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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 2021 Annual Report and our audited Consolidated Financial Statements and notes thereto included elsewhere in this 2021 Annual Report. “Business Overview” and "Highlights" briefly present our business and certain significant events addressed in this section or elsewhere in this 2021 Annual Report. This 2021 Annual Report should be read in its entirety for a complete description of our business and discussion of these events.

Business Overview

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

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

Our operations are organized into two segments: Electronics and Industrial & Specialty. In 2021, we achieved net sales of $2.40 billion, to which our Electronics and Industrial & Specialty segments contributed approximately 64% and 36%, respectively. Each of our segments is 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.

Highlights

•Coventya Acquisition - On September 1, 2021, we completed the Coventya Acquisition for $486 million, net of cash. Coventya is a global provider of specialty chemicals for the surface finishing industry which complements our industrial portfolio. Coventya is included in our Industrial Solutions business line within our Industrial & Specialty segment. The acquisition was funded with the proceeds from the $400 million Add-on Term Loans and cash on hand.

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•HKW Acquisition - On May 5, 2021, we completed the HKW Acquisition for $50.9 million, net of cash. HKW specializes in conformal coatings, encapsulation resins, thermal interface materials, contact lubricants and cleaning chemistry. This business complements our broader electronics portfolio with many applications overlapping with our semiconductor technologies. HKW is included in our Semiconductor Solutions business line within our Electronics segment.

•Stock Repurchase Program - On November 18, 2021, our Board of Directors increased the authorization under our stock repurchase program from approximately $185 million in remaining capacity to $750 million. The remaining authorization under our stock repurchase program was approximately $732 million at December 31, 2021.

•Cash Dividends - During 2021, approximately $61.9 million was returned to our shareholders in the form of cash dividends.

•HSO Acquisition -On January 26, 2022, we completed the HSO Acquisition for $20.3 million, net of cash. The HSO group is a multi-national developer of technology and chemistry for decorative and functional surface finishing with a focus on environmentally sustainable products, especially in the field of plating on plastics. The HSO group will be included in our Industrial Solutions business line within our Industrial & Specialty segment.

Acquisitions

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 meets our acquisition criteria. We anticipate that any future acquisitions would be financed through a combination of cash on hand, availability under our Credit Agreement and/or new debt or equity offerings.

Foreign Currency Exposure

In 2021, approximately 76% of our net sales originated outside of the U.S. and were denominated in numerous currencies, including the Chinese yuan, euro, British pound, and Taiwan dollar. Therefore, fluctuations in foreign exchange rates in any given reporting period may positively or negatively impact our financial performance. Foreign exchange translation positively impacted our 2021 net sales performance by approximately 3%.

In addition, our foreign subsidiaries are subject to foreign currency risk relating to receipts from customers, payments to suppliers and intercompany transactions that are not in their functional currency, which is typically their local currency. As a result, our foreign subsidiaries may enter, and have entered, into foreign exchange hedges designed 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 us to make estimates that may significantly impact our reported financial results and accompanying disclosures. We base our estimates, assumptions and judgments 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 2021 Annual Report for a detailed discussion of the application of these and other accounting policies.

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Revenue Recognition

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

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

Business Combinations

Purchase price allocations of acquisitions to the tangible and intangible assets acquired and liabilities assumed are based on their estimated fair values at the acquisition date. Significant assumptions inherent in the valuation of the intangible assets acquired include the amount and timing of future cash flows, including expected growth rates, profitability and customer attrition rate, and the discount rate applied to the projected cash flows, among other considerations, from the vantage point of a market participant. 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 goodwill.

Goodwill

Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or when events or changes in circumstances indicate that goodwill might be impaired. Our reporting units are determined based upon our organizational structure in place at the date of the goodwill impairment test. The fair value of each reporting unit is determined based equally on market multiples and the present value of discounted future cash flows. The discounted cash flows are prepared based upon cash flows at the reporting unit level and involve significant judgments related to future growth rates and discount rates, among other considerations, from the vantage point of a market participant.

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 goodwill impairment test in the fourth quarter of 2021, 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 10%. Goodwill assigned to the Energy Solutions reporting unit was approximately $250 million as of the assessment date. The estimated fair value of this reporting unit is highly sensitive to changes in these estimates and assumptions; therefore, in some instances, changes in these assumptions may impact whether the fair value of a reporting unit is greater than its carrying value. We performed sensitivity analysis around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values. Based on a sensitivity analysis performed for the Energy Solutions reporting unit, a 50 basis point increase in the WACC or 50 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 unit 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 2021, the fair values of our remaining reporting units were considered to be substantially in excess of their respective carrying values.

