ELEMENT SOLUTIONS INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

This Management's Discussion and Analysis of Financial Condition and Results of
Operations section should be read in conjunction with "Financial Statements and
Supplementary Data" included in Part II, Item 8 of this 2021 Annual Report and
our audited Consolidated Financial Statements and notes thereto included
elsewhere in this 2021 Annual Report. "Business Overview" and "Highlights"
briefly present our business and certain significant events addressed in this
section or elsewhere in this 2021 Annual Report. This 2021 Annual Report should
be read in its entirety for a complete description of our business and
discussion of these events.

Company overview

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

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

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

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

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

Strong points

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


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

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

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

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

Acquisitions

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

Foreign currency exposure

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

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

Critical Accounting Estimates

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

We consider the accounting estimates discussed below to be critical to the
understanding of our financial statements and involve difficult, subjective or
complex judgments that could potentially affect our reported results. See Note
2, Summary of Significant Accounting Policies, to the Consolidated Financial
Statements included in this 2021 Annual Report for a detailed discussion of the
application of these and other accounting policies.


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Revenue recognition

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

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

Business Combinations

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

Good will

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

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

As part of our goodwill impairment test in the fourth quarter of 2021, we
determined that the excess of the fair value of the Energy Solutions reporting
unit within our Industrial & Specialty segment exceeded its carrying value by
less than 10%. Goodwill assigned to the Energy Solutions reporting unit was
approximately $250 million as of the assessment date. The estimated fair value
of this reporting unit is highly sensitive to changes in these estimates and
assumptions; therefore, in some instances, changes in these assumptions may
impact whether the fair value of a reporting unit is greater than its carrying
value. We performed sensitivity analysis around these assumptions in order to
assess the reasonableness of the assumptions and the resulting estimated fair
values. Based on a sensitivity analysis performed for the Energy Solutions
reporting unit, a 50 basis point increase in the WACC or 50 basis point decrease
in the terminal growth rate, without any other changes to the valuation, would
not result in the carrying value being greater than the fair value. Future
impairments of this reporting unit may occur if the business does not achieve
its expected cash flows or macroeconomic conditions result in an increase in the
WACC used to estimate fair value.

In 2021, the fair values ​​of our remaining reporting units were considered to be significantly greater than their respective carrying values.

See Note 8, Good will and Intangible assets, to the consolidated financial statements included in this 2021 annual report for more information.

Income taxes

We recognize deferred tax assets and liabilities based on the differences
between the financial statement basis and the tax basis of assets, liabilities,
net operating losses and tax carryforwards. A valuation allowance is required to
be recognized to reduce


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

Deferred tax assets and liabilities are valued using the prevailing tax rates expected to apply to taxable income in the years in which such temporary differences and carry forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in profit or loss in the period that includes the effective date of this change.

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

Recent accounting pronouncements

A summary of recent accounting pronouncements is included in Note 3, Recent Accounting Pronouncements, to the consolidated financial statements included in this 2021 Annual Report.

Non-GAAP Financial Measures

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

These non-GAAP financial measures, however, have limitations as analytical tools
and should not be considered in isolation from, or a substitute for, or superior
to, the related financial information that we report in accordance with GAAP.
The principal limitation of these non-GAAP financial measures is that they
exclude significant expenses and income that are required by GAAP to be recorded
in our financial statements and may not be comparable to similarly titled
measures of other companies due to potential differences in calculation methods.
In addition, these measures are subject to inherent limitations as they reflect
the exercise of judgment by management about which items are excluded or
included in determining these non-GAAP financial measures. Investors are
encouraged to review the definitions and reconciliations of these non-GAAP
financial measures to their most comparable GAAP financial measures included in
this 2021 Annual Report and not to rely on any single financial measure to
evaluate our business.

Constant currency

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


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

Organic net sales growth

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

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

Adjusted EBITDA

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

For a reconciliation of "Net income attributable to common stockholders" to
Adjusted EBITDA and more information about the adjustments made, see Note 23,
Segment Information, to the Consolidated Financial Statements included in this
2021 Annual Report.

