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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________

FORM 10-Q
_______________


 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
 
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
 
Commission file number: 001-36272
esi-20200630_g1.jpg
Element Solutions Inc
(Exact name of Registrant as specified in its charter)
Delaware37-1744899
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
500 East Broward Boulevard,Suite 186033394
Fort Lauderdale,Florida(Zip Code)
(Address of principal executive offices)
Registrant’s telephone number, including area code: (561) 207-9600
_______________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareESINew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes        No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes        No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.    



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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No
Number of shares of common stock outstanding at July 28, 2020: 248,921,246



TABLE OF CONTENTS


Glossary
Page
Glossary of Defined Terms
   
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2020 and 2019
Condensed Consolidated Statements of Comprehensive Income (Loss)
Three and Six Months Ended June 30, 2020 and 2019
Condensed Consolidated Balance Sheets
June 30, 2020 and December 31, 2019
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2020 and 2019
Condensed Consolidated Statements of Changes in Stockholders' Equity
Three and Six Months Ended June 30, 2020 and 2019
   
 
   
   



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.
ArystaArysta LifeScience Inc., a former subsidiary which operated the Agricultural Solutions business prior to the Arysta Sale.
Arysta SaleSale of 100% of the issued and outstanding shares of common stock of Arysta and its subsidiaries to UPL on January 31, 2019 for an aggregate purchase price of $4.28 billion in cash, after post-closing adjustments.
ASUAccounting Standards Update.
BoardElement Solutions' board of directors.
Credit AgreementCredit Agreement, dated as of January 31, 2019, as amended on November 26, 2019, among, inter alia, Element Solutions and MacDermid, as borrowers, certain subsidiaries of Element Solutions and the lenders from time to time parties thereto, and Barclays Bank PLC, as administrative agent and collateral agent.
EBITDAEarnings before interest, taxes, depreciation and amortization.
ESPPElement Solutions Inc 2014 Employee Stock Purchase Plan.
Exchange ActSecurities Exchange Act of 1934, as amended.
FASBFinancial Accounting Standards Board.
GAAPU.S. Generally Accepted Accounting Principles.
Kester AcquisitionAcquisition of 100% of the outstanding shares and certain assets of the Kester business on December 2, 2019, a global supplier of advanced technology assembly materials used in electronics assembly and semiconductor application, for $63.6 million net of cash, working capital and other closing adjustments, from Illinois Tool Works Inc.
MacDermidMacDermid, Incorporated, a Connecticut corporation.
NYSENew York Stock Exchange.
OEMOriginal Equipment Manufacturer.
Quarterly ReportThis quarterly report on Form 10-Q for the three and six months ended June 30, 2020.
RSUsRestricted stock units issued by Element Solutions from time to time under its amended and restated 2013 Incentive Compensation Plan.
SECSecurities and Exchange Commission.
Series A Preferred StockElement Solutions' 2,000,000 shares of Series A convertible preferred stock, which were converted into shares of Element Solutions' common stock on February 25, 2020, on a one-for-one basis, upon request of Mariposa Acquisition, LLC and Berggruen Holdings Ltd. and affiliates.
UPLUPL Corporation Ltd., a wholly-owned subsidiary of UPL Limited.
2019 Annual ReportElement Solutions' annual report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 28, 2020.
5.875% USD Notes IndentureThe indenture, dated November 24, 2017, governing the 5.875% USD Notes due 2025.
5.875% USD Notes due 2025Element Solutions' $800 million aggregate principal amount of 5.875% senior notes due 2025, denominated in U.S. dollars, issued on November 24, 2017.

i


Forward-Looking Statements
This Quarterly Report contains forward-looking statements that can be identified by words such as "expect," "anticipate," "project," "will," "should," "believe," "intend," "plan," "assume," "estimate," "predict," "seek," "continue," "outlook," "may," "might," "aim," "can have," "likely," "potential," "target," "hope," "goal" or "priority" and variations of such words and similar expressions. Many of the forward-looking statements include, but are not limited to, statements, beliefs, projections and expectations regarding the impact of the coronavirus (COVID-19) pandemic on the global economy, our business, net sales, customers, suppliers, vendors, stock price, and governmental responses to the pandemic; our business and management strategies; share repurchases; cost containment and cost savings; the impact of new accounting standards and accounting changes; our dividend policy; our hedging activities; timing and outcome of environmental and legal matters; goodwill and other intangible assets; impairments; price volatility and cost environment; liquidity, cash flows and capital resources; funding sources; capital expenditures; debt and debt leverage ratio; off-balance sheet arrangements and contractual obligations; general views about future operating results; expected returns to stockholders; risk management programs; future prospects; and other events or developments that we expect or anticipate will occur in the future.
Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. These statements are not guarantees of future performance and our actual results may differ materially from the results contemplated by these statements. A discussion of such risks and uncertainties 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 2019 Annual Report. Any forward-looking statement is based only on information currently available and speaks only as of the date on which it is made. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Please consult any further disclosures on related subjects in our SEC filings.
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 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 14, Segment Information, to the unaudited Condensed Consolidated Financial Statements, both included in this Quarterly Report.