See Note 8, Goodwill and Intangible Assets, to the Consolidated Financial Statements included in this 2021 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

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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.

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.

Tax benefits are recognized for an uncertain tax position when, in management’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority or upon completion of the litigation process. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances and when new information becomes available. Such adjustments are recognized in the period in which they are identified.

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 2021 Annual Report.

Non-GAAP Financial Measures

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

These non-GAAP financial measures, however, have limitations as analytical tools and should not be considered in isolation from, or a substitute for, or superior to, the related financial information that we report in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in our financial statements and may not be comparable to similarly titled measures of other companies due to potential differences in calculation methods. In addition, these measures are subject to inherent limitations as they reflect the exercise of judgment by management about which items are excluded or included in determining these non-GAAP financial measures. Investors are encouraged to review the definitions and reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures included in this 2021 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 excluding the impact of changes due to the translation of foreign currencies of our international locations into U.S. dollars. Management believes this non-GAAP financial information facilitates period-to-period comparison in the analysis of trends in business performance, thereby providing valuable supplemental information regarding our results of operations, consistent with how we internally evaluate our financial results.

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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, 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 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 2021 Annual Report.

Results of Operations

Income tax expense (48.3) (4.3) (nm) (61.3) (nm)

Net income from continuing operations 203.4 76.8 (nm) 79.6 (4)%

Income (loss) from discontinued operations, net 0.3 (1.1) (nm) 13.3 (nm)

(nm) Calculation not meaningful.

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Net Sales

Net sales for 2021 increased 29% on a reported basis, 26% on a constant currency basis and 13% on an organic basis. Electronics' consolidated results were positively impacted by $143.4 million of pass-through metals pricing and $25.8 million of acquisitions and Industrial & Specialty's consolidated results were positively impacted by $78.2 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:

Energy Solutions 62.1 65.0 (4)% (2)% (6)% —% —% (6)%

NOTE: Totals may not sum due to rounding.

Electronics' net sales for 2021 increased 31% on a reported basis, 27% on a constant currency basis and 13% on an organic basis.

•Assembly Solutions: net sales increased 44% on a reported basis and 15% on an organic basis.Pass-through metals pricing had a positive impact of 25% on reported net sales. Foreign exchange had a positive impact of 4% on reported net sales. The increase in organic net sales was primarily due to growth in power electronics and broad end market recovery from COVID-19 related weakness.

•Circuitry Solutions: net sales increased 13% on a reported basis and 10% on an organic basis. Foreign exchange had a positive impact of 4% on reported net sales. The increase in organic net sales was primarily due to robust demand in telecommunications, computing, data center markets and new business wins in Asia.

•Semiconductor Solutions: net sales increased 28% on a reported basis and 13% on an organic basis.The HKW Acquisition had a positive impact of 13% on reported net sales. Foreign exchange had a positive impact of 2% on reported net sales. The increase in organic net sales was primarily due to higher net sales of advanced plating chemistries and strong demand for advanced packaging chemistries in the 5G telecommunications infrastructure and automotive electronics end markets.

Industrial & Specialty's net sales for 2021 increased 27% on a reported basis, 25% on a constant currency basis and 13% on an organic basis.

•Industrial Solutions: net sales increased 37% on a reported basis and 18% on an organic basis.The Coventya and DMP Acquisitions had a positive impact of 17% on reported net sales. Foreign exchange had a positive impact of 2% on reported net sales. The increase in organic net sales was primarily due to strong execution amidst the global recovery in automotive production compared to COVID-19-related slowdowns in the first half of 2020, and strength in construction and industrial manufacturing markets in Europe.

•Graphics Solutions: net sales increased 8% on a reported basis and 6% on an organic basis.Foreign exchange had a positive impact of 2% on reported net sales. The increase in organic net sales was primarily due to the investment of

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our consumer packaged good (CPG) customers in new and updated packaging designs, primarily in North America in the third quarter of 2021.

•Energy Solutions: net sales decreased 4% on a reported basis and 6% on an organic basis.Foreign exchange had a positive impact of 2% on reported net sales. The decrease in organic net sales was primarily due to volatile energy prices, which significantly curtailed and delayed production and drilling activity globally.

Gross Profit

Year Ended December 31, Change

(dollars in millions) 2021 2020 Reported Constant Currency

Gross profit:

Gross profit margin:

Electronics' gross profit for 2021 increased 25% on a reported basis and 21% on a constant currency basis. The constant currency increase in gross profit was primarily driven by increased net sales in all business lines. The decrease in gross margin was primarily due to increased net sales of products containing pass-through metals in our Assembly business, higher raw material prices and logistics costs.

