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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 2022 Annual Report and our audited Consolidated Financial Statements and notes thereto included elsewhere in this 2022 Annual Report. “Overview” and "2022 Highlights" briefly present our business and certain significant events addressed in this section or elsewhere in this 2022 Annual Report. This 2022 Annual Report should be read in its entirety for a complete description of our business and discussion of these events.

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 product innovation 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.

Our operations are organized into two segments: Electronics and Industrial & Specialty. In 2022, we achieved net sales of $2.55 billion, to which our Electronics and Industrial & Specialty segments contributed approximately 63% and 37%, respectively.

Each of our segments is described below:

Electronics – The Electronics segment researches, formulates and sells specialty chemicals and material process technologies 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 and material process technologies 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.

2022 Highlights

•Resilient Financial Performance in a Challenging Market – During the year, the business grew its reported and organic sales by 6% and 5%, respectively, despite declines in volume in its key end-markets, including mobile phones and consumer electronics. This resilience was driven by strong commercial execution with new customers in existing and new markets and significant pricing actions. In spite of volumes in our end-market declining and meaningful inflation in our supply chains increasing our costs, we modestly grew our Adjusted EBITDA.

•HSO Acquisition -On January 26, 2022, we completed the HSO Acquisition for approximately $23 million, net of cash. HSO 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. HSO is included in our Industrial Solutions business line within our Industrial & Specialty segment.

•Repurchases of Common Stock - During the year ended December 31, 2022, we repurchased 8.0 million shares of our common stock for $151 million. The remaining authorization under our stock repurchase program was approximately $581 million at December 31, 2022.

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•Cash Dividends - During the year ended December 31, 2022, approximately $78.4 million was returned to our shareholders in the form of cash dividends.

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 2022, approximately 75% of our net sales originated outside of the U.S. and were denominated in numerous currencies, including the euro, Chinese yuan, British pound, and Taiwan dollar. Therefore, fluctuations in foreign exchange rates in any given reporting period may positively or negatively impact our financial performance. Foreign exchange translation negatively impacted our 2022 net sales performance by approximately 7%.

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 2022 Annual Report for a detailed discussion of the application of these and other accounting policies.

Revenue Recognition

We recognize revenue when a customer obtains control of the products it purchased, which occurs upon shipment or delivery, when title or 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.

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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 a reporting unit is 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, gross profit, operating expenses 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 2022, we determined that the excess of the fair values of the Graphics Solutions and Energy Solutions reporting units within our Industrial & Specialty segment exceeded their carrying values by approximately 20%. Goodwill assigned to the Graphics Solutions and Energy Solutions reporting units was approximately $212 million and $233 million, respectively, as of the assessment date. The estimated fair values of these reporting units are 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 a sensitivity analysis around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values. Based on the sensitivity analysis performed for the Graphics Solutions and Energy Solutions reporting units, a 50 basis point increase in the WACC or 50 basis point decrease in the terminal growth rate, without any other changes to the valuations, would not result in the carrying value of either reporting unit being greater than the fair value. Future impairments of these reporting units may occur if the businesses do not achieve their expected cash flows or macroeconomic conditions result in an increase in the WACC used to estimate fair value. See Note 7, Goodwill and Intangible Assets, to the Consolidated Financial Statements included in this 2022 Annual Report for additional information.

Income Taxes

We recognize deferred tax assets and liabilities based on the differences between the financial statement basis and the tax basis of assets, liabilities, net operating losses and tax carryforwards. A valuation allowance is required to be recognized to reduce the recorded deferred tax asset to the amount that will more likely than not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income by jurisdiction during the periods in which those temporary differences become deductible or when carryforwards can be utilized. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in this assessment. If these estimates and related assumptions change in the future, we may be required to record additional valuation allowances against our deferred tax assets resulting in additional income tax expense. We evaluate our valuation allowance conclusions on a quarterly basis based on available evidence and realization of deferred tax assets ultimately depends on the existence of sufficient taxable income in the applicable carryback or carryforward periods. Changes in our 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 we consider 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 2022 Annual Report.

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Non-GAAP Financial Measures

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

These non-GAAP financial measures, however, have limitations as analytical tools and should not be considered in isolation from, a substitute for, or superior to, the related financial information that we report in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in our financial statements and may not be completely 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 2022 Annual Report and not to rely on any single financial measure to evaluate our business.

