an increase in research and development related to ~~lower net sales in~~the acquisition of a new subsea production control fluid designed to complement our Energy Solutions ~~which products have higher gross margins.~~

~~Operating Expenses~~

Three Months Ended June 30, % Change Six Months Ended June 30, % Change
(dollars in millions) 2019 2018 Reported Constant Currency 2019 2018 Reported Constant Currency
Selling, technical, general and administrative $ 126.4
$ 144.3
(12)% (10)% $ 268.8
$ 285.1
(6)% (2)%
Research and development 11.1
11.2
(1)% —% 21.9
22.6
(3)% (2)%
Total $ 137.5
$ 155.5
(12)% (9)% $ 290.7
$ 307.7
(6)% (2)%

Operating Expenses as % of Net Sales
Selling, technical, general and administrative 27.7 % 28.8 % (110) bps (140) bps 29.3 % 28.7 % 60 bps 30 bps
Research and development 2.4 % 2.2 % 20 bps 20 bps 2.4 % 2.3 % 10 bps —
Total 30.1 % 31.0 % (90) bps (120) bps 31.7 % 31.0 % 70 bps 30 bps

business for $6.3 million. See Note 6, Goodwill and Intangible Assets, for additional information. Operating expenses in the ~~second~~first quarter of 2019 decreased 12% on a reported basis and 9% on a constant currency basis, driven primarily by lower corporate expenses, including personnel and professional fees, as we continue to realize the benefits relating to our corporate structure reorganization. In addition, operating expenses in the current period benefited from lower incentive compensation expenses and the implementation of cost containment initiatives in the business.

On a year-to-date basis, operating expenses decreased 6% on a reported basis and 2% on a constant currency basis, driven primarily by lower corporate expenses, including personnel and professional fees, as we continue to realize the benefits relating to our corporate structure reorganization. In addition, operating expenses in the current period benefited from lower incentive compensation expenses and the implementation of cost containment initiatives in the business. These were partially offset byincluded certain nonrecurring expenses related to the closing of the Arysta Sale that dodid not qualify for discontinued operations, including share-based compensation expense of $4.0 million associated with the retirement of our former CEO, and $2.0 million of expense associated with the payment of a long-term contingent consideration ~~liability.~~liability, partially offset by lower corporate expenses as we realized the benefits relating to the reorganization of our corporate structure.

Other (Expense) Income


	Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
(dollars in millions)	2019			2018			2019			2018			(dollars in millions)	2020		2019
Other (expense) income													Other (expense) income
Interest expense, net	$	(18.2	)	$	(78.3	)	$	(56.3	)	$	(155.5	)	Interest expense, net	$	(16.7)	$	(38.1)
Foreign exchange (loss) gains	(28.3		)	(2.4		)	(1.2		)	5.1
Other (expense) income, net	(1.1		)	1.9			(49.1		)	13.7
Foreign exchange (loss) gain													Foreign exchange (loss) gain	(25.8)		27.1
Other income (expense), net													Other income (expense), net	0.4		(48.0)
Total	$	(47.6	)	$	(78.8	)	$	(106.6	)	$	(136.7	)	Total	$	(42.1)	$	(59.0)

Interest Expense, Net

For the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, net interest expense decreased ~~$60.1~~$21.4 million ~~and $99.2 million, respectively,~~ primarily due to the pay down of our then existing credit facilities on January 31, 2019 in connection with the Arysta Sale. ~~Lower interest expense, as compared to 2018, is expected to continue as we realize the benefits associated with the deleveraging of our balance sheet as a result of the Arysta Sale.~~

Foreign Exchange (Loss) Gain

For the three months ended ~~June 30, 2019,~~March 31, 2020, foreign exchange loss increased ~~$25.9~~$52.9 million primarily due to the remeasurement of ~~euro~~euro- and British ~~pound denominated~~pound-denominated intercompany balances.

For the six months ended June 30, 2019, the foreign exchange loss of $1.2 million was primarily due to the remeasurement of euro-denominated external debt into U.S. dollar. For the six months ended June 30, 2018, the foreign exchange gain of $5.1 million was primarily due to the remeasurement of euro-denominated external debt into U.S. dollar, which was partially offset by British pound denominated intercompany balances.

Other Income (Expense) ~~Income,~~, Net

For the ~~six~~three months ended ~~June 30,~~March 31, 2019, other expense, net of ~~$49.1~~$48.0 million included ~~$61.0~~$60.7 million of debt refinancing costs related to the pay down of our then existing credit facilities in connection with the Arysta Sale, partially offset by a $11.7 million gain on derivative contracts associated with the refinancing of our non-U.S. dollar denominated third-party ~~debt in the first quarter. For the six months ended June 30, 2018, other income, net of $13.7 million, included a $11.3 million gain on a sale of an equity investment.~~debt.

