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

FORM 10-Q
_______________


 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
 
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
 
Commission file number: 001-36272
esi-20190930_g1.jpg
Element Solutions Inc
(Exact name of Registrant as specified in its charter)
Delaware37-1744899
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
500 East Broward Boulevard,Suite 186033394
Fort Lauderdale,Florida(Zip Code)
(Address of principal executive offices)
Registrant’s telephone number, including area code: (561) 207-9600
_______________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareESINew York Stock Exchange

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



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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No
Number of shares of common stock outstanding at November 1, 2019: 251,099,413




TABLE OF CONTENTS

Page
   
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2019 and 2018
Condensed Consolidated Statements of Comprehensive (Loss) Income
Three and Nine Months Ended September 30, 2019 and 2018
Condensed Consolidated Balance Sheets
September 30, 2019 and December 31, 2018
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2019 and 2018
Condensed Consolidated Statements of Changes in Stockholders' Equity
Three and Nine Months Ended September 30, 2019 and 2018
   
 
   
   




GLOSSARY OF DEFINED TERMS
Terms 
Definitions
Element Solutions;
We; Us; Our; the Company
Element Solutions Inc, a Delaware corporation, and, where the context requires, its subsidiaries or operating businesses.
ArystaArysta LifeScience Inc., parent company of the former Agricultural Solutions segment.
Arysta SaleSale of 100% of the issued and outstanding shares of common stock of Arysta and its subsidiaries to UPL for net cash proceeds of approximately $4.28 billion, completed on January 31, 2019.
ASUAccounting Standards Update.
BoardElement Solutions' board of directors.
EBITDAEarnings before interest, taxes, depreciation and amortization.
ESPPElement Solutions Inc 2014 Employee Stock Purchase Plan.
Exchange ActSecurities Exchange Act of 1934, as amended.
FASBFinancial Accounting Standards Board.
Founder EntitiesMariposa Acquisition, LLC and Berggruen Holdings Ltd. and affiliates, collectively.
GAAPGenerally accepted accounting principles in the United States.
MacDermidMacDermid, Incorporated, a Connecticut corporation.
MacDermid AcquisitionElement Solutions' acquisition of 100% of the equity of MacDermid Holdings, LLC, completed on October 31, 2013 and March 4, 2014.
New Credit AgreementElement Solutions' new Credit Agreement, dated as of January 31, 2019, among, inter alia, Element Solutions and MacDermid, as borrowers, certain subsidiaries of Element Solutions and MacDermid from time to time parties thereto, the lenders from time to time parties thereto, and Barclays Bank PLC, as administrative agent and collateral agent.
NYSENew York Stock Exchange.
OEMOriginal Equipment Manufacturer.
PDHPlatform Delaware Holdings, Inc., a former subsidiary of Element Solutions.
Prior Senior NotesElement Solutions' 6.00% EUR Notes due 2023 and 6.50% USD Notes due 2022, collectively.
Prior Senior Notes IndentureThe indenture, dated as of February 2, 2015, governing the Prior Senior Notes prior to their redemption.
Quarterly ReportThis quarterly report on Form 10-Q for the three and nine months ended September 30, 2019.
Retaining HolderEach Holder whose equity interest of MacDermid Holdings, LLC, held immediately prior to the closing of the MacDermid Acquisition, was converted into shares of common stock of PDH pursuant to a Retaining Holder Securityholders’ Agreement dated October 31, 2013.
SECSecurities and Exchange Commission.
Series A Preferred Stock2,000,000 shares of Element Solutions' Series A convertible preferred stock held by the Founder Entities and convertible into shares of Element Solutions' common stock, on a one-for-one basis, at any time at the option of the Founder Entities.
UPLUPL Corporation Ltd., a Mauritius public limited company and a wholly-owned subsidiary of UPL Limited.
2018 Annual ReportElement Solutions' annual report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on February 28, 2019.
5.875% USD Notes IndentureThe indenture, dated November 24, 2017, governing the 5.875% USD Notes due 2025.
5.875% USD Notes due 2025Element Solutions' $800 million aggregate principal amount of 5.875% senior notes due 2025, denominated in U.S. dollars, issued on November 24, 2017.
6.00% EUR Senior Notes due 2023Element Solutions' €350 million aggregate principal amount of 6.00% senior notes due 2023, denominated in euros, issued on February 2, 2015 and redeemed on February 1, 2019.
6.50% USD Senior Notes due 2022Element Solutions' $1.10 billion aggregate principal amount of 6.50% senior notes due 2022, denominated in U.S. dollars, issued on February 2, 2015 and redeemed on February 1, 2019.

