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What changed in Element Solutions Inc's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Element Solutions Inc's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+284 added−268 removedSource: 10-K (2024-02-21) vs 10-K (2023-02-22)

Top changes in Element Solutions Inc's 2023 10-K

284 paragraphs added · 268 removed · 225 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

65 edited+11 added−3 removed56 unchanged
Biggest changeDuring 2022, our research and development expenses totaled $48.8 million. Substantially all research and development activity was performed internally. Competitive Environment Our markets are competitive and subject to rapid changes in technology. Our businesses compete in markets for specialty chemicals for electronic applications, general metal and plastic finishing, offshore oil and gas exploration and production, and consumer packaging.
Biggest changeDuring 2023, our research and development expenses totaled $68.1 million which includes $15.7 million of research and development costs associated with purchase accounting related to the Kuprion Acquisition. Substantially all research and development activity was performed internally. Competitive Environment Our markets are competitive and subject to rapid changes in technology.
Liquid Imaging Products Liquid products are liquid photopolymers used to produce printing plates for transferring images onto commercial packaging. Our key products are LTL photopolymer , M Clear photopolymer and M Stamp 40 photopolymer . We also offer products that are used in the production of liquid photopolymer plates such as substrate, coverfilms and detergents.
Liquid Imaging Products Liquid imaging products are liquid photopolymers used to produce printing plates for transferring images onto commercial packaging. Our key products are LTL photopolymer , M Clear photopolymer and M Stamp 40 photopolymer . We also offer products that are used in the production of liquid photopolymer plates, such as substrate, coverfilms and detergents.
Energy Solutions Offshore Fluids Production fluids are used to operate valves for the deep-water oil extraction and transportation process, and drilling fluids are used to operate valves for drilling rigs on the ocean floor. Production and drilling fluids are water-based hydraulic fluids used in subsea control systems.
Energy Solutions Offshore Fluids Offshore fluids are used to operate valves for the deep-water oil extraction and transportation process, and drilling fluids are used to operate valves for drilling rigs on the ocean floor. Production and drilling fluids are water-based hydraulic fluids used in subsea control systems.
We plan to continue making meaningful investments in a broad range of research and development efforts. 7 Our commitment to technological innovation and extensive intellectual property portfolio enables us to develop differentiated products at the forefront of technological advances. Research resulting in new, proprietary formulations is performed principally in the United States, United Kingdom, Germany and India.
We plan to continue making meaningful investments in a broad range of research and development efforts. Our commitment to technological innovation and extensive intellectual property portfolio enables us to develop differentiated products at the forefront of technological advances. Research resulting in new, proprietary formulations is performed principally in the United States, Germany, United Kingdom and India.
Electronics Our Electronics segment researches, formulates and sells specialty chemicals and material process technologies 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.
Electronics Our Electronics segment researches, formulates and sells specialty chemicals and process technologies 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.
Our high-performance functional coatings improve resistance to wear and tear, such as hard chrome plating of shock absorbers for cars, or provide corrosion resistance for appliance parts. Our decorative performance coatings apply finishes for parts in various end-markets, such as automotive interiors or jewelry surfaces.
Our high-performance functional coatings improve resistance to wear and tear, such as chrome plating of shock absorbers for cars, or provide corrosion resistance for appliance parts. Our decorative performance coatings apply finishes for parts in various end-markets, such as automotive interiors or jewelry surfaces.
We accelerate market introductions and increase the impact of our local product offerings through collaboration with partners in the academic and commercial sectors (customers and value-chain partners) and by working with customers and OEMs on tailored application development around the world through our technical service teams.
We accelerate market introductions and increase the impact of our local product offerings through collaboration with partners in the academic and commercial sectors (customers and value-chain partners) and 7 by working with customers and OEMs on tailored application development around the world through our technical service teams.
As a specialty chemical company, the success of our business is fundamentally connected to the safety of our employees. To promote worker safety, we use comprehensive management tools, including policies, training requirements, best practices and processes, and product quality and safety standards.
As a specialty chemical company, the success of our business is fundamentally connected to the safety of our employees. To promote worker safety, we use comprehensive management tools, including policies, training requirements, best practices and processes, and product safety standards.
Semiconductor Solutions Semiconductor Materials & Packaging Applications Advanced plating chemistries and assembly materials used for semiconductor chip fabrication and packaging. Our plating portfolio consists of copper, nickel and precious metals used in wafer-level packaging applications as well as damascene metallization used for transistor interconnection.
Semiconductor Solutions Semiconductor Materials & Packaging Applications Semiconductor materials & packaging applications are advanced plating chemistries and assembly materials used for semiconductor chip fabrication and packaging. Our plating portfolio consists of copper, nickel and precious metals used in wafer-level packaging applications as well as damascene metallization used for transistor interconnection.
This close proximity to our global customers' local sites enables access to key growth markets and, along with our efficient formulation process, allows for "just in time" supply chain management. We believe that our businesses are not materially dependent upon any single customer with no customer representing 10% or more of our consolidated net sales in 2022, 2021 or 2020.
This close proximity to our global customers' local sites enables access to key growth markets and, along with our efficient formulation process, allows for "just in time" supply chain management. We believe that our businesses are not materially dependent upon any single customer with no customer representing 10% or more of our consolidated net sales in 2023, 2022 or 2021.
For financial and other information about our segments and the geographic areas in which we do business, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7, "Financial Statements and Supplementary Data" in Part II, Item 8, as well as Note 1, "Background and Basis of Presentation" and Note 22, "Segment Information" to our audited Consolidated Financial Statements, all included in this 2022 Annual Report.
For financial and other information about our segments and the geographic areas in which we do business, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7, "Financial Statements and Supplementary Data" in Part II, Item 8, as well as Note 1, "Background and Basis of Presentation" and Note 22, "Segment Information" to our audited Consolidated Financial Statements, all included in this 2023 Annual Report.
The SEC also maintains an internet website available at www.sec.gov that contains reports, proxy and information statements and other information filed by issuers, such as Element Solutions. The information on or linked to our website is not incorporated by reference into, and does not form a part of, this 2022 Annual Report or any of our other SEC filings.
The SEC also maintains an internet website available at www.sec.gov that contains reports, proxy and information statements and other information filed by issuers, such as Element Solutions. The information on or linked to our website is not incorporated by reference into, and does not form a part of, this 2023 Annual Report or any of our other SEC filings.
These core values are the foundation of our organization. We believe they reinforce our strategic objectives and empower our employees when serving and engaging with our customers globally. 6 At December 31, 2022, we employed over 5,300 full-time employees, of which approximately 40% are research and development chemists and experienced technical service and technical sales personnel.
These core values are the foundation of our organization. We believe they reinforce our strategic objectives and empower our employees when serving and engaging with our customers globally. 6 At December 31, 2023, we employed over 5,300 full-time employees, of which approximately 40% are research and development chemists and experienced technical service and technical sales personnel.
We also serve a variety of clean technology customers and as such, may benefit from the upcoming transition to a lower carbon economy. We believe we are in material compliance with environmental laws and regulations applicable to our operations, and consider the liabilities recorded at December 31, 2022 for our various environmental matters to be appropriate.
We also serve a variety of clean technology customers and as such, may benefit from the upcoming transition to a lower carbon economy. We believe we are in material compliance with environmental laws and regulations applicable to our operations, and consider the liabilities recorded at December 31, 2023 for our various environmental matters to be appropriate.
Our technical expertise and innovation track records are the result of a specialized, highly-skilled workforce. Our ability to drive profitable growth through technical process know-how, strong customer relationships and industry knowledge relies on our ability to attract, grow and retain a highly-skilled and motivated team at all levels of our organization. • Disciplined and Prudent Capital Allocation .
Our technical expertise and innovation track records are the result of a specialized, highly-skilled workforce. Our ability to drive profitable growth through technical process know-how, strong customer relationships and industry knowledge relies on our ability to attract, grow and retain highly-skilled and motivated teams at all levels of our organization. • Disciplined and Prudent Capital Allocation .
As part of our broader sustainable solutions platform, we also provide both chemistry and equipment for turnkey wastewater treatment and recycle and reuse solutions. Our industrial customer base is highly diverse and includes customers in the following end-markets: appliances and electronics equipment; automotive parts; industrial parts; plumbing goods; construction equipment and transportation equipment.
As part of our broader sustainable solutions platform, we also provide both chemistry and equipment for turnkey wastewater treatment, recycling and reuse solutions. Our industrial customer base is highly diverse and includes customers in the following end-markets: appliances and electronics equipment; automotive parts; industrial parts; plumbing goods; construction equipment and transportation equipment.
As a supplier of consumable materials used to transfer images on to consumer packaging materials, our products are used to improve print quality and printing productivity. We produce and market photopolymers through an extensive line of flexographic plates that are used in the consumer packaging and printing industries. Photopolymers are molecules that change properties upon exposure to light.
As a supplier of consumable materials used to transfer images onto consumer packaging materials, our products are used to improve print quality and printing productivity. We produce and market photopolymers through an extensive line of flexographic plates that are used in the consumer packaging and printing industries. Photopolymers are molecules that change properties upon exposure to light.
We believe our growth in this industry will be primarily driven by increased worldwide automobile production with elevated fashion elements and higher content per vehicle as well as general economic growth. 3 Graphics Solutions - representing approximately 16% of the segment's 2022 net sales .
We believe our growth in this industry will be primarily driven by increased worldwide automobile production with elevated fashion elements and higher content per vehicle as well as general economic growth. 3 Graphics Solutions - representing approximately 16% of the segment's 2023 net sales .
Item 1. Business Unless the context otherwise indicates or requires, all product names, trade names, trademarks, service marks or logos used in this 2022 Annual Report are part of our intellectual property, although the “®” and “TM” trademark designations may have been omitted.
Item 1. Business Unless the context otherwise indicates or requires, all product names, trade names, trademarks, service marks or logos used in this 2023 Annual Report are part of our intellectual property, although the “®” and “TM” trademark designations may have been omitted.
Film and Smart Surface Solutions Films and Smart Surfaces include 3D formable films, 2D films, texturing Lacquers and circuitry & component attach materials used in the creation of in-mold electronic (IME) structures for human-machine interfaces (HMI). Key brands include Xtraform, Autotex and Autoflex.
Film and Smart Surface Solutions Films and smart surfaces solutions include 3D formable films, 2D films, texturing Lacquers and circuitry & component attach materials which are used in the creation of in-mold electronic (IME) structures for human-machine interfaces (HMI). Key brands include Xtraform, Autotex and Autoflex.
It also focuses on causes important to the environmental and social well-being of these communities, such as The Canopy Project, which in 2022 helped us celebrate Earth Day with the planting of trees around the world.
It also focuses on causes important to the environmental and social well-being of these communities, such as The Canopy Project ® , which in 2023 helped us celebrate Earth Day with the planting of trees around the world.
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.
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. The segment's products are used in the aerospace, automotive, construction, consumer electronics, consumer packaged goods and oil and gas production end-markets.