Results of Operations
                                                                                               Change - 2021 vs 2020                                                                       Change - 2020 vs 2019
(dollars in millions)                  2021               2020              Reported              Constant Currency              Organic              2019              Reported              Constant Currency              Organic
Net sales                          $ 2,399.8          $ 1,853.7               29%                        26%                       13%            $ 1,835.9                1%                         1%                      (3)%
Cost of sales                        1,439.0            1,067.7               35%                        32%                                        1,047.6                2%                         2%
Gross profit                           960.8              786.0               22%                        19%                                          788.3                0%                         0%
Gross margin                            40.0  %            42.4  %         (240) bps                  (250) bps                                        42.9  %          (50) bps                   (40) bps
Operating expenses                     660.9              553.3               19%                        17%                                          539.2                3%                         3%
Operating profit                       299.9              232.7               29%                        23%                                          249.1               (7)%                       (6)%
Operating margin                        12.5  %            12.6  %          (10) bps                   (40) bps                                       
13.6  %         (100) bps                  (100) bps
Other expense, net                     (48.2)            (151.6)              (nm)                                                                   (108.2)              (nm)
Income tax expense                     (48.3)              (4.3)              (nm)                                                                    (61.3)              (nm)
Net income from continuing
operations                             203.4               76.8               (nm)                                                                     79.6               (4)%
Income (loss) from
discontinued operations, net             0.3               (1.1)              (nm)                                                                     13.3               (nm)
Net income                         $   203.7          $    75.7               169%                                                                $    92.9              (19)%

Adjusted EBITDA                    $   524.9          $   422.6               24%                        20%                                      $   416.7                1%                         2%
Adjusted EBITDA margin                  21.9  %            22.8  %          (90) bps                  (120) bps                                        22.7  %           10 bps                     10 bps


(nm) Calculation not significant.

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Year ended December 31, 2021 Compared to the year ended December 31, 2020

Net sales

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

The following table reconciles GAAP net sales growth to constant currency and
organic net sales growth:
                                               Year ended December 31,                                                                                           % Change
                                                                                       Reported Net              Impact of
 (dollars in millions)                         2021                   2020             Sales Growth              Currency             Constant Currency          Pass-Through Metals Pricing          Acquisitions          Organic Net Sales Growth
Electronics:
Assembly Solutions                     $       824.2              $   571.7                 44%                    (4)%                      40%                            (25)%                          -%                         15%
Circuitry Solutions                            455.0                  401.0                 13%                    (4)%                      10%                             -%                            -%                         10%
Semiconductor Solutions                        254.6                  199.4                 28%                    (2)%                      26%                             -%                          (13)%                        13%
Total                                  $     1,533.8              $ 1,172.1                 31%                    (4)%                      27%                            (12)%                         (2)%                        13%

Industrial & Specialty:
Industrial Solutions                   $       648.4              $   473.0                 37%                    (2)%                      35%                             -%                          (17)%                        18%
Graphics Solutions                             155.5                  143.6                 8%                     (2)%                       6%                             -%                            -%                          6%
Energy Solutions                                62.1                   65.0                (4)%                    (2)%                      (6)%                            -%                            -%                         (6)%
Total                                  $       866.0              $   681.6                 27%                    (2)%                      25%                             -%                          (11)%                        13%

Total                                  $     2,399.8              $ 1,853.7                 29%                    (3)%                      26%                            (8)%                          (6)%                        13%

NOTE: Totals may not add due to rounding.

Electronic’s 2021 net sales increased 31% reported, 27% constant currency and 13% organically.

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

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

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

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

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

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

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our Consumer Packaged Goods (CPG) customers in new and updated packaging designs, primarily in North America in the third quarter of 2021.