i


Discontinued Operations
Unless otherwise specified, the results and disclosures presented in this Quarterly Report exclude discontinued operations. Discontinued operations relate to the former Agricultural Solutions business of Element Solutions which consisted of Arysta and its subsidiaries. Accordingly, Agricultural Solutions' assets, liabilities, operating results and cash flows for all periods presented have been classified as discontinued operations within the unaudited Condensed Consolidated Financial Statements. The Arysta Sale was completed on January 31, 2019. See Note 3, Discontinued Operations, to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report for additional information.
Forward-Looking Statements
This Quarterly Report contains forward-looking statements that can be identified by words such as "expect," "anticipate," "project," "will," "should," "believe," "intend," "plan," "assume," "estimate," "predict," "seek," "continue," "outlook," "may," "might," "can have," "likely," "potential," "target," "hope," "goal" or "priority" and variations of such words and similar expressions. Examples of forward looking statements include, but are not limited to, statements, beliefs, projections and expectations regarding our corporate reorganization; business strategy and potential repurchases of our common stock; cost savings and efficiencies relating to the Arysta Sale or otherwise; the impact of new accounting standards and accounting changes; our dividend policy; the effects of global economic conditions on our business and financial condition; our hedging activities; timing and outcome of environmental and legal matters; our goodwill and other intangible assets; price volatility and cost environment; our liquidity and capital resources; our funding sources; our capital expenditures; our debt; off-balance sheet arrangements and contractual obligations; general views about future operating results; our risk management programs; our business and management strategies; future prospects; and other events or developments that we expect or anticipate will occur in the future.
Forward-looking statements are not guarantees of future performance, actions or events and are subject to risks and uncertainties. If one or more of these risks or uncertainties materialize, or if management’s underlying estimates, assumptions or expectations prove to be inaccurate or are unrealized, actual results may differ materially from those contemplated by these statements. A discussion of such risks and uncertainties include, without limitation, the risks set forth in Part I, Item 1A, Risk Factors, of our 2018 Annual Report. Any forward-looking statement made by us in this Quarterly Report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Please consult any further disclosures on related subjects in our Form 10-K, 10-Q and 8-K reports filed with the SEC.
Non-GAAP Financial Measures
This Quarterly Report contains non-GAAP financial measures, such as operating results on a constant currency and organic basis. Non-GAAP financial measures should not be considered in isolation from, as a substitute for, or superior to, performance measures calculated in accordance with GAAP. For definitions of these non-GAAP financial measures and additional information on why they are presented, their respective limitations and reconciliations to the most comparable applicable GAAP measures, see "Non-GAAP Financial Measures" in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in Part I, Item 2, and Note 15, Segment Information, to the unaudited Condensed Consolidated Financial Statements, both included in this Quarterly Report.