Clear communication, strong strategic alignment and a culture that rewards good judgement allow us to ensure the right decisions are being made by our trusted global workforce. • Recruitment and Talent Development . Our success is a by-product of the efforts and capabilities of our people from our R&D laboratories to our customers’ manufacturing floors.
Clear communication, strong strategic alignment and a culture that rewards good judgement allow us to ensure the right decisions are being made by our trusted global workforce. • Recruitment and Talent Development . Our success is a by-product of the efforts and capabilities of our people from our research and development laboratories to our customers’ manufacturing floors.
We believe our scale and global reach in product development, marketing and formulation provide us with advantages over many competitors, allowing us to maintain strong market share positions and drive profitable growth. Our strong market presence contributes to our ability to attract new customers and successfully enter new end-markets . 4 • Customer Driven Innovation.
We believe our scale and global reach in product development, marketing and formulation provide us with advantages over many competitors, allowing us to maintain our market positions and drive profitable growth. Our extensive market presence contributes to our ability to attract new customers and successfully enter new end-markets . 4 • Customer Driven Innovation.
Wastewater Solutions Wastewater treatment and recycling systems that allow for less waste discharge and a more sustainable use of resources including water, metals and other production inputs. Water Treatment Fernox is our water treatment product line used for the filtration, corrosion inhibition, and conditioning of water in residential and commercial boiler systems.
Wastewater Solutions Wastewater solutions are treatment and recycling systems that allow for less waste discharge and a more sustainable use of resources including water, metals and other production inputs. Water Treatment Water treatment consists of Fernox, our water treatment product line, which is used for the filtration, corrosion inhibition, and conditioning of water in residential and commercial boiler systems.
Energy Solutions - representing approximately 7% of the segment's 2022 net sales. As a global supplier of specialized fluids to the offshore energy industry, we produce water-based hydraulic control fluids for major oil and gas companies and drilling contractors to be used in offshore deep-water production and drilling applications.
Energy Solutions - representing approximately 8% of the segment's 2023 net sales. As a global supplier of specialized fluids to the offshore energy industry, we produce water-based hydraulic control fluids for major oil and gas companies and drilling contractors to be used in offshore deep-water production and drilling applications.
Competitive Strengths We believe the following competitive strengths differentiate our businesses from competitors and contribute to our ongoing success: • Industry Leading Positions . We strategically focus on acquiring and maintaining leading positions in niche sectors of high-growth markets by offering innovative products and high value-added services to our customers.
Competitive Strengths We believe the following competitive strengths differentiate our businesses from competitors and contribute to our ongoing success: • Industry Leading Positions . We diligently focus on building and maintaining leading positions in niche sectors of high-growth markets by offering innovative products and high value-added services to our customers.
Our product portfolio is focused on specialized consumable chemical processes and materials, such as surface treatments, circuit formation, primary metallization, electroplate, surface finishes and flexible/formable films. We believe our growth in this business will be driven by demand in wireless mobile devices, internet infrastructure computers, and the increasing use of electronics in automobiles.
Our product portfolio is focused on specialized consumable chemical processes and materials, such as circuit formation, primary metallization, electroplate, surface finishes and flexible/formable films. We believe our growth in this business will be driven by demand in wireless mobile devices, internet infrastructure, high performance computing, and the increasing use of electronics in automobiles.
In addition, both our business segments are led by executives who have extensive experience in their respective fields. Business Strategies We are building a best-in-class global specialty chemical solutions provider.
In addition, both of our segments are led by executives who have extensive experience in their respective fields. Business Strategies We are building a best-in-class global specialty chemical solutions company.
Circuit Formation Products Circuit formation products represent an assortment of products for defining circuit patterns and bonding conductors to insulating materials. Electronic Materials Specialty products developed for evolving electronic applications including photovoltaics, memory disk and molded interconnect devices manufacturing as well as lead frame and dielectric plating solutions.
Circuit Formation Products Circuit formation products consist of an assortment of products for defining circuit patterns and bonding conductors to insulating materials. Electronic Materials Electonic materials are specialty products developed for evolving electronic applications, including photovoltaics, memory disk and molded interconnect devices manufacturing as well as lead frame and dielectric plating solutions.
We conduct regular global employee culture surveys to gauge their perception of the Company as a place to work as well as their views of leadership, understanding of our culture, and sense of inclusion.
In addition, we conduct regular global employee culture surveys to gauge employees' perception of the Company as a place to work as well as their views of leadership, understanding of our culture, and sense of inclusion.
Industrial & Specialty provides solutions through the following businesses: Industrial Solutions - representing approximately 77% of the segment's 2022 net sales. As a global supplier of industrial metal and plastic finishing chemistries, we primarily design and manufacture chemical systems that protect and decorate surfaces.
Industrial & Specialty provides solutions through the following businesses: Industrial Solutions - representing approximately 76% of the segment's 2023 net sales. As a global supplier of industrial metal and plastic finishing chemistries, we primarily design and manufacture chemical systems that protect and decorate surfaces.
Surface Finishes A portfolio of metallic and organic surface finishes that promote wire bondability, provide contact functionality and preserve solderability of the circuit board prior to component assembly. Key brands include Sterling, Entek, Affinity and Ormecon .
Surface Finishes Surface finishes are metallic and organic surface finishes products that promote wire bondability, provide contact functionality and preserve solderability of the circuit board prior to component assembly. Key brands include Sterling, Entek, Affinity and Ormecon .
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. Electronics provides solutions through the following businesses: Assembly Solutions - representing approximately 52% of the segment's 2022 net sales.
The segment's "wet chemistries" for metallization, surface treatments and solderable finishes form the physical circuitry pathways and its "assembly materials," such as solder, pastes, fluxes and adhesives, join those pathways together. Electronics provides solutions through the following businesses: Assembly Solutions - representing approximately 51% of the segment's 2023 net sales.
Circuitry Solutions - representing approximately 31% of the segment's 2022 net sales. As a global supplier of chemical formulations to the electronics industry, we design and manufacture proprietary liquid chemical processes and materials used by our customers to manufacture printed circuit boards and memory storage devices.
Circuitry Solutions - representing approximately 30% of the segment's 2023 net sales. As a global supplier of chemical formulations to the electronics industry, we design and manufacture proprietary "wet" chemical processes and materials used by our customers to manufacture printed circuit boards and memory storage devices.
We believe our growth in this business will be driven by advanced electronics packaging, necessary to meet the growing needs of high performance computing, the internet of things, 5G communications and the increasing content and complexity of electronics in automotive applications. 2 Products A selection of Electronics' product offerings is presented below: Assembly Solutions Electronic Assembly Materials Chemicals and materials used in circuit board and electronic device assembly.
We believe our growth in this business will be driven by advanced electronics packaging, necessary to meet the growing needs of high performance computing, artificial intelligence, the internet of things, next-generation wireless communications and the increasing content and complexity of electronics in automotive applications. 2 Products A selection of Electronics' product offerings is presented below: Assembly Solutions Electronic Assembly Materials Electonic assembly materials are used in circuit board and high-performance electronic device assembly.
Plating Products The CuMac range of products for applications such as plating on aluminum wheels, plastic substrates and zinc-based die castings, and the evolve plating process used for chromium-free plating on plastics. Pre-treatment and Cleaning Solutions Pre-treatment and cleaning solutions are applied to prepare the surfaces of a wide variety of industrial products for subsequent treatment.
Our CuMac range of products is used for plating on aluminum wheels, plastic substrates and zinc-based die castings while our evolve plating process applies to chromium-free plating on plastics. Pre-treatment and Cleaning Solutions Pre-treatment and cleaning solutions are applied to prepare the surfaces of a wide variety of industrial products for subsequent treatment.
At December 31, 2022, we owned, had applications pending, or licensed the rights to, approximately 2,600 domestic and foreign patents, which have remaining lives of varying duration.
At December 31, 2023, 8 we owned, had applications pending, or licensed the rights to, approximately 2,800 domestic and foreign patents, which have remaining lives of varying duration.
Products A selection of Industrial & Specialty's product offerings is presented below: Industrial Solutions Electroless Nickel Electroless nickel is applied to a variety of metal and plastic surfaces to enhance corrosion resistance, wear resistance, solderability and to repair worn or over-machined surfaces in a variety of applications.
Products A selection of Industrial & Specialty's product offerings is presented below: Industrial Solutions Electroless Nickel Electroless nickel is applied to a variety of metal and plastic surfaces to enhance corrosion resistance, wear resistance, solderability and to repair worn or over-machined surfaces in a variety of applications. Plating Products Plating products are high-performance coatings used in multiple applications.
Graphics Solutions Solid Sheet Printing Elements Solid sheet printing elements are digital and analog printing sheets, used in the flexographic printing and platemaking processes. Our extensive line of Lux flexographic plates are used in the commercial packaging letterpress newspaper and publication industries.
Graphics Solutions Solid Sheet Printing Elements Solid sheet printing elements are digital and analog printing sheets, used in the flexographic printing and plate-making processes. Our extensive line of LUX flexographic plates, including our LUX ITP 60 plate, are used in the commercial packaging, letterpress newspaper and publication industries.
Semiconductor Solutions - representing approximately 17% of the segment's 2022 net sales. As a global supplier to the semiconductor industry, we provide advanced copper interconnects, die attachment, wafer bump processes and photomask technologies to our customers for integrated circuit fabrication and semiconductor packaging.
Semiconductor Solutions - representing approximately 19% of the segment's 2023 net sales. As a global supplier to the semiconductor industry, we provide advanced copper interconnects, die attachment, sintered silver material, adhesives, wafer bump processes and photomask technologies to our customers for integrated circuit fabrication and semiconductor packaging.
Research and Development Innovation is a key element of our culture and critical to our success. Continued investment in research and development ensures that we remain ahead of emerging trends and continue to strengthen our strong positions in our market niches.
Continued investment in research and development ensures that we remain ahead of emerging trends and continue to strengthen our strong positions in our market niches.
Other key brands include Alpha , Innolot , AccuFlux , Powerbond, Kester, TrueHeight and Alpha HiTech. Circuitry Solutions Circuit Board Metallization Plating products are used to plate holes drilled through printed circuit boards to connect opposite sides of the board and multi-layered printed circuit boards. Products include Shadow, Blackhole, MacuSpec , M-System and Systek .
Circuitry Solutions Circuit Board Metallization Circuit board metallization products are used to plate holes drilled through printed circuit boards to connect opposite sides of the board and multi-layered printed circuit boards. Products include Shadow, Blackhole, MacuSpec , M-System and Systek .
While they typically represent only a small portion of our customers' costs, our products, along with our high-value added technical support, are seen as integral to customer product performance. Neither of our segments is subject to significant seasonality.
We provide highly-technical service and support to customers and OEMs in order to optimize their manufacturing processes. While they typically represent only a small portion of our customers' costs, our products, along with our high-value added technical support, are seen as integral to customer product performance. Neither of our segments is subject to significant seasonality.
We host an annual Global Safety Day during which our leaders emphasize the importance of safety through videos, discussions and targeted training. As part of our safety program, we track injury and illness rates locally and maintain emergency and disaster recovery plans.