Income Tax

The comparison of the Company's income tax provision between periods is significantly impacted by the level and mix of earnings and losses by tax jurisdiction, foreign income tax rate differentials and discrete items.

impact of U.S. global intangible low-taxed income provisions and a benefit for the release of a valuation allowance on interest limitation carryforwards as a result of the recently enacted increased U.S. deductible interest limitation. The tax provision for the three months ended March 31, 2019 represented a benefit on the Company's pre-tax loss based on its estimated full year annual effective tax rate, which included the negative impact of U.S. global intangible low-taxed income provisions and an accrual of a valuation allowance on interest limitation carryforwards, and a benefit from the ~~release~~expiration of a ~~valuation allowance in a non-U.S. jurisdiction. The tax provision for the three months ended June 30, 2018 was negatively impacted by the country mix~~statute of ~~earnings and the Company's inability to recognize additional deferred tax assets in various jurisdictions related to its current-year operating results, primarily the United States.~~limitations.

For the six months ended June 30, 2019, the Company recognized an income tax benefit of $17.2 million, as compared to an income tax expense of $39.9 million in the prior year. The tax benefit for the six months ended June 30, 2019, represented a benefit on the Company's pre-tax loss based on its estimated full year annual effective tax rate, which includes the negative impact of U.S. global intangible low-taxed income provisions, an accrual of a valuation allowance on interest limitation carryforwards and a benefit from the release of a valuation allowance in a non-U.S. jurisdiction. The tax provision for the six months ended June 30, 2018, was negatively impacted by the country mix of earnings and the Company's inability to recognize additional deferred tax assets in various jurisdictions related to its current-year operating results, primarily the United States.

Income from Discontinued Operations, Net of Tax

Net ~~loss~~income from discontinued operations was ~~$13.3~~$27.4 million for the three months ended ~~June 30,~~March 31, 2019, which ~~primarily represents~~included a gain on the ~~settlement~~Arysta Sale of ~~certain post-closing adjustments.~~$21.3 million. See Note 3, Discontinued Operations, for further information regarding the Arysta discontinued operations.

Other Comprehensive (Loss) Income

Other comprehensive loss for the three months ended ~~June 30, 2019,~~March 31, 2020 totaled ~~$18.3~~$54.5 million, as compared to ~~loss~~$557 million of $375 million in the prior year. The change was driven primarily by foreign currency translation loss in the second quarter of 2018 associated with the Brazilian real, euro, Chinese yuan and Japanese yen, partially offset by gains associated with the British pound.

~~Other comprehensive~~ income ~~for the six months ended June 30, 2019, totaled $539 million, as compared to loss of $310 million~~ in the prior year. The change was driven primarily by realized foreign currency translation losses resulting from the Arysta Sale of $480 million, as well as foreign currency translation gains associated with the ~~Brazilian real,~~British pound and euro, ~~and Chinese yuan,~~ partially offset by ~~loss~~foreign currency translation losses associated with the ~~British pound.~~Brazilian real and Chinese yuan.

Segment Adjusted EBITDA Performance


	Three Months Ended June 30,				% Change		Six Months Ended June 30,				% Change			Three Months Ended March 31,							% Change
(dollars in millions)	2019		2018		Reported	Constant Currency	2019		2018		Reported	Constant Currency	(dollars in millions)	2020			2019			Reported	Constant Currency
Adjusted EBITDA:													Adjusted EBITDA:
Electronics	$	60.4	$	65.0	(7)%	(3)%	$	116.8	$	125.1	(7)%	(2)%	Electronics	$	66.5		$	56.4		18%	21%
Industrial & Specialty	40.1		44.4		(10)%	(6)%	82.3		88.4		(7)%	(2)%	Industrial & Specialty	43.6			42.2			3%	6%
Total	$	100.5	$	109.4	(8)%	(4)%	$	199.1	$	213.5	(7)%	(2)%	Total	$	110.1		$	98.6		12%	14%

Adjusted EBITDA margin:													Adjusted EBITDA margin:
Electronics	22.5%		22.0%		50 bps	70 bps	21.9%		21.4%		50 bps	60 bps	Electronics	24.8		%	21.2		%	360 bps	370 bps
Industrial & Specialty	21.2%		21.6%		(40) bps	(40) bps	21.5%		21.5%		—	10 bps	Industrial & Specialty	23.7		%	21.8		%	190 bps	200 bps
Total	22.0%		21.8%		20 bps	30 bps	21.7%		21.5%		20 bps	30 bps	Total	24.3		%	21.4		%	290 bps	310 bps