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

Gross Profit
                                                       Year Ended December 31,                              Change
 (dollars in millions)                                 2021                2020              Reported             Constant Currency
Gross profit:
Electronics                                       $     595.8           $  477.2                25%                      21%
Industrial & Specialty                                  365.0              308.8                18%                      16%
Total                                             $     960.8           $  786.0                22%                      19%

Gross profit margin:
Electronics                                              38.8   %           40.7  %          (190) bps                (200) bps
Industrial & Specialty                                   42.2   %           45.3  %          (310) bps                (320) bps
Total                                                    40.0   %           42.4  %          (240) bps                (250) bps


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

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

Operating Expenses
                                                     Year ended December 31,                              Change
 (dollars in millions)                               2021                2020              Reported             Constant Currency
Selling, technical, general and administrative
(STG&A)                                         $     611.2           $  504.7                21%                      19%
Research and development (R&D)                         49.7               48.6                2%                       1%
Total                                           $     660.9           $  553.3                19%                      17%

Operating Expenses as % of Net Sales
STG&A                                                  25.5   %           27.2  %          (170) bps                (160) bps
R&D                                                     2.1   %            2.6  %          (50) bps                 (50) bps
Total                                                  27.5   %           29.8  %          (230) bps                (210) bps


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

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Other (Expense) Income, net
                                     Year Ended December 31,
 (dollars in millions)                  2021                2020
Interest expense, net          $      (54.2)             $  (63.4)
Foreign exchange gain (loss)           15.8                 (36.5)
Other expense, net                     (9.8)                (51.7)
Total                          $      (48.2)             $ (151.6)


Interest expense, net

Net interest expense decreased $9.2 million, primarily due to our private
offering of $800 million aggregate principal amount of 3.875% USD Notes due 2028
and subsequent full redemption of our 5.875% USD Notes due 2025 during the third
quarter of 2020, partially offset by the interest associated with the
$400 million Add-on Term Loans entered into in the third quarter of 2021.

Foreign exchange gain (loss)

Foreign exchange gain increased $52.3 millionmainly due to the revaluation of intercompany balances denominated in euros and sterling.

Other expenses, net

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

Income Tax

The income tax expense for 2021 amounts to $48.3 millioncompared to $4.3 million in 2020. For more information, see note 11, Income taxes, of the consolidated financial statements included in this 2021 annual report.

Other comprehensive income (loss)

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


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Segment Adjusted EBITDA Performance

                                                       Year Ended December 31,                              Change
 (dollars in millions)                                 2021                2020              Reported             Constant Currency
Adjusted EBITDA:
Electronics                                       $     355.1           $  277.3                28%                      23%
Industrial & Specialty                                  169.8              145.3                17%                      14%
Total                                             $     524.9           $  422.6                24%                      20%

Adjusted EBITDA margin:
Electronics                                              23.2   %           23.7  %          (50) bps                 (90) bps
Industrial & Specialty                                   19.6   %           21.3  %          (170) bps                (180) bps
Total                                                    21.9   %           22.8  %          (90) bps                 (120) bps

Electronic’s adjusted EBITDA for 2021 increased 28% on a reported basis and 23% in constant currency. The increase in the constant exchange rate is mainly due to the increase in gross profit and the leverage effect on the disciplined recovery of operating expenses.

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

Comparison of fiscal years 2020 and 2019

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


Cash and capital resources

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

In the fourth quarter of 2021, we paid a cash dividend of 8 cents per share. We
currently expect to continue to pay a cash dividend on a quarterly basis,
however, the actual declaration of any cash dividends, as well as their amounts
and timing, will be subject to the final determination of our Board of Directors
based on factors including our future earnings and cash flow generation.

We believe that our cash and cash equivalents and cash generated from
operations, supplemented by our availability under our lines of credit,
including our revolving credit facility under the Credit Agreement, will be
sufficient to meet our working capital needs, interest payments, capital
expenditures, potential dividend payments and other business requirements for at
least the next twelve months. However, working capital cycles and/or future
repurchases of our common stock and/or acquisitions may require additional
funding, which may include future debt and/or equity offerings. Our long-term
liquidity may be influenced by our ability to borrow additional funds,
renegotiate existing debt and raise equity under terms that are favorable to us.

We may from time to time seek to redeem our shares and/or repay or redeem our outstanding debt through cash purchases and/or exchanges for shares, in purchases on the open market, transactions negotiated privately or otherwise. Such redemptions or exchanges, if any, will depend on prevailing market conditions, our cash requirements, contractual restrictions, applicable restrictions under our various financing agreements and other factors.