ii



PART I. FINANCIAL INFORMATION


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

Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Net sales$387.0  $456.7  $839.6  $916.5  
Cost of sales224.5  263.7  479.8  525.2  
Gross profit162.5  193.0  359.8  391.3  
Operating expenses:   
Selling, technical, general and administrative113.4  126.4  238.6  268.8  
Research and development9.6  11.1  27.1  21.9  
Total operating expenses123.0  137.5  265.7  290.7  
Operating profit39.5  55.5  94.1  100.6  
Other expense:    
Interest expense, net(16.9) (18.2) (33.6) (56.3) 
Foreign exchange loss(12.8) (28.3) (38.6) (1.2) 
Other expense, net(1.7) (1.1) (1.3) (49.1) 
Total other expense(31.4) (47.6) (73.5) (106.6) 
Income (loss) before income taxes and non-controlling interests8.1  7.9  20.6  (6.0) 
Income tax (expense) benefit(5.8) 6.8  (9.9) 17.2  
Net income from continuing operations2.3  14.7  10.7  11.2  
(Loss) income from discontinued operations, net of tax(1.1) (13.3) (0.9) 14.1  
Net income1.2  1.4  9.8  25.3  
Net loss (income) attributable to non-controlling interests  0.1    (0.6) 
Net income attributable to common stockholders$1.2  $1.5  $9.8  $24.7  
Earnings (loss) per share    
Basic from continuing operations$0.01  $0.06  $0.04  $0.04  
Basic from discontinued operations  (0.05)   0.05  
Basic attributable to common stockholders$0.01  $0.01  $0.04  $0.09  
Diluted from continuing operations$0.01  $0.06  $0.04  $0.04  
Diluted from discontinued operations  (0.05)   0.05  
Diluted attributable to common stockholders$0.01  $0.01  $0.04  $0.09  
Weighted average common shares outstanding   
Basic248.8  257.3  249.6  262.7  
Diluted249.0  259.6  250.6  265.3  

See accompanying notes to the Condensed Consolidated Financial Statements
1


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(dollars in millions)
 
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Net income$1.2  $1.4  $9.8  $25.3  
    
Other comprehensive income (loss)
Foreign currency translation:
Other comprehensive income (loss) before reclassifications12.9  (0.1) (10.7) 94.1  
Reclassifications      479.8  
Total foreign currency translation adjustments12.9  (0.1) (10.7) 573.9  
Pension and post-retirement plans:
Other comprehensive (loss) income before reclassifications, net of tax expense (benefit) of $0.0 for the three months ended June 30, 2020 and 2019, and $0.5 and $0.0 for the six months ended June 30, 2020 and 2019, respectively
    (0.5)   
Reclassifications, net of tax expense (benefit) of $0.0 for the three and six months ended June 30, 2020 and 2019, respectively
      (2.1) 
Total pension and post-retirement plans    (0.5) (2.1) 
Derivative financial instruments:
Other comprehensive (loss) income before reclassifications, net of tax expense (benefit) of $0.0 and $2.4 for the three months ended June 30, 2020 and 2019, and $0.0 for the six months ended June 30, 2020 and 2019, respectively
(5.4) (18.5) (37.4) (27.7) 
Reclassifications, net of tax expense (benefit) of $0.0 for the three months ended June 30, 2020 and 2019, and $0.0 and $1.4 for the six months ended June 30, 2020 and 2019, respectively
3.7  0.3  5.3  (5.4) 
Total unrealized loss arising on qualified hedging derivatives(1.7) (18.2) (32.1) (33.1) 
Other comprehensive income (loss)11.2  (18.3) (43.3) 538.7  
Comprehensive income (loss)12.4  (16.9) (33.5) 564.0  
Comprehensive income attributable to the non-controlling interests      (40.2) 
Comprehensive income (loss) attributable to common stockholders$12.4  $(16.9) $(33.5) $523.8  
 
See accompanying notes to the Condensed Consolidated Financial Statements
2


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in millions)
June 30,December 31,
 20202019
Assets  
Cash and cash equivalents$237.3  $190.1  
Accounts receivable, net of allowance for doubtful accounts of $10.4 and $8.8 at June 30, 2020 and December 31, 2019, respectively
309.8  363.9  
Inventories210.8  199.6  
Prepaid expenses22.3  18.3  
Other current assets51.0  50.3  
Current assets of discontinued operations8.2  11.2  
Total current assets839.4  833.4  
Property, plant and equipment, net254.2  264.8  
Goodwill2,133.9  2,179.6  
Intangible assets, net868.6  944.4  
Other assets115.9  95.7  
Non-current assets of discontinued operations6.7  6.5  
Total assets$4,218.7  $4,324.4  
Liabilities and stockholders' equity  
Accounts payable$79.8  $96.8  
Current installments of long-term debt and revolving credit facilities7.7  7.8  
Accrued expenses and other current liabilities140.6  155.1  
Current liabilities of discontinued operations17.6  34.1  
Total current liabilities245.7  293.8  
Debt1,511.1  1,513.2  
Pension and post-retirement benefits49.3  50.8  
Deferred income taxes118.2  119.6  
Other liabilities139.3  127.7  
Total liabilities2,063.6  2,105.1  
Commitments and contingencies (Note 11)
Stockholders' Equity  
Preferred stock - Series A    
Common stock: 400.0 shares authorized (2020: 261.0 shares issued; 2019: 258.4 shares issued)
2.6  2.6  
Additional paid-in capital4,118.7  4,114.2  
Treasury stock (2020: 12.2 shares; 2019: 8.3 shares)
(114.0) (78.9) 
Accumulated deficit(1,526.7) (1,536.5) 
Accumulated other comprehensive loss(323.8) (280.5) 
Total stockholders' equity2,156.8  2,220.9  
Non-controlling interests(1.7) (1.6) 
Total equity2,155.1  2,219.3  
Total liabilities and stockholders' equity$4,218.7  $4,324.4  