Industrial & Specialty's gross profit for 2021 increased 18% on a reported basis and 16% on a constant currency basis. The constant currency increase in gross profit was primarily driven by the impact of higher sales volumes in automotive, construction and industrial manufacturing and a contribution of $17.3 million from the recent Coventya Acquisition, which includes the recognition of the purchase accounting inventory step-up of $8.9 million. The decrease in gross margin was primarily due to higher raw material prices, logistics costs and incremental cost of sales associated with the step-up of inventories recognized in purchase accounting.

Operating Expenses

Year ended December 31, Change

(dollars in millions) 2021 2020 Reported Constant Currency

Selling, technical, general and administrative (STG&A) $ 611.2 $ 504.7 21% 19%

Research and development (R&D) 49.7 48.6 2% 1%

Operating Expenses as % of Net Sales

Operating expenses for 2021 increased 19% on a reported basis and 17% on a constant currency basis. The constant currency increase was primarily driven by $38.6 million of operating expenses related to the recent Coventya and HKW Acquisitions which includes the impact of purchase accounting and restructuring costs of $14.3 million, a stock compensation adjustment of $23.9 million for performance-based RSUs previously considered not probable and $19.3 million of higher incentive compensation costs, primarily due to higher accruals associated with strong full year 2021 financial results. In addition, higher personnel costs, including the impact of temporary employee salary reductions and furloughs in the prior year period contributed to the increase. These increases were partially offset by $6.3 million of research and development expense incurred in the first quarter of 2020 related to the acquisition of a new subsea production control fluid designed to complement our Energy Solutions business.

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Other (Expense) Income, net

Year Ended December 31,

Interest expense, net $ (54.2) $ (63.4)

Foreign exchange gain (loss) 15.8 (36.5)

Other expense, net (9.8) (51.7)

Interest expense, net

Net interest expense decreased $9.2 million, primarily due to 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, partially offset by the interest associated with the $400 million Add-on Term Loans entered into in the third quarter of 2021.

Foreign exchange gain (loss)

Foreign exchange gain increased $52.3 million, primarily due to the remeasurement of euro- and British pound-denominated intercompany balances.

Other expense, net

Other expense, net for 2021 totaled $9.8 million, of which $11.9 million related to losses associated with metals forward contracts. Other expense, net for 2020 totaled $51.7 million, of which $45.7 million related to the full redemption of our 5.875% USD Notes due 2025 and $6.0 million related to losses associated with metals forward contracts.

Income Tax

The income tax expense for 2021 totaled $48.3 million, as compared to $4.3 million in 2020. For additional information see Note 11, Income Taxes, to the Consolidated Financial Statements included in this 2021 Annual Report.

Other Comprehensive (Loss) Income

Other comprehensive loss for 2021 totaled $15.2 million as compared to $85.7 million of income in the prior year. The change was driven primarily by foreign currency translation losses associated with the euro and Chinese yuan partially offset by the revaluation of the Company's cross-currency swaps, interest rate swaps and foreign currency translation gains associated with the British pound and Brazilian real.

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Segment Adjusted EBITDA Performance

Year Ended December 31, Change

(dollars in millions) 2021 2020 Reported Constant Currency

Adjusted EBITDA:

Adjusted EBITDA margin:

Electronics' Adjusted EBITDA for 2021 increased 28% on a reported basis and 23% on a constant currency basis. The constant currency increase was primarily driven by higher gross profit and leverage on disciplined operating expense recovery.

Industrial & Specialty's Adjusted EBITDA for 2021 increased 17% on a reported basis and 14% on a constant currency basis. The Coventya Acquisition had a positive impact of 8% on Industrial & Specialty's Adjusted EBITDA. The constant currency increase was primarily driven by higher gross profit modestly offset by higher incentive compensation costs, primarily due to strong full year 2021 financial results compared to COVID-19-related production slowdowns in the first half of 2020.

Comparison of Fiscal Years 2020 and 2019

For the comparison of fiscal years 2020 and 2019, see "Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019" in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our 2020 Annual Report and incorporated by reference into this 2021 Annual Report.

Liquidity and Capital Resources

Our primary sources of liquidity during 2021 consisted of the proceeds of the $400 million Add-on Term Loans and available cash generated from operations. Our primary uses of cash and cash equivalents were to fund the Coventya and HKW Acquisitions as well as operations, working capital, cash dividend payments, capital expenditures, share repurchases and debt service obligations. Our first significant debt principal payment of approximately $1.08 billion, related to the maturity of our outstanding term loans under the Credit Agreement, is not due until 2026.