We routinely train and educate our employees on workplace safety and security, including by hosting an annual Global Safety Day during which our leaders emphasize the importance of safety through seminars, videos and targeted discussions. As part of our safety program, we track injury and illness rates locally and maintain emergency and disaster recovery plans.
In addition, we implement confidentiality procedures, contractual exclusivity and other rights necessary to protect our proprietary intellectual property, formulations, processes and other product-related rights. We also enter into invention or patent assignment agreements, when applicable, with our employees, consultants, contractors and other third-parties who may be engaged in discovery or development of intellectual property and other proprietary rights.
We also enter into invention or patent assignment agreements, when applicable, with our employees, consultants, contractors and other third-parties who may be engaged in discovery or development of intellectual property and other proprietary rights.
We believe diversity, equity and inclusion drive innovation, which in turn allows us to compete effectively. Throughout 2022, we continued to strengthen our targeted hiring initiatives with a focus on candidates historically underrepresented in our industry, including multiethnic backgrounds. Our talent program is based on policies designed to ensure fair hiring practices and prevent discrimination and harassment.
Our talent program is based on policies designed to ensure fair hiring practices and prevent discrimination and harassment as well as diversity training on a targeted basis. Throughout 2023, we continued to strengthen our hiring initiatives with a focus on candidates historically underrepresented in our industry, including multiethnic backgrounds.
We believe, however, that our ability to manufacture, sell, service and develop new products and applications enable us to compete successfully. Some large competitors operate globally, as we do, but most operate only locally or regionally. We also face competition from many smaller companies that specialize in particular segments of the markets in which we compete.
Some large competitors operate globally, as we do, but most operate only locally or regionally. We also face competition from many smaller companies that specialize in particular segments of the markets in which we compete.
As a global supplier of solder technologies, fluxes, cleaners and other attachment materials for the electronics assembly industry, we develop innovative materials that join electronic circuits in high volume device manufacturing. Our high-performing interconnect materials are used to assemble consumer electronics from circuit boards, discrete electronic components, connectors and integrated circuit substrates.
As a global supplier of surface mount technologies (SMT), fluxes, thermal management materials, coatings and other attachment materials, we develop high-performing innovative materials that are used to assemble consumer electronics from circuit boards, discrete electronic components, connectors and integrated circuit substrates.
Acquisitions We may pursue targeted and opportunistic acquisitions in our existing and adjacent end-markets that seek to strengthen our current businesses, expand and diversify our product offering, and enhance our growth and strategic position. On January 26, 2022, we completed the HSO Acquisition for approximately $23 million, net of cash.
Acquisitions We may pursue targeted and opportunistic acquisitions in our existing and adjacent end-markets that seek to strengthen our current businesses, expand and diversify our product offerings, and enhance our growth and strategic position.
In 2022, global donations through our ESI Cares program benefited over 500 charitable organizations, including charities who focus on human rights and humanitarian initiatives, such as Equality Now and Doctors Without Borders. In early 2022, we announced our initial sustainability goals, which include improving occupational health and safety performance and increasing diversity, equity and inclusion.
In 2023, global donations through our ESI Cares program benefited over 500 charitable organizations, including charities who focus on human rights and humanitarian initiatives, such as Equality Now and Doctors Without Borders USA.
We also care for our employees' health and offer benefits and programs designed to support their physical, mental and financial well-being. In the context of the COVID-19 pandemic, we proactively developed Company-wide return-to-office and employee safety protocols. Diversity, Equity and Inclusion . We are committed to becoming a more inclusive and diverse organization.
We also care for our employees' health and offer benefits and programs designed to support their physical, mental and financial well-being. Diversity, Equity and Inclusion . We are committed to becoming a more inclusive and diverse organization. We believe diversity, equity and inclusion drive innovation, which in turn allows us to compete effectively.
Although certain of these patents are important to our business, no specific group or groups of intellectual property rights are material, and we have many proprietary products which are not covered by patents. 8 We also rely on confidentiality agreements and patent, trade secret, trademark and copyright law as well as judicial enforcement to protect our technologies, processes, product composition, formulations and other intellectual property rights.
Although certain of these patents are important to our business, no specific group or groups of intellectual property rights are material, and we have many proprietary products which are not covered by patents.
We understand that the best workforce comes from thriving communities, so we invest in our communities to support them. Through our engagement programs, our employees can connect to volunteering and giving opportunities. The ESI Foundation further brings our purpose to life by matching employee donations to qualified charitable organizations in the communities where our employees live and work.
The ESI Foundation further brings our purpose to life by matching employee donations to qualified charitable organizations in the communities where our employees live and work.
Our semiconductor assembly materials portfolio includes die attach pastes and films, thermal interface materials, adhesives, getters, solder flux and solder pastes. Key brands include ALPHA, ViaForm, MICROFAB, ATROX, Kester, Electrolube and Compugraphics .
Our semiconductor assembly materials portfolio includes sintered materials, die attach pastes and films, thermal interface materials, adhesives, getters, solder flux and solder pastes. Our Argomax line of advanced sinter technology is used in power semiconductor and solid state lighting markets to improve reliability and device performance. Other key brands include ALPHA, ViaForm, MICROFAB, ATROX, TrueHeight, Staydry, Kester and Compugraphics .
Both segments provide products that, in substantially all cases, are consumed by customers as part of their production process, providing us with reliable and recurring revenue as products are replenished in order to continue production. We provide highly-technical service and support to customers and OEMs in order to optimize their manufacturing processes.
Our segments share a common focus on attractive niche markets, which we believe will grow faster than the diverse end-markets they each serve. Both segments provide products that, in substantially all cases, are consumed by customers as part of their production process, providing us with reliable and recurring revenue as products are replenished in order to continue production.
Further consolidation within our industry or other changes in the competitive environment could result in larger competitors that compete with us across several business areas. In addition, some of our competitors may have greater financial, technical and marketing resources than we do and may be able to devote greater resources to promoting and selling certain products.
In addition, some of our competitors may have greater financial, technical and marketing resources than we do and may be able to devote greater resources to promoting and selling certain products. We believe, however, that our ability to manufacture, sell, service and develop new products and applications enable us to compete successfully.
With our focus on innovation and service, key elements of our human capital strategy are the attraction, acquisition and engagement of highly-skilled employees. Accordingly, we are committed to the continued development of our people and track internal KPIs related to career development and internal promotion.
With our focus on innovation and service, key elements of our human capital strategy are the attraction, acquisition and engagement of highly-skilled employees. Accordingly, we offer many training opportunities to cultivate talent, improve targeted skills and facilitate internal mobility to create a high-performing and diverse workforce.
HSO is included in our Industrial Solutions business line within our Industrial & Specialty segment. 1 Business Segments Our operations are organized into two reportable segments: Electronics and Industrial & Specialty. In 2022, we achieved sales of $2.55 billion, to which our Electronics and Industrial & Specialty segments contributed approximately 63% and 37%, respectively.
Kuprion, Inc. is a developer of next-generation nano-copper technology for the semiconductor, circuit board and electronics assembly markets. 1 Business Segments Our operations are organized into two reportable segments: Electronics and Industrial & Specialty. In 2023, we achieved sales of $2.33 billion, to which our Electronics and Industrial & Specialty segments contributed approximately 61% and 39%, respectively.
In addition, we regularly review talent development and succession plans for each of our functions and segments to identify and develop a pipeline of talent to maintain business operations. Social and Community Impact. We believe that building connections among our employees, their families and our communities creates a more meaningful, fulfilling and enjoyable workplace.
We track internal KPIs related to career development and internal promotion, and regularly review talent development and succession plans for each of our functions and segments to identify and develop a pipeline of talent to maintain business operations.
In the second quarter of 2022, our Films business was transferred from our Industrial Solutions business within Industrial & Specialty to our Circuitry Solutions business in Electronics. We made this change in response to the increasing commercial activity and opportunities we anticipate in printed and in-mold electronics.
In the first quarter of 2023, operational responsibility of our Films business was transferred from our Graphics Solutions business within our Industrial & Specialty segment to our Circuitry Solutions business in our Electronics segment.
Our product offering is primarily focused on solder technologies, including solder alloys, wires, pastes and preforms. The portfolio also includes fluxes, adhesives, encapsulants, cleaners and stencils, all of which facilitate wave solder and surface mount assembly activities. Our Argomax line of advanced sinter technology is used in power semiconductor and solid state lighting markets to improve reliability and device performance.
Our product offering is primarily focused on SMT, including solder pastes, adhesives and preforms. The portfolio also includes thermal management materials, encapsulants, coatings, fluxes and other solder materials, all of which facilitate wave solder and surface mount assembly activities. Key brands include Alpha , Innolot , AccuFlux , Powerbond, Kester, Electrolube, and Alpha HiTech.
These surveys are part of our continuous improvement mindset around building a robust culture that is both engaging and aligned with our core value of "Care." We also offer many training opportunities to cultivate talent, improve targeted skills and facilitate internal mobility to create a high-performing and diverse workforce.
These surveys are part of our continuous improvement mindset around building a robust culture that is both engaging and aligned with our core value of "Care." Social and Community Impact. We believe that building connections among our employees, their families and our communities creates a more meaningful, fulfilling and enjoyable workplace.
Our businesses compete primarily on the basis of quality, technology, performance, reliability, brand, reputation, service, range of products and services and support. We maintain extensive technical support and testing services for our customers and are continuously developing new products to meet their needs.
Our businesses compete in markets for specialty chemicals for electronic applications, general metal and plastic finishing, offshore oil and gas exploration and production, and consumer packaging. Our businesses compete primarily on the basis of quality, technology, performance, reliability, brand, reputation, service, range of products and services and support.
These goals further articulate our commitment to Environmental, Social and Governance (ESG) principles and their integration into our business strategy and day-to-day operations. For more information, including with respect to workforce prosperity and our social and community impact, see the Sustainability section of our website.
For more information on our workforce prosperity efforts, social and community impact and sustainability goals, see the Sustainability section of our website. Research and Development Innovation is a key element of our culture and critical to our success.
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HSO 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.
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ViaForm Distribution Rights - On June 1, 2023, we reacquired the right to market and distribute directly (rather than through our exclusive distributor) our ViaForm ® electrochemical deposition products by terminating a long-standing distribution agreement for $200 million, including $170 million paid at closing and a deferred payment of $30.0 million.
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Historical information has been reclassified to include the Films business in Electronics for all periods presented in this 2022 Annual Report. Our segments share a common focus on attractive niche markets, which we believe will grow faster than the diverse end-markets they each serve.
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The deferred payment and a receivable of $13.5 million were settled in the fourth quarter of 2023. The receivable was settled with $6.1 million of inventory and $7.4 million cash (which reduced the purchase price paid by the cash received).
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We also provide diversity training on a targeted basis. In 2022, all U.S. managers were required to complete a training program designed to hone their skills on unconscious bias, non-discrimination and anti-harassment and embrace conscious inclusion as a key leadership quality. Talent Retention and Development .
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Following the completion of the transaction, we now manage all aspects of the ViaForm® product line in-house, which we believe will result in a more efficient supply chain and improved customer outcomes for leading semiconductor fabricators.