For the three months ended ~~June 30, 2019,~~March 31, 2020, Electronics' Adjusted EBITDA ~~decreased 7%~~increased 18% on a reported basis and 3%21% on a constant currency basis. The constant currency ~~decrease~~increase was driven primarily by ~~lower~~higher gross profit ~~partially offset by~~as well as lower general and administrative expenses. Industrial & Specialty's Adjusted EBITDA ~~decreased 10%~~increased 3% on a reported basis and 6% on a constant

currency basis. The constant currency ~~decrease~~increase was driven primarily ~~by lower gross profit, partially offset by lower general and administrative expenses.~~

For the six months ended June 30, 2019, Electronics' Adjusted EBITDA decreased 7% on a reported basis and 2% on a constant currency basis. The constant currency decrease was driven primarily by lower gross profit, partially offset by lower general and administrative expenses. Industrial & Specialty's Adjusted EBITDA decreased 7% on a reported basis and 2% on a constant currency basis. The constant currency decrease was driven primarily by lower gross profit, partially offset by lower general and administrative expenses.

On a consolidated basis for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, the relatively stable gross margins and the decrease in overall operating expenses, at a rate higher than the decline in net sales, led to Adjusted EBITDA margin expansion compared to the prior ~~periods.~~period.

Liquidity and Capital Resources

The Arysta Sale was completed on January 31, 2019, for net cash proceeds of approximately $4.28 billion, after certain post-closing adjustments relating to, among other things, cash, indebtedness and working capital, as finalized with UPL on May 17, 2019.

Our primary ~~sources~~source of liquidity during the ~~six~~three months ended ~~June 30, 2019, were~~March 31, 2020 was a $320 million borrowing under our revolving credit facility under the ~~proceeds~~Credit Agreement as a precautionary measure considering the uncertain state of the ~~Arysta Sale as well as the $750 million term loan under the New Credit Agreement, periodic borrowings under the revolving credit facilities under the Company's second amended~~global economy and ~~restated credit agreement until January 31, 2019 and, subsequently, the New Credit Agreement,~~capital markets and available cash generated from operations. The borrowing was repaid in its entirety on April 20, 2020. Our primary uses of cash and cash equivalents were to fund operations, ~~working capital, capital expenditures and~~ debt service obligations, ~~as well as to pay down approximately $4.60 billion of debt outstanding on the closing date of the Arysta Sale~~capital expenditures, working capital, and to fund our ~~$445~~$33.1 million of repurchases of our common stock. ~~In the~~Our first quarter of 2019, we also paid $40.0 million of contingent consideration related to the achievement of certain common stock trading targets set in connection with the MacDermid Acquisition. The expected interest payments on our new existingsignificant debt consisting of the 5.875% USD Notes due 2025 and the new term loan under the New Credit Agreement, are expected to total approximately $70 million per year over the next three years, taking into account the effect of interest rate swaps and cross-currency swaps, excluding any potential additional borrowings under the New Credit Agreement, with the first significant principal payment totaling $800 million is due in ~~2025.~~2025 and relates to our 5.875% USD Notes.

We believe that our cash and cash equivalents and cash generated from operations, supplemented by our availability under our lines of credit, including our revolving credit facility under the ~~New~~ Credit Agreement, will be sufficient to meet our working capital needs, interest payments, capital expenditures and other business requirements for at least the next twelve months. However, working capital cycles and/or future repurchases of our common stock and/or acquisitions may require additional funding, which may include future debt and/or equity offerings. On August 2, 2019, we filed a universal shelf registration statement on Form S-3 with the SEC. Under this universal shelf, we may offer and sell various types of securities in amounts, at prices and on terms announced, if and when the securities are offered during the three-year period that commenced upon its filing. Our long-term liquidity may be influenced by our ability to borrow additional funds, renegotiate existing debt and raise equity under terms that are favorable to us.

We may from time to time seek to repurchase our equity and/or to retire or repurchase our outstanding debt through cash purchases and/or exchanges for equity, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, applicable restrictions under our various financing arrangements and other factors.

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, approximately ~~75%~~72% of our net sales were generated from non-U.S. operations, and we expect a large portion of our net sales to continue to be generated outside of the United States. As a result, our foreign subsidiaries will likely continue to hold a substantial portion of our cash. We expect to manage our worldwide cash requirements based on available funds among the many subsidiaries through which we conduct business and the cost effectiveness with which those funds can be accessed. We may transfer cash from certain international subsidiaries to the United States ~~and~~and/or other international subsidiaries when we believe it is cost effective to do so.

We continually review our domestic and foreign cash profile, expected future cash generation and investment opportunities, which support our current designation of a portion of these funds as being indefinitely reinvested, and reassess whether there are demonstrated needs to repatriate a portion of these funds being held internationally. If, as a result of our review, we determine that all or a portion of the funds require repatriation, we may be required to accrue additional ~~foreign~~ taxes. Of our ~~$248~~$497 million of cash and cash equivalents at ~~June 30, 2019, $229~~March 31, 2020, $146 million ~~were~~was held by our foreign subsidiaries. In ~~2019,~~the first quarter of 2020, domestic cash was primarily used to fund repurchases of our common ~~stock and repayments of existing revolving credit facilities.~~stock.