In the fourth quarter of 2021, we paid a cash dividend of 8 cents per share. We currently expect to continue to pay a cash 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 2021, approximately 76% 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

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may transfer cash from certain international subsidiaries to the U.S. and/or other international subsidiaries when we believe it is cost effective to do so.

We continually review our domestic and foreign cash profile, expected future cash generation and investment opportunities, which support our current designation of a portion of these funds as being indefinitely reinvested, and reassess whether there are demonstrated needs to repatriate a portion of these funds being held internationally. If, as a result of our review, we determine that all or a portion of the funds require repatriation, we may be required to accrue additional taxes. Of our $330 million of cash and cash equivalents at December 31, 2021, $183 million was held by our foreign subsidiaries. In 2021, domestic cash was primarily used for acquisitions, cash dividend payments, share repurchases and debt service obligations. See Note 11, Income Taxes, to our Consolidated Financial Statements included in this 2021 Annual Report for further discussion of income taxes on remaining undistributed foreign earnings.

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

Year Ended December 31,

Cash provided by operating activities $ 326.0 $ 276.0 $ 170.9

Cash (used in) provided by investing activities $ (568.9) $ (39.9) $ 4,199.7

Cash provided by (used in) financing activities $ 290.0 $ (123.6) $ (4,438.9)

Year Ended December 31, 2021 compared to Year Ended December 31, 2020

Operating Activities

The increase in net cash flows provided by operating activities of $50.0 million was primarily driven by higher cash operating profits (net income adjusted for non-cash items) and a $5.0 million payment associated with the creation and initial funding of the Element Solutions Foundation in the fourth quarter of 2020. These benefits were partially offset by higher levels of working capital, including a build of safety inventory and higher raw material costs, higher annual incentive compensation payments, primarily in the first quarter of 2021 that were associated with our 2020 performance, and $4.7 million of higher cash taxes.

Investing Activities

The increase in net cash flows used in investing activities was primarily driven by the purchase price payments of $486 million for the Coventya Acquisition in the third quarter of 2021 and $50.9 million for the HKW Acquisition in the second quarter of 2021. These increases were partially offset by $19.0 million of cash received for the sale of a dormant facility in New Jersey during the first quarter of 2021.

Financing Activities

During 2021, we borrowed $400 million of Add-on Term Loans to finance the Coventya Acquisition and received net proceeds of $393 million after considering discounts and fees. We also paid cash dividends on our shares of common stock in an aggregate amount of $61.9 million and repurchased shares of our common stock for an aggregate purchase price of approximately $19.6 million. During 2020, we repurchased shares of our common stock for an aggregate purchase price of $55.7 million, paid cash dividends of $12.4 million and paid $46.2 million of financing fees. The financing fees paid in 2020 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.

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 are 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-

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term rate of return on plan assets of 4.2% and 3.6% for our Domestic and Foreign Pension Plans, respectively, to determine our net periodic pension expense for 2021. 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 2.8% and 1.2% were established for the Domestic Pension Plan and Foreign Pension Plans, respectively, at December 31, 2021, compared to rates of 2.5% and 0.7% established for those respective plans at December 31, 2020. 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 $1.2 million and decrease the pension benefit obligation by approximately $25.4 million, whereas a one percent decrease in the discount rate would decrease the pension plan expense by approximately $1.8 million and increase the pension benefit obligation by approximately $30.8 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 92% of plan investments for liability-matching, 6% for long-term growth, and 2% for near-term benefit payments. The weighted average asset allocation of the Domestic Pension Plan was 51% limited partnership interests and managed equity funds, 45% fixed income holdings, 2% equity securities and 2% cash at December 31, 2021.

The Domestic Pension Plans were underfunded by $8.1 million at December 31, 2021 compared to $14.2 million at December 31, 2020. The improvement in the funding position was primarily driven by $6.2 million of actuarial gains due to changes in plan assumptions and experience and a $5.2 million gain on plan assets partially offset by $5.9 million of interest costs.

The Foreign Pension Plans were underfunded by $21.0 million at December 31, 2021 compared to $21.5 million at December 31, 2020.

The Company is not required to make any material plan contributions in 2022. 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, 2021, we had $1.91 billion of indebtedness, net of unamortized discounts and debt issuance costs of $23.2 million, which primarily included:

•$1.13 billion of term debt arrangements outstanding under our term loans; and

•$800 million of 3.875% USD Notes due 2028.

Availability under our revolving credit facility and various lines of credit and overdraft facilities totaled $354 million at December 31, 2021 (net of $5.5 million of stand-by letters of credit which reduce our borrowing capacity).

