Market Overview

Element Solutions Inc Releases Final 2018 Fourth Quarter and Full Year Financial Results

Share:
  • 2018 net sales from continuing operations of $1.96 billion, an
    increase of 4% on a reported basis or 3% on an organic basis over 2017
  • 2018 reported net loss from continuing operations of $77 million
  • 2018 adjusted EBITDA from continuing operations of $421 million, an
    increase of 5% from last year
  • Reaffirming 2019 financial guidance:
    • Organic net sales growth expected to be 1% to 3% year-over-year
    • Adjusted EBITDA growth expected to be 5% to 8% on a constant
      currency basis from 2018
    • Adjusted EPS of $0.82 to $0.87

Element Solutions Inc (NYSE:ESI) ("Element Solutions" or the "Company"),
a global and diversified specialty chemicals company, today announced
its financial results from continuing operations for the three and
twelve months ended December 31, 2018.

Following today's filing of its annual report on Form 10-K, Element
Solutions is providing its usual set of financial results for the three
and twelve months ended December 31, 2018.
Unless otherwise
specified, the results presented in this press release exclude
discontinued operations which relate to Element Solutions' former
Agricultural Solutions business, which consisted of Arysta LifeScience
Inc. and its subsidiaries.
The sale of Arysta LifeScience
Inc. to UPL Corporation Ltd. for $4.2 billion in cash, subject to
adjustments, closed on January 31, 2019.
For the three and twelve
months ended December 31, 2018, the Company's continuing operations
include the then existing senior notes and term loans as well as the
related liabilities and interest expense.

Executive Commentary

Chief Executive Officer Benjamin Gliklich said, "In line with the
preliminary results we released on January 28th, our final 2018 results
demonstrate strong performance for the year. We once again delivered
organic growth, despite a difficult environment particularly in the
second half. We remain cautious about macro conditions in 2019; however
we continue to believe that we can grow the top line organically and
deliver earnings growth over and above revenue growth. Considering our
improved balance sheet and our recent share buyback, this should be a
year of strong earnings per share growth. We are even more excited to
demonstrate the compelling cash flow characteristics of this business in
the year to come. Finally, we remain committed to our goal of keeping
our net leverage ratio below 3.5x adjusted EBITDA and, barring further
opportunistic buybacks or tuck-in acquisitions, expect it to be less
than 3.0x by the end of the year."

Fourth Quarter 2018 Highlights (compared with
fourth quarter 2017) for continuing operations
:

  • Net sales on a reported basis for the fourth quarter of 2018 were $478
    million, a decrease of 2% over the prior fourth quarter period.
    Organic net sales, which exclude the impact of currency changes,
    certain pass-through metal prices and acquisitions increased 1%.
    • Electronics: Net sales decreased 4% to $282 million. Organic net
      sales decreased 1%.
    • Industrial & Specialty: Net sales increased 1% to $196 million.
      Organic net sales increased 4%.
  • Reported net loss from continuing operations for the fourth quarter of
    2018 was $14 million, as compared to a loss of $19 million for the
    fourth quarter of 2017.
  • Adjusted EBITDA for the fourth quarter of 2018 was $99 million, a
    decrease of 5%. On a constant currency basis, adjusted EBITDA
    decreased 1%.
    • Electronics: Adjusted EBITDA was $58 million, a decrease of 8%. On
      a constant currency basis, adjusted EBITDA decreased 5%.
    • Industrial & Specialty: Adjusted EBITDA was $41 million, an
      increase of 1%. On a constant currency basis, adjusted EBITDA
      increased 5%.
    • Adjusted EBITDA margin for the combined company decreased by 50
      basis points to 21%. On a constant currency basis, adjusted EBITDA
      margin decreased by 40 basis points.

Full Year 2018 Highlights (compared with full
year 2017) for continuing operations
:

  • Net sales on a reported basis for the full year 2018 were $1.96
    billion, an increase of 4% over the prior full year period. Organic
    net sales increased 3%.
    • Electronics: Net sales increased 3% to $1.16 billion. Organic net
      sales increased 2%.
    • Industrial & Specialty: Net sales increased 6% to $804 million.
      Organic net sales increased 5%.
  • Reported net loss from continuing operations for the full year 2018
    was $77 million, as compared to a net loss of $192 million in 2017.
  • Adjusted EBITDA for the full year 2018 was $421 million, an increase
    of 5%. On a constant currency basis, adjusted EBITDA increased 4%.
    • Electronics: Adjusted EBITDA was $248 million, an increase of 6%.
      On a constant currency basis, adjusted EBITDA increased 5%.
    • Industrial & Specialty: Adjusted EBITDA was $173 million, an
      increase of 3%. On a constant currency basis, adjusted EBITDA
      increased 2%.
    • Adjusted EBITDA margin for the combined company improved by 10
      basis points to 21%. On a constant currency basis, adjusted EBITDA
      margin remained flat.