ii



PART I. FINANCIAL INFORMATION

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

Three Months Ended September 30,Nine Months Ended September 30,
 2019201820192018
Net Sales$464.7  $488.5  $1,381.2  $1,482.6  
Cost of Sales259.0  278.9  784.2  847.2  
Gross profit205.7  209.6  597.0  635.4  
Operating expenses:         
Selling, technical, general and administrative128.8  139.5  397.6  424.6  
Research and development10.0  10.5  31.9  33.1  
Total operating expenses138.8  150.0  429.5  457.7  
Operating profit66.9  59.6  167.5  177.7  
Other expense:            
Interest expense, net(17.4) (77.9) (73.7) (233.4) 
Foreign exchange (loss) gain(1.2) (4.7) (2.4) 0.4  
Other income (expense), net2.9  (0.1) (46.2) 13.6  
Total other expense(15.7) (82.7) (122.3) (219.4) 
Income (loss) before income taxes and non-controlling interests51.2  (23.1) 45.2  (41.7) 
Income tax (expense) benefit(57.2) 18.8  (40.0) (21.1) 
Net (loss) income from continuing operations(6.0) (4.3) 5.2  (62.8) 
(Loss) income from discontinued operations, net of tax(0.9) (401.6) 13.2  (293.3) 
Net (loss) income(6.9) (405.9) 18.4  (356.1) 
Net income attributable to non-controlling interests  (3.0) (0.6) (3.5) 
Net (loss) income attributable to common stockholders$(6.9) $(408.9) $17.8  $(359.6) 
(Loss) earnings per share    
Basic from continuing operations$(0.02) $(0.02) $0.02  $(0.23) 
Basic from discontinued operations(0.01) (1.40) 0.05  (1.02) 
Basic attributable to common stockholders$(0.03) $(1.42) $0.07  $(1.25) 
Diluted from continuing operations$(0.02) $(0.02) $0.02  $(0.23) 
Diluted from discontinued operations(0.01) (1.40) 0.05  (1.02) 
Diluted attributable to common stockholders$(0.03) $(1.42) $0.07  $(1.25) 
Weighted average common shares outstanding   
Basic254.4  288.2  259.9  288.1  
Diluted254.4  288.2  262.4  288.1  

See accompanying notes to the Condensed Consolidated Financial Statements
1


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(dollars in millions)
 
Three Months Ended September 30,Nine Months Ended September 30,
 2019201820192018
Net (loss) income$(6.9) $(405.9) $18.4  $(356.1) 
            
Other comprehensive (loss) income
Foreign currency translation:
Other comprehensive (loss) income before reclassifications, net of tax (benefit) of $0.0 for the three and nine months ended September 30, 2019 and 2018, respectively
(47.8) (93.3) 46.3  (411.9) 
Reclassifications, net of tax of $0.0 for the three and nine months ended September 30, 2019 and 2018, respectively
    479.8    
Total foreign currency translation adjustments(47.8) (93.3) 526.1  (411.9) 
Pension and post-retirement plans:
Other comprehensive (loss) income before reclassifications, net of tax of $0.0 for the three and nine months ended September 30, 2019 and 2018, respectively
  0.2    0.2  
Reclassifications, net of tax of $0.0 for the three and nine months ended September 30, 2019 and 2018, respectively
    (2.1)   
Total pension and post-retirement plans  0.2  (2.1) 0.2  
Derivative financial instruments:
Other comprehensive (loss) income before reclassifications, net of tax expense (benefit) of $0.0 and $0.3 for the three months ended September 30, 2019 and 2018, and $0.0 and $3.4 for the nine months ended September 30, 2019 and 2018, respectively
(7.9) 1.5  (35.6) 9.3  
Reclassifications, net of tax of $0.0 and $0.0 for the three months ended September 30, 2019 and 2018, and $1.4 and $0.0 for the nine months ended September 30, 2019 and 2018, respectively
0.6  (0.4) (4.8) 0.5  
Total unrealized (loss) gain arising on qualified hedging derivatives(7.3) 1.1  (40.4) 9.8  
Other comprehensive (loss) income(55.1) (92.0) 483.6  (401.9) 
Comprehensive (loss) income (62.0) (497.9) 502.0  (758.0) 
Comprehensive loss (income) attributable to the non-controlling interests  6.3  (40.8) 39.1  
Comprehensive (loss) income attributable to common stockholders$(62.0) $(491.6) $461.2  $(718.9) 
 
