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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with “Financial Statements and Supplementary Data” included in Part II, Item 8 of this 2020 Annual Report and our audited Consolidated Financial Statements and notes thereto included elsewhere in this 2020 Annual Report. “Business Overview,” "COVID-19 Update" and "2020 Highlights" briefly present our business and certain significant events addressed in this section or elsewhere in this 2020 Annual Report. This 2020 Annual Report should be read in its entirety for a complete description of our business and discussion of these events.

Business Overview

Element Solutions Inc, incorporated in Delaware in January 2014, is a leading global specialty chemicals company whose businesses supply a broad range of solutions that enhance the performance of products people use every day. Developed in multi-step technological processes, these innovative solutions enable customers' manufacturing processes in several key industries, including consumer electronics, power electronics, semiconductor fabrication, communications and data storage infrastructure, automotive systems, industrial surface finishing, consumer packaging and offshore energy. Our businesses provide products that, in substantially all cases, are consumed by customers as part of their production process, providing us with reliable and recurring revenue streams as the products are replenished in order to continue production. Our customers use our innovation as competitive advantages, relying on us to help them navigate through fast-paced, high-growth markets. Our product development and product extensions are expected to continue to drive sales growth in both new and existing markets, while expanding margins, through a consistent focus on increasing customer value propositions.

We believe the majority of our businesses hold strong positions in the high-growth markets they serve. Our strategy is based on a balance of operational excellence and prudent capital allocation. Our operating teams focus on the strong execution of customer-led product development, superior technical sales support and continuous supply chain optimization. Our senior leadership aims to foster an environment of accountability and success for our operating teams while also evaluating and executing on high-return capital allocation opportunities that can drive improvements in long-term shareholder value. In the future, we may pursue targeted and opportunistic acquisitions in our existing and adjacent end-markets that strengthen our current businesses, expand and diversify our product offering, and enhance our growth and strategic position.

We generate revenue from the development, formulation and sale of our chemistry solutions globally. Our extensive global teams of specially trained scientists and engineers develop products while our expert sales and service organizations ensure customer needs are met every day. We leverage close relationships with both 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 broad and longstanding intellectual property portfolio and technical expertise. Our specialty chemicals and processes are seen as integral to customer' product performance. We believe that our customers place significant value on the consistency and quality of our brands, which we capitalize on through significant market share, customer loyalty and supply chain access. Lastly, operational risks and switching costs make it difficult for our customers to change suppliers which allows us to retain customers and maintain our market positions.

Our operations are organized into two segments: Electronics and Industrial & Specialty, which are each described below:

Electronics – The Electronics segment researches, formulates and sells specialty chemicals and materials for all types of electronics hardware from complex printed circuit board designs to advanced semiconductor packaging. In mobile communications, computers, automobiles and aerospace equipment, its products are an integral part of the electronics manufacturing process and the functionality of end-products. The segment's "wet chemistries" for metallization, surface treatments and solderable finishes form the physical circuitry pathways and its "assembly materials," such as solders, pastes, fluxes and adhesives, join those pathways together. The segment provides specialty chemical solutions through the following businesses: Assembly Solutions, Circuitry Solutions and Semiconductor Solutions.

Industrial & Specialty – The Industrial & Specialty segment researches, formulates and sells specialty chemicals that enhance surfaces or improve industrial processes in diverse industrial sectors from automotive trim to transcontinental infrastructure and from high-speed printing to high-design faucets. Its products include chemical systems that protect and decorate metal and plastic surfaces; consumable chemicals that enable printing image transfer on flexible packaging materials; and chemistries used in water-based hydraulic control fluids in offshore energy production. These fully consumable products are used in the aerospace, automotive, construction, consumer electronics, consumer packaged goods and oil and gas production end markets. The segment provides specialty chemical solutions through the following businesses: Industrial Solutions, Graphics Solutions and Energy Solutions.

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COVID-19 Update

The 2020 COVID-19 pandemic caused a global economic slowdown, significant end-market volatility and business uncertainty. In an effort to contain COVID-19 or slow its spread, governments and businesses around the world undertook significant countermeasures, including business closures, mandated “shelter in place” orders, travel restrictions and other edicts, which have negatively impacted, and continue to negatively impact, business activity around the globe.

Due to the pandemic and these related actions, we experienced weaker demand beginning in April 2020, as compared to the same period in 2019, which trend tapered off during the third quarter of 2020. Overall market conditions improved monthly through the second half of 2020. Our industrially oriented businesses were the most impacted, particularly those serving automotive end-markets.

Our supply chain demonstrated resilience and has remained largely intact in 2020. Our pre-existing business continuity planning exercises helped us with contingencies to support our customers in the event of manufacturing facility shutdowns.

Our top priority has been protecting the health and safety of our employees. To that end, we proactively implemented policies and procedures, including travel restrictions, remote work and heightened sanitary and social distancing policies at our locations around the world. These actions resulted in a general decrease of discretionary expenses in 2020, including travel and entertainment expenses, as health and safety protocols were adopted worldwide. In addition, we implemented certain actions to reduce cost in the event the economic downturn were to be deeper and/or last longer than it actually was or did. These actions included temporary employee salary reductions and furloughs to reduce expenses and preserve margins. However, with a goal of preserving employment, we did not pursue any material restructuring or workforce reductions.

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 remains unknown as COVID-19, including its variants, continue to spread. The long-term impact of this pandemic will depend on numerous and evolving factors that are highly uncertain, vary by market and cannot be quantified at this time. These factors include the duration of the pandemic, the efficacy, availability and/or public acceptance of vaccines targeting COVID-19, the impact of variants of COVID-19 that may affect its spread or virulence or the effectiveness of vaccines on the virus, and evolving macroeconomic factors driven by the virus's overall spread and impact.

2020 Highlights

•Launch of MacDermid Envio Solutions - During the third quarter of 2020, we launched MacDermid Envio Solutions, a new business within our Industrial & Specialty segment which focuses on helping customers reduce their environmental impact through proprietary chemistry as well as equipment for turnkey wastewater treatment and the recovery of metals and other valuable materials.

•Senior Notes Refinancing - On August 18, 2020, we completed a private offering of $800 million aggregate principal amount of 3.875% USD Notes due 2028 and the subsequent full redemption of our 5.875% USD Notes due 2025. The 200 basis point reduction in interest rate reduces our annual interest payments by $16.0 million starting in 2021. In connection with the redemption, we expensed $45.7 million, consisting of a make-whole premium of $33.6 million and the write-off of debt issuance costs and original issue discount of $12.1 million, which was recorded in "Other (expense) income, net" in the Consolidated Statement of Operations.

•Cash Dividend - On December 15, 2020, we paid a cash dividend of $0.05 per outstanding share of our common stock to all stockholders of record at the close of business on November 25, 2020. The dividend totaled approximately $12.4 million.

•Element Solutions Foundation - During the fourth quarter of 2020, we established the ESI Foundation to serve as the Company’s charitable giving entity with an initial funding of $5.0 million. The foundation intends to provide monetary grants to qualified charitable organizations in the communities where our employees live and work. The foundation plans to focus on causes important to the environmental and social well-being of these communities.

•Repurchases of Common Stock - During the year ended December 31, 2020, we repurchased 5.7 million shares of our common stock for $55.7 million, at an average price of approximately $9.74 per share. The remaining authorization under our previously-announced $750 million stock repurchase program was approximately $187 million at December 31, 2020.

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Acquisitions

In the future, we may pursue acquisitions in our existing or adjacent end-markets with product offerings that complement our portfolio or geographic footprint. We expect to achieve commercial and distribution efficiencies by expanding into related categories that can be marketed through our existing distribution channels or provide us with new distribution channels for our existing products. To the extent we pursue future acquisitions, we expect that acquisition candidates would demonstrate a combination of attractive margins, strong cash flow characteristics, niche leading positions and consumable products that generate recurring revenue. We believe the diversity of the niche-end markets we serve will enable us to continue our growth and maintain strong cash flow generation throughout economic cycles and mitigate the impact of a downturn in any single market. We will only pursue a candidate when it is deemed to be fiscally prudent and that meets our acquisition criteria. We anticipate that any future acquisitions would be financed through a combination of cash on hand, operating cash flow, availability under our Credit Agreement and/or new debt or equity offerings.

Foreign Currency Exposure

Approximately 74% of our net sales originated outside of the U.S. and were denominated in numerous currencies, including the euro, Chinese yuan, British pound, and Taiwan dollar. Therefore, changes in foreign exchange rates in any given reporting period may positively or negatively impact our financial performance. Foreign exchange translation negatively impacted our 2020 net sales performance by an immaterial amount.

In addition, our foreign subsidiaries are subject to foreign currency risk relating to receipts from customers, payments to suppliers and intercompany transactions that are not in their functional currency, which is typically their local currency. As a result, our foreign subsidiaries can and have entered into foreign exchange hedges to protect against transaction exposures. We actively assess our hedging programs in order to mitigate foreign exchange risk exposures. This includes programs to hedge our foreign currency denominated balance sheet exposures as well as foreign currency anticipated cash flows.

Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates that may significantly impact our reported financial results and accompanying disclosures. We base our estimates on assumptions and judgments based on historical experience, current conditions as well as other factors that we consider reasonable. Estimates relate to matters that are inherently uncertain and actual results may differ from these estimates and such differences could be material to our financial statements.

We consider the accounting estimates discussed below to be critical to the understanding of our financial statements and involve difficult, subjective or complex judgments that could potentially affect our reported results. See Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included in this 2020 Annual Report for a detailed discussion of the application of these and other accounting policies.

Revenue Recognition

We recognize revenue either upon shipment or delivery of product depending on when it is reasonably assured that both title and the risks and rewards of ownership have been passed on to the customer, our performance obligations have been fulfilled and collectability is probable. Estimates for sales rebates, incentives and discounts, as well as sales returns and allowances, are accounted for as reductions of revenue when the earnings process is complete. Differences between estimated expense and actual costs are typically immaterial and are recognized in earnings in the period such differences are determined.

Most performance obligations relate to contracts with a duration of less than one year, in which we have the right to invoice the customer at the time the performance obligation is satisfied for the amount of revenue recognized at that time. Accordingly, we have elected the practical expedient available under ASC Topic 606, Revenue from Contracts with Customers, not to disclose remaining performance obligations under our contracts. We have also elected the practical expedient to expense incremental costs for obtaining contracts with terms of less than one year.

Goodwill

Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or when events or changes in circumstances indicate that goodwill might be impaired. Our reporting units are determined based upon our organizational structure in place at the date of the goodwill impairment test. The fair value of each reporting unit is determined based equally on market multiples and the present value of discounted future cash flows. The discounted cash flows are prepared based upon

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cash flows at the reporting unit level and involve significant judgments related to future growth rates and discount rates, among other considerations, from the vantage point of a market participant.

If the fair value of a reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired and no further testing is required. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, the goodwill impairment loss is calculated as the difference between these amounts, limited to the amount of goodwill allocated to the reporting unit.

As part of our 2020 goodwill impairment test in the fourth quarter of 2020, we determined that the excess of the fair value of the Energy Solutions reporting unit within our Industrial & Specialty segment exceeded its carrying value by less than 20%. Goodwill assigned to the Energy Solutions reporting unit was approximately $245 million as of the assessment date. The estimated fair value of this reporting unit is highly sensitive to changes in these estimates and assumptions; therefore, in some instances, changes in these assumptions may impact whether the fair value of a reporting unit is greater than its carrying value. We performed sensitivity analysis around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values. Based on a sensitivity analysis performed for the Energy Solutions reporting unit, a 100 basis point increase in the WACC or 100 basis point decrease in the terminal growth rate, without any other changes to the valuation, would not result in the carrying value being greater than the fair value. Future impairments of this reporting units may occur if the business does not achieve its expected cash flows or macroeconomic conditions result in an increase in the WACC used to estimate fair value.

In 2020, we also determined that the fair values of the remaining reporting units were considered substantially in excess of their respective carrying values.

See Note 8, Goodwill and Intangible Assets, to the Consolidated Financial Statements included in this 2020 Annual Report for additional information.

Income Taxes

We recognize deferred tax assets and liabilities based on the differences between the financial statement basis and the tax basis of assets, liabilities, net operating losses and tax carryforwards. A valuation allowance is required to be recognized to reduce the recorded deferred tax asset to the amount that will more likely than not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income by jurisdiction during the periods in which those temporary differences become deductible or when carryforwards can be utilized. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in this assessment. If these estimates and related assumptions change in the future, we may be required to record additional valuation allowances against our deferred tax assets resulting in additional income tax expense. We evaluate our valuation allowance conclusions on a quarterly basis based on available evidence and realization of deferred tax assets ultimately depends on the existence of sufficient taxable income in the applicable carryback or carryforward periods. Changes in the Company's estimates of and reliance on such evidence may affect the estimate of the realization of the benefits of tax attribute carryforwards. It is reasonably possible that further adjustments will be made to the valuation allowance for state tax carryforwards.

Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.

We are subject to income taxes in the U.S. and in various states and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. The first step in evaluating the tax position for recognition is to determine the amount of evidence that supports a favorable conclusion for the tax position upon audit. In order to recognize the tax position, we must determine whether it is more likely than not that the position is sustainable. The final evaluation step is to measure the tax benefit as the largest amount that has a more than 50% chance of being realized upon final settlement. Although we believe that the positions taken on income tax matters are reasonable, we establish tax reserves in recognition that various taxing authorities may challenge certain of those positions taken, potentially resulting in additional tax liabilities.

Recent Accounting Pronouncements

A summary of recent accounting pronouncements is included in Note 3, Recent Accounting Pronouncements, to the Consolidated Financial Statements included in this 2020 Annual Report.

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Non-GAAP Financial Measures

To supplement our financial results presented in accordance with GAAP in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section, we present certain non-GAAP financial measures, such as operating results on a constant currency and organic basis and Adjusted EBITDA. Management internally reviews each of these non-GAAP measures to evaluate performance on a comparative period-to-period basis in terms of absolute performance, trends and expected future performance with respect to our business. We believe these non-GAAP financial measures, which are each further described below, provide investors with an additional perspective on trends and underlying operating results on a period-to-period comparable basis. We also believe that investors find this information helpful in understanding the ongoing performance of our operations separate from items that may have a disproportionate positive or negative impact on our financial results in any particular period or are considered to be associated with our capital structure.

These non-GAAP financial measures, however, have limitations as analytical tools and should not be considered in isolation from, a substitute for, or superior to, the related financial information that we report in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in our financial statements and may not be comparable to similarly titled measures of other companies due to potential differences in calculation methods. In addition, these measures are subject to inherent limitations as they reflect the exercise of judgment by management about which items are excluded or included in determining these non-GAAP financial measures. Investors are encouraged to review the definitions and reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures included in this 2020 Annual 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.

Organic Net Sales Growth

Organic net sales growth is defined as net sales excluding the impact of foreign currency translation, changes due to the pass-through pricing of certain metals and acquisitions and/or divestitures, as applicable. Management believes this non-GAAP financial measure provides investors with a more complete understanding of the underlying net sales trends by providing comparable net sales over differing periods on a consistent basis.

For a reconciliation of GAAP net sales growth to organic net sales growth, see "Net Sales" within the "Results of Operations" section below.

Adjusted EBITDA

We define Adjusted EBITDA as EBITDA (earnings before interest, provision for income taxes, depreciation and amortization), excluding the impact of additional items included in GAAP earnings which we believe are not representative or indicative of our ongoing business or are considered to be associated with our capital structure. Management believes Adjusted EBITDA provides investors with a more complete understanding of the long-term profitability trends of our business and facilitates comparisons of our profitability to prior and future periods.

For a reconciliation of "Net income (loss) attributable to common stockholders" to Adjusted EBITDA and more information about the adjustments made, see Note 23, Segment Information, to the Consolidated Financial Statements included in this 2020 Annual Report.

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Results of Operations

Net income (loss) from continuing operations 76.8 79.6 (4)% (77.0) (nm)

(Loss) income from discontinued operations, net (1.1) 13.3 (nm) (242.9) (nm)

(nm) Calculation not meaningful.

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Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

Net Sales

Net sales for 2020 increased by 1% on a reported and constant currency basis and declined by 3% on an organic basis. Electronics' consolidated results were positively impacted by $53.6 million of acquisitions and $5.2 million of pass-through metals pricing and Industrial & Specialty's consolidated results were positively impacted by $11.3 million of acquisitions.

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

Year ended December 31, % Change

Electronics:

Industrial & Specialty:

NOTE: Totals may not sum due to rounding.

Electronics' net sales for 2020 increased by 8% on a reported and constant currency basis and 2% on an organic basis.

•Assembly Solutions: net sales increased by 5% on a reported basis and declined 4% on an organic basis.The Kester Acquisition and pass-through metals pricing had a positive impact on reported net sales of 8% and 1%, respectively. Foreign exchange did not have a material impact on reported net sales. The decrease in organic net sales was primarily due to weak demand related to COVID-19-related production slowdowns in the second quarter of 2020 across all regions we serve, which impacted key end-markets such as automotive and consumer electronics, partially offset by recovery in the same end markets in the fourth quarter of 2020.

•Circuitry Solutions: net sales increased by 6% on a reported basis and 5% on an organic basis. Foreign exchange had a positive impact of 1% on reported net sales. The increase in organic net sales was primarily due to strong demand for high-end smartphones and 5G telecommunication infrastructure, as well as strength from memory disk customers driven by continued growth in data center markets.

•Semiconductor Solutions: net sales increased by 23% on a reported basis and 17% on an organic basis.The Kester Acquisition had a positive impact of 6% on reported net sales. Foreign exchange did not have a material impact on reported net sales. The increase in organic net sales was primarily due to growth in advanced packaging, driven by growth in semiconductor volumes, and increased demand for advanced assembly products, driven by 5G telecommunication infrastructure.