During 2021, approximately 76% of our net sales were generated from non-U.S.
operations, and we expect a large portion of our net sales to continue to be
generated outside of the U.S. As a result, our foreign subsidiaries will likely
continue to hold a substantial portion of our cash. We expect to manage our
worldwide cash requirements based on available funds among the many subsidiaries
through which we conduct business and the cost effectiveness with which those
funds can be accessed. We

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may transfer cash from certain international subsidiaries to we and/or other international affiliates when we deem it profitable to do so.

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

The following is a summary of our cash flows provided by (used in) operating,
investing and financing activities of continuing operations during the periods
indicated:
                                                             Year Ended December 31,
 (dollars in millions)                                  2021          2020           2019
Cash provided by operating activities                $  326.0      $  276.0      $    170.9
Cash (used in) provided by investing activities      $ (568.9)     $  (39.9)     $  4,199.7
Cash provided by (used in) financing activities      $  290.0      $ (123.6)     $ (4,438.9)


Year ended December 31, 2021 compared to the year ended December 31, 2020

Operational activities

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

Investing Activities

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

Financing Activities

During 2021, we borrowed $400 million of Add-on Term Loans to finance the
Coventya Acquisition and received net proceeds of $393 million after considering
discounts and fees. We also paid cash dividends on our shares of common stock in
an aggregate amount of $61.9 million and repurchased shares of our common stock
for an aggregate purchase price of approximately $19.6 million. During 2020, we
repurchased shares of our common stock for an aggregate purchase price of $55.7
million, paid cash dividends of $12.4 million and paid $46.2 million of
financing fees. The financing fees paid in 2020 consisted of a make-whole
premium of $33.6 million associated with the full redemption of our 5.875% USD
Notes due 2025 and $12.5 million in debt issuance costs associated with our
3.875% USD Notes due 2028.

Pension plans

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

The expected long-term rate of return on assets assumption is developed based on historical returns, forward-looking return expectations, Canadian and foreign pension plan investment mixes, and peer comparisons. We used a long-

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term rate of return on plan assets of 4.2% and 3.6% for our Domestic and Foreign
Pension Plans, respectively, to determine our net periodic pension expense for
2021. The discount rate used to value the pension obligation was developed with
reference to a number of factors, including the current interest rate
environment, benchmark fixed-income yields, peer comparisons and expected future
pension benefit payments. Discount rates of 2.8% and 1.2% were established for
the Domestic Pension Plan and Foreign Pension Plans, respectively, at
December 31, 2021, compared to rates of 2.5% and 0.7% established for those
respective plans at December 31, 2020. We evaluate the Pension Plans' actuarial
assumptions on an annual basis, including the expected long-term rate of return
on assets and discount rates. A one percent increase in the discount rate would
increase the pension plan expense by approximately $1.2 million and decrease the
pension benefit obligation by approximately $25.4 million, whereas a one percent
decrease in the discount rate would decrease the pension plan expense by
approximately $1.8 million and increase the pension benefit obligation by
approximately $30.8 million.

Our Domestic Pension Plans' investment policies incorporate an asset allocation
strategy that emphasizes long-term growth of capital and acceptable asset
volatility as long as such volatility remains consistent with the volatility of
the indexes of relevant markets. Our investment policies attempt to achieve a
mix of approximately 92% of plan investments for liability-matching, 6% for
long-term growth, and 2% for near-term benefit payments. The weighted average
asset allocation of the Domestic Pension Plan was 51% limited partnership
interests and managed equity funds, 45% fixed income holdings, 2% equity
securities and 2% cash at December 31, 2021.

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

Foreign pension plans were underfunded by $21.0 million at December 31, 2021
compared to $21.5 million at December 31, 2020.

The Company is not required to make any material plan contributions in 2022.
While we do not currently anticipate any, additional future material
contributions may be required in order to maintain appropriate funding levels
within our plans.

Financial Borrowings

Credit facilities and senior notes

AT December 31, 2021we have had $1.91 billion debt net of unamortized discounts and loan issue costs of $23.2 millionwhich mainly included:

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

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

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

pacts

AT December 31, 2021we were in compliance with the customary affirmative and negative covenants, events of default and other customary terms of the credit agreement, as well as the covenants included in the indenture governing our 3.875% USD notes due in 2028.

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