See accompanying notes to the Condensed Consolidated Financial Statements
2


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in millions)
September 30,December 31,
 20192018
Assets  
Cash and cash equivalents$200.3  $233.6  
Accounts receivable, net of allowance for doubtful accounts of $8.7 and $7.7 at September 30, 2019 and December 31, 2018, respectively
367.2  382.4  
Inventories198.0  188.1  
Prepaid expenses21.9  14.3  
Other current assets54.8  42.5  
Current assets of discontinued operations8.1  1,621.3  
Total current assets850.3  2,482.2  
Property, plant and equipment, net250.0  266.9  
Goodwill2,125.8  2,182.6  
Intangible assets, net917.6  1,024.5  
Other assets122.9  32.9  
Non-current assets of discontinued operations6.5  3,412.4  
Total assets$4,273.1  $9,401.5  
Liabilities and stockholders' equity      
Accounts payable$102.7  $100.9  
Current installments of long-term debt and revolving credit facilities7.8  25.3  
Accrued expenses and other current liabilities141.1  189.5  
Current liabilities of discontinued operations38.2  826.8  
Total current liabilities289.8  1,142.5  
Debt1,514.2  5,350.7  
Pension and post-retirement benefits47.0  49.5  
Deferred income taxes126.5  133.0  
Other liabilities175.1  128.5  
Non-current liabilities of discontinued operations  416.2  
Total liabilities2,152.6  7,220.4  
Commitments and contingencies (Note 12)
Stockholders' Equity      
Preferred stock - Series A    
Common stock: 400.0 shares authorized (2019: 258.4 shares issued; 2018: 289.3 shares issued)
2.6  2.9  
Additional paid-in capital4,111.8  4,062.1  
Treasury stock (2019: 7.3 shares; 2018: 0.3 shares)
(67.9) (3.5) 
Accumulated deficit(1,610.9) (1,195.4) 
Accumulated other comprehensive loss(313.5) (756.9) 
Total stockholders' equity2,122.1  2,109.2  
Non-controlling interests(1.6) 71.9  
Total equity2,120.5  2,181.1  
Total liabilities and stockholders' equity$4,273.1  $9,401.5  

See accompanying notes to the Condensed Consolidated Financial Statements
3


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in millions)
Nine Months Ended September 30,
 20192018
Cash flows from operating activities:      
Net income (loss)$18.4  $(356.1) 
Net income (loss) from discontinued operations, net of tax13.2  (293.3) 
Net income (loss) from continuing operations5.2  (62.8) 
Reconciliation of net income (loss) from continuing operations to net cash flows provided by (used in) operating activities:      
Depreciation and amortization115.8  118.5  
Deferred income taxes(0.1) (12.8) 
Foreign exchange gain(17.8) (3.4) 
Other, net84.3  18.2  
Changes in assets and liabilities, net of acquisitions:
Accounts receivable2.7  (15.7) 
Inventories(15.2) (30.8) 
Accounts payable3.9  4.8  
Accrued expenses(66.0) (39.9) 
Prepaid expenses and other current assets(7.5) 10.7  
Other assets and liabilities(13.2) (13.2) 
Net cash flows provided by (used in) operating activities of continuing operations92.1  (26.4) 
Cash flows from investing activities:      
Capital expenditures(18.2) (19.6) 
Proceeds from disposal of property, plant and equipment  1.7  
Acquisition of business, net of cash acquired  (28.2) 
Proceeds from Arysta Sale (net of cash $148.7 million)
4,281.8    
Proceeds from the sale of equity investment  25.0  
Other, net6.7  3.1  
Net cash flows provided by (used in) investing activities of continuing operations4,270.3  (18.0) 
Cash flows from financing activities:      
Debt proceeds, net of discount749.1    
Repayments of borrowings(4,605.0) (0.4) 
Change in lines of credit, net(24.9)   
Repurchases of common stock(496.1)   
Payment of financing fees(39.5)   
Other, net(8.6) (0.4) 
Net cash flows used in financing activities of continuing operations(4,425.0) (0.8) 
Cash flows from discontinued operations:
Net cash flows used in operating activities of discontinued operations(154.1) (37.0) 
Net cash flows used in investing activities of discontinued operations(5.0) (32.5) 
Net cash flows provided by financing activities of discontinued operations4.8  62.0  
Net cash flows used in discontinued operations(154.3) (7.5) 
Effect of exchange rate changes on cash, cash equivalents and restricted cash1.7  (23.6) 
Net decrease in cash, cash equivalents and restricted cash(215.2) (76.3) 
Cash, cash equivalents and restricted cash at beginning of period (1)
415.5  483.9  
Cash, cash equivalents and restricted cash at end of period (2)
$200.3  $407.6  
(1) Includes cash, cash equivalents and restricted cash of discontinued operations of $181.9 million and $225.4 million at December 31, 2018 and 2017, respectively.
(2) Includes cash, cash equivalents and restricted cash of discontinued operations of $155.4 million at September 30, 2018.