Constant Currency

We disclose operating results, from net sales through operating profit and Adjusted EBITDA, on a constant currency basis by adjusting results to exclude the impact of changes due to the translation of foreign currencies of our international locations into U.S. dollars. Management believes this non-GAAP financial information facilitates period-to-period comparison in the analysis of trends in business performance, thereby providing valuable supplemental information regarding our results of operations, consistent with how we internally evaluate our financial results.

The impact of foreign currency translation is calculated by converting our current-period local currency financial results into U.S. dollars using the prior period's exchange rates and comparing these adjusted amounts to our prior period reported results. The difference between actual growth rates and constant currency growth rates represents the estimated impact of foreign currency translation.

Organic Net Sales Growth

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

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

Adjusted EBITDA

We define Adjusted EBITDA as EBITDA, excluding the impact of additional items included in GAAP earnings which we believe are not representative or indicative of our ongoing business, including unrealized gains/losses on metals derivative contracts, 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 22, Segment Information, to the Consolidated Financial Statements included in this 2022 Annual Report.

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Results of Operations

Net income from continuing operations 186.2 203.4 (8)% 76.8 (nm)

Income (loss) from discontinued operations, net 1.8 0.3 (nm) (1.1) (nm)

(nm) Calculation not meaningful.

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Net Sales

Net sales for 2022 increased 6% on a reported basis, 13% on a constant currency basis and 5% on an organic basis. Electronics' consolidated results were positively impacted by $9.7 million of pass-through metals pricing and $13.5 million of acquisitions and Industrial & Specialty's consolidated results were positively impacted by $176 million of acquisitions.

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

Year ended December 31, % Change

Electronics:

Industrial & Specialty:

NOTE: Totals may not sum due to rounding.

Electronics' net sales for 2022 increased 1% on a reported basis, 7% on a constant currency basis and 5% on an organic basis.

•Assembly Solutions: net sales increased 2% on a reported basis and 7% on an organic basis.Pass-through metals pricing had a positive impact of 1% on reported net sales. Foreign exchange had a negative impact of 6% on reported net sales. The increase in organic net sales was primarily due to strong demand from power electronics customers and continued growth across most core assembly end-markets.

•Circuitry Solutions: net sales decreased 1% on a reported basis and increased 4% on an organic basis. Foreign exchange had a negative impact of 5% on reported net sales. The increase in organic net sales was primarily due to growth in the memory disk business in the first half of 2022, new customer wins and pricing actions.

•Semiconductor Solutions: net sales increased 5% on a reported basis and 3% on an organic basis.The HKW Acquisition had a positive impact of 5% on reported net sales. Foreign exchange had a negative impact of 3% on reported net sales. The increase in organic net sales was primarily due to strong end-market demand in the first half of 2022 and new customer wins in advanced packaging chemistries for high-end electronics end-markets.

Industrial & Specialty's net sales for 2022 increased 16% on a reported basis, 26% on a constant currency basis and 5% on an organic basis.

•Industrial Solutions: net sales increased 21% on a reported basis and 5% on an organic basis.The Coventya and HSO Acquisitions had a positive impact of 29% on reported net sales. Foreign exchange had a negative impact of 13% on reported net sales. The increase in organic net sales was primarily due to growth in automotive, construction and industrial manufacturing markets, partially offset by reduced activity in Asia in the second half of 2022.

•Graphics Solutions: net sales decreased 3% on a reported basis and was approximately flat on an organic basis.Foreign exchange had a negative impact of 4% on reported net sales. Organic net sales reflect new customer wins partially offset by softening demand, which resulted in our customers extending the replacement cycle for flexographic plates.

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•Energy Solutions: net sales increased 8% on a reported basis and 12% on an organic basis.Foreign exchange had a negative impact of 5% on reported net sales. The increase in organic net sales was primarily due to increased global production and drilling activity and cost inflation driven pricing actions which accelerated in the second half of 2022.

Gross Profit

Year Ended December 31, Change

(dollars in millions) 2022 2021 Reported Constant Currency

Gross profit:

Gross profit margin:

Electronics' gross profit for 2022 decreased 4% on a reported basis and remained approximately flat on a constant currency basis. The constant currency gross profit reflects increased net sales in most business lines, partially offset by higher raw material and logistics costs. 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 2022 increased 4% on a reported basis and 14% on a constant currency basis. The constant currency increase in gross profit was primarily driven by the contribution of $59.0 million from the Coventya Acquisition. The decrease in gross margin was primarily due to higher raw material prices, particularly attributable to our Graphics business, and logistics costs, as well as unfavorable product mix.