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Kuprion Acquisition - On May 19, 2023, we completed the Kuprion Acquisition for $15.9 million, net of cash with potential additional payments in various installments, which are not to exceed $259 million in aggregate, to be made upon the achievement of certain milestones associated with product qualification and revenue through December 31, 2030.
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In addition, we transferred certain product lines between our Assembly Solutions business and our Semiconductor Solutions business, both of which are part of our Electronics segment, to align more closely with our current business structure. Historical information has been reclassified to reflect these changes for all periods presented in this 2023 Annual Report.
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This led to diverse candidate slates for approximately 90% of our U.S.-based roles. Within the Company, we focused on our female representation in our High Potential (HiPo) leadership program to increase the number of female leaders at ESI.
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In addition, our newly-created employee resource groups (ERGs), with the assistance of their executive sponsors, support diverse employees and aim to raise awareness of different cultures within the workplace, cultivate diversity as a business strength and support ESI’s talent acquisition strategy to attract and retain diverse candidates. Talent Retention and Development .
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We understand that the best workforce comes from thriving communities and accordingly invest in our communities to support them. Through our engagement programs, our employees can connect to volunteering opportunities and nonprofit organizations of their choice which support causes they care about, locally and/or globally, including education, humanitarian relief and minorities.
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In early 2023, we published our latest Environmental, Social and Governance (ESG) report in which we describe, among other ESG initiatives and data, our progress towards our sustainability goals, which include improving occupational health and safety performance and increasing diversity, equity and inclusion.
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We maintain extensive technical support and testing services for our customers and are continuously developing new products to meet their needs. Further consolidation within our industry or other changes in the competitive environment could result in larger competitors that compete with us across several business areas.
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We also rely on confidentiality agreements and patent, trade secret, trademark and copyright law as well as judicial enforcement to protect our technologies, processes, product composition, formulations and other intellectual property rights. In addition, we implement confidentiality procedures, contractual exclusivity and other rights necessary to protect our proprietary intellectual property, formulations, processes and other product-related rights.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs a result, we face certain risks inherent in international trade which may reduce our sales and harm our business, including: • political uncertainties and general instability, war, terrorism and other instability risks and their impact on the global economy, market conditions and supply chain operations, including risks caused by the COVID-19 pandemic, the ongoing conflict between Russia and Ukraine and the related sanctions imposed by the U.S. and other countries, and the relationship between China and the U.S.; • changes in global or local economic conditions, including inflation, hyperinflation, fluctuations in interest rates and other increasing price levels in certain sectors, such as energy, impacting availability and cost of goods and services; • fluctuations in currency values and currency exchange rates for countries in, or with which, we conduct business; • adverse tax consequences, including as a result of transfer pricing practices involving our foreign operations, and additional withholding taxes or other taxes on foreign income; • foreign exchange controls or other currency restrictions and limitation on the movement of funds, potentially leading to the inability to readily repatriate earnings from foreign operations effectively; • establishing and maintaining relationships with local distributors and OEMs; • governmental regulations affecting the import and export of products, including global trade barriers, additional taxes, tariff increases, cash repatriation restrictions, retaliations and potential boycotts; • import and export control and licensing requirements; • business cultures accepting of various levels of corruption; • risk of non-compliance with the Foreign Corrupt Practices Act of 1977, SEC rules regarding conflict minerals sourcing and other similar laws or regulations in other jurisdictions; • compliance with a variety of foreign laws and regulations, including unexpected changes in taxation and regulatory requirements; • uncertainties regarding the terms of applicable trade treaties between the United Kingdom and other countries following its withdrawal from the E.U.; • greater difficulty in safeguarding intellectual property than in the U.S.; • difficulty in staffing and managing geographically diverse operations and attempting to ensure compliance with our policies and procedures; and • challenges in maintaining an effective internal control environment, including language and cultural differences, varying levels of GAAP expertise and internal control over financial reporting.
Biggest changeAs a result, we face certain risks inherent in international trade which may reduce our sales and harm our business, including: • political uncertainties, war, terrorism and other instability risks and their impact on the global economy, market conditions and supply chain operations, including risks caused by the ongoing war between Russia and Ukraine, the Israel-Hamas conflict and other hostilities in the Middle East and the increased tariffs and trade restrictions between China and the U.S.; • changes in global or local economic conditions, including inflation, hyperinflation, fluctuations in interest rates and other increasing price levels in certain sectors, such as energy, impacting availability and cost of goods and services; • fluctuations in currency values and currency exchange rates for countries in, or with which, we conduct business; • changes or uncertainty in international, national or local legal environments, including tax, data handling, privacy, intellectual property, consumer protection, environmental and antitrust laws; • adverse tax consequences, including as a result of changes in taxation and regulatory requirements, transfer pricing practices involving our foreign operations, and additional withholding taxes or other taxes on foreign income; • foreign exchange controls or other currency restrictions and limitation on the movement of funds, potentially leading to the inability to readily repatriate earnings from foreign operations effectively; • natural disasters, extreme weather events, regional or global health concerns, such as the COVID 19 pandemic; • establishing and maintaining relationships with local distributors and OEMs; • governmental regulations and/or sanctions affecting the import and export of products, including global trade barriers, additional taxes, tariff increases, cash repatriation restrictions, retaliations and boycotts between the U.S. and other countries, including Russia and China; • import and export control and licensing requirements; risk of non-compliance with the Foreign Corrupt Practices Act of 1977, U.S. export control and trade sanction laws, SEC rules regarding conflict minerals sourcing and other similar anti-corruption and international trade laws or regulations in other jurisdictions; • greater difficulty in safeguarding intellectual property than in the U.S.; • difficulty in staffing and managing geographically diverse operations and ensuring compliance with our policies and procedures; and • challenges in maintaining an effective internal control environment, including language and cultural differences, varying levels of GAAP expertise and internal control over financial reporting.
In these markets, we encounter competition from numerous and varied competitors in all areas of our businesses. Some of our competitors have longer operating histories, greater resources and greater brand recognition, and a larger base of customers than we do.
In these markets, we encounter competition from numerous and varied competitors in all areas of our businesses. Some of our competitors have longer operating histories, greater resources, greater brand recognition and a larger base of customers than we do.
Any failure, or perceived failure, by us to comply with the GDPR, the CCPA or any other applicable regulatory requirements or orders, within the E.U., the U.S. or elsewhere, could result in proceedings or actions against us by governmental entities or individuals; subject us to significant fines, penalties, and/or judgments; require us 16 to change our business practices; limit the offering of our products and services in certain countries; or otherwise adversely affect our business, as we would be at risk to lose both customers and sales, and incur substantial costs.
Any failure, or perceived failure, by us to comply with the GDPR, the CCPA or any other applicable regulatory requirements or orders, within the E.U., the U.S. or elsewhere, could result in proceedings or actions against us by governmental entities or individuals; subject us to significant fines, penalties, and/or judgments; require us to change our business practices; limit the offering of our products and services in certain countries; or otherwise adversely affect our business, as we would be at risk to lose both customers and sales, and incur substantial costs.
Our Credit Agreement, the indenture governing our 3.875% USD Notes due 2028 and other debt agreements governing our outstanding debt contain restrictive clauses, which may limit our activities and operational and financial flexibility, including, among other things, our ability to grant liens, pay cash dividends, enter new lines of business, repurchase our shares of common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions.
Our Credit Agreement, the indenture governing our 3.875% USD Notes due 2028 and other debt agreements governing our outstanding debt contain restrictive clauses, which may limit our operational and financial flexibility, including, among other things, our ability to grant liens, pay cash dividends, enter new lines of business, repurchase our shares of common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions.
Paying dividends will depend upon many factors, including our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements and access to capital markets, covenants associated with our Credit Agreement, the indenture governing our 3.875% USD Notes due 2028 and/or other debt obligations, contractual, legal, tax and regulatory restrictions and other factors that the Board may deem relevant.
Paying dividends will depend upon many factors, including our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements and access to capital markets, covenants associated with our Credit Agreement, the indenture governing our 3.875% USD Notes due 2028 and/or other debt obligations, contractual, legal, tax and 20 regulatory restrictions and other factors that the Board may deem relevant.
The occurrence of a significant offshore deepwater oil production or drilling event that results in liability to us that is not fully insured could have a material adverse effect on our financial condition or results of operations. 15 Certain of our products may be subject to various export control regulations and exports may require a license from the U.S.
The occurrence of a significant offshore deepwater oil production or drilling event that results in liability to us that is not fully insured could have a material adverse effect on our financial condition or results of operations. Certain of our products may be subject to various export control regulations and exports may require a license from the U.S.
Our offshore business produces water-based hydraulic control fluids for major oil companies and drilling contractors to be used for potentially hazardous offshore deepwater production and drilling applications. Offshore deepwater oil production and drilling are subject to hazards that include blowouts, explosions, fires, collisions, capsizing, sinking and damage or loss to pipeline, subsea or other facilities from severe weather conditions.
Our offshore business produces water-based hydraulic control fluids for major oil companies and drilling contractors to be used for potentially hazardous offshore deepwater production and drilling applications. Offshore deepwater oil production and drilling 15 are subject to hazards that include blowouts, explosions, fires, collisions, capsizing, sinking and damage or loss to pipeline, subsea or other facilities from severe weather conditions.
The failure to attract and retain key personnel, or effectively manage succession, could have an adverse material impact on our business, financial condition or results of operations. In addition, we are highly dependent on the experience and track records of Sir Martin E. Franklin, our other Board members and our executive leadership team.
The failure to attract and retain key personnel, or effectively manage succession, could have an adverse material impact on our business, financial condition or results of operations. 11 In addition, we are highly dependent on the experience and track records of Sir Martin E. Franklin, our other Board members and our executive leadership team.
The unavailability or increased prices of raw materials could have a material adverse impact on our business, financial 12 condition or results of operations. We use a variety of specialty and commodity chemicals in our formulation processes, and such formulation operations depend upon obtaining adequate supplies of raw materials on a timely basis from numerous suppliers in various countries.
The unavailability or increased prices of raw materials could have a material adverse impact on our business, financial condition or results of operations. We use a variety of specialty and commodity chemicals in our formulation processes, and such formulation operations depend upon obtaining adequate supplies of raw materials on a timely basis from numerous suppliers in various countries.
If we fail to comply with the Credit Agreement covenants, we would be in default under our term loan and revolving credit facilities and, unless we were to obtain waivers from our lenders, the maturity of our outstanding debt could be accelerated, which could adversely impact our results of operations, financial position and cash flows.
If we fail to comply with the Credit Agreement covenants, we would be in default under our term loan and revolving credit facilities and, unless we were to 17 obtain waivers from our lenders, the maturity of our outstanding debt could be accelerated, which could adversely impact our results of operations, financial position and cash flows.
To the extent available, we maintain insurance coverage that we believe is customary in our industry. Such insurance does not, however, provide coverage for all liabilities, and there can be no assurance that our insurance coverage will be adequate to cover claims that may arise, or that we will be able to maintain adequate insurance at rates we consider reasonable.