Industrial & Specialty's net sales for 2020 decreased by 9% on a reported basis, 8% on a constant currency basis and 10% on an organic basis.

•Industrial Solutions: net sales declined by 9% on a reported basis and 11% on an organic basis.The DMP Acquisition had a positive impact of 2% on reported net sales. Foreign exchange had a negative impact of 1% on reported net sales. The decrease in organic net sales was primarily driven by automotive production slowdowns due to the COVID-19 pandemic in all regions and demand weakness in construction and general industrial manufacturing markets in the first half of the year, partially offset by sequential recovery in the same end markets.

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•Graphic Solutions: net sales declined by 5% on a reported basis and 4% on an organic basis.Foreign exchange had a negative impact of 1% on reported net sales. The decrease in organic net sales was primarily due to lower volumes of ancillary products, such as screen printing and newspaper plates, as well as delayed marketing campaigns by CPG customers.

•Energy Solutions: net sales declined 16% on a reported basis and 13% on an organic basis.Foreign exchange had a negative impact of 3% on reported net sales. The decrease in organic net sales was primarily due to demand weakness related to the COVID-19 pandemic and the subsequent decline in the price of oil which significantly curtailed production and drilling activity globally, as well as the continuing impact of the loss of certain business in the first quarter of 2019, which had a negative impact of approximately 2% on organic net sales growth.

Gross Profit

Year Ended December 31, Change

(dollars in millions) 2020 2019 Reported Constant Currency

Gross profit:

Gross profit margin:

Industrial & Specialty 45.3 % 45.4 % (10) bps 0 bps

Electronics' gross profit for 2020 increased by 7% on a reported and constant currency basis. The constant currency increase in gross profit for the period was driven by growth in telecom and data storage markets and was partially offset by COVID-19-related production slowdowns in the automotive markets. Gross margin declined modestly due to unfavorable product mix.

Industrial & Specialty's gross profit for 2020 decreased by 9% 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 in Industrial Solutions.

Operating Expenses

Year ended December 31, Change

(dollars in millions) 2020 2019 Reported Constant Currency

Selling, technical, general and administrative (STG&A) $ 504.7 $ 497.0 2% 2%

Operating Expenses as % of Net Sales

Operating expenses for 2020 increased 3% on a reported and constant currency basis. The constant currency increase was driven primarily by higher incentive compensation accruals, the initial funding of $5.0 million associated with the creation of the Element Solutions Foundation in the fourth quarter of 2020, as well as an increase in research and development expenses related to the acquisition of a new subsea production control fluid within our Energy Solutions business for $6.3 million. See Note 8, Goodwill and Intangible Assets, for additional information. This was partially offset by cost containment initiatives across the business to mitigate the impact of COVID-19-related slowdowns, including lower travel expenses, which decreased approximately $15.0 million on a constant currency basis, and lower personnel expenses, including the impact of temporary employee salary reductions and furloughs.

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Other (Expense) Income, net

Year Ended December 31,

Interest expense, net $ (63.4) $ (90.7)

Foreign exchange (loss) gain (36.5) 28.7

Other expense, net (51.7) (46.2)

Interest expense, net

Net interest expense decreased $27.3 million primarily due to the pay down of our credit facilities on January 31, 2019 in connection with the Arysta Sale, as well as our private offering of $800 million aggregate principal amount of 3.875% USD Notes due 2028 and subsequent full redemption of our 5.875% USD Notes due 2025 during the third quarter of 2020. This private offering is expected to result in continued significant interest savings in 2021.

Foreign exchange (loss) gain

Foreign exchange loss increased $65.2 million primarily due to the remeasurement of euro- and British pound-denominated intercompany balances.

Other expense, net

Other expense, net for 2020 totaled $51.7 million, of which $45.7 million related to the redemption of our 5.875% USD Notes due 2025. Other expense, net for 2019 totaled $46.2 million, of which $61.0 million was for debt refinancing costs related to paying down our then existing credit facilities at the time of 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 of 2019.

Income Tax

The income tax expense for 2020 totaled $4.3 million, as compared to $61.3 million in 2019. Tax expense changed primarily due to changes in pre-tax income and changes in U.S. tax law. For additional information see Note 11, Income Taxes, to the Consolidated Financial Statements included in this 2020 Annual Report.

Other Comprehensive Income (Loss)

Other comprehensive income for 2020 totaled $85.7 million as compared to $517 million in the prior year. The change was driven primarily by realized foreign currency translation losses of $480 million related to the Arysta Sale in 2019, as well as currency translation losses associated with the Brazilian real, partially offset by gains associated with the Chinese yuan and euro.

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Segment Adjusted EBITDA Performance

Year Ended December 31, Change

(dollars in millions) 2020 2019 Reported Constant Currency

Adjusted EBITDA:

Adjusted EBITDA margin:

Industrial & Specialty 21.3 % 21.8 % (50) bps (40) bps

Electronics' Adjusted EBITDA for 2020 increased 10% on a reported and constant currency basis. The constant currency increase was driven primarily by higher gross profit, as well as lower general and administrative expenses.

Industrial & Specialty's Adjusted EBITDA for 2020 decreased 11% on a reported basis and 10% on a constant currency basis. The constant currency decrease was driven primarily by lower gross profit, partially offset by lower general and administrative expenses.

Comparison of Fiscal Years 2019 and 2018

For the comparison of fiscal years 2019 and 2018, see "Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018" in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our 2019 Annual Report and incorporated by reference into this 2020 Annual Report.

Liquidity and Capital Resources

Our primary source of liquidity during 2020 was available cash generated from operations. Our primary uses of cash and cash equivalents were to fund operations, debt service obligations, $55.7 million of repurchases of our common stock, capital expenditures, working capital and dividend payments. Our first significant debt principal payment of approximately $700 million, related to the maturity of our outstanding USD term loans under the Credit Agreement, is not due until due 2026.

We currently expect to pay a 5 cents per share dividend on a quarterly basis. However, the actual declaration of any cash dividends, as well as their amounts and timing, will be subject to the final determination of our Board of Directors based on factors including our future earnings and cash flow generation.

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 Credit Agreement, will be sufficient to meet our working capital needs, interest payments, capital expenditures, potential dividend payments 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. 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 2020, approximately 74% 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 U.S. 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 U.S. and/or other international subsidiaries when we believe it is cost effective to do so.

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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 taxes. Of our $292 million of cash and cash equivalents at December 31, 2020, $156 million was held by our foreign subsidiaries. In 2020, domestic cash was primarily used for debt service obligations, repurchases of our common stock and dividend payments. See Note 11, Income Taxes, to our Consolidated Financial Statements included in this 2020 Annual Report for further discussion of income taxes on remaining undistributed foreign earnings.

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

Year Ended December 31,

Cash provided by (used in) operating activities $ 276.0 $ 170.9 $ (0.8)

Cash (used in) provided by investing activities $ (39.9) $ 4,199.7 $ (23.8)

Cash used in financing activities $ (123.6) $ (4,438.9) $ (1.4)

Year Ended December 31, 2020 compared to the Year Ended December 31, 2019

Operating Activities

The increase in net cash flows provided by operating activities of $105 million was driven primarily by higher cash operating profits (net loss adjusted for non-cash items), including $73.6 million of lower interest payments and the payment of contingent consideration liability in the first quarter of 2019 of $30.9 million, offset by a $5.0 million payment associated with the creation and initial funding of the Element Solutions Foundation in the fourth quarter of 2020.

Investing Activities

The decrease in net cash flows provided by investing activities was primarily driven by the Arysta Sale in 2019, which proceeds totaled $4.28 billion, partially offset by the payment related to the Kester Acquisition in the fourth quarter of 2019.

Financing Activities

During 2020, we used cash on-hand to repurchase shares of our common stock for an aggregate purchase price of $55.7 million, pay dividend payments of $12.4 million and fund $46.2 million of financing fees. The financing fees consisted of a make-whole premium of $33.6 million associated with the full redemption of our 5.875% USD Notes due 2025 and $12.5 million in debt issuance costs associated with our 3.875% USD Notes due 2028. During 2019, cash flows used in financing activities were primarily driven by the pay down of approximately $4.60 billion of then existing debt with a combination of proceeds of the Arysta Sale and the drawdown of a $750 million term loan under the Credit Agreement. These cash inflows were also used to fund repurchases of our common stock for an aggregate purchase price of $507 million. In addition, $40.5 million was used to fund the repurchase and extinguishment fees related to our debt pay down and to fund the debt issuance costs associated with the Credit Agreement. Cash outflows from borrowings under our revolving credit facility were $24.9 million million in 2019.