Operating Expenses

Year ended December 31, Change

(dollars in millions) 2022 2021 Reported Constant Currency

Selling, technical, general and administrative (STG&A) $ 578.6 $ 611.2 (5)% (1)%

Research and development (R&D) 48.8 49.7 (2)% 0%

Operating Expenses as % of Net Sales

Operating expenses for 2022 decreased 5% on a reported basis and 1% on a constant currency basis. The constant currency decrease was primarily driven by $30.3 million of lower incentive compensation costs (a combination of a lower 2022 accrual reflecting actual business performance and 2021 reflecting above target performance), $22.6 million of lower stock compensation expense for performance-based RSUs as compared to the 2021 period when the vesting of certain significant awards became probable and synergies, primarily as a result of the Coventya Acquisition. These decreases were partially offset by $52.0 million of incremental operating expenses related to the Coventya and HSO Acquisitions (which include the impact of purchase accounting and restructuring costs of $18.2 million).

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Other (Expense) Income, net

Year Ended December 31,

Interest expense, net $ (51.2) $ (54.2)

Foreign exchange (loss) gain (5.0) 15.8

Other income (expense), net 2.9 (9.8)

Interest expense, net

Interest expense, net reflects increased interest costs associated with the $400 million Add-on Term Loan, which was borrowed on September 1, 2021, offset by the impact of the weakening of the euro, as compared to the U.S. dollar, as our interest rate and cross-currency swaps have effectively converted our U.S. dollar denominated Term Loans into fixed-rate euro-denominated debt and increased interest income of $1.6 million. See Note 12, Financial Instruments, for further discussion of these derivative instruments.

Foreign exchange (loss) gain

Foreign exchange loss increased $20.8 million, primarily due to the remeasurement of euro-denominated intercompany balances.

Other income (expense), net

Other income, net for 2022 included $0.3 million of net gains associated with metals derivative contracts ($1.6 million of realized gains and $1.3 million of unrealized losses). Other expense, net for 2021 included $11.9 million of net losses associated with metals derivative contracts ($12.0 million of realized losses and $0.1 million of unrealized gains). These metal derivative contracts primarily represented hedges on our inventory associated with pass-through metals pricing in our Assembly business. See Note 12, Financial Instruments, for further discussion of these derivative instruments.

Income Tax

The income tax expense for 2022 totaled $85.8 million, as compared to $48.3 million in 2021. For additional information see Note 10, Income Taxes, to the Consolidated Financial Statements included in this 2022 Annual Report.

Segment Adjusted EBITDA Performance

Year Ended December 31, Change

(dollars in millions) 2022 2021 Reported Constant Currency

Adjusted EBITDA:

Adjusted EBITDA margin:

Electronics' Adjusted EBITDA for 2022 decreased 3% on a reported basis and increased 3% on a constant currency basis. The constant currency increase was primarily driven by lower operating expenses.

Industrial & Specialty's Adjusted EBITDA for 2022 increased 8% on a reported basis and 21% on a constant currency basis. The Coventya Acquisition had a positive impact on Industrial & Specialty's Adjusted EBITDA including synergies, which was partially offset by higher logistics costs and raw material prices and unfavorable product mix.

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Comparison of Fiscal Years 2021 and 2020

For the comparison of fiscal years 2021 and 2020, see "Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020" in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our 2021 Annual Report on Form 10-K and incorporated by reference into this 2022 Annual Report.

Liquidity and Capital Resources

Our primary sources of liquidity during 2022 were available cash generated from operations and cash on hand. Our primary uses of cash and cash equivalents were to repurchase shares of our common stock under our stock repurchase program, pay cash dividends, capital expenditures, fund operations including working capital, purchase shares of our common stock withheld by us to satisfy the tax withholding requirements related to the vesting of RSUs and to fund the HSO Acquisition as well as debt service obligations. Our interest rate swaps and cross-currency swaps associated with the initial $750 million term loans expire on January 2024. Expiration of these hedges could result in a material increase to interest expense. 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 2022, 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, manage interest rates, renegotiate existing debt and/or raise new equity or debt 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 2022, approximately 75% 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 generate a substantial portion of our cash. We expect to manage our worldwide cash requirements based on available funds among the many subsidiaries through which we conduct business and the cost effectiveness with which those funds can be accessed. We may transfer cash from certain international subsidiaries to the U.S. and/or other international subsidiaries when we believe it is cost effective to do so. Of our $266 million of cash and cash equivalents at December 31, 2022, $174 million was held by our foreign subsidiaries.