The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities of continuing operations during the periods indicated:


								Three Months Ended March 31,
(dollars in millions)							(dollars in millions)	2020		2019

Cash provided by (used in) operating activities							Cash provided by (used in) operating activities	$	61.2	$	(32.0)
Cash (used in) provided by investing activities							Cash (used in) provided by investing activities	$	(16.4)	$	4,194.1
Cash provided by (used in) financing activities							Cash provided by (used in) financing activities	$	283.4	$	(4,240.5)

	Six Months Ended June 30,
(dollars in millions)	2019			2018
Cash provided by (used in) operating activities	$	5.3		$	(12.7	)
Cash provided by (used in) investing activities	$	4,278.3		$	(11.8	)
Cash (used in) provided by financing activities	$	(4,322.2	)	$	59.1

Operating Activities

The ~~decrease~~increase in net cash flows provided by operating activities of $93.2 million was driven primarily by ~~higher cash operating profits (net loss adjusted for non-cash items), including $54.2 million of~~ lower interest payments ~~and lower net build~~ of ~~accounts receivable, inventories~~$59.4 million and ~~accounts payable due to lower revenue, partially offset by~~ the payment of contingent consideration liability of $30.9 ~~million.~~million during the first quarter of 2019. These benefits were partially offset by a precautionary build of safety inventory in case our suppliers or facilities were impacted by COVID-19.

Investing Activities

The ~~increase~~decrease in net cash flows provided by investing activities was primarily driven by the Arysta Sale during the first quarter of 2019, which generated $4.28 billion, after certain post-closing adjustments. Investing cash inflows from the prior year include $25.0 million of proceeds from the sale of an equity investment, which was offset by an acquisition for $28.2 million.$4.19 billion.

Financing Activities

~~The increase was~~In the first quarter of 2020, we used cash on hand to fund the repurchases of our common stock for an aggregate purchase price of $33.1 million and, as a precautionary measure considering the uncertain state of the global economy and capital markets, we borrowed $320 million under our revolving credit facility. In the first quarter of 2019, cash flows used in financing activities were primarily driven by the pay down of approximately $4.60 billion of debt from a combination of proceeds of the Arysta Sale and a $750 million term loan under the ~~New~~ Credit Agreement. These cash inflows were also used to fund the repurchases of our common stock for an aggregate purchase price of ~~$445 million. In addition, $39.5~~$434 million, ~~was used to~~ fund the repurchase and extinguishment fees related to our debt pay down of $30.1 million and to fund the deferred financing fees associated with the ~~New~~ Credit ~~Agreement.~~Agreement of $9.4 million. Cash inflows from borrowings under our ~~lines of~~revolving credit ~~totaled $25.1~~facility were $95.3 million during ~~2019, as compared to $60.0 million in 2018.~~the first quarter of 2019.

Financial Borrowings

Credit Facilities & Senior Notes

At ~~June 30, 2019,~~March 31, 2020, we had ~~$1.57~~$1.84 billion of indebtedness, net of unamortized ~~premiums,~~ discounts and debt issuance costs, which primarily included:

•$~~786~~787 million of 5.875% USD Notes due 2025; ~~and~~

•$~~736~~732 million of term debt arrangements outstanding under ~~the first lien~~our term loans; and

•$320 million outstanding under our revolving credit ~~facility of the New Credit Agreement.~~facility.

Availability under the revolving credit facility of the ~~New~~ Credit Agreement and various lines of credit and overdraft facilities totaled ~~approximately $303~~$29.0 million at ~~June 30, 2019,~~March 31, 2020, net of outstanding letters of credit.

On April 20, 2020, we repaid the $320 million outstanding under our revolving credit facility, which is currently available for future borrowing.

Covenants

At ~~June 30, 2019,~~March 31, 2020, we were in compliance with the customary affirmative and negative covenants, events of default and other customary provisions ~~which govern our~~of the Credit Agreement as well as with the covenants included in the 5.875% USD Notes ~~Indenture, as well as the debt covenants contained in the credit facilities of the New Credit Agreement.~~Indenture.

Off-Balance Sheet Transactions

We use customary off-balance sheet arrangements, such as letters of credit. For additional information regarding letters of credit, see Note 7, Debt, to our unaudited Condensed Consolidated Financial Statements included in this Quarterly Report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The quantitative and qualitative disclosures about market risk required by this item have not changed materially from those disclosed in our ~~2018~~2019 Annual Report. For a discussion of our exposure to market risk, refer to Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk, contained in our ~~2018~~2019 Annual Report.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining disclosure controls and procedures as defined in Rules 13a-15 (e) and 15d-15(e) under the Exchange Act. As required by Rule 13a-15(b) of the Exchange Act, management, including our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.