Pension Plans

We maintain "Domestic Pension Plans," which consist of a non-contributory domestic defined benefit pension plan and Supplemental Executive Retirement Plans (SERPs). These plans are closed to new participants and plan benefits associated with all current participants have been frozen. We also maintain "Foreign Pension Plans" in countries such as Germany and Taiwan, which include a mixture of retirement, death benefit and longevity plans, among others, all of which have been deemed immaterial, individually and in the aggregate.

The expected long-term rate of return on assets assumption is developed with reference to historical returns, forward-looking return expectations, the Domestic and Foreign Pension Plans' investment allocations, and peer comparisons. We used a long-term rate of return on plan assets of 5.1% and 1.7% for our Domestic and Foreign Pension Plans, respectively, to determine our net periodic pension expense for 2020. The discount rate used to value the pension obligation was developed with reference to a number of factors, including the current interest rate environment, benchmark fixed-income yields, peer comparisons and expected future pension benefit payments. Discount rates of 2.5% and 0.7% were established for the Domestic Pension Plan

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and Foreign Pension Plans, respectively, at December 31, 2020, compared to rates of 3.3% and 1.0% established for those respective plans at December 31, 2019. We evaluate the Pension Plans' actuarial assumptions on an annual basis, including the expected long-term rate of return on assets and discount rates. A one percent increase in the discount rate would increase the pension plan expense by approximately $1.3 million and decrease the pension benefit obligation by approximately $28.2 million, whereas a one percent decrease in the discount rate would decrease the pension plan expense by approximately $1.7 million and increase pension benefit obligation by approximately $34.1 million.

Our Domestic Pension Plans' investment policies incorporate an asset allocation strategy that emphasizes long-term growth of capital and acceptable asset volatility as long as such volatility remains consistent with the volatility of the indexes of relevant markets. Our investment policies attempt to achieve a mix of approximately 90% of plan investments for liability-matching, 8% for long-term growth, and 2% for near-term benefit payments. The weighted average asset allocation of the Domestic Pension Plan was 55% limited partnership interests and managed equity funds, 34% fixed income holdings, 9% equity securities, and 2% cash at December 31, 2020.

The Domestic Pension Plans were underfunded by $14.2 million at December 31, 2020 compared to $22.0 million at December 31, 2019. The improvement in the funding position was primarily driven by a $28.5 million gain on plan assets partially offset by actuarial losses due to changes in plan assumptions and experience of $14.4 million and $7.2 million of interest costs.

The Foreign Pension Plans were underfunded by $21.5 million at December 31, 2020 compared to $20.6 million at December 31, 2019.

The Company is not required to make any material plan contributions in 2021. While we do not currently anticipate any, additional future material contributions may be required in order to maintain appropriate funding levels within our plans.

Financial Borrowings

Credit Facilities and Senior Notes

At December 31, 2020, we had $1.52 billion of indebtedness, net of unamortized discounts and debt issuance costs of $19.6 million, which primarily included:

•$800 million of 3.875% USD Notes due 2028; and

•$735 million of term debt arrangements outstanding under our term loans.

Availability under our revolving credit facility and various lines of credit and overdraft facilities totaled $349 million at December 31, 2020 (net of $5.5 million of stand-by letters of credit which reduce our borrowing capacity).

Covenants

At December 31, 2020, we were in compliance with the customary affirmative and negative covenants, events of default and other customary provisions of the Credit Agreement, as well as with the covenants included in the indenture governing the 3.875% USD Notes.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Risk

We conduct a significant portion of our business in currencies other than the U.S. dollar, our financial reporting currency. In 2020, approximately 74% of our net sales were generated outside of the U.S. Generally, our foreign subsidiaries use their local currency as their functional currency; the currency in which they incur operating expenses and collect accounts receivable. Our business is exposed to foreign currency risk from changes in the exchange rate primarily between the U.S. dollar and the following currencies: euro, Chinese yuan, British pound, and Taiwan dollar. As a result, our operating results could be affected by foreign currency exchange rate volatility relative to the U.S. dollar. We are not able to project, in any meaningful way, the possible effect of these foreign currency fluctuations on translated amounts or future earnings.

We actively assess our foreign exchange risk exposure and may enter into foreign exchange hedges to mitigate such risk and protect ourselves against transaction exposures. Our hedging programs include strategies to mitigate our foreign currency denominated balance sheet exposures as well as foreign currency anticipated cash flows. At December 31, 2020, the aggregate

37

U.S. dollar notional amount of foreign currency forward contracts totaled $78.5 million. None of these foreign currency forward contracts were designated as hedges for accounting purposes. Their market value at December 31, 2020 was a $0.5 million net current liability, and net realized and unrealized losses on such contracts for 2020 totaled $3.0 million.

Our policies prohibit us from speculating in financial instruments for profit on exchange rate price fluctuations, from trading in currencies for which there are no underlying exposures and from entering into trades for any currency to intentionally increase the underlying exposure.

Interest Rate Risk

We are exposed to interest rate risk associated with our long-term debt and other financing commitments. At December 31, 2020, we had total debt of $1.52 billion, net of unamortized discounts and debt issuance costs of $19.6 million, including approximately $735 million of variable interest rate debt based on the one-month LIBOR. We entered into a series of pay-fixed, receive-floating interest rate swaps with respect to a portion of our indebtedness. The swaps effectively fixed the floating rate portion of the interest payments of our $750 million term loan under the Credit Agreement. We also entered into cross-currency swaps to effectively convert the $750 million term loan under the Credit Agreement, a U.S. dollar denominated debt obligation, into fixed-rate euro-denominated debt. Under these contracts, we are 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 net result of these hedges, which expire in January 2024, is an interest rate of approximately 2.4%, which could vary due to changes in the euro and the U.S. dollar exchange rate.

Counterparty Risk

Outstanding financial derivative instruments expose us to credit loss in the event of non-performance by our counterparties. The credit exposure related to these financial instruments is considered in the fair values of such contracts. We review the credit ratings of our counterparties and adjust our exposure as deemed appropriate on a periodic basis. At December 31, 2020, we believe that our exposure to counterparty risk was immaterial.

Commodity Price Risk

Some raw materials and supplies are subject to price and supply fluctuations caused by market dynamics. Our strategic sourcing initiatives are focused on mitigating the impact of commodity price risk. Although some of our commercial agreements allow us to pass on certain unusual increases in component and raw material costs to our customers in limited situations, we may not be fully compensated for such increased costs. To a lesser extent, we are also exposed to fluctuations in the prices of certain utilities and services, such as electricity, natural gas and freight.

Periodically, we employ forward metals contracts or other financial instruments to hedge commodity price or other price risks. Such contracts are generally designated as normal purchases and accounted for similar to other inventory purchases. We continue to review a full range of business options focused on strategic risk management for all raw material commodities. Any failure by our suppliers to provide acceptable raw materials or supplies could adversely affect our production schedules and contract profitability. We assess qualification of suppliers and continually monitor them to control risk associated with such supply base reliance. At December 31, 2020, the aggregate U.S. dollar notional amount of metals futures contracts, none of which were designated as hedges for accounting purposes, totaled $25.0 million. The market value of the metals forward contracts at December 31, 2020 was a $1.2 million net current liability, and net realized and unrealized losses on such contracts for 2020 totaled $6.0 million.

Item 8. Financial Statements and Supplementary Data

See “Index to Consolidated Financial Statements” in this 2020 Annual Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

38

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, management carried out an evaluation, under the supervision and with the participation of our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) at December 31, 2020. Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures at December 31, 2020 were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:

•pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

•provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As required by Rule 13a-15 under the Exchange Act, management assessed the effectiveness of our internal control over financial reporting at December 31, 2020. In making this assessment, management used the criteria set forth in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on this assessment, the Company's management has concluded that our internal control over financial reporting was effective at December 31, 2020.

The effectiveness of our internal control over financial reporting at December 31, 2020 has been audited by PricewaterhouseCoopers LLP, as stated in their report, which appears in this 2020 Annual Report.

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 ended December 31, 2020 that 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 during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

39

Part III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item regarding the Company's executive officers, directors and audit committee of the Board will be included in the 2021 Proxy Statement under the headings "Executive Officers of the Company," "Proposal 1 - Election of Directors" and "Corporate Governance," and is incorporated by reference into this 2020 Annual Report.

The Company has adopted a Business Conduct and Ethics Policy applicable to all directors and employees of Element Solutions, including our CEO, CFO and Chief Accounting Officer. The Company has also adopted a Code of Ethics for Senior Financial Officers applicable, more specifically, to our CEO, CFO and Chief Accounting Officer. The Policy and the Code of Ethics are posted on the Company's website at www.elementsolutionsinc.com under “Investors – Corporate Governance – Governance Documents.” We intend to provide disclosure of any amendment to or waiver of the Policy and/or Code of Ethics on our website within four business days following the date of such amendment or waiver.