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

Year Ended December 31,

Cash provided by operating activities $ 295.9 $ 326.0 $ 276.0

Cash used in investing activities $ (75.2) $ (568.9) $ (39.9)

Cash (used in) provided by financing activities $ (275.6) $ 290.0 $ (123.6)

Year Ended December 31, 2022 compared to Year Ended December 31, 2021

Operating Activities

The decrease in net cash flows provided by operating activities of $30.1 million was primarily driven by higher annual incentive compensation payments, primarily in the first quarter of 2022, that were associated with our 2021 performance, partially offset by improved management of working capital and higher cash operating profits (net income adjusted for non-cash items).

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Investing Activities

During 2022, we paid approximately $23 million in connection with the HSO Acquisition. During 2021, we paid $486 million in connection with the Coventya Acquisition, $50.9 million in connection with the HKW Acquisition and received $19.0 million for the sale of a dormant facility in New Jersey.

Financing Activities

During 2022, we paid $151 million in aggregate for the repurchase of shares of our common stock under our stock repurchase program, $78.4 million of cash dividends on shares of our common stock and $24.0 million for shares of our common stock withheld by the Company to satisfy the tax withholding requirements related to the vesting of RSUs included in "Other, net." 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, and paid $61.9 million of cash dividends on shares of our common stock and $19.6 million in aggregate for the repurchase of shares of our common stock under our stock repurchase program.

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-term rate of return on plan assets of 4.8% and 3.1% for our Domestic and Foreign Pension Plans, respectively, to determine our net periodic pension expense for 2022. 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 and expected future pension benefit payments. Discount rates of 5.2% and 3.5% were established for the Domestic Pension Plan and Foreign Pension Plans, respectively, at December 31, 2022, compared to rates of 2.8% and 1.2% established for those respective plans at December 31, 2021. 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 $0.9 million and decrease the pension benefit obligation by approximately $16.5 million, whereas a one percent decrease in the discount rate would decrease the pension plan expense by approximately $1.9 million and increase the pension benefit obligation by approximately $19.2 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 92% fixed income holdings, 6% equity securities and derivatives and 2% cash at December 31, 2022.

The Domestic Pension Plans were underfunded by $16.5 million at December 31, 2022 compared to $8.1 million at December 31, 2021. The decrease in the funding position was primarily driven by a $49.1 million loss on plan assets and $6.3 million of interest costs partially offset by $46.6 million of actuarial gains due to changes in plan assumptions and experience.

The Foreign Pension Plans were underfunded by $14.5 million at December 31, 2022 compared to $21.0 million at December 31, 2021.

We are not required to make any material plan contributions in 2023. 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, 2022, we had $1.90 billion of indebtedness, net of unamortized discounts and debt issuance costs of $18.7 million, which primarily included:

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•$1.11 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 $391 million at December 31, 2022 (net of $6.0 million of stand-by letters of credit, which reduce our borrowing capacity).

Covenants

At December 31, 2022, we were in compliance with the debt covenants contained in the Credit Agreement and the indenture governing our 3.875% USD Notes due 2028.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We are exposed to interest rate risk associated with our long-term debt and other financing commitments. At December 31, 2022, we had total debt of $1.90 billion, net of unamortized discounts and debt issuance costs of $18.7 million, including approximately $1.11 billion of variable interest rate debt based on the one-month Secured Overnight Financing Rate (SOFR).

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 our 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 1.6% at December 31, 2022, which could vary in the future due to changes in the euro and the U.S. dollar exchange rate. See Note 12, Financial Instruments, to the Consolidated Financial Statements included in this 2022 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, 2022, we believe that our exposure to counterparty risk was immaterial.

Foreign Currency Risk

We conduct a significant portion of our business in currencies other than the U.S. dollar, our financial reporting currency. In 2022, approximately 75% of our net sales were generated outside of the U.S. Generally, our foreign subsidiaries use their local currency as their functional currency; the currency in which they incur operating expenses and collect accounts receivable. Our business is exposed to foreign currency risk from changes in the exchange rate primarily between the U.S. dollar and the following currencies: euro, Chinese yuan, British pound, and Taiwan dollar. As a result, our operating results could be affected by foreign currency exchange rate volatility relative to the U.S. dollar. We are not able to project, in any meaningful way, the possible effect of these foreign currency fluctuations on translated amounts or future earnings.