(b) Changes to Internal Control Over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, our management, including our CEO and CFO, has evaluated the Company’s internal control over financial reporting to determine whether any changes occurred during the quarter covered by this Quarterly Report have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no changes in our internal control over financial reporting that occurred during the quarter covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in legal proceedings, investigations and/or claims that are incidental to the operation of our businesses. In particular, we are involved in various claims relating to environmental matters at a number of current and former plant sites and waste management sites. See Note ~~12,~~11, Contingencies, Environmental and Legal Matters, to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report for more information and updates.

Item 1A. Risk Factors

~~There~~Other than the risk factor set forth below, there have been no material changes infrom the risk factors ~~from those set forth~~disclosed under the heading “Risk Factors” in ~~Part I, Item 1A,~~ our 2019 Annual Report.

The extent of the impact of the COVID-19 pandemic on our results of operations and overall financial performance remains uncertain and subject to change.

~~Risk Factors~~,The outbreak of COVID-19 has evolved into a global pandemic that has negatively impacted the global economy, disrupted global supply chains and created significant volatility in commercial and financial markets. The extent to which the coronavirus pandemic impacts or will ultimately impact our business or our future results of operations, financial condition, expected cash flows and/or stock price is currently unknown and will depend on numerous and evolving factors that are highly uncertain and cannot be accurately predicted or quantified at this time, including the duration and spread of the pandemic; new information concerning its transmission and severity; actions taken or that might be taken by governments, businesses or individuals to contain or reduce its repercussions and mitigate its economic implications; demand for our products and services; our ability to manufacture, sell and provide our products and services, including as a result of travel restrictions, closed borders, operating restrictions imposed on our facilities or reduced ability of our ~~2018 Annual Report.~~employees to continue to work efficiently; additional and prolonged devaluation of other countries' currencies relative to the dollar; and the general impact of the pandemic on our customers, employees, suppliers, vendors and other stakeholders. Additionally, customers might defer decision making, delay orders or seek to renegotiate or terminate existing agreements. Any of these factors could materially adversely affect our business or our future results of operations, financial condition, expected cash flows and/or stock price. In addition, a prolonged decline in the value of our stock price could result in an impairment of goodwill or intangible assets, which at March 31, 2020 had a carrying value of $2.13 billion and $895 million, respectively.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Purchases of Equity Securities by the Issuer and Affiliated Purchases

The following table provides information about purchases by the Company during the three months ended ~~June 30, 2019~~March 31, 2020 of equity securities of the Company:


	Total Number of Shares Purchased	Average Price Paid Per Share		Total 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)
Period
January 1 - January 31	—	$	—	—	$	243
February 1 - February 29	300,000	$	10.22	300,000	$	240
March 1 - March 31	3,442,488	$	8.69	3,442,488	$	210
Total	3,742,488	$	8.82	3,742,488	$	210

⁽¹⁾In July 2018, the Board authorized a program to repurchase up to $750 million of the Company’s common stock, of which $540 million had been utilized as of March 31, 2020. The Company’s share repurchase program does not require the repurchase of any specific number of shares, and shares repurchases are made opportunistically at the discretion of the Company. This program does not have an expiration date but may be suspended or terminated by the Board at any time.

Total Number of Shares Purchased Average Price Paid Per Share Total 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)
Period
April 1 - April 30 —
$ —
—

May 1 - May 31 742,391
9.70
742,391

June 1 - June 30 412,194
10.21
412,194

Total 1,154,585
$ 9.89
1,154,585
$ 305
The table above excludes shares purchased by the Company in connection with tax withholdings associated with the vesting of RSUs as these shares were not issued or considered share repurchases under our share repurchase program.


⁽¹⁾	In July 2018, the Board authorized a program to repurchase up to $750 million of the Company’s common stock, of which $445 million had been utilized as of June 30, 2019. The Company’s share repurchase program does not require the repurchase of any specific number of shares, and shares repurchases are made opportunistically at the discretion of the Company.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

~~None~~Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On April 28, 2020, Rakesh Sachdev, a member of the Board, has informed the Board of his decision not to seek reelection as a director and will retire from the Board at the expiration of his current term, as of the date of the Company’s 2020 annual meeting of stockholders or June 16, 2020. As a result of Mr. Sachdev’s retirement, the Board has approved a reduction in the size of the Board from nine to eight directors, effective June 16, 2020. There was no disagreement between Mr. Sachdev and the Company on any matter relating to its operations, policies or practices.