Item 11. Executive Compensation

The information required by this item will be included in the 2021 Proxy Statement under the headings "Director Compensation," "Compensation Discussion and Analysis," "Report of the Compensation Committee," "Executive Compensation Tables" and "Corporate Governance - Compensation Committee interlocks and Insider Participation," and is incorporated by reference into this 2020 Annual Report.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be included in the 2021 Proxy Statement under the headings "Security Ownership" and "Executive Compensation Tables - Equity Compensation Plan Information," and is incorporated by reference into this 2020 Annual Report.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item will be included in the 2021 Proxy Statement under the headings "Corporate Governance - Certain Relationships and Related Transactions" and "Corporate Governance - Director Independence," and is incorporated by reference into this 2020 Annual Report.

Item 14. Principal Accounting Fees and Services

The information required by this item will be included in the 2021 Proxy Statement under the headings "Report of the Audit Committee" and "Proposal 3 - Ratification of Independent Registered Public Accounting Firm for 2021," and is incorporated by reference into this 2020 Annual Report.

40

Part IV

Item 15. Exhibits, Financial Statement Schedules

(A)Exhibits

Incorporated by Reference Included in this 2020 Annual Report

ExhibitNb. Exhibit Description Form File Nb. ExhibitNb. Filing Date

41

Incorporated by Reference Included in this 2020 Annual Report

ExhibitNb. Exhibit Description Form File Nb. ExhibitNb. Filing Date

21.1 List of subsidiaries X

23.1 Consent of PricewaterhouseCoopers LLP X

24.1 Power of Attorney X

42

Incorporated by Reference Included in this 2020 Annual Report

ExhibitNb. Exhibit Description Form File Nb. ExhibitNb. Filing Date

101.SCH* Inline XBRL Taxonomy Extension Schema Document X

101.CAL* Inline XBRL Extension Calculation Linkbase Document X

101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document X

101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document X

101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document X

* Furnished herewith.

† Indicates management contract or compensatory plan.

(B) Financial Statement Schedule

Schedule II — Valuation and Qualifying Accounts and Reserves

43

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

ELEMENT SOLUTIONS INC

By: /s/ Michael Russnok

Michael Russnok

Chief Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

Benjamin Gliklich (Principal Executive Officer)

Carey J. Dorman (Principal Financial Officer)

/s/ Michael Russnok Chief Accounting Officer February 25, 2021

Michael Russnok (Principal Accounting Officer)

/s/ Sir Martin E. Franklin Executive Chairman of the Board February 25, 2021

Sir Martin E. Franklin

/s/ Ian G.H. Ashken Director February 25, 2021

Ian G.H. Ashken

/s/ Scot R. Benson Director February 25, 2021

Scot R. Benson

/s/ Christopher T. Fraser Director February 25, 2021

Christopher T. Fraser

/s/ Michael F. Goss Director February 25, 2021

Michael F. Goss

/s/ Nichelle Maynard-Elliott Director February 25, 2021

Nichelle Maynard-Elliott

/s/ E. Stanley O’Neal Director February 25, 2021

E. Stanley O’Neal

44

Index to Consolidated Financial Statements

Page

Report of Independent Registered Public Accounting Firm F-1

Consolidated Financial Statements:

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

Consolidated Statements of Changes in Stockholders’ Equity

Notes to Consolidated Financial Statements F-11

Financial Statement Schedule:

Schedule II – Valuation and Qualifying Accounts and Reserves

45

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Element Solutions Inc

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Element Solutions Inc and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income (loss), of changes in stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

F-1

company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Impairment Assessment

As described in Notes 2 and 8 to the consolidated financial statements, the Company’s consolidated goodwill balance was $2.25 billion as of December 31, 2020. Goodwill is tested for impairment by management at the reporting unit level annually in the fourth quarter, or when events or changes in circumstances indicate that goodwill might be impaired. Management tests for impairment by comparing the fair value of each reporting unit to its carrying value. The fair value of each reporting unit is based equally on market multiples and the present value of discounted future cash flows. The cash flow model utilized by management in the goodwill impairment test involves significant judgments related to future growth rates and discount rates, among other considerations, from the vantage point of a market participant.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment is a critical audit matter are (i) the significant judgment by management when developing the fair value measurement of the reporting units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating audit evidence relating to management’s significant assumptions related to future growth rates and the discount rates; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Company’s reporting units. These procedures also included, among others, (i) testing management’s process for developing the fair value estimates; (ii) evaluating the appropriateness of the discounted cash flow model; (iii) testing the completeness and accuracy of underlying data used in the model; and (iv) evaluating the significant assumptions used by management related to the future growth rates and the discount rates. Evaluating management’s assumptions related to future growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting units; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model and the discount rate assumption.

Valuation Allowance Assessment of Deferred Tax Assets

As described in Notes 2 and 11 to the consolidated financial statements, the Company has recorded $193 million of deferred tax assets as of December 31, 2020, net of valuation allowances of $199 million. The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement basis and the tax basis of assets, liabilities, net operating losses and tax carryforwards. A valuation allowance is required to be recognized to reduce the recorded deferred tax asset to the amount that will more likely than not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income by jurisdiction during the periods in which those temporary differences become deductible or when carryforwards can be utilized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in this assessment.

The principal considerations for our determination that performing procedures relating to the valuation allowance assessment of deferred tax assets is a critical audit matter are the significant judgment by management in determining the realizability of deferred tax assets by jurisdiction, particularly as it relates to estimates of projected future taxable income, expected utilization of net operating losses, and tax carryforwards. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating audit evidence relating to management’s assessment of the realizability of deferred tax assets and assumptions relating to projected future taxable income, expected utilization of net operating losses, and tax carryforwards.

F-2

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation allowance assessment of deferred tax assets, including controls over the determination of future taxable income by jurisdiction, expected utilization of net operating losses, and tax carryforwards. These procedures also included, among others, testing the completeness and accuracy of underlying data used by management, and evaluating management’s assessment of the realizability of deferred tax assets by jurisdiction. This included evaluating the reasonableness of management’s assumptions related to projected future taxable income, expected utilization of net operating losses, and tax carryforwards. Evaluating management’s assumptions related to projected future taxable income, expected utilization of net operating losses, and tax carryforwards involved evaluating whether the assumptions used by management were reasonable considering the current and past performance of the respective entity and whether the assumptions were consistent with evidence obtained in other areas of the audit.

/s/ PricewaterhouseCoopers LLP

New York, New York

February 25, 2021

We have served as the Company’s auditor since 2013.

F-3

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in millions, except per share amounts)

Year Ended December 31,

Operating expenses:

Selling, technical, general and administrative 504.7 497.0 544.8

Other (expense) income:

Foreign exchange (loss) gain (36.5) 28.7 (5.5)

Other (expense) income, net (51.7) (46.2) 14.8

Net income (loss) from continuing operations 76.8 79.6 (77.0)

(Loss) income from discontinued operations, net of tax (1.1) 13.3 (242.9)

Net income attributable to the non-controlling interests — (0.7) (4.5)

Net income (loss) attributable to common stockholders $ 75.7 $ 92.2 $ (324.4)

Earnings (loss) per share

Basic from continuing operations $ 0.31 $ 0.31 $ (0.27)

Basic from discontinued operations (0.01) 0.05 (0.86)

Basic attributable to common stockholders $ 0.30 $ 0.36 $ (1.13)

Diluted from continuing operations $ 0.31 $ 0.30 $ (0.27)

Diluted from discontinued operations (0.01) 0.05 (0.86)

Diluted attributable to common stockholders $ 0.30 $ 0.35 $ (1.13)

Weighted average common shares outstanding

See accompanying notes to consolidated financial statements.

F-4

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in millions)

Year Ended December 31,

Other comprehensive income (loss)

Foreign currency translation:

Reclassifications — 479.8 —

Total foreign currency translation adjustments 107.4 550.3 (378.0)

Pension and post-retirement plans:

Reclassifications, net of tax expense of $0.0 for 2019 — (2.1) —

Total pension and post-retirement plans 4.4 (1.5) 1.8

Derivative financial instruments:

Reclassifications, net of tax expense of $1.5 for 2019 14.1 (3.0) (0.5)

See accompanying notes to consolidated financial statements.

F-5

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in millions)

December 31,

Assets

Current assets of discontinued operations — 11.2

Property, plant and equipment, net 240.4 264.8

Non-current assets of discontinued operations 3.3 6.5

Liabilities & stockholders' equity

Current installments of long-term debt 7.4 7.8

Accrued expenses and other current liabilities 204.2 155.1

Current liabilities of discontinued operations 7.1 34.1

Pension and post-retirement benefits 43.3 50.8

Commitments and contingencies (Note 18)

Stockholders' equity

Preferred stock - Series A — —

Accumulated other comprehensive loss (194.8) (280.5)

Non-controlling interests (1.7) (1.6)

Total liabilities and stockholders' equity $ 4,483.4 $ 4,324.4

See accompanying notes to consolidated financial statements.