To the extent available, we maintain insurance coverage that we believe is customary in this industry. Such insurance does not, however, provide coverage for all liabilities, and there can be no assurance that our insurance coverage will be adequate to cover claims that may arise, or that we will be able to maintain adequate insurance at rates we consider reasonable.
Further, in the past, market fluctuations and price declines in a company's stock have led to securities class action litigation, which could have a substantial cost and divert management time and resources regardless of their outcome. 19 Future issuances or sales of our common stock may depress the price of our common stock.
Further, in the past, market fluctuations and price declines in a company's stock have led to securities class action litigation, which could have a substantial cost and divert management time and resources regardless of their outcome. Future issuances or sales of our common stock may depress the price of our common stock.
All these factors, consumer trends and industry characteristics may impact the demand for our products which may cause significant fluctuations in our results of operations and adversely affect our financial condition and cash flow. Fluctuations in the supply and prices of raw materials and in other costs may negatively impact our business, financial condition or results of operations.
All these factors, consumer trends and industry characteristics may impact the demand for our products which may cause significant fluctuations in our results of operations and adversely affect our financial condition and cash flow. 12 Fluctuations in the supply and prices of raw materials and in other costs may negatively impact our business, financial condition or results of operations.
Current governmental, regulatory and societal demands for increasing levels of product safety, such as chemical composition, packaging and labeling, and environmental protection, such as the management, movement and disposal of hazardous substances, are resulting in increased pressure for more stringent regulatory control with respect to the chemical industry.
Governmental, regulatory and societal demands for increasing levels of product safety, such as chemical composition, packaging and labeling, and environmental protection, such as the management, movement and disposal of hazardous substances, are resulting in increased pressure for more stringent regulatory control with respect to the chemical industry.
Although our Credit Agreement and the indenture governing our 3.875% USD Notes due 17 2028 contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and indebtedness incurred in compliance with these restrictions could be substantial.
Although our Credit Agreement and the indenture governing our 3.875% USD Notes due 2028 contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and indebtedness incurred in compliance with these restrictions could be substantial.
Current or future insurance arrangements may not provide protection for costs that may arise from such events, particularly if such events are catastrophic in nature or occur in combination.
Current or future insurance arrangements may not provide protection for costs that may arise from such events, particularly if these are catastrophic in nature or occur in combination.
FINANCIAL RISKS Our net sales and gross profit have varied depending on our product, customer and geographic mix for any given period which makes it difficult to forecast future operating results. Our net sales and gross profit vary among our products, customers and markets, and therefore may be different in future periods from historic or current periods.
FINANCIAL RISKS Our net sales and gross profit vary depending on our product, customer and geographic mix for any given period which makes it difficult to forecast future operating results. Our net sales and gross profit vary among our products, customers and markets, and therefore may be different in future periods from historic or current periods.
Item 1A. Risk Factors The following discussion of "risk factors" identifies the material factors that may adversely affect our business, financial condition or results of operations. Potential investors should carefully consider these risks and the other information in this 2022 Annual Report when evaluating our business.
Item 1A. Risk Factors The following discussion of "risk factors" identifies the material factors that may adversely affect our business, financial condition or results of operations. Potential investors should carefully consider these risks and the other information in this 2023 Annual Report when evaluating our business.
If we are unable to arrange for sufficient production capacity among our suppliers or contract manufacturers, or if our suppliers or contract manufacturers encounter production, quality, financial or other difficulties (including due to the COVID-19 pandemic or labor or geopolitical disturbances), we may be unable to meet our customers' demands.
If we are unable to arrange for sufficient production capacity among our suppliers or contract manufacturers, or if our suppliers or contract manufacturers encounter production, quality, financial or other difficulties (including due to the COVID-19 pandemic, labor or geopolitical disturbances or natural disasters), we may be unable to meet our customers' demands.
Any future impairment of our tangible or intangible long-lived assets may materially affect our results of operations. As a result of our historical acquisitions, as of December 31, 2022, we had approximately $3.22 billion of intangible assets and goodwill.
Any future impairment of our tangible or intangible long-lived assets may materially affect our results of operations. As a result of our historical acquisitions, as of December 31, 2023, we had approximately $3.22 billion of intangible assets and goodwill.
Our products are manufactured, formulated, distributed and sold globally. In 2022, approximately 75% of our net sales were generated from non-U.S. operations.
Our products are manufactured, formulated, distributed and sold globally. In 2023, approximately 75% of our net sales were generated from non-U.S. operations.
Our Credit Agreement provides for senior secured credit facilities in an initial aggregate principal amount of $1.53 billion, consisting of term loans B of $1.15 billion maturing in 2026 and a revolving facility of $375 million maturing in 2027.
Our Credit Agreement provides for senior secured credit facilities in an initial aggregate principal amount of $1.53 billion, consisting of term loans B-2 of $1.15 billion maturing in 2030 and a revolving facility of $375 million maturing in 2027.
At December 31, 2022, we had $1.11 billion outstanding under the term loans and full availability of our unused borrowing capacity of $369 million, net of letters of credit, under the revolving facility. We and our subsidiaries may incur significant additional indebtedness in the future.
At December 31, 2023, we had $1.15 billion outstanding under the term loans and full availability of our unused borrowing capacity of $369 million, net of letters of credit, under the revolving facility. We and our subsidiaries may incur significant additional indebtedness in the future.
As we upgrade or change systems, we may also experience interruptions in service, loss of data or reduced functionality and other unforeseen material issues, which could adversely impact our ability to provide quotes, receive and fulfill customer orders and otherwise run our business in a timely manner.
As we upgrade or change systems, we may also experience interruptions in service, loss of data or reduced functionality and other unforeseen material issues, which could adversely impact our ability to provide quotes, receive and fulfill customer orders and otherwise run our business in a timely manner. As a result, our results of operations could be adversely affected.
However, in 2022, approximately 75% of our net sales are currently generated from non-U.S. operations, which means that we have net sales, substantial assets, liabilities and costs denominated in currencies other than the U.S. dollar. To prepare our Consolidated Financial Statements, we must translate those sales, assets, liabilities and expenses into U.S. dollars at then-applicable exchange rates.
However, a large portion of our net sales (approximately 75% in 2023) are generated from our non-U.S. operations, which means that we have net sales, substantial assets, liabilities and costs denominated in currencies other than the U.S. dollar. To prepare our Consolidated Financial Statements, we must translate those sales, assets, liabilities and expenses into U.S. dollars at then-applicable exchange rates.
These increases in materials inventory and purchase commitments to shorten lead times could result in excess and obsolete inventory charges if the demand for our products is ultimately less than our expectations. 10 Our substantial international operations subject us to risks of doing business in foreign countries which could affect our business, financial condition or results of operations.
These increases in materials inventory and purchase commitments have resulted, and could continue to result, in excess and/or obsolete inventory charges if the demand for our products is ultimately less than our expectations. 10 Our substantial international operations subject us to risks of doing business in foreign countries which could affect our business, financial condition or results of operations.
Our products are subject to numerous, complex federal, state, local and foreign customs regulations, imports and international trade laws, export control, antitrust laws, environmental and chemicals manufacturing, global climate change, health and safety requirements and zoning and occupancy laws that regulate manufacturers generally or, more particularly, govern the importation, promotion and sale of our products, the operation of our production and warehouse facilities and our relationship with our customers, suppliers, employees and competitors. 14 Our products and manufacturing processes are also subject to numerous regulations and ongoing reviews by certain governmental authorities.
Our products are subject to numerous, complex federal, state, local and foreign customs regulations, imports and international trade laws, export control, antitrust laws, environmental and chemicals manufacturing, global climate change, health and safety requirements and zoning and occupancy laws that regulate manufacturers generally or, more particularly, govern the importation, promotion and sale of our products, the operation of our production and warehouse facilities and our relationship with our customers, suppliers, employees and competitors.
If we experience a significant disruption in our information technology systems, including security breaches, or if we fail to implement new systems and software successfully, our business operations and financial condition could be adversely affected.
GENERAL RISKS If we experience a significant disruption in our information technology systems or if we fail to implement new systems and software successfully, our business operations and financial condition could be adversely affected.
In addition, our Credit Agreement contains customary remedies, including the right of the lenders to take action with respect to the collateral securing outstanding loans, that would apply should we default or otherwise be unable to satisfy our debt obligations. These covenants may restrict our flexibility in operating our business.
In addition, our Credit Agreement contains customary remedies, including the right of the lenders to take action with respect to the collateral securing outstanding loans, that would apply should we default or otherwise be unable to satisfy our debt obligations.
We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for our common stock in connection with future acquisitions, future issuances of our securities for capital raising purposes or for other business purposes, which issuance could also result in significant dilution of ownership interest.
We may also issue additional shares of our common stock, or other securities that are convertible into or exercisable for our common stock, in connection with future acquisitions, for capital raising purposes or for other business purposes; which issuances could also result in significant dilution of ownership interest. Volatility of our stock price could adversely affect us and our stockholders.
Indicators such as under-performance relative to historical or projected future operating results, changes in our strategy for our overall business or use of acquired assets, unexpected negative industry or economic trends, decreased market capitalization relative to net book values, prolonged decline in the value of our stock price, unanticipated competitive activities, change in consumer demand, loss of key personnel and acts by governments and courts may signal that an asset has become impaired.
Other indicators that may signal that an asset has become impaired include changes in our strategy for our overall business or use of acquired assets, unexpected negative industry or economic trends, decreased market 18 capitalization relative to net book values, prolonged decline in the value of our stock price, unanticipated competitive activities, change in consumer demand, loss of key personnel and/or acts by governments and judicial courts.
Failure to comply with Economic Sanctions Laws, or allegations of such failure, could lead to investigations and/or actions being taken against us which could materially and adversely affect our reputation and have a material adverse effect on our business, financial condition or results of operations.
Failure to comply with Economic Sanctions Laws, or allegations of such failure, could lead to investigations and/or actions being taken against us which could materially and adversely affect our reputation and have a material adverse effect on our business, financial condition or results of operations. 16 Changes in data privacy and data protection laws and regulations, or any failure to comply with such laws and regulations, could adversely impact our business.
Specifically, at December 31, 2022, the following instruments were outstanding: • 3,901,630 RSUs with each RSU representing a contingent right to receive one share of our common stock or, for performance-based RSUs, multiple shares depending upon the underlying performance metrics and our performance during the applicable performance period; and • 387,790 options which, once vested, are exercisable to purchase shares of our common stock, on a one-for-one basis, at any time at the option of the holder.
Specifically, at December 31, 2023, the following equity-based awards were outstanding: • 3,872,289 RSUs with each RSU representing a contingent right to receive one share of our common stock or, for performance-based RSUs, multiple shares depending upon the underlying performance metrics and our performance during the applicable performance period; and • 384,685 options which, once vested, are exercisable to purchase shares of our common stock, on a one-for-one basis, at any time at the option of the holder.