Item 6. Exhibits

The following exhibits are filed or furnished as part of this Quarterly Report:



Exhibit Number		Description
3.1(a)		Certificate of Incorporation dated January 22, 2014 (filed as Exhibit 3.1 of Post-Effective Amendment No. 1 to the Registration Statement on Form S-4 (File No. 333-192778) filed on January 24, 2014, and incorporated herein by reference)
3.1(b)		Certificate of Amendment of Certificate of Incorporation dated June 12, 2014 (filed as Exhibit 3.1 of the Current Report on Form 8-K filed on June 13, 2014, and incorporated herein by reference)
3.1(c)		Certificate of Amendment of Certificate of Incorporation dated January 31, 2019 (filed as Exhibit 3.1 of the Current Report on Form 8-K filed on February 5, 2019, and incorporated herein by reference)
3.2		Amended and Restated By-laws (filed as Exhibit 3.2 of the Current Report on Form 8-K filed on February 5, 2019, and incorporated herein by reference)
10.1*10.1†		~~Letter~~ Agreement ~~dated June 21, 2019,~~ by and between ~~Element Solutions~~the Company and ~~J. David Tolbert~~Scot R. Benson, dated June 6, 2013 (filed as Exhibit 10.6 of the Quarterly Report on Form 10-Q filed on May 10, 2016, and incorporated herein by reference)
~~10.2†~~31.1		~~Element Solutions Inc Amended and Restated 2013 Incentive Compensation Plan~~
~~10.3*†~~	~~Element Solutions Inc 2014 Employee Stock Purchase Plan~~
31.1*	Principal Executive Officer Certification Pursuant to Exchange Act Rules 13a-14 and 15d-14 as adopted pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Principal Financial Officer Certification Pursuant to Exchange Act Rules 13a-14 and 15d-14 as adopted pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002
32.1**		Principal Executive Officer and Principal Financial Officer Certifications Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.SCH**		Inline XBRL Taxonomy Extension Schema Document
101.CAL**		Inline XBRL Extension Calculation Linkbase Document
101.DEF**		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE**		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101. INS**		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL ~~document~~documents
104**		Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibits 101)

* Filed herewith.

** Furnished herewith.

† ~~This Exhibit represents~~Represents a management contract or a compensatory plan.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this ~~August 2, 2019.~~April 30, 2020.



			ELEMENT SOLUTIONS INC

			By:			/s/ Michael Russnok
						Michael Russnok
						Chief Accounting Officer
						(Principal Accounting Officer)

3731



	June 30,			December 31,
	2019			2018
Assets
Cash and cash equivalents	$	247.6		$	233.6
Accounts receivable, net of allowance for doubtful accounts of $8.3 and $7.7 at June 30, 2019 and December 31, 2018, respectively	374.7			382.4
Inventories	201.6			188.1
Prepaid expenses	23.7			14.3
Other current assets	69.1			42.5
Current assets of discontinued operations	9.6			1,621.3
Total current assets	926.3			2,482.2
Property, plant and equipment, net	256.7			266.9
Goodwill	2,177.9			2,182.6
Intangible assets, net	967.0			1,024.5
Other assets	105.6			32.9
Non-current assets of discontinued operations	6.8			3,412.4
Total assets	$	4,440.3		$	9,401.5
Liabilities and stockholders' equity
Accounts payable	$	106.1		$	100.9
Current installments of long-term debt and revolving credit facilities	57.8			25.3
Accrued expenses and other current liabilities	116.2			189.5
Current liabilities of discontinued operations	57.9			826.8
Total current liabilities	338.0			1,142.5
Debt	1,515.3			5,350.7
Pension and post-retirement benefits	48.6			49.5
Deferred income taxes	120.3			133.0
Other liabilities	186.9			128.5
Non-current liabilities of discontinued operations	—			416.2
Total liabilities	2,209.1			7,220.4
Commitments and contingencies (Note 12)
Stockholders' Equity
Preferred stock - Series A	—			—
Common stock: 400.0 shares authorized (2019: 258.3 shares issued; 2018: 289.3 shares issued)	2.6			2.9
Additional paid-in capital	4,109.4			4,062.1
Treasury stock (2019: 1.7 shares; 2018: 0.3 shares)	(16.8		)	(3.5		)
Accumulated deficit	(1,604.0		)	(1,195.4		)
Accumulated other comprehensive loss	(258.4		)	(756.9		)
Total stockholders' equity	2,232.8			2,109.2
Non-controlling interests	(1.6		)	71.9
Total equity	2,231.2			2,181.1
Total liabilities and stockholders' equity	$	4,440.3		$	9,401.5