2019 Guidance Reaffirmed

Element Solutions reaffirmed its prior 2019 financial guidance. For
2019, the Company expects organic net sales growth of between 1% and 3%
and constant currency adjusted EBITDA growth of between 5% and 8%. Based
on year-end 2018 exchange rates, the Company anticipates foreign
exchange headwinds of approximately 2% to net sales and approximately
$15 million to adjusted EBITDA. Adjusted earnings per share is expected
to be between $0.82 and $0.87, including impact of lower share count as
a result of the Company's repurchase of 37 million shares on February 8,
2019. This expected range benefits from an improved tax rate expectation
of 27% vs. the 34% used in 2018.

Recent Developments

On January 31, 2019, the Company completed the sale of its former
Agricultural Solutions segment to UPL Corporation Limited (the "Arysta
Sale") for $4.2 billion in cash, subject to adjustments. On the closing
date of the Arysta Sale, the Company changed its name from "Platform
Specialty Products Corporation" to "Element Solutions Inc" and,
effective February 1, 2019, its shares of common stock began trading on
the NYSE under the ticker symbol "ESI." The Company also launched a new
corporate website: www.elementsolutionsinc.com.
Element Solutions' investor relations information, including press
releases and links to its filings with the Securities and Exchange
Commission, can now be found on this website.

Using the proceeds from the Arysta Sale, on January 31, 2019, the
Company paid down its outstanding debt under its prior credit agreement,
which was then terminated. In addition, on January 31, 2019, the Company
entered into a new credit agreement which provides for new senior
secured credit facilities in an aggregate principal amount of $1.08
billion, consisting of a revolving facility of $330 million maturing in
2024 and a term loan of $750 million maturing in 2026. On the closing
date of the Arysta Sale, the $750 million term loan was borrowed under
the Company's new credit agreement. Effective February 1, 2019, the
Company's outstanding 6.00% EUR Notes due 2023 and 6.50% USD Notes due
2022 were redeemed. As a result, the Company's new debt capital
structure consists of its outstanding 5.875% senior notes due 2025 and
borrowings under the new credit agreement.

Finally, on February 8, 2019, as part of its previously-announced stock
repurchase program, Element Solutions repurchased 37 million shares of
its common stock from Pershing Square Capital Management, L.P., advisor
to certain Pershing Square investment funds, in a privately-negotiated
transaction, for an aggregate purchase price of $434 million. These
repurchased shares, which represented approximately 13% of the Company's
issued and outstanding common stock, were retired on that date.

About Element Solutions

Element Solutions Inc is a leading specialty chemicals company whose
businesses formulate a broad range of solutions that enhance the
performance of products people use every day. Developed in multi-step
technological processes, our businesses' innovative solutions enable
customers' manufacturing processes in several key industries, including
electronic circuitry, communications infrastructure, automotive systems,
industrial surface finishing, consumer packaging and offshore energy.

More information about the Company is available at www.elementsolutionsinc.com.

Forward-Looking Statements

This release is intended to qualify for the safe harbor from
liability established by the Private Securities Litigation Reform Act of
1995 as it contains "forward-looking statements" within the meaning of
the federal securities laws. These statements will often contain words
such as "expect," "anticipate," "project," "will," "should," "believe,"
"intend," "plan," "estimate," "predict," "seek," "continue," "outlook,"
"may," "might," "should," "can have," "likely," "potential" "target" or
"goal" 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 the Company's 2019
financial guidance; macro conditions in 2019; organic and earnings
growth; earning per share growth; cash flow of the Company's businesses;
the Company's goal of keeping its net leverage ratio below 3.5x adjusted
EBITDA and expected net leverage ratio of 3.0x adjusted EBITDA by the
end of the year. These projections and statements are based on
management's estimates, assumptions or expectations with respect to
future events and financial performance, and are believed to be
reasonable, though are inherently uncertain and difficult to predict.
Actual results could differ materially from those expressed or implied
in the forward-looking statements if one or more of the underlying
estimates, assumptions or expectations prove to be inaccurate or are
unrealized.
Important factors that could cause actual results to
differ materially from those suggested by the forward-looking statements
include, but are not limited to, the Company's ability to realize the
anticipated benefits, efficiencies and cost savings expected from the
recent sale of its Agricultural Solutions business; the impact of this
transaction on the Company's share price and market volatility; the
Company's ability to retain customers and suppliers, retain or hire key
personnel, and maintain relationships with customers, suppliers and
lenders; the success of the Company's leadership transition and
go-forward structure and strategy; the impact of acquisitions,
divestitures, restructurings, refinancings, and other unusual items,
including the Company's ability to raise and/or retire new debt and/or
equity and to integrate and obtain the anticipated benefits, results and
synergies from these items or other related strategic initiatives.
Additional information concerning these and other factors that could
cause actual results to vary is, or will be, included in Element
Solutions' periodic and other reports filed with the Securities and
Exchange Commission. Element Solutions undertakes no obligation to
update any forward-looking statements, whether as a result of new
information, future events or otherwise.