Covenants

At December 31, 2021, 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 our 3.875% USD Notes due 2028.

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 2021, approximately 76% 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: Chinese yuan, euro, 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.

36

We actively assess our foreign exchange risk exposure and may enter into foreign exchange hedges designed 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, 2021, the aggregate U.S. dollar notional amount of foreign currency forward contracts totaled $64.6 million. None of these foreign currency forward contracts were designated as hedges for accounting purposes. Their market value at December 31, 2021 was a $0.1 million net current liability, and net realized and unrealized losses on such contracts for 2021 totaled $0.2 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, 2021, we had total debt of $1.91 billion, net of unamortized discounts and debt issuance costs of $23.2 million, including approximately $1.13 billion of variable interest rate debt based on the one-month LIBOR.

We use interest rate swaps and cross-currency swaps designed to reduce our exposure to interest rate risk and foreign currency risk. We designate the interest rate swaps as cash flow hedges and the cross-currency swaps as net investment hedges. These swaps effectively convert all of the Company's term loans under the Credit Agreement, which are U.S. dollar denominated debt obligations, into fixed-rate euro-denominated debt through the expiration of the swaps. The net result of these hedges, which expire in January 2024 and 2025, respectively, was an interest rate of approximately 2.1% at December 31, 2021, which could vary in the future due to changes in the euro and the U.S. dollar exchange rate. See Note 13, Financial Instruments, to the Consolidated Financial Statements included in this 2021 Annual Report for additional information.

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, 2021, 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, 2021, the aggregate U.S. dollar notional amount of metals futures contracts, none of which were designated as hedges for accounting purposes, totaled $56.1 million. The market value of the metals forward contracts at December 31, 2021 was a $1.1 million net current liability, and net realized and unrealized losses on such contracts for 2021 totaled $11.9 million.

Item 8. Financial Statements and Supplementary Data

See “Index to Consolidated Financial Statements” in this 2021 Annual Report.

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

None.

37

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, with the participation of our CEO and CFO, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective at December 31, 2021.

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.

However, all internal control systems have inherent limitations and 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 over time due to changes in conditions or the degree of compliance with our policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting at December 31, 2021, using 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, management believes that at December 31, 2021 our internal control over financial reporting was effective.

The effectiveness of our internal control over financial reporting at December 31, 2021 has been audited by PricewaterhouseCoopers LLP, as stated in their report, which appears in this 2021 Annual Report.

Changes to Internal Control Over Financial Reporting

Based on management's evaluation (with the participation of our CEO and CFO), as required by Rule 13a-15(d) under the Exchange Act, there have been no changes in our internal control over financial reporting during the fourth quarter of the year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

On February 22, 2022, the Company and Benjamin Gliklich, President and Chief Executive Officer of the Company, entered into a revised change in control agreement to amend Mr. Gliklich's Termination Factor (as defined in the agreement) from 2 to 3. Other than this change, the agreement is substantially the same as the form previously filed with the SEC in the Company’s Quarterly Report on Form 10-Q on November 7, 2019. A revised form of agreement reflecting this change isattached as Exhibit 10.15 to this 2021 Annual Report and is incorporated herein by reference, along with the detailed summary of the existing change in control agreements previously disclosed in the Company’sCurrent Report on Form 8-K as filed with the SEC on April 8, 2016.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

None.

38

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 2022 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 2021 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 2022 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 2021 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 2022 Proxy Statement under the headings "Security Ownership" and "Executive Compensation Tables - Equity Compensation Plan Information," and is incorporated by reference into this 2021 Annual Report.

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

The information required by this item will be included in the 2022 Proxy Statement under the headings "Corporate Governance - Certain Relationships and Related Transactions" and "Corporate Governance - Director Independence," and is incorporated by reference into this 2021 Annual Report.

Item 14. Principal Accounting Fees and Services

The information required by this item will be included in the 2022 Proxy Statement under the headings "Report of the Audit Committee" and "Proposal 4 - Ratification of Independent Registered Public Accounting Firm for 2022," and is incorporated by reference into this 2021 Annual Report.

39

Part IV

Item 15. Exhibits, Financial Statement Schedules

(A)Exhibits

Incorporated by Reference Included in this 2021 Annual Report

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

4.2 Description of Common Stock X

40

Incorporated by Reference Included in this 2021 Annual Report

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

10.15† Form of Change in Control Agreement X

21.1 List of Subsidiaries X

23.1 Consent of PricewaterhouseCoopers LLP X

24.1 Power of Attorney X

41

Incorporated by Reference Included in this 2021 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.