Recent regulations include the European Union's REACH (Registration, Evaluation, Authorization, and Restriction of Chemicals), which has been a continuing source of compliance obligations and restrictions on certain chemicals, REACH-like regimes, which have now been adopted in several other countries, and the U.S. Toxic Substances Control Act (TSCA), as amended in June 2016, with the U.S.
Such regulations include the European Union's REACH (Registration, Evaluation, Authorization, and Restriction of Chemicals), which has been a continuing source of compliance obligations and restrictions on certain chemicals, REACH-like regimes, which have now been adopted in several other countries, the E.U. Poison Center Notification (PCN) and the U.S. Toxic Substances Control Act (TSCA).
We also depend on these systems to respond to customer inquiries, implement our overall internal control processes, maintain records of our property, plant and equipment and record and pay amounts due to vendors and other creditors.
We also depend on these systems to respond to customer inquiries, implement our overall internal control processes and maintain records of our property, plant and equipment.
Meeting customer demand depends in part on our ability to obtain timely deliveries from our suppliers and contract manufacturers. Considering the recent supply chain-related challenges, we have increased our procurement efforts to help ensure continuity of supply to our customers.
Meeting customer demand depends in part on our ability to obtain timely deliveries from our suppliers and contract manufacturers. To help ensure continuity of supply to our customers, we have increased our procurement efforts to shorten lead times.
Moreover, we are regularly examined by various tax authorities throughout the world, and the final resolution of tax audits and any related litigation may differ from our historical provisions and accruals resulting in additional tax liabilities, which may have an adverse impact on our tax provision, net income and cash flow.
The final resolution of tax audits and any related litigation may differ from our historical provisions and accruals resulting in additional tax liabilities, which may have an adverse impact on our tax provision, net income and cash flow.
If one or more of our executive officers or Board members were to cease to be employed by us or to serve as directors, or if we were unable to replace them in a timely manner, our business, financial condition, results of operations and/or stock price could be adversely affected. 11 Our reliance on certain key customers, contract manufacturers and suppliers could adversely affect our overall sales and profitability.
If one or more of our executive officers or Board members were to cease to be employed by us or to serve as directors, or if we were unable to replace them in a timely manner, our business, financial condition, results of operations and/or stock price could be adversely affected.
Natural or human-induced disasters including, but not limited to, earthquakes; tsunamis; floods; hurricanes, cyclones or typhoons; fires; other extreme weather conditions; power or water shortages; telecommunications failures; materials scarcity and price volatility; terrorist acts, civil unrest, conflicts or wars; and epidemics, pandemics or other health crises could seriously harm our operations as well as the operations of our customers and suppliers.
Natural or human-induced disasters, such as earthquakes, tsunamis, floods, hurricanes, cyclones or typhoons, fires, power or water shortages, telecommunications failures, terrorist acts, civil unrest, conflicts or wars, and epidemics, pandemics or other health crises, such as the COVID 19 pandemic, could seriously harm our operations as well as the operations of our customers and suppliers.
In order to mitigate our exposure to interest rate and foreign currency risks, we entered into swaps covering 100% of our term loans, consisting of interest rate and cross-currency swaps, which effectively converted our term loans, as U.S. dollar obligations, into fixed-rate euro debt.
In order to mitigate our exposure to interest rate and foreign currency risks, we entered into interest rate and cross-currency swaps covering 100% of our outstanding term loans, effectively converting them from U.S. dollar denominated debt obligations into fixed-rate euro-denominated debt through the term of the swap agreements.
Because our operations currently use and generate, and have historically used and generated, hazardous materials and waste, we are subject to regulatory oversight and investigation, remediation, and monitoring obligations at our current and former Superfund sites, as well as third-party disposal sites, under federal laws and their state and local analogues, including the Resource Conservation and Recovery Act (RCRA), the Clean Water Act, the Clean Air Act, and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and analogous foreign laws.
As we are dependent on the continued operation of our production facilities (including third-party manufacturing on a tolling basis), the loss or shutdown of operations over an extended period could have a material adverse effect on our financial condition or results of operations. 14 Because our operations currently use and generate, and have historically used and generated, hazardous materials and waste, we are subject to regulatory oversight and investigation, remediation, and monitoring obligations at our current and former Superfund sites, as well as third-party disposal sites, under federal laws and their state and local analogues, including the Resource Conservation and Recovery Act (RCRA), the Clean Water Act, the Clean Air Act, and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and analogous foreign laws.
Liability under some environmental laws relating to contaminated sites can be joint and several and imposed retroactively, regardless of fault or the legality of the activities that gave rise to the contamination.
W e are also currently involved in various environmental investigations due to historic operations. Liability under some environmental laws relating to contaminated sites can be joint and several and imposed retroactively, regardless of fault or the legality of the activities that gave rise to the contamination.
The occurrence of one or more of these unexpected events, in the U.S. or in other countries in which we operate, could limit our ability to access the quantity and quality of raw materials we need and/or increase the price of these materials as worldwide supply and demand may be seriously impacted.
Among other impacts, such events could limit our ability to access the quantity and quality of raw materials we need and/or increase the price of these materials as worldwide supply and demand may be seriously impacted.
Any breaches or compromises of data, and/or misappropriation of information resulting from such disruptions could result in violation of privacy and other laws, litigation, fines, negative publicity, loss of investor confidence, lost sales, business delays, indemnity obligations and/or material costs not covered by insurance, any of which could have a material adverse effect on our business, financial condition or results of operations. 20 If we fail to establish and maintain adequate internal controls over financial reporting, we may not be able to report our financial results in a timely and reliable manner, which could harm our business and adversely impact our stock price.
Any breaches or compromises of data, and/or misappropriation of information resulting from such disruptions could result in violation of privacy and other laws, litigation, fines, negative publicity, loss of investor confidence, lost sales, business delays, indemnity obligations and/or material costs not covered by insurance, any of which could have a material adverse effect on our business, financial condition or results of operations.
Any such difference in treatment could materially and adversely affect our business, financial condition, results of operations and cash flows. Chemical manufacturing is inherently hazardous and may result in accidents, which may disrupt our operations or expose us to significant losses or liabilities.
There can be no assurance that we will be successful or that any final determination will not materially and adversely affect our business, financial condition, results of operations and cash flows. Chemical manufacturing is inherently hazardous and may result in accidents, which may disrupt our operations or expose us to significant losses or liabilities.
We are governed by Delaware law, the application of which may have the effect of deterring hostile takeover attempts or a change in control. In particular, Section 203 of the Delaware General Corporation Law imposes certain restrictions on merger, business combinations and other transactions between us and holders of 15% or more of our common stock.
In particular, Section 203 of the Delaware General Corporation Law imposes certain restrictions on merger, business combinations and other transactions between us and holders of 15% or more of our common stock.
We have numerous equity instruments outstanding that could require the future issuance of additional shares of common stock, which issuance could result in significant dilution of ownership interests and have an adverse effect on our stock price.
We expect these ESG disclosure and regulatory trends to continue, and the ultimate cost related to reporting and, where required, compliance could be material. 19 We have numerous equity instruments outstanding that could require the future issuance of additional shares of common stock, which issuance could result in significant dilution of ownership interests and have an adverse effect on our stock price.
Further, the long-term effects of climate change on general economic conditions are unclear, and changes in the supply or demand of our products, or available sources of the raw materials we use in our manufacturing processes, may affect the availability or cost of our products.
Further, the long-term effects of climate change on general economic conditions are unclear, and changes in the supply or demand of our products, or available sources of the raw materials we use in our manufacturing processes, may affect the availability or cost of our products. 21 Any long-term disruption in our ability to timely deliver our products and services to our customers could have a material adverse effect on our business, results of operations and financial condition.
To the extent any of our acquired assets do not perform as anticipated, whether due to internal or external factors, the value of such assets may be negatively affected and we may be required to record impairment charges.
To the extent any of our acquired assets do not perform as anticipated, the value of such assets may be negatively affected. As a result, we may be required to record impairment charges, which could be substantial and negatively impact our results of operations and financial position.
Further, as climate change and other global environmental concerns increase, changes in environmental and climate laws or regulations, in the U.S. and throughout the world, could lead to new or additional investment in product designs, incremental operating expenses and increased environmental expenditures in order to ensure compliance.
Evolving environmental and climate laws or regulations could also lead to new or additional investment in product designs, incremental operating expenses and increased environmental expenditures in order to ensure compliance.
Further, as cyber threats are continually evolving, we may be required to devote additional resources to modify or enhance our systems in the future.
There can be no assurance that the controls and procedures that we put in place will be sufficient or adequate to protect us. Further, as cyber threats are continually evolving, we may be required to devote additional resources to modify or enhance our systems in the future.
As a result, we may be unable to pursue certain business initiatives or certain transactions that might otherwise be advantageous, meet extraordinary capital needs, finance future operations, plan for or react to market conditions, or otherwise take actions that we believe are in the best interest of our businesses which, in turn, may adversely impact our business prospects, financial condition or results of operations.
To the extent an event of default occurs, we may not be able to borrow under the Credit Agreement and therefore, may not be able to pursue certain business initiatives or certain transactions that might otherwise be advantageous, meet extraordinary capital needs, finance future operations, plan for or react to market conditions, or otherwise take actions that we believe are in the best interest of our businesses.
For example, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. State Department administer certain laws and regulations that impose penalties upon U.S. persons and entities and, in some instances, non-U.S. entities, for conducting activities or transacting business with certain countries, governments, entities, or individuals subject to Economic Sanctions Laws.
State Department monitors trade restrictions and economic sanctions and impose penalties upon U.S. persons and entities and, in some instances, non-U.S. entities, for conducting activities or transacting business with certain countries, such as recently Russia and Belarus in the context of the Russia-Ukraine conflict as well as governments, entities, or individuals subject to Economic Sanctions Laws.
In addition, our Credit Agreement requires that we meet certain financial ratios, including a first lien net leverage ratio based on net debt to EBITDA. EBITDA is a non-GAAP measure of liquidity defined in the Credit Agreement. Our ability to meet these financial covenants depends upon the future successful operating performance of our businesses.
As a result, our business prospects, financial condition or results of operations may be adversely impacted. In addition, our Credit Agreement requires that we meet certain financial ratios, including a first lien net leverage ratio based on net debt to EBITDA. EBITDA is a non-GAAP measure of liquidity defined in the Credit Agreement.
Legal claims have been brought alleging harmful exposures or contamination as a result of lead-based solder, and it is possible that we may face additional claims in the future. W e are also currently involved in various environmental investigations due to historic operations.
For example, w e have several product lines that rely on lead-based solder and many others that historically did so. Legal claims have been brought alleging harmful exposures or contamination as a result of lead-based solder, and it is possible that we may face additional claims in the future.
All of these regulations and these types of changes in our regulatory environment, particularly in, but not limited to, the U.S., the E.U. and China, may require us to re-design our products or supply chain to ensure compliance with the applicable standards.
All of these regulations and these types of changes in our regulatory environment, particularly in, but not limited to, the U.S., the E.U. and China, may require us to re-design our products or supply chain to ensure compliance with the applicable standards or use different types or sources of materials, which could have an adverse impact on the efficiency of our manufacturing process, the performance of our products, add greater testing lead-times for product introductions or other similar effects.