F-6

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in millions)

Year Ended December 31,

Cash flows from operating activities:

(Loss) income from discontinued operations, net of tax (1.1) 13.3 (242.9)

Net income (loss) from continuing operations 76.8 79.6 (77.0)

Deferred income taxes (53.0) (3.1) (54.7)

Foreign exchange loss (gain) 29.3 (54.6) (0.2)

Incentive stock compensation 6.0 11.8 15.4

Changes in assets and liabilities, net of acquisitions:

Accounts payable (5.3) (7.0) (5.5)

Prepaid expenses and other current assets (9.6) (2.9) 10.5

Other assets and liabilities 8.9 (23.0) (6.1)

Cash flows from investing activities:

Proceeds from disposal of property, plant and equipment 1.7 4.6 4.2

Proceeds from the Arysta Sale (net of cash $148.7 million) — 4,281.8 —

Proceeds from the sale of equity investment — — 25.0

Acquisition of business, net of cash acquired (9.0) (63.9) (28.2)

Cash flows from financing activities:

Change in lines of credit, net — (24.9) 25.0

Repurchases of common stock (55.7) (507.1) —

Dividends (12.4) — —

Payment of financing fees (46.2) (40.5) (1.4)

Cash flows from discontinued operations:

Net cash flows used in discontinued operations (14.7) (161.9) (15.3)

Supplemental disclosure information of continuing operations:

Cash paid for income taxes $ 66.5 $ 71.2 $ 78.9

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

(2) Includes cash, cash equivalents and restricted cash of discontinued operations of $181.9 million at December 31, 2018.

See accompanying notes to consolidated financial statements.

F-7

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(dollars in millions, except share and per share amounts)

Shares Amount Shares Amount Shares Amount

Other comprehensive income, net of taxes — — — — — — — — 85.7 85.7 — 85.7

Issuance of common stock under ESPP — — 116,205 — 1.1 — — — — 1.1 — 1.1

Dividends ($0.05 per share) — — — — — — — (12.4) — (12.4) — (12.4)

Equity compensation expense — — — — 5.4 — — — — 5.4 — 5.4

Changes in non-controlling interests — — — — — — — — — — (0.1) (0.1)

See accompanying notes to consolidated financial statements.

F-8

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)

(dollars in millions, except share and per share amounts)

Shares Amount Shares Amount Shares Amount

Other comprehensive income, net of taxes — — — — — — — — 27.0 27.0 — 27.0

Issuance of common stock under ESPP — — 123,982 — 1.1 — — — — 1.1 — 1.1

Equity compensation expense — — — — 13.7 — — — — 13.7 — 13.7

Changes in non-controlling interests — — — — — — — — — — (0.3) (0.3)

See accompanying notes to consolidated financial statements.

F-9

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)

(dollars in millions, except share and per share amounts)

Shares Amount Shares Amount Shares Amount

Impact of ASU 2016-01 adoption — — — — — — — (1.3) 1.3 — — —

Issuance of common stock under ESPP — — 128,595 — 1.2 — — — — 1.2 — 1.2

Equity compensation expense — — — — 18.9 — — — — 18.9 — 18.9

Changes in non-controlling interests — — — — — — — — — — (5.1) (5.1)

See accompanying notes to consolidated financial statements.

F-10

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BACKGROUND AND BASIS OF PRESENTATION

Background

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

Element Solutions is a leading global specialty chemicals company whose businesses supply a broad range of solutions that enhance the performance of products people use every day. Developed in multi-step technological processes, these innovative solutions enable customers' manufacturing processes in several key industries, including consumer electronics, power electronics, semiconductor fabrication, communications and data storage infrastructure, automotive systems, industrial surface finishing, consumer packaging and offshore energy. Our businesses provide products that, in substantially all cases, are consumed by customers as part of their production process, providing us with reliable and recurring revenue streams as the products are replenished in order to continue production.Element Solutions delivers its products to customers through its sales and service workforce, regional distributors and manufacturing representatives.

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

Electronics – The Electronics segment researches, formulates and sells specialty chemicals and materials for all types of electronics hardware, from complex printed circuit board designs to advanced semiconductor packaging. In mobile communications, computers, automobiles and aerospace equipment, its products are an integral part of the manufacturing process and the functionality of their end-products. The segment's "wet chemistries" for metallization, surface treatments and solderable finishes form the physical circuitry pathways, and its "assembly materials," such as solders, pastes, fluxes and adhesives, join those pathways together. The segment provides specialty chemical solutions through the following businesses: Assembly Solutions, Circuitry Solutions and Semiconductor Solutions.

Industrial & Specialty – The Industrial & Specialty segment researches, formulates and sells specialty chemicals that enhance surfaces in diverse industrial sectors from automotive trim to transcontinental infrastructure and from high-speed printing to high-design faucets. Its products include chemical systems that protect and decorate metal and plastic surfaces; consumable chemicals that enable printing image transfer on flexible packaging materials; and chemistries used in water-based hydraulic control fluids for offshore energy production. These fully consumable products are used in the aerospace, automotive, construction, consumer electronics, consumer packaged goods and oil and gas production end markets. The segment provides specialty chemical solutions through the following businesses: Industrial Solutions, Graphics Solutions and Energy Solutions.

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with GAAP and include the accounts of Element Solutions and all of its controlled subsidiaries. The Company consolidates the income, expenses, assets, liabilities and cash flows of its subsidiaries from the date it acquires control or becomes the primary beneficiary. All intercompany accounts and transactions have been eliminated upon consolidation.

In preparing the Consolidated Financial Statements in conformity with GAAP, management uses estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Management applies judgment based on its understanding and analysis of the relevant circumstances, including historical experience and future expectations. These judgments, by their nature, are subject to an inherent degree of uncertainty and, accordingly, actual results could differ significantly from these estimates and assumptions.

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

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents – The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.

Receivables and Allowance for Doubtful Accounts – The Company determines its allowance for doubtful accounts associated with expected credit losses using a combination of factors to reduce trade receivable balances to their estimated net realizable amount. The Company maintains and adjusts its allowance for credit losses based on a variety of factors, including the length of time receivables have been past due under the applicable contractual terms, current and future macroeconomic trends and conditions, significant one-time events such as bankruptcy filings or deterioration in the customer’s operating results or financial position, historical experience and the financial condition of its customers. Credit risk with respect to accounts receivable is generally diversified due to the large number of entities comprising the Company's customer base and its dispersion across many different geographical regions. At December 31, 2020 and 2019, the Company did not believe it had any significant concentrations of credit risk that could materially impact its results of operations or financial position.

Inventories – Inventories are stated at the lower of cost or net realizable value with cost being determined by the first-in/first-out and average cost methods. The Company regularly reviews inventories for obsolescence and excess quantities and calculates reserves based on historical write-offs, customer demand, age of inventory, product evolution, usage rates and quantities of stock on hand. Additional obsolescence reserves may be required if actual sales are less favorable than those projected or product lifecycles differs from expectations.

Property, Plant and Equipment – Property, plant and equipment is stated at cost less accumulated depreciation. The Company records depreciation on a straight-line basis over the estimated useful life of each asset.

Estimated useful lives by asset class are as follows:

Average useful life (in years)

Buildings and building improvements 5 to 20

Machinery, equipment and fixtures 3 to 15

Computer hardware and software 3 to 7

Furniture and automobiles 3 to 7

Leasehold improvements Lesser of useful lifeor lease term

Maintenance and repair costs are expensed as incurred, while renewals and improvements, which significantly extend the useful life of the asset, are capitalized and expensed over its remaining useful life. Costs and accumulated depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are recorded to earnings in the period of disposal.

Business Combinations–The Company allocates the purchase price of acquisitions to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the acquisition price over those estimated fair values is recorded as goodwill. Changes to the acquisition date provisional fair values prior to the end of the measurement period are recorded as adjustments to the associated goodwill. Acquisition-related expenses and restructuring costs, if any, are expensed as incurred.

Goodwill–Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or when events or changes in circumstances indicate that goodwill might be impaired. The Company's reporting units are determined based upon its organizational structure in place at the date of the goodwill impairment test.

The Company tests for impairment by comparing the fair value of each reporting unit to its carrying value. The fair value of each reporting unit is based equally on market multiples and the present value of discounted future cash flows. Excluding certain nonrecurring charges, the discounted cash flows are prepared based upon cash flows at the reporting unit level. The cash flow model utilized in the goodwill impairment test involves significant judgments related to future growth rates and discount rates, among other considerations from the vantage point of a market participant. If the fair value of a reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired and no further testing is

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required. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, the goodwill impairment loss is calculated as the difference between these amounts, limited to the amount of goodwill allocated to the reporting unit.

The primary components of and assumptions used in the assessment consist of the following:

•Valuation Techniques - the Company uses a discounted cash flow analysis, which requires assumptions about short and long-term net cash flows, growth rates and discount rates. Additionally, it considers guideline company and guideline transaction information, where available, to aid in the valuation of the reporting units.

•Growth Assumptions - Multi-year financial forecasts are developed for each reporting unit by considering several key business drivers, such as new business initiatives, client service and retention standards, market share changes, historical performance and industry and economic trends, among other considerations.