† Management contract or compensatory plan or arrangement.

(B) Financial Statement Schedule

Schedule II — Valuation and Qualifying Accounts and Reserves

42

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 23, 2022

Michael Russnok (Principal Accounting Officer)

/s/ Sir Martin E. Franklin Executive Chairman of the Board February 23, 2022

Sir Martin E. Franklin

/s/ Ian G.H. Ashken Director February 23, 2022

Ian G.H. Ashken

/s/ Elyse Napoli Filon Director February 23, 2022

Elyse Napoli Filon

/s/ Christopher T. Fraser Director February 23, 2022

Christopher T. Fraser

/s/ Michael F. Goss Director February 23, 2022

Michael F. Goss

/s/ Nichelle Maynard-Elliott Director February 23, 2022

Nichelle Maynard-Elliott

/s/ E. Stanley O’Neal Director February 23, 2022

E. Stanley O’Neal

43

Index to Consolidated Financial Statements

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID 238) F-1

Consolidated Financial Statements:

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income

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

44

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, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income, of changes in stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 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, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

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 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.

F-1

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 - Energy Solutions Reporting Unit

As described in Notes 2 and 8 to the consolidated financial statements, the Company’s consolidated goodwill balance was $2.53 billion as of December 31, 2021 and goodwill associated with the Energy Solutions reporting unit was $250 million. 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 of the Energy Solutions reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value of the reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence relating to management’s significant assumptions related to future growth rates and the discount rate; 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 of the Energy Solutions reporting unit; (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 rate. 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 unit; (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 of the Customer Relationships Intangible Asset - Acquisition of Coventya

As described in Note 4 to the consolidated financial statements, on September 1, 2021, the Company acquired Coventya for $486 million, net of cash, which included a customer relationships intangible asset valued at $145 million. The fair value for the customer relationships intangible asset was determined by management using the multi-period excess earnings method. Some of the more significant assumptions used in determining the fair value of the customer relationships include the amount and timing of projected future cash flows, the customer attrition rate and the discount rate.

The principal considerations for our determination that performing procedures relating to the valuation of the customer relationships intangible asset acquired from the Coventya acquisitionis a critical audit matter are (i) the significant judgment by management when determining the fair value of the customer relationships intangible asset; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the amount and timing of projected future cash flows, the customer attrition rate and the discount rate; 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 the acquisition accounting, including controls over management’s valuation of the intangible assets acquired.These procedures alsoincluded, among others, (i) reading the purchase agreement; (ii) testing management’s process for determining the fair value of the customer relationships intangible asset; (iii) evaluating the appropriateness of the multi-period excess earnings method; (iv) testing the completeness and accuracy of the underlying data used in the method; and (v) evaluating the reasonableness of the significant assumptions used by management related to the amount and timing of projected future cash flows, the customer attrition rate and the discount rate. Evaluating management’s assumptions related to the amount and timing of projected future cash flows and the customer attrition rate involved evaluating whether the assumptions were reasonable considering (i) the current and past performance of Coventya; (ii) consistency with external market and industry data; and (iii) whether these

F-2

assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the multi-period excess earnings method and (ii) the customer attrition rate anddiscount rate assumptions.

/s/ PricewaterhouseCoopers LLP

New York, New York

February 23, 2022

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 611.2 504.7 497.0

Other (expense) income:

Income before income taxes and non-controlling interests 251.7 81.1 140.9

Net income from continuing operations 203.4 76.8 79.6

Income (loss) from discontinued operations, net of tax 0.3 (1.1) 13.3

Net income attributable to the non-controlling interests (0.4) — (0.7)

Net income attributable to common stockholders $ 203.3 $ 75.7 $ 92.2

Earnings (loss) per share

Basic from continuing operations $ 0.82 $ 0.31 $ 0.31

Basic from discontinued operations — (0.01) 0.05

Basic attributable to common stockholders $ 0.82 $ 0.30 $ 0.36

Diluted from continuing operations $ 0.82 $ 0.31 $ 0.30

Diluted from discontinued operations — (0.01) 0.05

Diluted attributable to common stockholders $ 0.82 $ 0.30 $ 0.35

Weighted average common shares outstanding

See accompanying notes to consolidated financial statements.

F-4

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in millions)

Year Ended December 31,

Other comprehensive (loss) income

Foreign currency translation:

Reclassifications — — 479.8

Total foreign currency translation adjustments (43.2) 107.4 550.3

Pension and post-retirement plans:

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

Total pension and post-retirement plans 2.9 4.4 (1.5)

Derivative financial instruments:

Other comprehensive (loss) income (15.2) 85.7 516.6

Comprehensive income attributable to stockholders $ 200.7 $ 161.4 $ 568.6

See accompanying notes to consolidated financial statements.