Any of these risks could impact our ability to manufacture, source, sell or export our products or repatriate profits. We could also experience a loss of sales and profitability from our international operations, and/or a substantial impairment or loss of assets, any of which could have a material adverse impact on our business, financial condition or results of operations.
If we are unable to successfully manage these and/or any of the risks listed above, we could experience a loss of sales and profitability and/or an impairment or loss of assets, any of which could have a material adverse impact on our business, financial condition or results of operations.
Finally, our exposure to risks associated with the use of intellectual property may increase as a result of acquisitions, as we would have an unavoidable lower level of visibility into the development process of any newly acquired technologies and the steps taken to safeguard against the risks of infringing the rights of third parties. 13 Global Regulations Changes in our effective tax rate, tax cost and tax liabilities could adversely affect our financial condition, results of operations and liquidity.
Regardless of their merit, infringement claims can be time-consuming, divert the time and attention of our management and technical personnel, and result in material litigation costs. 13 Finally, our exposure to risks associated with the use of intellectual property may increase as a result of acquisitions, as we would have an unavoidable lower level of visibility into the development process of any newly acquired technologies and the steps taken to safeguard against the risks of infringing the rights of third parties.
Although we believe our business is not materially dependent upon any single customer, the loss of one or more key customers may impair our results of operations for the affected earnings periods. In addition, there is limited available manufacturing capacity that meets our quality standards and regulatory requirements.
Our reliance on certain key customers, contract manufacturers and suppliers could adversely affect our overall sales and profitability. Although our business is not materially dependent upon any single customer, the loss of one or more key customers may impair our results of operations for the affected earnings periods.
In connection with the adoption of our 2013 Plan, which provides for the grant of equity-based awards, including RSUs and options, 15,500,000 shares of common stock were initially reserved and made available for issuance to our officers, other employees and directors.
Under our 2013 Plan, 15,500,000 shares of our common stock were initially reserved for issuance in connection with the vesting of equity-based awards to be granted to our officers, other employees and directors. The issuance of additional shares upon satisfaction of the applicable vesting conditions of these grants could result in a stockholder's percentage ownership being diluted.
Increasing focus on ESG matters requires that we devote significant time and resources on ESG tracking and reporting, including the continuous monitoring of various and evolving standards and progress toward our published sustainability goals. 18 Certain organizations, which provide corporate governance and other risk information to stockholders, have developed, and others may in the future develop, scores and ratings to evaluate companies based upon their ESG metrics and disclosures.
Corporate responsibility, specifically related to ESG matters, may impose additional costs and expose us to new risks. Increasing focus on ESG matters requires that we devote significant time and resources on ESG tracking and reporting, including the continuous monitoring of various and evolving standards and progress toward our published sustainability goals.
Further, there is a risk that licensing opportunities may not be available to us on acceptable terms, if at all. Regardless of their merit, infringement claims can be time-consuming, divert the time and attention of our management and technical personnel, and result in material litigation costs.
Further, there is a risk that licensing opportunities may not be available to us on acceptable terms, if at all.
In addition, information technology security threats, including security breaches, computer malware, cyber-attacks and other unauthorized access attempts are increasing, in both frequency and sophistication. Any such disruption, if successful, could result in data leaks or otherwise compromise confidential, proprietary and/or business critical information, cause a disruption in our operations or harm our reputation.
Material cybersecurity-related events may materially disrupt our operations and harm our reputation and results of operations. Information technology security threats, including security breaches, computer malware, cyber-attacks and other unauthorized access attempts are increasing, in both frequency and sophistication.
Under GAAP, we review our intangible assets and long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Additionally, goodwill is subject to an impairment test at least annually.
Under GAAP, we review our intangible assets and long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For example, considering Graphics Solutions' lower than expected results, we conducted an interim impairment test on this reporting unit in the third quarter of 2023 which resulted in an impairment charge of $80.0 million.
The EPA also must find no "unreasonable risk" associated with any new chemical before it can be fully commercialized. These new mandates create uncertainty about whether existing chemicals of importance to our business may be designated for restriction and whether any new chemical approval process may become more difficult and costly.
The TSCA, for example, was amended in June 2016 to expand the authority of the U.S. Environmental Protection Agency (EPA) to evaluate and regulate new and existing chemicals and this mandate creates uncertainty about whether existing chemicals of importance to our business may be designated for restriction and whether any new chemical approval process may become more difficult and costly.
In 2022, approximately 75% of our net sales were generated outside of the U.S.
Global Regulations Changes in our effective tax rate, tax cost and tax liabilities could adversely affect our financial condition, results of operations and liquidity. In 2023, approximately 75% of our net sales were generated outside of the U.S.
For example, compliance with these regulations could require us to use different types or sources of materials, which could have an adverse impact on the efficiency of our manufacturing process, the performance of our products, add greater testing lead-times for product introductions or other similar effects , which in turn could materially alter our market share and reputation, or otherwise have a material adverse effect on our business, financial condition and results of operations.
In turn, these changes could materially alter our market share and reputation, or otherwise have a material adverse effect on our business, financial condition and results of operations. In addition, we have incurred, are incurring and will incur in the future, costs and capital expenditures to comply with environmental, health and safety laws and regulations.
As previously announced, we have in the past experienced a cyber intrusion and may in the future be subject to additional intrusion events. There can be no assurance that the controls and procedures that we put in place will be sufficient or adequate to protect us.
Any such disruption, if successful, could result in data leaks or otherwise compromise confidential, proprietary and/or business critical information, cause a disruption in our operations or harm our reputation and results of operations. As previously announced, we have in the past experienced a cyber intrusion and may in the future be subject to additional intrusion events.
Removed
Adverse developments in an audit or litigation could also materially and adversely affect us. Although we believe our tax estimates and accruals are reasonable, there can be no assurance that any final determination won't be materially different than the treatment reflected in our historical income tax provisions, accruals and unrecognized tax benefits.
Added
In addition, while progress has been made to contain the COVID-19 pandemic, it remains a global challenge. The pandemic, and the responses of business and governments to the pandemic, have at times resulted in increased border controls or closures, increased transportation costs and increased security threats to our supply chain.
Removed
As we are dependent on the continued operation of our production facilities (including third-party manufacturing on a tolling basis), the loss or shutdown of operations over an extended period could have a material adverse effect on our financial condition or results of operations.
Added
Countries in which we operate, such as China, may continue to close borders, impose prolonged quarantines, and further restrict travel and other activities.
Removed
Environmental Protection Agency (EPA) currently evaluating additional chemicals for regulation under that amended law. Among the more significant changes were mandatory safety reviews of existing "high priority" chemicals and regulatory actions to control any "unreasonable risks" identified as a result of such reviews.
Added
In addition, there is limited available manufacturing capacity that meets our quality standards and regulatory requirements.
Removed
In addition, we have incurred, are incurring and will incur in the future, costs and capital expenditures to comply with environmental, health and safety laws and regulations. For example, w e have several product lines that rely on lead-based solder and many others that historically did so.
Added
For example, several countries where we do business have announced plans to implement global minimum tax regimes based on the Organization for Economic Cooperation and Development's Anti-Base Erosion and Profit Shifting Project.
Removed
Changes in data privacy and data protection laws and regulations, or any failure to comply with such laws and regulations, could adversely impact our business.
Added
The final form of these global minimum tax regimes is uncertain but is expected to change various aspects of the existing international legal framework under which our global tax obligations are determined.
Removed
We may also not be able to borrow under the Credit Agreement if an event of default under the terms of this agreement occurs.
Added
While the ultimate impact of these changes is unknown, there can be no assurance that they will not materially and adversely affect our business, financial condition, results of operations and cash flows. Moreover, we are regularly examined by various tax authorities throughout the world.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties At December 31, 2022, our physical presence included 54 manufacturing sites, of which 13 included research facilities, and 9 stand-alone research centers. Of our manufacturing facilities, 10 were located in the U.S. with the remaining international facilities located primarily in Asia and Europe.
Biggest changeItem 2. Properties At December 31, 2023, our physical presence included 53 manufacturing sites, of which 12 included research facilities, and 10 stand-alone research centers. Of our manufacturing facilities, 8 were located in the U.S. with the remaining international facilities located primarily in Asia and Europe.
Among our two business segments, Electronics and Industrial & Specialty utilize 21 and 19 of our manufacturing facilities, respectively, with the remaining 14 manufacturing facilities being shared between the two segments. We believe that all of our significant facilities and equipment are in good condition, well-maintained, adequate for our present operations and utilized for their intended purposes.
Among our two segments, Electronics and Industrial & Specialty utilize 21 and 19 of our manufacturing facilities, respectively, with the remaining 13 manufacturing facilities being shared between the two segments. We believe that all of our significant facilities and equipment are in good condition, well-maintained, adequate for our present operations and utilized for their intended purposes.
See Note 6, Property, Plant and Equipment, Net , to the Consolidated Financial Statements included in this 2022 Annual Report for amounts invested in land, buildings, machinery, and equipment, and Note 16, Leases , to the Consolidated Financial Statements included in this 2022 Annual Report for information about our operating lease commitments.
See Note 6, Property, Plant and Equipment, Net , to the Consolidated Financial Statements included in this 2023 Annual Report for amounts invested in land, buildings, machinery, and equipment, and Note 16, Leases , to the Consolidated Financial Statements included in this 2023 Annual Report for information about our operating lease commitments. 22
We owned 27 of our manufacturing facilities, of which 7 included research facilities, and 4 stand-alone research centers. In addition to the remaining manufacturing and research facilities, we leased the majority of our office, warehouse and other physical locations.
We owned 25 of our manufacturing facilities, of which 6 included research facilities, and 4 stand-alone research centers. In addition to the remaining manufacturing and research facilities, we leased the majority of our office, warehouse and other physical locations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings In the ordinary course of business, we are involved in various legal disputes, investigations and claims and other legal proceedings, including, but not limited to, product liability claims, contractual disputes, premises claims, tax examinations as well as employment, environmental and health and safety matters.
Biggest changeItem 3. Legal Proceedings In the ordinary course of business, we are involved in various legal disputes, investigations, claims and other legal proceedings, including, but not limited to, product liability claims, contractual disputes, premises claims, tax examinations as well as employment, environmental and health and safety matters.
Although we cannot predict with certainty the ultimate resolution of the various legal proceedings, investigations and/or claims asserted against us, we believe that the resolution of these claims will not, individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations.
Although we cannot predict with certainty the ultimate resolution of the various legal proceedings, investigations and/or claims asserted against us, we believe that the resolution of these matters will not, individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations.
Due to their inherent uncertainty, however, there can be no assurance as to the ultimate outcome of current or future litigation, proceedings, investigations or claims and it is possible that a resolution of one or more such proceedings could result in fines and penalties that could adversely affect our business, financial condition or results of operations.
Due to their inherent uncertainty, however, there can be no assurance as to the ultimate outcome of current or future legal proceedings, investigations or claims and it is possible that a resolution of one or more such matters could result in fines and penalties that could adversely affect our business, financial condition or results of operations.