See accompanying notes to the Condensed Consolidated Financial Statements
3


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in millions)
Six Months Ended June 30,
 20202019
Cash flows from operating activities:  
Net income$9.8  $25.3  
Net (loss) income from discontinued operations, net of tax(0.9) 14.1  
Net income from continuing operations10.7  11.2  
Reconciliation of net income from continuing operations to net cash flows provided by operating activities:  
Depreciation and amortization79.3  77.5  
Deferred income taxes(0.7) (10.8) 
Foreign exchange loss (gain)37.9  (8.6) 
Other, net13.4  79.8  
Changes in assets and liabilities, net of acquisitions:
Accounts receivable43.5  5.4  
Inventories(15.9) (13.9) 
Accounts payable(13.6) 5.4  
Accrued expenses(22.2) (93.5) 
Prepaid expenses and other current assets(7.2) (24.9) 
Other assets and liabilities(0.5) (22.3) 
Net cash flows provided by operating activities of continuing operations124.7  5.3  
Cash flows from investing activities:  
Capital expenditures(15.0) (11.4) 
Proceeds from disposal of property, plant and equipment1.5    
Proceeds from Arysta Sale (net of cash $148.7 million)
  4,281.8  
Other, net(5.7) 7.9  
Net cash flows (used in) provided by investing activities of continuing operations(19.2) 4,278.3  
Cash flows from financing activities:  
Debt proceeds, net of discount  749.1  
Repayments of borrowings(3.9) (4,603.0) 
Change in lines of credit, net  25.1  
Repurchases of common stock(33.1) (445.1) 
Payment of financing fees  (39.5) 
Other, net(1.3) (8.8) 
Net cash flows used in financing activities of continuing operations(38.3) (4,322.2) 
Cash flows from discontinued operations:
Net cash flows used in operating activities of discontinued operations(14.7) (135.3) 
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) (135.5) 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(5.3) 6.2  
Net increase (decrease) in cash, cash equivalents and restricted cash47.2  (167.9) 
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
$237.3  $247.6  
(1) Includes cash, cash equivalents and restricted cash of discontinued operations of $181.9 million at December 31, 2018.

 See accompanying notes to the Condensed Consolidated Financial Statements
4


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(dollars in millions, except share amounts)
Three Months Ended June 30, 2020Preferred StockCommon StockAdditional
Paid-in
Capital
Treasury StockAccumulated
Deficit
Accumulated Other Comprehensive (Loss) IncomeTotal
Stockholders'
Equity
Non-
controlling Interests
Total Equity
SharesAmountSharesAmountSharesAmount
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  
Net income—  —  —  —  —  —  —  1.2  —  1.2  —  1.2  
Other comprehensive income, net of taxes—  —  —  —  —  —  —  —  11.1  11.1  —  11.1  
Exercise/ vesting of share based compensation—  —  81,554  —  —  7,894  (0.1) —  —  (0.1) —  (0.1) 
Issuance of common stock under ESPP—  —  29,877  —  0.2  —  —  —  —  0.2  —  0.2  
Equity compensation expense—  —  —  —  1.4  —  —  —  —  1.4  —  1.4  
Changes in non-controlling interests—  —  —  —  —  —  —  —  —  —  (0.1) (0.1) 
Balance at June 30, 2020  $  261,044,440  $2.6  $4,118.7  12,189,913  $(114.0) $(1,526.7) $(323.8) $2,156.8  $(1.7) $2,155.1  

Three Months Ended June 30, 2019Preferred StockCommon StockAdditional
Paid-in
Capital
Treasury StockAccumulated
Deficit
Accumulated Other Comprehensive (Loss) IncomeTotal
Stockholders'
Equity
Non-
controlling Interests
Total Equity
SharesAmountSharesAmountSharesAmount
Balance at March 31, 20192,000,000  $  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 (loss)—  —  —  —  —  —  —  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  
Balance at June 30, 20192,000,000  $  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  

See accompanying notes to the Condensed Consolidated Financial Statements







5



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, 2020Preferred StockCommon StockAdditional
Paid-in
Capital
Treasury StockAccumulated
Deficit
Accumulated Other Comprehensive (Loss) IncomeTotal
Stockholders'
Equity
Non-
controlling Interests
Total Equity
SharesAmountSharesAmountSharesAmount
Balance at December 31, 20192,000,000  $  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—  —  —  —