Element Solutions Inc 10-Q for FY2020 Q1

Element Solutions Inc (ESI)

10-Q 2020-04-30 For: 2020-03-31

Added on April 06, 2026

About this 10-Q

Element Solutions Inc filed this 10-Q on April 30, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $452.6M; down 1.6% from $459.8M a year earlier
Net income: $8.6M; down 64.0% from net income of $23.9M a year earlier
Diluted EPS: $0.03; down 66.7% from $0.09 a year earlier

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


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


Glossary		Page

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

Part I.	Financial Information

Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations
	Three Months Ended March 31, 2020 and 2019	1
	Condensed Consolidated Statements of Comprehensive (Loss) Income
	Three Months Ended March 31, 2020 and 2019	2
	Condensed Consolidated Balance Sheets
	March 31, 2020 and December 31, 2019	3
	Condensed Consolidated Statements of Cash Flows
	Three Months Ended March 31, 2020 and 2019	4
	Condensed Consolidated Statements of Changes in Stockholders' Equity
	Three Months Ended March 31, 2020 and 2019	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

Part II.	Other Information

Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30

Signatures			31


Terms						Definitions
Element Solutions; We; Us; Our; the Company						Element Solutions Inc, a Delaware corporation, and, where the context requires, its subsidiaries or operating businesses.
Arysta						Arysta LifeScience Limited, formerly an Irish private limited company.
Arysta Sale						Sale of 100% of the issued and outstanding shares of common stock of Arysta and its subsidiaries to UPL on January 31, 2019 for an aggregate purchase price of $4.28 billion in cash, after post-closing adjustments.

ASU						Accounting Standards Update.
Board						Element Solutions' board of directors.
Credit Agreement						Credit Agreement, dated as of January 31, 2019, as amended on November 26, 2019, among, inter alia, Element Solutions and MacDermid, as borrowers, certain subsidiaries of Element Solutions and the lenders from time to time parties thereto, and Barclays Bank PLC, as administrative agent and collateral agent.
EBITDA						Earnings before interest, taxes, depreciation and amortization.
ESPP						Element Solutions Inc 2014 Employee Stock Purchase Plan.
Exchange Act						Securities Exchange Act of 1934, as amended.
FASB						Financial Accounting Standards Board.

GAAP						U.S. Generally Accepted Accounting Principles.
MacDermid						MacDermid, Incorporated, a Connecticut corporation.
NYSE						New York Stock Exchange.
OEM						Original Equipment Manufacturer.
PDH						Platform Delaware Holdings, Inc., a former subsidiary of Element Solutions.
Quarterly Report						This quarterly report on Form 10-Q for the three months ended March 31, 2020.
RSUs						Restricted stock units issued by Element Solutions from time to time under its amended and restated 2013 Incentive Compensation Plan.
SEC						Securities and Exchange Commission.
Series A Preferred Stock						Element Solutions' 2,000,000 shares of Series A convertible preferred stock, which were converted into shares of Element Solutions' common stock on February 25, 2020, on a one-for-one basis, upon request of Mariposa Acquisition, LLC and Berggruen Holdings Ltd. and affiliates.
UPL						UPL Corporation Ltd., a wholly-owned subsidiary of UPL Limited.
2019 Annual Report						Element Solutions' annual report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 28, 2020.
5.875% USD Notes Indenture						The indenture, dated November 24, 2017, governing the 5.875% USD Notes due 2025.
5.875% USD Notes due 2025						Element Solutions' $800 million aggregate principal amount of 5.875% senior notes due 2025, denominated in U.S. dollars, issued on November 24, 2017.


	Three Months Ended March 31,
	2020		2019
Net sales	$	452.6	$	459.8
Cost of sales	255.3		261.5
Gross profit	197.3		198.3
Operating expenses:
Selling, technical, general and administrative	125.2		142.4
Research and development	17.5		10.8
Total operating expenses	142.7		153.2
Operating profit	54.6		45.1
Other (expense) income:
Interest expense, net	(16.7)		(38.1)
Foreign exchange (loss) gain	(25.8)		27.1
Other income (expense), net	0.4		(48.0)
Total other expense	(42.1)		(59.0)
Income (loss) before income taxes and non-controlling interests	12.5		(13.9)
Income tax (expense) benefit	(4.1)		10.4
Net income (loss) from continuing operations	8.4		(3.5)
Income from discontinued operations, net of tax	0.2		27.4
Net income	8.6		23.9
Net income attributable to non-controlling interests	—		(0.7)
Net income attributable to common stockholders	$	8.6	$	23.2