We actively assess our foreign exchange risk exposure and may enter into foreign exchange hedges 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, 2022, the aggregate U.S. dollar notional amount of foreign currency forward contracts totaled $105 million. None of these foreign currency forward contracts were designated as hedges for accounting purposes. Their fair value at December 31, 2022 was a $0.3 million net current liability, and net realized and unrealized losses on such contracts for 2022 totaled $2.3 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.

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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, 2022, the aggregate U.S. dollar notional amount of metals futures contracts, none of which were designated as hedges for accounting purposes, totaled $45.7 million. The fair value of the metals forward contracts at December 31, 2022 was a $2.5 million net current liability and net realized and unrealized gains on such contracts for 2022 totaled $0.3 million.

Item 8. Financial Statements and Supplementary Data

See “Index to Consolidated Financial Statements” in this 2022 Annual Report.

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

None.

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, 2022.

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, 2022, 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, 2022 our internal control over financial reporting was effective.

36

The effectiveness of our internal control over financial reporting at December 31, 2022 has been audited by PricewaterhouseCoopers LLP, as stated in their report, which appears in this 2022 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, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

None.

37

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 2023 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 2022 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 2023 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 2022 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 2023 Proxy Statement under the headings "Security Ownership" and "Executive Compensation Tables - Equity Compensation Plan Information," and is incorporated by reference into this 2022 Annual Report.

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

The information required by this item will be included in the 2023 Proxy Statement under the headings "Corporate Governance - Certain Relationships and Related Transactions" and "Corporate Governance - Director Independence," and is incorporated by reference into this 2022 Annual Report.

Item 14. Principal Accounting Fees and Services

The information required by this item will be included in the 2023 Proxy Statement under the headings "Report of the Audit Committee" and "Proposal 4 - Ratification of Independent Registered Public Accounting Firm for 2023," and is incorporated by reference into this 2022 Annual Report.

38

Part IV

Item 15. Exhibits, Financial Statement Schedules

(A)Exhibits

Incorporated by Reference Included in this 2022 Annual Report

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

39

Incorporated by Reference Included in this 2022 Annual Report

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

21.1 List of Subsidiaries X

23.1 Consent of PricewaterhouseCoopers LLP X

24.1 Power of Attorney X

40

Incorporated by Reference Included in this 2022 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

41

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 22, 2023

Michael Russnok (Principal Accounting Officer)

/s/ Sir Martin E. Franklin Executive Chairman of the Board February 22, 2023

Sir Martin E. Franklin

/s/ Ian G.H. Ashken Director February 22, 2023

Ian G.H. Ashken

/s/ Elyse Napoli Filon Director February 22, 2023

Elyse Napoli Filon

/s/ Christopher T. Fraser Director February 22, 2023

Christopher T. Fraser

/s/ Michael F. Goss Director February 22, 2023

Michael F. Goss

/s/ Nichelle Maynard-Elliott Director February 22, 2023

Nichelle Maynard-Elliott

/s/ E. Stanley O’Neal Director February 22, 2023

E. Stanley O’Neal

42

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

43

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, 2022 and 2021, 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, 2022, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 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, 2022, 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 matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment– Graphics Solutions and Energy Solutions Reporting Units

As described in Notes 2 and 7 to the consolidated financial statements, the Company’s consolidated goodwill balance was $2.41 billion as of December 31, 2022 and goodwill associated with the Graphics Solutions and Energy Solutions reporting units was approximately $217 and $241 million, respectively. 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 using either a qualitative or quantitative approach. For the quantitative test, management tests for impairment by comparing the fair value of a reporting unit to its carrying value. The fair value of a 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, gross profit, operating expenses 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 Graphics Solutions and Energy Solutions reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of the reporting units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to future growth rates, gross profit, operating expenses 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 Graphics Solutions and Energy Solutions reporting units. These procedures also included, among others, (i) testing management’s process for developing the fair value estimates; (ii) evaluating the appropriateness of the valuation methods; (iii) testing the completeness and accuracy of underlying data used in the methods; and (iv) evaluating the significant assumptions used by management related to future growth rates, gross profit, operating expenses and the discount rate. Evaluating management’s assumptions related to future growth rates, gross profit and operating expenses 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 evaluating (i) the appropriateness of the Company’s valuation methods and (ii) the reasonableness of the discount rate assumption.