ELEMENT SOLUTIONS INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
   
Three Months Ended December 31, Twelve Months Ended December 31,
(in millions, except per share amounts) 2018   2017 2018   2017
Net sales $ 478.4 $ 488.6 $ 1,961.0 $ 1,878.6
Cost of sales 276.2   276.4   1,123.4   1,064.8  
Gross profit 202.2 212.2 837.6 813.8
Operating expenses:
Selling, technical, general and administrative 120.2 147.0 544.8 567.2
Research and development 11.2   12.6   44.3   46.4  
Total operating expenses 131.4   159.6   589.1   613.6  
Operating profit 70.8 52.6 248.5 200.2
Other (expense) income:
Interest expense, net (77.6 ) (80.6 ) (311.0 ) (336.9 )
Foreign exchange loss (5.9 ) (6.2 ) (5.5 ) (53.7 )
Other income (expense), net 1.2   (73.4 ) 14.8   (70.0 )
Total other expense (82.3 ) (160.2 ) (301.7 ) (460.6 )
Loss before income taxes and non-controlling interests (11.5 ) (107.6 ) (53.2 ) (260.4 )
Income tax benefit (expense) (2.7 ) 88.8   (23.8 ) 68.6  
Net loss from continuing operations (14.2 ) (18.8 ) (77.0 ) (191.8 )
Income (loss) from discontinued operations, net of tax 50.4   (126.9 ) (242.9 ) (103.8 )
Net income (loss) 36.2 (145.7 ) (319.9 ) (295.6 )
Net (income) loss attributable to the non-controlling interests (1.0 ) 4.2   (4.5 ) (0.6 )
Net income (loss) attributable to stockholders $ 35.2   $ (141.5 ) $ (324.4 ) $ (296.2 )
 

(Loss) earnings per share

Basic from continuing operations $ (0.05 ) $ (0.06 ) $ (0.27 ) $ (0.68 )
Basic from discontinued operations 0.17   (0.43 ) (0.86 ) (0.36 )
Basic attributable to common stockholders $ 0.12   $ (0.49 ) $ (1.13 ) $ (1.04 )
 
Diluted from continuing operations $ (0.05 ) $ (0.06 ) $ (0.27 ) $ (0.68 )
Diluted from discontinued operations 0.17   (0.43 ) (0.86 ) (0.36 )
Diluted attributable to common stockholders $ 0.12   $ (0.49 ) $ (1.13 ) $ (1.04 )
 

Weighted average common shares outstanding

Basic 288.4 287.2 288.2 $ 286.1
Diluted 288.4 287.4 288.2 $ 286.1
ELEMENT SOLUTIONS INC
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
December 31,
(in millions) 2018   2017
Assets
Cash & cash equivalents $ 233.6 $ 258.4
Accounts receivable, net of allowance for doubtful accounts of
$7.7
and $8.2 at December 31, 2018 and 2017, respectively
382.4 399.8
Inventories 188.1 186.4
Prepaid expenses 14.3 20.2
Other current assets 42.5 43.7
Current assets of discontinued operations 1,621.3   1,432.1  
Total current assets 2,482.2 2,340.6
Property, plant and equipment, net 266.9 287.4
Goodwill 2,182.6 2,252.6
Intangible assets, net 1,024.5 1,160.8
Other assets 32.9 42.4
Non-current assets of discontinued operations 3,412.4   4,168.6  
Total assets $ 9,401.5   $ 10,252.4  
Liabilities & stockholders' equity
Accounts payable $ 100.9 $ 111.2
Current installments of long-term debt and revolving credit
facilities
25.3 10.1
Accrued expenses and other current liabilities 189.5 205.5
Current liabilities of discontinued operations 826.8   764.9  
Total current liabilities 1,142.5 1,091.7
Debt and capital lease obligations 5,350.7 5,437.1
Pension and post-retirement benefits 49.5 56.3
Deferred income taxes 133.0 170.0
Contingent consideration 57.4 79.2
Other liabilities 71.1 85.5
Non-current liabilities of discontinued operations 416.2   472.6  
Total liabilities 7,220.4   7,392.4  
Stockholders' equity
Preferred stock - Series A
Common stock, 400.0 shares authorized (2018: 289.3 shares issued;
2017: 287.4 shares issued)
2.9 2.9
Additional paid-in capital 4,062.1 4,032.0
Treasury stock (2018: 0.3 shares; 2017: 0.0 shares) (3.5 ) (0.1 )
Accumulated deficit (1,195.4 ) (869.7 )
Accumulated other comprehensive loss (756.9 ) (422.0 )
Total stockholders' equity 2,109.2 2,743.1
Non-controlling interests 71.9   116.9  
Total equity 2,181.1   2,860.0  
Total liabilities and stockholders' equity $ 9,401.5   $ 10,252.4  
ELEMENT SOLUTIONS INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
     
2018   2017
(in millions) Q1   Q2   Q3   Q4     FY FY
Cash flows from operating activities:
Net income (loss) $ 38.0 $ 11.8 $ (405.9 ) $ 36.2 $ (319.9 ) $ (295.6 )
Net income (loss) from discontinued operations, net of tax 46.9   61.4   (401.6 ) 50.4   (242.9 ) (103.8 )
Net loss from continuing operations (8.9 ) (49.6 ) (4.3 ) (14.2 ) (77.0 ) (191.8 )
Reconciliations of net loss to net cash flows (used in) provided by
operating activities:
Depreciation and amortization 40.2 39.6 38.7 38.2 156.7 156.0
Deferred income taxes (0.6 ) (17.4 ) 5.2 (41.9 ) (54.7 ) (134.1 )
Foreign exchange (gain) loss (8.6 ) 0.9 4.3 3.2 (0.2 ) 45.8
Other, net (4.5 ) 10.1 12.6 (14.2 ) 4.0 75.1
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (11.7 ) 0.4 (4.4 ) 16.6 0.9 (21.5 )
Inventory (17.0 ) (10.1 ) (3.7 ) 12.0 (18.8 ) (9.2 )
Accounts payable 4.9 7.3 (7.4 ) (10.3 ) (5.5 ) (3.3 )
Accrued expenses (39.5 ) 40.5 (40.9 ) 29.3 (10.6 ) 2.5
Prepaid expenses and other current assets 6.1 11.4 (6.8 ) (0.2 ) 10.5 (13.0 )
Other assets and liabilities (9.8 ) 3.6   (7.0 ) 7.1   (6.1 ) 59.2  
Net cash flows (used in) provided by operating activities of
continuing operations
(49.4 ) 36.7   (13.7 ) 25.6   (0.8 ) (34.3 )
Cash flows from investing activities:
Capital expenditures (4.8 ) (6.2 ) (8.6 ) (8.8 ) (28.4 ) (30.8 )
Proceeds from disposal of property, plant and equipment 1.6 0.1 2.5 4.2 16.9
Proceeds from the sale of equity investment 25.0 25.0
Acquisition of business, net of cash acquired (28.2 ) (28.2 )
Other, net (0.8 ) 1.6   2.3   0.5   3.6   (5.0 )
Net cash flows provided by (used in) investing activities of
continuing operations
19.4   (31.2 ) (6.2 ) (5.8 ) (23.8 ) (18.9 )
Cash flows from financing activities:
Debt proceeds, net of discount and premium

4,142.7
Repayments of borrowings (0.1 ) (0.1 ) (0.2 ) (22.1 ) (22.5 ) (4,122.5 )
Change in lines of credit, net 52.0 8.0 (60.0 ) 25.0 25.0
Proceeds from issuance of common stock, net 1.4 1.4 1.4
Payment of financing fees (1.4 ) (1.4 ) (22.6 )
Other, net (0.4 ) (0.3 ) 0.3   (3.5 ) (3.9 ) (0.7 )
Net cash flows provided by (used in) financing activities of
continuing operations
51.5   7.6   (59.9 ) (0.6 ) (1.4 ) (1.7 )
Cash flows from discontinued operations:
Net cash flows (used in) provided by operating activities of
discontinued operations
(111.7 ) 32.7 42.0 29.1 (7.9 ) 185.3
Net cash flows used in investing activities of discontinued
operations
(12.6 ) (8.3 ) (11.6 ) (18.7 ) (51.2 ) (28.6 )
Net cash flows provided by (used in) financing activities of
discontinued operations
22.7   21.4   17.9   (18.2 ) 43.8   (74.5 )
Net cash flows (used in) provided by discontinued operations (101.6 ) 45.8   48.3   (7.8 ) (15.3 ) 82.2  
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
14.1   (29.9 ) (7.8 ) (3.4 ) (27.0 ) 33.1  
Net (decrease) increase in cash, cash equivalents and restricted
cash
(66.0 ) 29.0 (39.3 ) 8.0 (68.3 ) 60.4
Cash, cash equivalents and restricted cash at beginning of period 483.9   417.9   446.9   407.6   483.8   423.4  
Cash, cash equivalents and restricted cash at end of period $ 417.9   $ 446.9   $ 407.6   $ 415.5   $ 415.5   $ 483.8  
 

Supplemental disclosure information of
continuing operations:

Cash paid for interest $ 84.4 $ 62.6 $ 85.8 $ 60.6 $ 293.4 $ 315.7
Cash paid for income taxes $ 18.2 $ 21.7 $ 18.6 $ 20.4 $ 78.9 $ 73.9
ELEMENT SOLUTIONS INC
ADDITIONAL FINANCIAL INFORMATION
(Unaudited)
 
I. UNAUDITED SEGMENT RESULTS - CONTINUING OPERATIONS
  Three Months Ended December 31,   Twelve Months Ended December 31,
      Constant         Constant  
($ amounts in millions) 2018 2017 Reported Currency Organic 2018 2017 Reported Currency Organic
Net Sales
Electronics $ 282.1 $ 293.9 (4%) (1%) (1%) $ 1,157.5 $ 1,122.6 3% 2% 2%
Industrial & Specialty 196.3   194.7   1% 4% 4% 803.5   756.0   6% 5% 5%
Total $ 478.4   $ 488.6   (2%) 1% 1% $ 1,961.0   $ 1,878.6   4% 3% 3%
 
Adjusted EBITDA
Electronics $ 58.3 $ 63.2 (8%) (5%) $ 248.2 $ 233.1 6% 5%
Industrial & Specialty 40.6   40.3   1% 5% 172.5   168.1   3% 2%
Total $ 98.9   $ 103.5   (5%) (1%) $ 420.7   $ 401.2   5% 4%
  Three Months Ended     Twelve Months Ended  
December 31, Constant Currency December 31, Constant Currency
($ amounts in millions) 2018   2017   Change 2018   Change 2018   2017   Change 2018   Change
Adjusted EBITDA Margin
Electronics 20.7% 21.5% (80)bps 20.7% (80)bps 21.4% 20.8% 60bps 21.3% 50bps
Industrial & Specialty 20.7% 20.7% —bps 20.9% 20bps 21.5% 22.2% (70)bps 21.5% (70)bps
Total 20.7% 21.2% (50)bps 20.8% (40)bps 21.5% 21.4% 10bps 21.4% —bps
II. SELECTED FINANCIAL DATA - CONTINUING OPERATIONS
  Three Months Ended December 31,   Twelve Months Ended December 31,
(in millions) 2018   2017 2018   2017
Interest expense $ 79.2 $ 81.5 $ 314.4 $ 338.3
Interest paid 60.6 71.7 293.4 315.7

Income tax expense (benefit)

2.7 (88.8 ) 23.8 (68.6 )
Income taxes paid 20.4 19.4 78.9 73.9
Capital expenditures 8.8 6.3 28.4 30.8
Proceeds from disposal of property, plant and equipment 2.5 2.7 4.2 16.9
ELEMENT SOLUTIONS INC
SUPPLEMENTAL SEGMENT INFORMATION
(Unaudited)
 
QUARTERLY RESULTS OVERVIEW - CONTINUING OPERATIONS
  2018   2017
(in millions) Q1   Q2   Q3   Q4 Q1   Q2   Q3   Q4
Net sales
Electronics $ 288.0 $ 295.7 $ 291.7 $ 282.1 $ 262.7 $ 276.9 $ 289.1 $ 293.9
Industrial & Specialty 204.5   205.9   196.8   196.3   184.4   185.4   191.5   194.7
Total $ 492.5 $ 501.6 $ 488.5 $ 478.4 $ 447.1 $ 462.3 $ 480.6 $ 488.6
 
Adjusted EBITDA
Electronics $ 60.1 $ 64.9 $ 64.9 $ 58.3 $ 50.8 $ 56.0 $ 63.1 $ 63.2
Industrial & Specialty 44.0   44.5   43.4   40.6   43.6   39.5   44.7   40.3
Total $ 104.1 $ 109.4 $ 108.3 $ 98.9 $ 94.4 $ 95.5 $ 107.8 $ 103.5

Non-GAAP Measures

To supplement the financial measures prepared in accordance with GAAP,
Element Solutions has provided in this release the following non-GAAP
financial measures: EBITDA, adjusted EBITDA, adjusted EBITDA margin,
adjusted earnings per share (EPS), adjusted EPS guidance, net debt to
adjusted EBITDA ratio, and organic net sales growth. The Company also
evaluates and presents its results of operations on a constant currency
basis.

Management internally reviews each of the non-GAAP measures mentioned
above to evaluate performance on a comparative period-to-period basis in
terms of absolute performance, trends and expected future performance
with respect to the Company's business, and believes that these non-GAAP
measures provide investors with an additional perspective on trends and
underlying operating results on a period-to-period comparable basis. The
Company also believes that investors find this information helpful in
understanding the ongoing performance of its operations separate from
items that may have a disproportionate positive or negative impact on
its financial results in any particular period or are considered to be
costs associated with its capital structure. These non-GAAP financial
measures, however, have limitations as analytical tools, and should not
be considered in isolation from, a substitute for, or superior to, the
related financial information that Element Solutions reports 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 the Company's financial
statements, and may not be completely comparable to similarly titled
measures of other companies due to potential differences in calculation
methods. In addition, these measures are subject to inherent limitations
as they reflect the exercise of judgment by management about which items
are excluded or included in determining these non-GAAP financial
measures. Investors are encouraged to review the reconciliations of
these non-GAAP financial measures to their most comparable GAAP
financial measures included in this press release, and not to rely on
any single financial measure to evaluate the Company's businesses.

The Company only provides adjusted EBITDA guidance, adjusted EPS
guidance and organic net sales growth expectations on a non-GAAP basis
and does not provide reconciliations of such forward-looking non-GAAP
measures to GAAP due to the inherent difficulty in forecasting and
quantifying certain amounts that are necessary for such reconciliations,
including adjustments that could be made for restructurings,
refinancings, divestitures, integration and acquisition-related
expenses, share-based compensation amounts, non-recurring, unusual or
unanticipated charges, expenses or gains, adjustments to inventory and
other charges reflected in our reconciliation of historic numbers, the
amount of which, based on historical experience, could be significant.

Constant Currency:

The Company discloses net sales and adjusted EBITDA on a constant
currency basis by adjusting to exclude the impact of changes due to the
translation of foreign currencies of its international locations into
U.S. dollar. 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 its results of operations, consistent with how the
Company internally evaluates its financial results.

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

The following tables reconcile GAAP net sales growth to organic net
sales growth for the three and twelve months ended December 31, 2018:

  Three Months Ended December 31, 2018
      Change in    
Pass-Through
Reported Net Impact of Constant Metals Organic Net
Sales Growth Currency Currency Pricing Acquisitions Sales Growth
Electronics (4)% 3% (1)% 0% (1)% (1)%
Industrial & Specialty 1% 3% 4% —% —% 4%
Total (2)% 3% 1% 0%

0%

1%
 

NOTE: Totals may not sum due to rounding.

  Twelve Months Ended December 31, 2018
      Change in    
Pass-Through
Reported Net Impact of Constant Metals Organic Net
Sales Growth Currency Currency Pricing Acquisitions Sales Growth
Electronics 3% (1)% 2% 0% (1)% 2%
Industrial & Specialty 6% (1)% 5% —% —% 5%
Total 4% (1)% 3% 0%

0%

3%
 

NOTE: Totals may not sum due to rounding.

For the three months ended December 31, 2018, Electronics' and the
Company's consolidated results were positively impacted by $2.2 million
of acquisitions and negatively impacted by $1.4 million of pass-through
metals pricing.

For the twelve months ended December 31, 2018, Electronics' and the
Company's consolidated results were positively impacted by $5.7 million
of acquisitions and negatively impacted by $3.4 million of pass-through
metals pricing.

Adjusted Earnings Per Share:

Adjusted earnings per share (EPS) is defined as net loss from continuing
operations attributable to common stockholders adjusted to reflect
adjustments consistent with the Company's definition of adjusted EBITDA.
Additionally, the Company eliminates the amortization associated with
intangibles assets recognized in purchase accounting for acquisitions.
Further, the Company adjusts its effective tax rate to 34% for the three
and twelve months ended December 31, 2018 and 35% for the three and
twelve months ended December 31, 2017, as described in footnote (11)
under the reconciliation table below. The 2019 adjusted EPS guidance
reflects the elimination of the step-up depreciation associated with
fixed assets recognized in purchase accounting for acquisitions and an
effective tax rate of 27%. In addition, this guidance is based on the
Company's new capital structure by assuming that the Arysta Sale had
closed, and the new credit agreement had been in place, on January 1,
2019, which the Company believes is more reflective of the go-forward
capital structure of the Company.

The resulting adjusted net income from continuing operations is then
divided by Element Solution's outstanding number of shares of common
stock plus the number of shares that would be issued if all convertible
stock was converted to common stock, stock options were vested and
exercised and equity grants were vested and issued at each period
presented. Adjusted earnings per share is a key metric used by
management to measure operating performance and trends as management
believes the exclusion of certain expenses in calculating adjusted
earnings per share facilitates operating performance comparisons on a
period-to-period basis.

The following table reconciles GAAP "Net income (loss) attributable to
common stockholders" to "Adjusted net income from continuing operations
attributable to common stockholders" and presents the adjusted number of
common shares used in calculating adjusted earnings per share for each
period presented below:

  Three Months Ended   Twelve Months Ended
December 31, December 31,
(amounts in millions, except per share amounts) 2018   2017 2018   2017
Net income (loss) attributable to common stockholders $ 35.2 $ (141.5 ) $ (324.4 ) $ (296.2 )
Net income (loss) from discontinued operations attributable to
common stockholders
48.2   (123.2 ) (245.9 ) (102.1 )
Net loss from continuing operations attributable to common
stockholders
(13.0 ) (18.3 ) (78.5 ) (194.1 )
Reversal of amortization expense (1) 27.4 27.9 112.1 109.6
Restructuring expense (2) 2.0 7.3 6.3 23.5
Acquisition and integration costs (3) 2.4 0.2 12.1 4.1
Legal settlement (4) (0.2 ) (10.8 )
Foreign exchange loss on foreign denominated external and internal
long-term debt
(5) 5.3 4.1 6.0 53.4
Debt refinancing costs (6) 0.5 68.5 0.5 83.1
Pension plan settlement (7) 10.5 10.5
Gain on sale of equity investment (8) (11.3 )
Change in fair value of contingent consideration (9) (24.3 ) 0.2 (21.8 ) 3.4
Other, net (10) 8.7 0.4 14.4 1.5
Tax effect of pre-tax non-GAAP adjustments (11) (7.5 ) (41.6 ) (40.2 ) (97.4 )
Adjustment to estimated effective tax rate (11) 6.7 (51.2 ) 41.9 22.5
Adjustment to reverse loss attributable to certain non-controlling
interests
(12) (1.3 ) (0.5 ) 1.3   2.1  
Adjusted net income from continuing operations attributable to
common stockholders
$ 6.9   $ 7.3   $ 42.8   $ 11.4  
 
Adjusted earnings per share from continuing operations (13) $ 0.02 $ 0.02 $ 0.14 $ 0.04
 
Adjusted common shares outstanding (13) 301.3 299.9 301.9 300.1
(1)   The Company eliminates amortization expense associated with
intangible assets recognized in purchase accounting for
acquisitions. The Company believes these adjustments provide insight
with respect to the cash flows necessary to maintain and enhance its
product portfolio.
(2) The Company adjusts for costs of restructuring its operations,
including those related to its acquired businesses. The Company
adjusts these costs because it believes they are not reflective of
ongoing operations.
(3) The Company adjusts for costs associated with acquisition and
integration activity, including costs of obtaining related financing
such as investment banking, legal and accounting fees, and transfer
taxes. The Company adjusts these costs because it believes they are
not reflective of ongoing operations.
(4) The Company adjusts for certain legal settlements which it believes
are not reflective of ongoing operations, including the 2017
settlement agreement between MacDermid Printing Solutions LLC (now
known as MacDermid Graphics Solutions LLC) and E.I. du Pont de
Nemours and Company (now known as DowDuPont Inc.) which resulted in
a net gain of $10.8 million.
(5) The Company adjusts for foreign exchange loss on long-term
intercompany and third-party debt because it expects the
period-to-period movement of these currencies to offset on a
long-term basis and, due to their long-term nature, are not fully
realized. The Company does not exclude foreign exchange gains and
losses on short-term intercompany and third-party payables and
receivables.
(6) The Company adjusts for costs related to the redemption of its
10.375% senior notes due 2021 and the refinancings of its term loan
debt because it believes these costs are not reflective of ongoing
operations. These refinancings consisted of $74.4 million of
write-off of deferred financing fees and original issuance premiums
and discounts, and $8.8 million of debt issuance costs, each in 2017.
(7) The Company adjusts for costs related to significant pension plan
settlements and curtailments. 2017 adjustments related primarily to
the settlement of the Company's pension obligation in the United
Kingdom. The Company adjusts these costs because it believes they
are not reflective of ongoing operations.
(8) The Company adjusts for a gain on the sale of an equity investment
in 2018 because it believes it is not reflective of ongoing
operations.
(9) The Company adjusts for changes in the fair value of contingent
consideration related to the acquisition of MacDermid, Incorporated
(the "MacDermid Acquisition"). The Company adjusts these costs
because it believes they are not reflective of ongoing operations.
(10) The Company's 2018 adjustments include $11.0 million of
employee-related expenses associated with the sale of its former
Agricultural Solutions business, which expenses do not qualify for
discontinued operations, and certain profession consulting fees. The
Company's 2017 adjustments include a non-recurring severance payment
to a senior executive. The Company adjusts these costs because it
believes they are not reflective of ongoing operations.
(11) The Company adjusts its effective tax rate to 34% for the three and
twelve months ended December 31, 2018. This adjustment does not
reflect the Company's current or near-term tax structure, including
limitations on its ability to utilize net operating losses and
foreign tax credits in certain jurisdictions. These factors
significantly increase the Company's effective tax rate from 34%.
The Company also applies an effective tax rate of 34% to pre-tax
non-GAAP adjustments. For the three and twelve months ended December
31, 2017, before the enactment of the Tax Cuts and Jobs Act in
December 2017, the Company adjusted its effective tax rate to 35%.
The Company adjusts the effective tax rates because it believes it
provides a meaningful comparison of its performance between periods.
(12) The Company adjusts for the income or loss attributable to
non-controlling interests created at the time of the MacDermid
Acquisition because holders of such equity interest are expected to
convert their holdings into shares of Element Solutions' common
stock. The Company adjusts these non-controlling interests because
it believes they are not reflective of ongoing operations.
(13) The Company defines "Adjusted common shares" as the outstanding
shares of its common stock at December 31, 2018 or 2017, plus the
number of shares that would be issued if all convertible stock was
converted into common stock, stock options were vested and exercised
and awarded equity grants were vested as of December 31, 2018 or
2017, as applicable. The Company adjusts the number of outstanding
shares of its common stock for this calculation to provide an
understanding of the Company's results of operations on a per share
basis. See table below for further information.

NON-GAAP ADJUSTED SHARES AT DECEMBER 31, 2018 AND 2017 (UNAUDITED)

The following table shows Element Solution's adjusted common shares
outstanding at each period presented which consists of Element
Solution's outstanding number of shares of common stock plus the number
of shares that would be issued if all convertible stock was converted
into common stock, stock options were vested and exercised and equity
grants were vested and issued at each period presented:

  2018   2017
(amounts in millions) Q4   FY Average Q4   FY Average
Basic outstanding common shares 289.0 288.4 287.4 286.6
Number of shares issuable upon conversion of PDH Common Stock 4.0 4.1 4.8 5.5
Number of shares issuable upon conversion of Series A Preferred Stock 2.0 2.0 2.0 2.0
Number of shares issuable upon vesting and exercise of Stock Options 0.5 0.7 0.7 0.7
Number of shares issuable upon vesting of granted Equity Awards 5.8   6.7   5.0   5.3
Adjusted common shares outstanding 301.3   301.9   299.9   300.1

EBITDA and Adjusted EBITDA:

EBITDA represents earnings before interest, provision for income taxes,
depreciation and amortization. Adjusted EBITDA is defined as EBITDA,
excluding the impact of additional items included in GAAP earnings which
we believe are not representative or indicative of our ongoing business,
as described in the footnotes located under the Adjusted Earnings Per
Share reconciliation table above. Adjusted EBITDA for each segment also
includes an allocation of corporate costs, such as compensation expense
and professional fees. Management believes adjusted EBITDA and adjusted
EBITDA margin provide investors with a more complete understanding of
the long-term profitability trends of Element Solution's business and
facilitate comparisons of its profitability to prior and future periods.
However, these measures, which do not consider certain cash
requirements, should not be construed as an alternative to net income or
cash flow from operations as a measure of profitability or liquidity.

The following tables reconcile GAAP net income (loss) attributable to
common stockholders to adjusted EBITDA for each of the periods presented:

  2018
(amounts in millions) Q1   Q2   Q3   Q4   FY
Net income (loss) attributable to common stockholders $ 37.3 $ 12.0 $ (408.9 ) $ 35.2 $ (324.4 )
Add (subtract):
Net income (loss) attributable to the non-controlling interests 0.7 (0.2 ) 3.0 1.0 4.5
(Income) loss from discontinued operations, net of tax (46.9 ) (61.4 ) 401.6 (50.4 ) 242.9
Income tax expense (benefit) 9.9 30.0 (18.8 ) 2.7 23.8
Interest expense, net 77.2 78.3 77.9 77.6 311.0
Depreciation expense 11.7 11.2 10.9 10.8 44.6
Amortization expense 28.5   28.4   27.8   27.4   112.1  
EBITDA 118.4 98.3 93.5 104.3 414.5
Adjustments to reconcile to Adjusted EBITDA:
Restructuring expense (2) 1.7 1.6 1.0 2.0 6.3
Acquisition and integration costs (3) 1.0 3.5 5.2 2.4 12.1
Foreign exchange (gain) loss on foreign denominated external and
internal long-term debt
(5) (7.7 ) 4.6 3.8 5.3 6.0
Debt refinancing costs (6) 0.5 0.5
Gain on sale of equity investment (8) (11.3 ) (11.3 )
Change in fair value of contingent consideration (9) 0.5 1.0 1.0 (24.3 ) (21.8 )
Other, net (10) 1.5   0.4   3.8   8.7   14.4  
Adjusted EBITDA $ 104.1   $ 109.4   $ 108.3   $ 98.9   $ 420.7  
 

NOTE: For the footnote descriptions, please refer to the
footnotes located under the Adjusted Earnings Per Share
reconciliation table above.

  2017
(amounts in millions) Q1   Q2   Q3   Q4   FY
Net loss attributable to common stockholders $ (24.4 ) $ (61.1 ) $ (69.2 ) $ (141.5 ) $ (296.2 )
Add (subtract):
Net income (loss) attributable to the non-controlling interests 0.8 1.1 2.9 (4.2 ) 0.6
(Income) loss from discontinued operations, net of tax (38.6 ) (13.9 ) 29.4 126.9 103.8
Income tax expense (benefit) 17.8 4.0 (1.6 ) (88.8 ) (68.6 )
Interest expense, net 87.8 83.8 84.7 80.6 336.9
Depreciation expense 11.1 11.4 12.3 11.6 46.4
Amortization expense 26.6   27.4   27.7   27.9   109.6  
EBITDA 81.1 52.7 86.2 12.5 232.5
Adjustments to reconcile to Adjusted EBITDA:
Restructuring expense (2) 2.3 5.0 8.9 7.3 23.5
Acquisition and integration costs (3) 3.1 0.4 0.4 0.2 4.1
Legal settlement (4) (10.6 ) (0.2 ) (10.8 )
Foreign exchange loss on foreign denominated external and internal
long-term debt
(5) 4.2 33.6 11.5 4.1 53.4
Debt refinancing costs (6) 1.0 12.8 0.8 68.5 83.1
Pension plan settlement (7) 10.5 10.5
Change in fair value of contingent consideration (9) 1.1 1.2 0.9 0.2 3.4
Other, net (10) 1.6   0.4   (0.9 ) 0.4   1.5  
Adjusted EBITDA $ 94.4   $ 95.5   $ 107.8   $ 103.5   $ 401.2  
 

NOTE: For the footnote descriptions, please refer to the
footnotes located under the Adjusted Earnings Per Share
reconciliation table above.

Net Debt to Adjusted EBITDA Ratio:

Net debt to adjusted EBITDA Ratio is defined as total debt and capital
lease obligations, excluding unamortized premium, discounts and debt
issuance costs, less cash divided by adjusted EBITDA.

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