 See accompanying notes to the Condensed Consolidated Financial Statements
4


ELEMENT SOLUTIONS INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(dollars in millions, except share amounts)
Three Months Ended September 30, 2019Preferred StockCommon StockAdditional
Paid-in
Capital
Treasury StockAccumulated
Deficit
Accumulated Other Comprehensive (Loss) IncomeTotal
Stockholders'
Equity
Non-
controlling Interests
Total Equity
SharesAmountSharesAmountSharesAmount
Balance at June 30, 20192,000,000  $  258,323,823  $2.6  $4,109.4  1,667,541  $(16.8) $(1,604.0) $(258.4) $2,232.8  $(1.6) $2,231.2  
Net loss—  —  —  —  —  —  —  (6.9) —  (6.9) —  (6.9) 
Other comprehensive loss, net of taxes—  —  —  —  —  —  —  —  (55.1) (55.1) —  (55.1) 
Exercise/ vesting of share based compensation—  —  38,953  —  —  —  —  —  —  —  —  —  
Issuance of common stock under ESPP—  —  32,078  —  0.2  —  —  —  —  0.2  —  0.2  
Repurchases of common stock—  —  —  —  —  5,628,000  (51.1) —  —  (51.1) —  (51.1) 
Equity compensation expense—  —  —  —  2.2  —  —  —  —  2.2  —  2.2  
Balance at September 30, 20192,000,000  $  258,394,854  $2.6  $4,111.8  7,295,541  $(67.9) $(1,610.9) $(313.5) $2,122.1  $(1.6) $2,120.5  

Three Months Ended September 30, 2018Preferred StockCommon StockAdditional
Paid-in
Capital
Treasury StockAccumulated
Deficit
Accumulated Other Comprehensive (Loss) IncomeTotal
Stockholders'
Equity
Non-
controlling Interests
Total Equity
SharesAmountSharesAmountSharesAmount
Balance at June 30, 20182,000,000  $  288,207,905  $2.9  $4,048.6  6,618.0  $(0.1) $(821.7) $(697.3) $2,532.4  $72.0  $2,604.4  
Net (loss) income—  —  —  —  —  —  —  (408.9) —  (408.9) 3.0  (405.9) 
Other comprehensive loss, net of taxes—  —  —  —  —  —  —  (82.7) (82.7) (9.3) (92.0) 
Exercise/ vesting of share based compensation—  —  6,446  —  —  —  —  —  —  —  —  —  
Conversion of shares of common stock of PDH into common stock—  —  40,459  —  0.5  —  —  —  —  0.5  (0.5) —  
Issuance of common stock under ESPP—  —  28,409  —  0.3  —  —  —  —  0.3  —  0.3  
Equity compensation expense—  —  —  —  4.6  —  —  —  —  4.6  —  4.6  
Changes in non-controlling interests—  —  —  —  —  —  —  —  —  —  (0.1) (0.1) 
Balance at September 30, 20182,000,000  $  288,283,219  $2.9  $4,054.0  6,618.0  $(0.1) $(1,230.6) $(780.0) $2,046.2  $65.1