F-5

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in millions)

December 31,

Assets

Property, plant and equipment, net 278.1 240.4

Deferred income tax assets 81.5 77.2

Non-current assets of discontinued operations — 3.3

Liabilities & stockholders' equity

Current installments of long-term debt 12.7 7.4

Accrued expenses and other current liabilities 264.1 204.2

Current liabilities of discontinued operations — 7.1

Pension and post-retirement benefits 36.1 43.3

Deferred income tax liabilities 140.0 112.9

Commitments and contingencies (Note 18)

Stockholders' equity

Accumulated other comprehensive loss (197.4) (194.8)

Non-controlling interests 20.1 (1.7)

Total liabilities and stockholders' equity $ 5,138.4 $ 4,483.4

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:

Income (loss) from discontinued operations, net of tax 0.3 (1.1) 13.3

Net income from continuing operations 203.4 76.8 79.6

Deferred income taxes (46.7) (53.0) (3.1)

Foreign exchange (gain) loss (6.9) 29.3 (54.6)

Incentive stock compensation 40.1 6.0 11.8

Changes in assets and liabilities, net of acquisitions:

Prepaid expenses and other current assets (25.1) (9.6) (2.9)

Other assets and liabilities 15.1 8.9 (23.0)

Cash flows from investing activities:

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

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

Acquisitions of businesses, net of cash acquired (536.5) (9.0) (63.9)

Cash flows from financing activities:

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

Payment of financing fees (5.1) (46.2) (40.5)

Net cash flows used in discontinued operations (3.5) (14.7) (161.9)

Supplemental disclosure information of continuing operations:

Cash paid for income taxes $ 71.2 $ 66.5 $ 71.2

(1) 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

Other comprehensive loss, net of taxes — — — — — — (2.6) (2.6) (12.6) (15.2)

Dividends ($0.25 per share) — — — — — (62.0) — (62.0) — (62.0)

Equity compensation expense — — 40.4 — — — — 40.4 — 40.4

Acquisition of non-controlling interests — — — — — — — — 34.2 34.2

Changes in non-controlling interests — — — — — — — — (0.2) (0.2)

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 — — — — — — — — 85.7 85.7 — 85.7

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-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

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

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-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 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 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 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 may 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.

F-11

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2021 and 2020, 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 differ 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 are based on their estimated fair values at the acquisition date. Significant assumptions inherent in the valuation of the intangible assets acquired include the amount and timing of future cash flows, including expected growth rates, profitability and customer attrition rate, and the discount rate applied to the projected cash flows, among other considerations, from the vantage point of a market participant. 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 goodwill.

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

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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.

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.

As part of our 2021 goodwill impairment test in the fourth quarter of 2021, 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 10%. Goodwill assigned to the Energy Solutions reporting unit was approximately $250 million as of the assessment date.

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 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.

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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.

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 the 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, net" in the Consolidated Statements of Operations.

Financial Instruments – The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, 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.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 gain (loss)."

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 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.

Tax benefits are recognized for an uncertain tax position when, in management’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority or upon completion of the litigation process. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances and when new information becomes available. Such adjustments are recognized in the period in which they are identified.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Income Taxes (Topic 740) - In December 2019, the Financial Accounting Standards Board 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 Company adopted the new standard on January 1, 2021. The adoption of the standard did not have a material impact to the Consolidated Financial Statements.

4. ACQUISITIONS

Coventya Acquisition

On September 1, 2021, the Company completed the Coventya Acquisition for $486 million, net of cash. Coventya is a global provider of specialty chemicals for the surface finishing industry which complements the Company's industrial portfolio. Coventya is included in the Company's Industrial Solutions business line within its Industrial & Specialty segment.

HKW Acquisition

On May 5, 2021, the Company completed the HKW Acquisition for $50.9 million, net of cash. HKW specializes in conformal coatings, encapsulation resins, thermal interface materials, contact lubricants and cleaning chemistry and complements the Company's broader electronics portfolio with many applications overlapping with its semiconductor technologies. HKW is included in the Company's Semiconductor Solutions business line within its Electronics segment.