Three Months Ended June 30, 2019	Preferred Stock			Common Stock			Additional Paid-in Capital		Treasury Stock				Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total Stockholders' Equity			Non- controlling Interests			Total Equity
Three Months Ended June 30, 2019	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Shares	Amount			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total Stockholders' Equity			Non- controlling Interests			Total Equity
Balance at March 31, 2019	2,000,000	$	—	257,955,093	$	2.6	$	4,105.1	512,956	$	(5.4	)	$	(1,605.5	)	$	(240.1	)	$	2,256.7		$	(1.5	)	$	2,255.2
Net income	—	—		—	—		—		—	—			1.5			—			1.5			(0.1		)	1.4
Other comprehensive loss, net of taxes	—	—		—	—		—		—	—			—			(18.3		)	(18.3		)	—			(18.3		)
Exercise/ vesting of share based compensation	—	—		336,703	—		1.9		—	—			—			—			1.9			—			1.9
Issuance of common stock under ESPP	—	—		32,027	—		0.3		—	—			—			—			0.3			—			0.3
Repurchases of common stock	—	—		—	—		—		1,154,585	(11.4		)	—			—			(11.4		)				(11.4		)
Equity compensation expense	—	—		—	—		2.1		—	—			—			—			2.1			—			2.1
Changes in non-controlling interests	—	—		—	—		—		—	—			—			—			—			—			—
Balance at June 30, 2019	2,000,000	$	—	258,323,823	$	2.6	$	4,109.4	1,667,541	$	(16.8	)	$	(1,604.0	)	$	(258.4	)	$	2,232.8		$	(1.6	)	$	2,231.2



Three Months Ended June 30, 2018	Preferred Stock			Common Stock			Additional Paid-in Capital		Treasury Stock				Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total Stockholders' Equity			Non- controlling Interests			Total Equity
Three Months Ended June 30, 2018	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Shares	Amount			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total Stockholders' Equity			Non- controlling Interests			Total Equity
Balance at March 31, 2018	2,000,000	$	—	288,115,844	$	2.9	$	4,043.6	6,618.0	$	(0.1	)	$	(833.7	)	$	(356.9	)	$	2,855.8		$	111.2		$	2,967.0
Net income (loss)	—	—		—	—		—		—	—			12.0			—			12.0			(0.2		)	11.8
Other comprehensive loss, net of taxes	—	—		—	—				—	—			—			(340.4		)	(340.4		)	(34.8		)	(375.2		)
Exercise/ vesting of share based compensation	—	—		29,549	—		—		—	—			—			—			—			—			—
Conversion of shares of common stock of PDH into common stock	—	—		29,069	—		0.4		—	—			—			—			0.4			(0.4		)	—
Issuance of common stock under ESPP	—	—		33,443	—		0.3		—	—			—			—			0.3			—			0.3
Equity compensation expense	—	—		—	—		4.3		—	—			—			—			4.3			—			4.3
Changes in non-controlling interests	—	—		—	—		—		—	—			—			—			—			(3.8		)	(3.8		)
Balance at June 30, 2018	2,000,000	$	—	288,207,905	$	2.9	$	4,048.6	6,618.0	$	(0.1	)	$	(821.7	)	$	(697.3	)	$	2,532.4		$	72.0		$	2,604.4



Six Months Ended June 30, 2019	Preferred Stock			Common Stock					Additional Paid-in Capital			Treasury Stock				Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total Stockholders' Equity			Non- controlling Interests			Total Equity
Six Months Ended June 30, 2019	Shares	Amount		Shares		Amount			Additional Paid-in Capital			Shares	Amount			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total Stockholders' Equity			Non- controlling Interests			Total Equity
Balance at December 31, 2018	2,000,000	$	—	289,316,170		$	2.9		$	4,062.1		341,967	$	(3.5	)	$	(1,195.4	)	$	(756.9	)	$	2,109.2		$	71.9		$	2,181.1
Net income	—	—		—		—			—			—	—			24.7			—			24.7			0.6			25.3
Other comprehensive income, net of taxes	—	—		—		—			—			—	—			—			49.1			49.1			—			49.1
Arysta Sale	—	—		—		—			(5.7		)	—	—			—			463.3			457.6			(46.6		)	411.0
Exercise/ vesting of share based compensation	—	—		1,929,518		—			1.9			170,989	(1.9		)	—			—			—			—			—
Conversion of shares of common stock of PDH into common stock	—	—		4,019,710		0.1			41.1			—	—			—			(13.9		)	27.3			(27.3		)	—
Issuance of common stock under ESPP	—	—		58,425		—			0.6			—	—			—			—			0.6			—			0.6
Repurchases of common stock	—	—		(37,000,000	)	(0.4		)	—			1,154,585	(11.4		)	(433.3		)	—			(445.1		)	—			(445.1		)
Equity compensation expense	—	—		—		—			9.4			—	—			—			—			9.4			—			9.4
Changes in non-controlling interests	—	—		—		—			—			—	—			—			—			—			(0.2		)	(0.2		)
Balance at June 30, 2019	2,000,000	$	—	258,323,823		$	2.6		$	4,109.4		1,667,541	$	(16.8	)	$	(1,604.0	)	$	(258.4	)	$	2,232.8		$	(1.6	)	$	2,231.2