/s/ PricewaterhouseCoopers LLP

Stamford, Connecticut

February 22, 2023

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

F-2

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 578.6 611.2 504.7

Other (expense) income:

Foreign exchange (loss) gain (5.0) 15.8 (36.5)

Other income (expense), net 2.9 (9.8) (51.7)

Income before income taxes and non-controlling interests 272.0 251.7 81.1

Income (loss) from discontinued operations, net of tax 1.8 0.3 (1.1)

Net income attributable to the non-controlling interests (0.8) (0.4) —

Net income attributable to common stockholders $ 187.2 $ 203.3 $ 75.7

Earnings (loss) per share

Basic from continuing operations $ 0.75 $ 0.82 $ 0.31

Basic from discontinued operations 0.01 — (0.01)

Basic attributable to common stockholders $ 0.76 $ 0.82 $ 0.30

Diluted from continuing operations $ 0.75 $ 0.82 $ 0.31

Diluted from discontinued operations 0.01 — (0.01)

Diluted attributable to common stockholders $ 0.76 $ 0.82 $ 0.30

Weighted average common shares outstanding

See accompanying notes to consolidated financial statements.

F-3

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in millions)

Year Ended December 31,

Other comprehensive (loss) income

Foreign currency translation:

Total foreign currency translation adjustments (148.5) (43.2) 107.4

Pension and post-retirement plans:

Total pension and post-retirement plans (5.2) 2.9 4.4

Unrealized gain on available-for-sale debt securities:

Total unrealized gain on available-for-sale debt securities 1.1 — —

Derivative financial instruments:

Other comprehensive (loss) income (102.9) (15.2) 85.7

Comprehensive loss attributable to the non-controlling interests 1.4 12.2 —

Comprehensive income attributable to stockholders $ 86.5 $ 200.7 $ 161.4

See accompanying notes to consolidated financial statements.

F-4

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in millions)

December 31,

Assets

Property, plant and equipment, net 277.2 278.1

Deferred income tax assets 51.5 81.5

Liabilities and stockholders' equity

Current installments of long-term debt 11.5 12.7

Accrued expenses and other current liabilities 200.7 264.1

Pension and post-retirement benefits 36.7 36.1

Deferred income tax liabilities 121.2 140.0

Commitments and contingencies (Note 17)

Stockholders' equity

Accumulated other comprehensive loss (298.1) (197.4)

Non-controlling interests 16.6 20.1

Total liabilities and stockholders' equity $ 4,903.7 $ 5,138.4

See accompanying notes to consolidated financial statements.

F-5

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 1.8 0.3 (1.1)

Foreign exchange loss (gain) 3.4 (6.9) 29.3

Incentive stock compensation 17.7 40.1 6.0

Changes in assets and liabilities, net of acquisitions:

Prepaid expenses and other current assets (26.6) (25.1) (9.6)

Other assets and liabilities (14.7) 15.1 8.9

Net cash flows provided by operating activities 295.9 326.0 276.0

Cash flows from investing activities:

Proceeds from disposal of property, plant and equipment 4.8 — 1.7

Acquisitions of businesses, net of cash acquired (22.6) (536.5) (9.0)

Net cash flows used in investing activities (75.2) (568.9) (39.9)

Cash flows from financing activities:

Debt proceeds, net of discount — 398.0 800.0

Payment of financing fees (1.9) (5.1) (46.2)

Net cash flows (used in) provided by financing activities (275.6) 290.0 (123.6)

Effect of exchange rate changes on cash and cash equivalents (11.4) (5.4) 4.0

Net (decrease) increase in cash and cash equivalents (64.5) 38.2 101.8

Cash and cash equivalents at beginning of period 330.1 291.9 190.1

Cash and cash equivalents at end of period $ 265.6 $ 330.1 $ 291.9

Supplemental disclosure information of continuing operations:

Cash paid for income taxes $ 66.5 $ 71.2 $ 66.5

Supplemental disclosure information of discontinued operations:

Cash paid for income taxes $ — $ 3.1 $ 14.0

See accompanying notes to consolidated financial statements.

F-6

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 — — — — — — (100.7) (100.7) (2.2) (102.9)

Dividends ($0.32 per share) — — — — — (79.1) — (79.1) — (79.1)

Equity compensation expense — — 18.1 — — — — 18.1 — 18.1

Changes in non-controlling interests — — (0.1) — — — — (0.1) (2.1) (2.2)

See accompanying notes to consolidated financial statements.