•Discount Rate Assumptions - Discount rates are estimated based on the WACC, which combines the required return on equity and considers the risk-free interest rate, market risk premium, size risk premium and a company specific risk premium, with the cost of debt, based on rated corporate bonds, adjusted using an income tax factor.

•Estimated Fair Value and Sensitivities - The estimated fair value of each reporting unit is derived from the valuation techniques described above. The estimated fair value of each reporting unit is analyzed in relation to numerous market and historical factors, including current economic and market conditions, company-specific growth opportunities and guideline company information.

Indefinite-Lived Intangible Assets – Indefinite-lived intangible assets are reviewed for potential impairment on an annual basis, in the fourth quarter, or more frequently when events or circumstances indicate that such assets may be impaired, by comparing their estimated fair values to their carrying values. An impairment charge is recognized when the carrying value of an indefinite-lived intangible asset exceeds its estimated fair value. The Company uses the “relief from royalty” method to estimate the fair value of trade name intangible assets for impairment. The primary assumptions used to estimate the present value of cash flows from such assets include sales projections and growth rates being applied to a prevailing market-based royalty rate, the effects of which are then tax effected and discounted using the WACC from the vantage point of a market participant. Assumptions concerning sales projections are impacted by the uncertain nature of global and local economic conditions in the various markets it serves.

Finite-Lived Intangible Assets – Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, which currently range from 8 to 25 years for customer relationships, 3 to 10 years for developed technologies, 5 to 20 years for trade names and up to 5 years for other intangible assets. If circumstances require a long-lived asset group to be tested for possible impairment, the Company first determines if the estimated undiscounted future pre-tax cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When an impairment is identified, the carrying value of the asset is reduced to its estimated fair value.

Leases – The Company adopted ASU No. 2016-02, "Leases" on January 1, 2019. This ASU required lessees to recognize most leases in their balance sheets, but to continue to record expenses on their income statements in a manner similar to past accounting. The Company determines if an arrangement is a lease at inception. Right-of-use (or 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 interest rate used to determine the present value of future lease payments is the Company's incremental borrowing rate, as the implicit rate in its leases is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis for borrowings with similar terms and payments. The Company's leases may include variable payments such as common area maintenance, insurance, real estate taxes, changes in price indices or other costs, which are expensed as incurred. ROU assets also include any lease payments made prior to commencement and are recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense for fixed lease payments is recognized on a straight-line basis over the lease term.

Contingencies and Commitments – The Company records accruals for loss contingencies and commitments which are both probable and reasonably estimable. Significant judgment is required to determine both probability and the estimated amount of loss. The Company reviews accruals on a quarterly basis and adjusts, as necessary, to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other current information. Legal fees are expensed as incurred.

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Environmental Matters – 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. Costs related to environmental contamination treatment and cleanup are charged to expense. The accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the Consolidated Balance Sheets as “Accrued expenses and other current liabilities” and “Other liabilities” at undiscounted amounts. Receivables for related insurance or other third-party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in the Consolidated Balance Sheets as “Other current assets" and "Other assets."

Employee Benefits – Amounts recognized in the Company's Consolidated Financial Statements related to pension and other post-retirement benefits are determined from actuarial valuations. Inherent in such valuations are assumptions including expected return on plan assets, discount rates at which the liabilities could be settled, rates of increase in future compensation levels and mortality rates. These assumptions are updated annually and are disclosed in Note 10, Pension, Post-Retirement and Post-Employment Plans, to the Consolidated Financial Statements. Actual results that differ from the assumptions are recorded in "Accumulated other comprehensive loss" within Stockholders’ Equity and amortized over future periods and, therefore, affect expense recognized.

The Company considers a number of factors in determining and selecting assumptions for the overall expected long-term rate of return on plan assets, including the historical long-term return experience of its plan assets, the current and expected allocation of its plan assets and their expected long-term rates of return. Expected long-term rates of return are derived with the assistance of investment advisors. The Company bases its expected allocation of plan assets on a diversified portfolio consisting of domestic and international equity securities, fixed income securities and alternative asset classes. The measurement date used to determine pension and other post-retirement benefits is December 31.

Derivatives – The Company recognizes all contracts that meet the definition of a derivative as either assets or liabilities in the Consolidated Balance Sheets and measures those instruments at fair value. To designate a derivative for hedge accounting at inception and throughout the hedge period, the Company formally documents the nature and relationships between hedging instrument and hedged item, as well as its risk-management objectives and strategies for undertaking various hedge transactions, and the method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected terms of forecasted transactions are specifically identified, and the likelihood of each forecasted transaction occurring is deemed probable. If it is determined that a forecasted transaction will not occur, a gain or loss is recognized in current earnings. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. The Company does not engage in trading or other speculative uses of financial instruments. It is the Company's policy to disclose the fair value of derivative instruments that are subject to master netting arrangements on a gross basis in the Consolidated Balance Sheets.

If hedge accounting is applied, the effective portion of unrealized gains and losses associated with the derivatives are deferred as a component of "Accumulated other comprehensive loss" until the underlying hedged transactions are reported in the Company’s Consolidated Statements of Operations. For derivative contracts not designated as hedging instruments, the Company records changes in the net fair value of the such contracts in "Other (expense) income, net" in the Consolidated Statements of Operations.

Financial Instruments – The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, investments, accounts payable and debt. The Company believes that the carrying value of the cash and cash equivalents, accounts receivable and accounts payable are representative of their respective fair values because of their short maturities. Available for sale equity investments are carried at fair value. See Note 13, Financial Instruments, to the Consolidated Financial Statements.

Foreign Currency Translation–The Company’s foreign subsidiaries primarily use their local currency as their functional currency. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using foreign currency exchange rates prevailing at the balance sheet dates. The Consolidated Statements of Operations are translated at average foreign currency exchange rates for the periods presented. Cumulative currency translation adjustments are included in the stockholders’ equity section of the Consolidated Balance Sheets as "Accumulated other comprehensive loss." Net gains and losses from transactions denominated in currencies other than the functional currency of the entity are included in the Consolidated Statements of Operations as "Foreign exchange (loss) gain."

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Revenue Recognition – The Company recognizes revenue either upon shipment or delivery of product depending on when it is reasonably assured that both title and the risks and rewards of ownership have been passed on to the customer, the Company's performance obligations have been fulfilled and collectability is probable. Estimates for sales rebates, incentives and discounts, as well as sales returns and allowances, are accounted for as reductions of revenue when the earnings process is complete. Sales rebates, incentives and discounts are typically earned by customers based on annual sales volume targets. The Company records an estimate for these accruals based on contract terms and its historical experience with similar programs, however, changes to these estimates may be required if the historical data used in the calculation differs from actual experience. Differences between estimated expense and actual costs are typically immaterial and are recognized in earnings in the period such differences are determined. Variable consideration for volume discounts, rebates and returns are recorded as contract liabilities and settled with the customer in accordance with the terms of the applicable contract, typically when program requirements are achieved by the customer.

Most performance obligations relate to contracts with a duration of less than one year, in which the Company has the right to invoice the customer at the time the performance obligation is satisfied for the amount of revenue recognized at that time. The Company expenses incremental costs for obtaining contracts with terms of less than one year.

See Note 23, Segment Information, to the Consolidated Financial Statements for a disaggregation of net sales by business unit.

Research and Development–Research and development costs, which primarily relate to internal salaries, are expensed as incurred.

Income Taxes – The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement basis and the tax basis of assets, liabilities, net operating losses and tax carryforwards. A valuation allowance is required to be recognized to reduce the recorded deferred tax asset to the amount that will more likely than not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income by jurisdiction during the periods in which those temporary differences become deductible or when carryforwards can be utilized. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in this assessment. If these estimates and related assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets; resulting in additional income tax expense. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.

The Company is subject to income taxes in the U.S. and in various states and foreign jurisdictions. Significant judgment is required in evaluating uncertain tax positions and determining provisions for income taxes. The first step in evaluating the tax position for recognition is to determine the amount of evidence that supports a favorable conclusion for the tax position upon audit. In order to recognize the tax position, the Company must determine whether it is more likely than not that the position is sustainable. The final evaluation step is to measure the tax benefit as the largest amount that has a more than 50% chance of being realized upon final settlement. Although the Company believes that the positions taken on income tax matters are reasonable, it establishes tax reserves in recognition that various taxing authorities may challenge certain of those positions taken, which may potentially result in additional tax liabilities.

Stock-Based Compensation Plans – Stock-based compensation is recorded in the Consolidated Statements of Operations as "Selling, technical, general and administrative" expense over the requisite service period based on the estimated grant-date fair value of the awards, effected for forfeitures as they occur. The fair value of RSU awards is determined using the closing price of Element Solutions' common stock on the date of grant. The fair value of stock options is determined using the Black-Scholes option pricing model and inputs in the model include assumptions related to stock price volatility, expected dividend yield and award terms.