Six Months Ended June 30, 2018	Preferred Stock			Common Stock			Additional Paid-in Capital		Treasury Stock				Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total Stockholders' Equity			Non- controlling Interests			Total Equity
Six Months Ended June 30, 2018	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Shares	Amount			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total Stockholders' Equity			Non- controlling Interests			Total Equity
Balance at December 31, 2017	2,000,000	$	—	287,405,939	$	2.9	$	4,032.0	6,618	$	(0.1	)	$	(869.7	)	$	(422.0	)	$	2,743.1		$	116.9		$	2,860.0
Impact of ASU 2016-01 adoption	—	—		—	—		—		—	—			(1.3		)	1.3			—			—			—
Adjusted balance at January 1, 2018	2,000,000	—		287,405,939	2.9		4,032.0		—	(0.1		)	(871.0		)	(420.7		)	2,743.1			116.9			2,860.0
Net income	—	—		—	—		—		—	—			49.3			—			49.3			0.5			49.8
Other comprehensive loss, net of taxes	—	—		—	—		—		—	—			—			(276.6		)	(276.6		)	(33.3		)	(309.9		)
Exercise/ vesting of share based compensation	—	—		44,549	—		—		—	—			—			—			—			—			—
Conversion of shares of common stock of PDH into common stock	—	—		686,610	—		8.6		—	—			—			—			8.6			(8.6		)	—
Issuance of common stock under ESPP	—	—		70,807	—		0.6		—	—			—			—			0.6			—			0.6
Equity compensation expense	—	—		—	—		7.4		—	—			—			—			7.4			—			7.4
Changes in non-controlling interests	—	—		—	—		—		—	—			—			—			—			(3.5		)	(3.5		)
Balance at June 30, 2018	2,000,000	$	—	288,207,905	$	2.9	$	4,048.6	6,618	$	(0.1	)	$	(821.7	)	$	(697.3	)	$	2,532.4		$	72.0		$	2,604.4



(dollars in millions)	June 30, 2019		December 31, 2018
Finished goods	$	118.0	$	109.4
Work in process	17.9		15.3
Raw materials and supplies	65.7		63.4
Total inventories	$	201.6	$	188.1



	June 30, 2019							December 31, 2018
(dollars in millions)	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value
Customer lists	$	925.7	$	(317.3	)	$	608.4	$	927.8	$	(283.2	)	$	644.6
Developed technology	381.5		(175.1		)	206.4		381.3		(155.6		)	225.7
Tradenames	50.8		(3.2		)	47.6		5.9		(1.6		)	4.3
Non-compete agreements	1.5		(1.4		)	0.1		1.5		(1.3		)	0.2
Total	$	1,359.5	$	(497.0	)	$	862.5	$	1,316.5	$	(441.7	)	$	874.8



(dollars in millions)
Remainder of 2019	$	9.6
2020	15.2
2021	12.3
2022	10.4
2023	7.2
Thereafter	25.0
Total future minimum lease payments	79.7
Less: imputed interest	(15.5		)
Present value of lease liabilities	$	64.2



	Three Months Ended June 30,						% Change			Six Months Ended June 30,						% Change
(dollars in millions)	2019			2018			Reported	Constant Currency	Organic	2019			2018			Reported	Constant Currency	Organic
Net sales	$	456.7		$	501.6		(9)%	(5)%	(6)%	$	916.5		$	994.1		(8)%	(4)%	(4)%
Cost of sales	263.7			286.9			(8)%	(4)%		525.2			568.3			(8)%	(3)%
Gross profit	193.0			214.7			(10)%	(7)%		391.3			425.8			(8)%	(4)%
Gross margin	42.3		%	42.8		%	(50) bps	(70) bps		42.7		%	42.8		%	(10) bps	(30) bps
Operating expenses	137.5			155.5			(12)%	(9)%		290.7			307.7			(6)%	(2)%
Operating profit	55.5			59.2			(6)%	(1)%		100.6			118.1			(15)%	(9)%
Operating margin	12.2		%	11.8		%	40bps	50bps		11.0		%	11.9		%	(90)bps	(70)bps
Other expense, net	(47.6		)	(78.8		)	(40)%			(106.6		)	(136.7		)	(22)%
Income tax benefit (expense)	6.8			(30.0		)	(nm)			17.2			(39.9		)	(nm)
Net income (loss) from continuing operations	14.7			(49.6		)	(nm)			11.2			(58.5		)	(nm)
(Loss) income from discontinued operations, net of tax	(13.3		)	61.4			(122)%			14.1			108.3			(87)%
Net income	$	1.4		$	11.8		(88)%			$	25.3		$	49.8		(49)%

Adjusted EBITDA	$	100.5		$	109.4		(8)%	(4)%		$	199.1		$	213.5		(7)%	(2)%
Adjusted EBITDA margin	22.0		%	21.8		%	20bps	30bps		21.7		%	21.5		%	20bps	30bps