F-7

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

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

INDEX TO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Note 1 Background and Basis of Presentation F-11

Note 2 Summary of Significant Accounting Policies F-12

Note 3 Recent Accounting Pronouncements F-16

Note 4 Acquisitions F-16

Note 5 Inventories F-18

Note 6 Property, Plant and Equipment, Net F-19

Note 7 Goodwill and Intangible Assets F-19

Note 8 Long-Term Compensation Plans F-20

Note 9 Pension, Post-Retirement and Post-Employment Plans F-23

Note 10 Income Taxes F-27

Note 12 Financial Instruments F-32

Note 13 Stockholders' Equity F-34

Note 14 Accumulated Other Comprehensive (Loss) Income F-35

Note 15 Earnings Per Share F-36

Note 17 Contingencies, Environmental and Legal Matters F-37

Note 18 Related Party Transactions F-38

Note 19 Restructuring F-38

Note 20 Other Income (Expense), Net F-38

Note 21 Accrued Expenses and Other Current Liabilities F-39

Note 22 Segment Information F-39

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. Element Solutions businesses provide products that, in substantially all cases, are consumed by customers as part of their production process, providing the Company 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 reportable 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 material process technologies 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 and material process technologies 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.

In the second quarter of 2022, the Company transferred operational responsibility of its Films business from its Industrial Solutions business within its Industrial & Specialty segment to its Circuitry Solutions business in its Electronics segment.Historical information has been reclassified to include the Films business in the Electronics segment for all periods presented in the Consolidated Financial Statements.

F-11

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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, 2022 and 2021, 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, Net – Property, plant and equipment, net is stated at cost less accumulated depreciation. The Company records depreciation on a straight-line basis over the estimated useful life of each asset.

Estimated useful lives by asset class are as follows:

Average useful life (in years)

Buildings and building improvements 5 to 20

Machinery, equipment and fixtures 3 to 15

Computer hardware and software 3 to 7

Furniture and automobiles 3 to 7

Leasehold improvements Lesser of useful lifeor lease term

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

Business Combinations–The Company allocates the purchase price of acquisitions to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. 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 using either a qualitative or quantitative approach. The Company's reporting units are determined based upon its organizational structure in place at the date of the goodwill impairment test.

F-12

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company may elect to first assess qualitative factors to determine whether it is more likely than not (greater than 50%) that the fair value of a reporting unit is less than its carrying value. Qualitative factors may include, but are not limited to, economic, market and industry conditions, cost factors, and overall financial performance of the reporting units. If we do not perform a qualitative assessment, or if the qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative test.

For the quantitative test, the Company tests for impairment by comparing the fair value of a reporting unit to its carrying value. The fair value of a reporting unit is 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. The cash flow model utilized in the goodwill impairment test involves significant judgments related to future growth rates, gross profit, operating expenses 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.

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 based on several key growth 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. This fair value 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 the goodwill impairment test in the fourth quarter of 2022, the Company determined that the excess of the fair value of the Graphics Solutions and Energy Solutions reporting units within the Industrial & Specialty segment exceeded their carrying values by approximately 20%. Goodwill assigned to the Graphics Solutions and Energy Solutions reporting units was approximately $217 million and $241 million, respectively, as of December 31, 2022.

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 or asset group plus net proceeds expected from disposition of the asset or asset group, if any, are less than its carrying value. 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The interest rate used to determine the present value of future lease payments is the Company's incremental borrowing rate, as the implicit rate in its leases is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis for borrowings with similar terms and payments. The Company's leases may include variable payments such as common area maintenance, insurance, real estate taxes, changes in price indices or other costs, which are expensed as incurred. ROU assets also include any lease payments made prior to commencement and are recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense for fixed lease payments is recognized on a straight-line basis over the lease term.

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

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 9, 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 as well as their current and expected allocation and expected long-term rates of return. Expected long-term rates of return are determined 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 such contracts in "Other income (expense), net" in the Consolidated Statements of Operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 its 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 stockholders’ equity section of the Consolidated Balance Sheets as "Accumulated other comprehensive loss." Net gains and losses from transactions denominated in currencies other than the functional currency of the entity are included in the Consolidated Statements of Operations as "Foreign exchange (loss) gain."

Revenue Recognition – The Company recognizes revenue when a customer obtains control of the products it purchased, which occurs upon shipment or delivery, when title or 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 22, 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 the Company considers 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

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ELEMENT SOLUTIONS INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

option pricing model, and inputs in the model include assumptions related to stock price volatility, expected dividend yield and award terms.

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

Earnings 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 determine 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

There have been no recently adopted accounting pronouncements with a material impact to the Consolidated Financial Statements and there are no recently issued accounting pronouncements not yet adopted that are expected to have a material impact to the Consolidated Financial Statements.

4. ACQUISITIONS

HSO Acquisition

On January 26, 2022, the Company completed the HSO Acquisition for approximately $23 million, net of cash. HSO 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. HSO is included in the Company's Industrial Solutions business within its Industrial & Specialty segment and was not material to the Consolidated Financial Statements. In connection with this acquisition, the Company recorded approximately $11.7 million of finite-lived intangible assets, primarily customer relationships.

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ELEMENT SOLUTIONS INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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 which 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 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:

(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 purchase price allocation for the Acquisitions was finalized in 2022 resulting in immaterial adjustments to the preliminary allocation disclosed above.

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 deductible for tax purposes.

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ELEMENT SOLUTIONS INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 using either 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 closing market price of this entity's stock on the acquisition date. Net income attributable to non-controlling interests is not material.

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. INVENTORIES

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

December 31,

Raw materials and supplies 100.4 87.7

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ELEMENT SOLUTIONS INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. PROPERTY, PLANT AND EQUIPMENT, NET

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

December 31,

Land and leasehold improvements $ 52.0 $ 54.8

Machinery, equipment, fixtures and software 299.8 290.6

Construction in process 50.3 37.7

Total property, plant and equipment 566.0 545.1

Property, plant and equipment, net $ 277.2 $ 278.1

For 2022, 2021 and 2020, the Company recorded depreciation expense of $41.6 million, $39.7 million and $42.2 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. In connection with the sale, the Company received an initial cash deposit of $4.6 million in the second half of 2020 and the remaining cash balance of $19.0 million in 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.

7. 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

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

HSO Acquisition — 7.1 7.1

Transfer of Films business (3) 80.4 (80.4) —

Foreign currency translation and other (68.6) (52.0) (120.6)

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

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

(3) Goodwill was reallocated using a relative fair value approach and assessed for impairment both before and after the allocation. See Note 1, Background and Basis of Presentation, to the Consolidated Financial Statements for further information.

No impairments of goodwill were recognized during the years ended December 31, 2022, 2021 and 2020.

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ELEMENT SOLUTIONS INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets

The major components of intangible assets were as follows:

For 2022, 2021 and 2020, the Company recorded amortization expense on intangible assets of $120 million, $124 million and $119 million, respectively. No impairments of indefinite-lived intangible assets were recognized during the years ended December 31, 2022, 2021 and 2020.

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 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

8. LONG-TERM COMPENSATION PLANS

In June 2014, the Company's stockholders adopted the 2013 Plan in connection which a maximum of 15,500,000 shares of common stock were reserved and made available for issuance.

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ELEMENT SOLUTIONS INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For 2022, 2021 and 2020, compensation expense associated with the Company's long-term compensation plans was as follows:

Year Ended December 31,

Equity classified RSUs $ 17.4 $ 39.6 $ 4.2

Liability classified RSUs — — 0.9

Unrecognized compensation expense for awards expected to vest $ 19.2

Weighted average remaining vesting period (months) 30

At December 31, 2022, a total of 7,820,000 shares of common stock had been issued, and 4,289,420 RSUs and stock options were outstanding, under the 2013 Plan.

Total Equity Classified RSUs Stock Options

The total fair value of RSUs which vested during 2022, 2021 and 2020 was $70.8 million, $7.0 million and $9.7 million respectively, based on the stock price on the date of vest.

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ELEMENT SOLUTIONS INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equity Classified RSUs

The Company granted the following equity classified RSUs under the 2013 Plan:

Certain of the RSUs granted during the period contain performance vesting conditions in addition to a service vesting condition. RSUs granted with service or performance vesting conditions were valued at the grant date stock price. Certain RSUs with performance vesting conditions also contain provisions for additional share awards in the event certain performance conditions are met at the end of the applicable measurement periods. These conditions are generally based on Adjusted EBITDA, Adjusted earnings per share and cash return on investment.

In January 2019, certain key executives were granted performance-based RSUs, which vesting was subject to the achievement by the Company of a performance target of Adjusted earnings per share of $1.36 in any fiscal year ending on or before December 31, 2022, and continuous service. There were 2.3 million of these RSUs outstanding at December 31, 2021 with a weighted-average grant date fair value of $25.1 million. Prior to the second quarter of 2021, the Company did not recognize compensation expense for these awards as the achievement of the performance target was not deemed probable. During the second quarter of 2021, the achievement of the performance target became probable, and the Company recorded $23.9 million and $1.3 million of expense for the years ended December 31, 2021 and 2022, respectively, in "Selling, technical, general and administrative " in the Consolidated Statement of Operations.