Earnings (loss) per share
Basic from continuing operations	$	0.03	$	(0.02)
Basic from discontinued operations	—		0.11
Basic attributable to common stockholders	$	0.03	$	0.09

Diluted from continuing operations	$	0.03	$	(0.02)
Diluted from discontinued operations	—		0.11
Diluted attributable to common stockholders	$	0.03	$	0.09

Weighted average common shares outstanding
Basic	250.3		268.2
Diluted	252.0		268.2


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

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


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


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


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


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


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


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

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


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

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

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

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

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


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






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


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

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


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


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


Assembly Solutions						As a global supplier of solder technologies, fluxes, cleaners and other attachment materials for the electronics assembly industry, we develop innovative materials that join electronic circuits in high volume device manufacturing. Our high-performing interconnect materials are used to assemble consumer electronics from circuit boards, discrete electronic components, connectors and integrated circuit substrates.
Circuitry Solutions						As a global supplier of chemical formulations to the electronics industry, we design and manufacture proprietary liquid chemical processes ("baths") used by our customers to manufacture printed circuit boards. Our product portfolio is focused on specialized consumable chemical processes, such as surface treatments, circuit formation, primary metallization, electroplate and final finishes.
Semiconductor Solutions						As a global supplier to the semiconductor industry, we provide advanced copper interconnects, die attachment, wafer bump processes and photomask technologies to our customers for integrated circuit fabrication and semiconductor packaging.


Industrial Solutions						As a global supplier of industrial metal and plastic finishing chemistries, our chemical systems protect and decorate metal and plastic surfaces. Some of our precisely formulated high-performance coatings have functional uses, including improving wear and tear, such as hard chrome plating of shock absorbers for cars and special drills used for oil and gas exploration, while others provide corrosion resistance for appliance parts. Alternatively, our chemistries may have decorative performance, such as the application of gloss finishes for parts used in automotive interiors or fashion finishes used on jewelry surfaces.
Graphics Solutions						As a supplier of consumable materials used to transfer images on to consumer packaging materials, our products are used to improve print quality and printing productivity. We produce and market photopolymers through an extensive line of flexographic plates that are used in the consumer packaging and printing industries.
Energy Solutions						As a global supplier of specialized fluids to the offshore energy industry, we produce water-based hydraulic control fluids for major oil and gas companies and drilling contractors to be used in offshore deep-water production and drilling applications.


	Three Months Ended March 31,					% Change
(dollars in millions)	2020		2019		Reported Net Sales Growth	Impact of Currency	Constant Currency	Pass-Through Metals Pricing	Acquisitions	Organic Net Sales Growth
Electronics:
Assembly Solutions	$	126.0	$	133.0	(5)%	2%	(3)%	2%	(9)%	(11)%
Circuitry Solutions	92.9		90.8		2%	1%	4%	—%	—%	4%
Semiconductor Solutions	50.0		42.1		19%	0%	19%	—%	(6)%	13%
Total	$	268.9	$	265.9	1%	1%	3%	1%	(5)%	(2)%

Industrial & Specialty:
Industrial Solutions	$	125.9	$	138.0	(9)%	2%	(7)%	—%	—%	(7)%
Graphics Solutions	38.6		35.7		8%	2%	10%	—%	—%	10%
Energy Solutions	19.2		20.2		(5)%	3%	(2)%	—%	—%	(2)%
Total	$	183.7	$	193.9	(5)%	2%	(3)%	—%	—%	(3)%

Total	$	452.6	$	459.8	(2)%	2%	0%	0%	(3)%	(3)%


	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Repurchase Program	Approximate Dollar Value of Shares that May Yet be Purchased Under the Repurchase Program⁽¹⁾(in millions)
Period
January 1 - January 31	—	$	—	—	$	243
February 1 - February 29	300,000	$	10.22	300,000	$	240
March 1 - March 31	3,442,488	$	8.69	3,442,488	$	210
Total	3,742,488	$	8.82	3,742,488	$	210


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


			ELEMENT SOLUTIONS INC

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