Compensation costs for awards with performance conditions are only recognized if and when it becomes probable that the performance conditions will be achieved. The probability of vesting is reassessed at the end of each reporting period and the compensation costs are adjusted accordingly, with the cumulative effect of such a change on current and prior periods being recognized in compensation cost in the period of the change.

Earnings (Loss) Per Share – Basic earnings (loss) per share excludes dilution and is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted

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earnings (loss) per share assumes the issuance of all potentially dilutive share equivalents using the if-converted or treasury stock methods, provided that the effects of which are not anti-dilutive. For stock options and RSUs, it is assumed that the proceeds will be used to buy back shares. For stock options, such proceeds equal the average unrecognized compensation plus the assumed exercise of weighted average number of options outstanding. For unvested RSUs, the assumed proceeds equal the average unrecognized compensation expense.

Fair Value Measurements - The Company determines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. The basis for fair value measurements for each level within the hierarchy is described below, with Level 1 having the highest priority and Level 3 having the lowest. The three levels of the fair value hierarchy are as follows:

•Level 1 – inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

•Level 2 – inputs are quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in non-active markets; and model-derived valuations whose inputs are observable or whose significant valuation drivers are observable.

•Level 3 – inputs to valuation models are unobservable and/or reflect the Company’s market assumptions.

The fair value hierarchy is based on maximizing the use of observable inputs and minimizing the use of unobservable inputs when measuring fair value. Classification within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company transfers the fair value of an asset or liability between levels of the fair value hierarchy at the end of the reporting period during which a significant change in the inputs used to determine the fair value has occurred.

NAV Practical Expedient is the measure of fair value using the net asset value (or NAV) per share (or its equivalent) as an alternative to the fair value hierarchy discussed above.

3. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Issued Accounting Pronouncements Not Yet Adopted

Income Taxes (Topic 740) - In December 2019, the FASB issued ASU No. 2019-12, "Simplifying the Accounting for Income Taxes," which removes certain exceptions related to the approach for intraperiod tax allocation, the recognition of deferred tax liabilities for outside basis differences and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective as of January 1, 2021, with early adoption permitted. The Company has evaluated ASU No. 2019-12 and the adoption of the guidance is not expected to have a material impact to our Consolidated Financial Statements.

4. ACQUISITIONS

DMP Acquisition

On July 1, 2020, the Company completed the DMP Acquisition, which was not material to its Consolidated Financial Statements for the year ended December 31, 2020 and, therefore, the purchase price allocation, pro forma and post-acquisition results of operations have not been presented. The DMP business, which provides turnkey wastewater treatment and recycle and reuse solutions across multiple manufacturing industries, is included in our Industrial & Specialty business segment. The impact of this acquisition was not material to the Company's Consolidated Financial Statements, therefore, the purchase price allocation, pro forma and post-acquisition results of operations have not been presented.

Kester Acquisition

On December 2, 2019, the Company completed the Kester Acquisition for $63.9 million, net of cash, working capital and certain post-closing adjustments and funded with available liquidity. The Kester business, a global supplier of advanced technology assembly materials used in electronics assembly and semiconductor applications, complements our assembly and semiconductor businesses. The Kester business is included in our Electronics business segment.

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The following table summarizes the allocation of the purchase price of the Kester Acquisition to the identified assets acquired and liabilities assumed at the acquisition date:

(dollars in millions)

Identifiable assets acquired and liabilities assumed

Accounts receivable $ 7.6

Inventories 8.9

Other current assets 0.4

Property, plant and equipment 8.3

Identifiable intangible assets 36.2

Other assets 2.6

Current liabilities (3.2)

Long-term liabilities (4.5)

Total identifiable net assets 56.3

Goodwill 7.6

Total purchase price $ 63.9

The purchase price allocation was finalized, resulting in immaterial adjustments to the preliminary allocation disclosed above.

The excess of the cost of the Kester Acquisition over the net amounts assigned to the fair values of the assets acquired and the liabilities assumed was recorded as goodwill and represented the value of the assembled workforce. The majority of goodwill recorded in connection with the Kester Acquisition is expected to be deductible for tax purposes.

The fair value of the identifiable intangible assets recorded in conjunction with the Kester Acquisition were as follows:

(dollars in millions) Fair Value Weighted Average Useful Life (years)

Customer relationships $ 35.0 12

Trade name 1.0 5

Developed technology 0.2 3

The fair value of the identifiable intangible assets was determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows either through the use of the multi-period excess earnings method or the relief-from-royalty method. Some of the more significant assumptions inherent in the development of intangible asset values include: the amount and timing of projected future cash flows, the attrition rate and the discount rate selected to measure the risks inherent in the future cash flows.

The Kester Acquisition was not significant to the Company's Consolidated Financial Statements for the year ended December 31, 2020 and, therefore, pro forma and post-acquisition results of operations have not been presented.

5. DISCONTINUED OPERATIONS

On July 20, 2018, the Company agreed to sell its then Agricultural Solutions business to UPL Corporation Ltd. pursuant to the terms and conditions of a certain stock purchase agreement, as amended. The Arysta Sale was completed on January 31, 2019. 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 a material loss 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Year Ended December 31,

Selling, technical, general and administrative (37.2) (466.4)

Research and development (4.6) (52.4)

Gain (loss) on Arysta Sale 2.4 (450.0) (2)

Loss from discontinued operations, before income taxes (10.6) (155.8)

Income tax benefit (expense) 23.9 (87.1)

Income (loss) from discontinued operations, net of tax 13.3 (242.9)

(1) 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.

(2) Primarily due to reclassification of foreign currency translation adjustments from "Accumulated other comprehensive loss" within Stockholders' Equity into earnings within the Consolidated Statement of Operations.

Net loss attributable to common stockholders from the Company's discontinued operations was $1.1 million for the year ended December 31, 2020.

The following table details supplemental cash flow disclosure information related to Company's discontinued operations:

Year Ended December 31,

Cash paid for interest $ — $ — $ 5.4

Cash paid for income taxes $ 14.0 $ 25.3 $ 69.5

6. INVENTORIES

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

December 31,

Raw materials and supplies 60.4 58.5

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7. PROPERTY, PLANT AND EQUIPMENT

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

December 31,

Land and leasehold improvements $ 53.2 $ 68.6

Machinery, equipment, fixtures and software 245.8 220.0

Construction in process 22.3 16.0

Total property, plant and equipment 460.8 418.1

Property, plant and equipment, net $ 240.4 $ 264.8

For 2020, 2019 and 2018, the Company recorded depreciation expense of $42.2 million, $41.5 million and $44.6 million, respectively.

During the third quarter of 2020, the Company met the requirements to classify a dormant facility in New Jersey, included in its Electronics business segment, as held for sale. The current assets held for sale represented the net book value of the land of $17.2 million and the building of $2.5 million as of December 31, 2020. No impairment was identified. The Company received initial deposits of $4.6 million, which are included in "Other, net" in the Consolidated Statements of Cash Flows as a cash inflow from investing activities. The sale was completed in January 2021.

8. GOODWILL AND INTANGIBLE ASSETS

Goodwill

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

(dollars in millions) Electronics Industrial & Specialty Total

Acquisition 7.6 — 7.6

Foreign currency translation and other (10.9) 0.3 (10.6)

Acquisition — 6.8 6.8

Purchase accounting adjustments (2) (1.6) — (1.6)

Foreign currency translation and other 52.2 15.7 67.9

(1) Includes accumulated impairment losses of $46.6 million.

(2) During the second quarter of 2020, the Company recorded a step-up of fixed assets of $1.4 million related to the Kester Acquisition.

No impairments of goodwill were identified during the years ended December 31, 2020, 2019 and 2018.

Indefinite-Lived Intangible Assets

The carrying value of indefinite-lived intangible assets, other than goodwill, which consists solely of trade names, was $68 million and $104 million at December 31, 2020 and 2019, respectively. The Company found no indications of impairment related to its indefinite-lived intangible assets as a result of its annual impairment review.

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Finite-Lived Intangible Assets

Intangible assets subject to amortization were as follows:

For 2020, 2019 and 2018, the Company recorded amortization expense on intangible assets of $119 million, $113 million and $112 million, respectively.

In March 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, subject to an additional $4.5 million of payments 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 was still in development with no alternative future use, the amount paid was expensed to research and development in the Consolidated Statements of Operations. In the fourth quarter of 2020, the contingent milestones were achieved or were deemed probable of achievement and $4.5 million was capitalized, with an estimated useful life of 5 years.

Estimated future amortization of intangible assets for each of the next five years is as follows:

(dollars in millions) Amortization Expense

9. LONG-TERM COMPENSATION PLANS

In June 2014, the Company's stockholders adopted the 2013 Plan, which is administered by the compensation committee of the Board of Directors of the Company, except as otherwise expressly provided in the 2013 Plan. The Board approved a maximum of 15,500,000 shares of common stock, which were reserved and made available for issuance under the 2013 Plan.