The following table summarizes the allocation of the purchase price of the Coventya and HKW Acquisitions (together the "Acquisitions") to the identified assets acquired and liabilities assumed at the respective acquisition dates:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions) Coventya HKW

Identifiable assets acquired and liabilities assumed

Accounts receivable $ 44.4 $ 10.1

Other current assets 10.9 2.4

Property, plant and equipment 29.8 6.2

Identifiable intangible assets 213.4 28.7

Current liabilities (43.0) (21.6)

Deferred income taxes (61.3) (7.2)

Other long-term liabilities (15.0) (3.2)

Non-controlling interests (39.6) —

Total identifiable net assets 195.6 30.0

The excess of the cost of the Acquisitions over the net amounts assigned to the fair value of the assets acquired and the liabilities assumed was recorded as goodwill and represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. Substantially all of the goodwill recorded in connection with the Acquisitions is not expected to be deductible for tax purposes.

The fair value of the identifiable intangible assets recorded in conjunction with the Acquisitions was as follows:

Coventya HKW

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 customer attrition rate and the discount rate selected to measure the risks inherent in the future cash flows.

The deferred income taxes reflect the tax effect of the differences between the carry-over tax basis and the fair value recorded in purchase accounting that are primarily associated with the recognition of identifiable intangible assets.

In connection with the Coventya Acquisition, the Company recorded $39.6 million of non-controlling interests in four entities. The most significant non-controlling interest represents 19.7% of a publicly traded entity in Turkey with a fair value of $32.4 million, which was determined based on the stock price on the acquisition date. Net income attributable to non-controlling interests is not material.

As of December 31, 2021, the purchase price allocation for the Acquisitions is preliminary as we are still assessing aspects of the Acquisitions including potential uncertain tax positions. We expect to complete the purchase price allocation within the applicable one year measurement period.

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The Acquisitions were not significant to the Company's Consolidated Financial Statements 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.

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

Year Ended December 31,

(dollars in millions) 2019 (1)

Net sales $ 65.3

Cost of sales (45.5)

Selling, technical, general and administrative (37.2)

Research and development (4.6)

Gain on Arysta Sale 2.4

Operating loss (19.6)

Other, net 9.0

Loss from discontinued operations, before income taxes (10.6)

Income tax benefit 23.9

(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.

Net income (loss) attributable to common stockholders from the Company's discontinued operations was $0.3 million and $(1.1) million for the years ended December 31, 2021 and 2020, respectively.

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

Year Ended December 31,

Net cash flows used in operating activities $ (3.5) $ (14.7) $ (161.7)

Net cash flows used in investing activities — — (5.0)

Net cash flows provided by financing activities — — 4.8

Net cash flows used in discontinued operations $ (3.5) $ (14.7) $ (161.9)

Supplemental cash flow information:

Cash paid for income taxes $ 3.1 $ 14.0 $ 25.3

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. INVENTORIES

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

December 31,

Raw materials and supplies 87.7 60.4

7. PROPERTY, PLANT AND EQUIPMENT

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

December 31,

Land and leasehold improvements $ 54.8 $ 53.2

Machinery, equipment, fixtures and software 290.6 245.8

Construction in process 37.7 22.3

Total property, plant and equipment 545.1 460.8

Property, plant and equipment, net $ 278.1 $ 240.4

For 2021, 2020 and 2019, the Company recorded depreciation expense of $39.7 million, $42.2 million and $41.5 million, respectively.

During the third quarter of 2020, the Company met the requirements to classify as held for sale a dormant facility in New Jersey, included in its Electronics business segment. The sale of the facility was completed in January 2021 and the Company recognized a gain of $3.9 million in "Selling, technical, general and administrative" in the Consolidated Statements of Operations. The Company had received initial cash deposits of $4.6 million in the second half of 2020 and received the remaining cash balance of $19.0 million associated with the sale during the first quarter of 2021. Cash flows associated with the sale of this facility are included in "Other, net" in the Consolidated Statements of Cash Flows as a cash inflow from investing activities.

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 — 6.8 6.8

Foreign currency translation and other 50.6 15.7 66.3

Foreign currency translation and other (2.7) (34.6) (37.3)

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(2) The Company completed the Coventya Acquisition and the HKW Acquisition on September 1, 2021 and May 5, 2021, respectively.

No impairments of goodwill were recognized during the years ended December 31, 2021, 2020 and 2019.

Intangible Assets

The major components of intangible assets were as follows:

Other — — — 1.7 (1.7) —

For 2021, 2020 and 2019, the Company recorded amortization expense on intangible assets of $124 million, $119 million and $113 million, respectively. No impairments of indefinite-lived intangible assets were recognized during the years ended December 31, 2021, 2020 and 2019.

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.

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For 2021, 2020 and 2019, compensation expense associated with the Company's long-term compensation plans was as follows: