Element Solutions Inc (ESI) FY 2021 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with “Financial Statements and Supplementary Data” included in Part II, Item 8 of this 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.

Business 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.

Highlights

•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.

26

•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 - During 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.

27

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.

Goodwill

Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or when events or changes in circumstances indicate that goodwill might be impaired. Our reporting units are determined based upon our organizational structure in place at the date of the goodwill impairment test. The fair value of 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 substantially in excess of their respective carrying values.

See Note 8, Goodwill and Intangible Assets, to the Consolidated Financial Statements included in this 2021 Annual Report for additional information.

Income Taxes

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

28

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 measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.

Tax benefits are recognized for an uncertain tax position when, 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.

29

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

Organic Net Sales Growth

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

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

Adjusted EBITDA

We define Adjusted EBITDA as EBITDA, excluding the impact of additional items included in GAAP earnings which we believe are not representative or indicative of our ongoing business 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

(nm) Calculation not meaningful.

30

Year Ended December 31, 2021 Compared to 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:

NOTE: Totals may not sum due to rounding.

Electronics' net sales for 2021 increased 31% on a reported basis, 27% on a constant currency basis and 13% on an organic basis.

•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's 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: net sales increased 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 net sales was primarily due to the investment of

31

our consumer packaged good (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

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

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.

32

Other (Expense) Income, net

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 million, primarily due to the remeasurement of euro- and British pound-denominated intercompany balances.

Other expense, 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 totaled $48.3 million, as compared to $4.3 million in 2020. For additional information see Note 11, Income Taxes, to the Consolidated Financial Statements included in this 2021 Annual Report.

Other Comprehensive (Loss) Income

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.

33

Segment Adjusted EBITDA Performance

Electronics' Adjusted EBITDA for 2021 increased 28% on a reported basis and 23% on a constant currency basis. The constant currency increase was primarily driven by higher gross profit and leverage on disciplined operating expense recovery.

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.

Liquidity 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 repurchase our equity and/or to retire or repurchase our outstanding debt through cash purchases and/or exchanges for equity, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, applicable restrictions under our various financing arrangements, and other factors.

During 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

34

may transfer cash from certain international subsidiaries to the U.S. and/or other international subsidiaries when we believe it is cost effective to do so.

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, 2021 compared to Year Ended December 31, 2020

Operating 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 with reference to historical returns, forward-looking return expectations, the Domestic and Foreign Pension Plans' investment allocations, and peer comparisons. We used a long-

35

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.

The 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, 2021, we had $1.91 billion of indebtedness, net of unamortized discounts and debt issuance costs of $23.2 million, which primarily included:

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

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

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

Covenants

At December 31, 2021, we were in compliance with the customary affirmative and negative covenants, events of default and other customary provisions of the Credit Agreement, as well as with the covenants included in the indenture governing our 3.875% USD Notes due 2028.