However, it is possible that, as additional information becomes available, the impact of an adverse determination could have a different effect. For additional information regarding environmental matters and liabilities, see Note 17, Contingencies, Environmental and Legal Matters , to the Consolidated Financial Statements included in this 2022 Annual Report. Item 4. Mine Safety Disclosure Not applicable. 22 Part II
However, it is possible that, as additional information becomes available, the impact of an adverse determination could have a different effect. For additional information regarding environmental matters and liabilities, see Note 17, Contingencies, Environmental and Legal Matters , to the Consolidated Financial Statements included in this 2023 Annual Report. Item 4. Mine Safety Disclosure Not applicable. 23 Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeEquity Compensation Plan Information The information regarding our equity compensation plans will be included in the 2023 Proxy Statement under the heading "Executive Compensation Tables - Equity Compensation Plan Information," and is incorporated by reference into this 2022 Annual Report. Recent Sales of Unregistered Securities None.
Biggest changeEquity Compensation Plan Information The information regarding our equity compensation plans will be included in the 2024 Proxy Statement under the heading "Executive Compensation Tables - Equity Compensation Plan Information," and is incorporated by reference into this 2023 Annual Report. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities None. Item 6. [Reserved] 25
This performance graph and related information is not deemed to be "soliciting material" or "filed" with the SEC and should not be deemed incorporated by reference into any of our prior or future filings under the Securities Act or the Exchange Act.
This performance graph and related information is not deemed to be "soliciting material" or "filed" with the SEC and should not be deemed incorporated by reference into any of our prior or future SEC filings under the Securities Act or the Exchange Act.
Dividends We declared and paid cash dividends on our common stock of $78.4 million, $61.9 million and $12.4 million during the years ended December 31, 2022, 2021 and 2020, respectively. On February 13, 2023, our Board declared a cash dividend of $0.08 per outstanding share of our common stock.
Dividends We declared and paid cash dividends on our common stock of $77.4 million, $78.4 million and $61.9 million during the years ended December 31, 2023, 2022 and 2021, respectively. On February 13, 2024, our Board declared a cash dividend of $0.08 per outstanding share of our common stock.
Performance Graph The following graph shows a comparison of cumulative total stockholder returns for our common stock, the Standard and Poor's 500 Index and the S&P 500 Specialty Chemicals Index from December 31, 2017 through December 31, 2022, assuming a $100 investment in our common stock on December 31, 2017 and the reinvestment of all dividends thereafter. 23 The stock performance shown on this graph is based on historical data and is not indicative of, or intended to forecast, possible future performance of our common stock.
Performance Graph The following graph shows a comparison of cumulative total stockholder returns for our common stock, the Standard and Poor's 500 Index and the S&P 500 Specialty Chemicals Index from December 31, 2018 through December 31, 2023, assuming a $100 investment in our common stock on December 31, 2018 and the reinvestment of all dividends thereafter. 24 The stock performance shown on this graph is based on historical data and is not indicative of, or intended to forecast, possible future performance of our common stock.
The dividend is expected to be paid on March 15, 2023 to stockholders of record at the close of business on March 1, 2023.
The dividend is expected to be paid on March 15, 2024 to stockholders of record at the close of business on March 1, 2024.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for our Common Stock Our common stock is traded on the New York Stock Exchange under the symbol “ESI.” On February 17, 2023, there were approximately 185 registered holders of record of our common stock, par value $0.01 per share, and the closing price of our common stock was $20.13.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for our Common Stock Our common stock is traded on the New York Stock Exchange under the symbol “ESI.” On February 16, 2024, there were approximately 172 registered holders of record of our common stock, par value $0.01 per share, and the closing price of our common stock was $23.86.
Removed
Issuer Purchases of Equity Securities During the three months ended December 31, 2022, we repurchased the following shares of our common stock: Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of a Publicly Announced Repurchase Program Approximate Dollar Value of Shares that May Yet be Purchased Under the Repurchase Program (1) (in millions) October 1 - October 31 1,799,924 $ 16.93 1,799,924 $ 585 November 1 - November 30 202,433 $ 17.27 202,433 $ 582 December 1 - December 31 28,285 $ 17.92 28,285 $ 581 Total 2,030,642 $ 16.97 2,030,642 (1) In November 2021, our Board increased the authorization under our stock repurchase program to $750 million.
Removed
Our program does not require the repurchase of any specific number of shares and share repurchases are made opportunistically at the discretion of the Company. The program does not have an expiration date but may be suspended or terminated by the Board at any time .
Removed
Shares withheld by the Company to satisfy tax withholding requirements related to the vesting of RSUs are not considered share repurchases under our stock repurchase program and, therefore, are excluded from the table above. Item 6. [Reserved] 24

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFor a reconciliation of "Net income attributable to common stockholders" to Adjusted EBITDA and more information about the adjustments made, see Note 22, Segment Information , to the Consolidated Financial Statements included in this 2022 Annual Report. 28 Results of Operations Change - 2022 vs 2021 Change - 2021 vs 2020 (dollars in millions) 2022 2021 Reported Constant Currency Organic 2020 Reported Constant Currency Organic Net sales $ 2,549.4 $ 2,399.8 6% 13% 5% $ 1,853.7 29% 26% 13% Cost of sales 1,596.7 1,439.0 11% 19% 1,067.7 35% 32% Gross profit 952.7 960.8 (1)% 5% 786.0 22% 19% Gross margin 37.4 % 40.0 % (260) bps (300) bps 42.4 % (240) bps (250) bps Operating expenses 627.4 660.9 (5)% (1)% 553.3 19% 17% Operating profit 325.3 299.9 8% 17% 232.7 29% 23% Operating margin 12.8 % 12.5 % 30 bps 40 bps 12.6 % (10) bps (40) bps Other expense, net (53.3) (48.2) 11% (151.6) (nm) Income tax expense (85.8) (48.3) 78% (4.3) (nm) Net income from continuing operations 186.2 203.4 (8)% 76.8 (nm) Income (loss) from discontinued operations, net 1.8 0.3 (nm) (1.1) (nm) Net income $ 188.0 $ 203.7 (8)% $ 75.7 169% Adjusted EBITDA $ 526.6 $ 524.8 0% 8% $ 423.3 24% 20% Adjusted EBITDA margin 20.7 % 21.9 % (120) bps (110) bps 22.8 % (90) bps (120) bps (nm) Calculation not meaningful. 29 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net Sales Net sales for 2022 increased 6% on a reported basis, 13% on a constant currency basis and 5% on an organic basis.
Biggest changeResults of Operations Change - 2023 vs 2022 Change - 2022 vs 2021 (dollars in millions) 2023 2022 Reported Constant Currency Organic 2021 Reported Constant Currency Organic Net sales $ 2,333.2 $ 2,549.4 (8)% (7)% (5)% $ 2,399.8 6% 13% 5% Cost of sales 1,414.7 1,596.7 (11)% (10)% 1,439.0 11% 19% Gross profit 918.5 952.7 (4)% (2)% 960.8 (1)% 5% Gross margin 39.4 % 37.4 % 200 bps 220 bps 40.0 % (260) bps (300) bps Operating expenses 744.9 627.4 19% 19% 660.9 (5)% (1)% Operating profit 173.6 325.3 (47)% (41)% 299.9 8% 17% Operating margin 7.4 % 12.8 % (540) bps (480) bps 12.5 % 30 bps 40 bps Other expense, net (44.5) (53.3) (16)% (48.2) 11% Income tax expense (13.0) (85.8) (85)% (48.3) 78% Net income from continuing operations 116.1 186.2 (38)% 203.4 (8)% Income from discontinued operations, net of tax 2.1 1.8 19% 0.3 (nm) Net income $ 118.2 $ 188.0 (37)% $ 203.7 (8)% Net income margin 5.1 % 7.4 % (230) bps 8.5 % (110) bps Adjusted EBITDA $ 482.3 $ 526.6 (8)% (6)% $ 524.8 0% 8% Adjusted EBITDA margin 20.7 % 20.7 % 0 bps 20 bps 21.9 % (120) bps (110) bps (nm) Calculation not meaningful. 30 Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Net Sales Net sales for 2023 decreased 8% on a reported basis, 7% on a constant currency basis and 5% on an organic basis.
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 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 34 be subject to the final determination of our Board of Directors based on factors including our future earnings and cash flow generation.
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 2022, approximately 75% 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.
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 2023, approximately 75% 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.
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.
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 SMT, pastes, fluxes and adhesives, join those pathways together.
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 2022 Annual Report and our audited Consolidated Financial Statements and notes thereto included elsewhere in this 2022 Annual Report.
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 2023 Annual Report and our audited Consolidated Financial Statements and notes thereto included elsewhere in this 2023 Annual Report.
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 2022 Annual Report and not to rely on any single financial measure to evaluate our business.
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 2023 Annual Report and not to rely on any single financial measure to evaluate our business.
“Overview” and "2022 Highlights" briefly present our business and certain significant events addressed in this section or elsewhere in this 2022 Annual Report. This 2022 Annual Report should be read in its entirety for a complete description of our business and discussion of these events.
“Overview” and "2023 Highlights" briefly present our business and certain significant events addressed in this section or elsewhere in this 2023 Annual Report. This 2023 Annual Report should be read in its entirety for a complete description of our business and discussion of these events.
See Note 2, Summary of Significant Accounting Policies , to the Consolidated Financial Statements included in this 2022 Annual Report for a detailed discussion of the application of these and other accounting policies.
See Note 2, Summary of Significant Accounting Policies , to the Consolidated Financial Statements included in this 2023 Annual Report for a detailed discussion of the application of these and other accounting policies.
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 2022, approximately 75% of our net sales originated outside of the U.S. and were denominated in numerous currencies, including the euro, Chinese yuan, British pound, and Taiwan dollar.
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 2023, approximately 75% of our net sales originated outside of the U.S. and were denominated in numerous currencies, including the euro, Chinese yuan and British pound.
For additional information see Note 10, Income Taxes , to the Consolidated Financial Statements included in this 2022 Annual Report.
For additional information see Note 10, Income Taxes , to the Consolidated Financial Statements included in this 2023 Annual Report.
The Foreign Pension Plans were underfunded by $14.5 million at December 31, 2022 compared to $21.0 million at December 31, 2021. We are not required to make any material plan contributions in 2023. While we do not currently anticipate any, additional future material contributions may be required in order to maintain appropriate funding levels within our plans.
The Foreign Pension Plans were underfunded by $14.8 million at December 31, 2023 compared to $14.5 million at December 31, 2022. We are not required to make any material plan contributions in 2024. While we do not currently anticipate any, additional future material contributions may be required in order to maintain appropriate funding levels within our plans.
Covenants At December 31, 2022, we were in compliance with the debt covenants contained in the Credit Agreement and the indenture governing our 3.875% USD Notes due 2028.
Covenants At December 31, 2023, we were in compliance with the debt covenants contained in the Credit Agreement and the indenture governing our 3.875% USD Notes due 2028. 36
Discount rates of 5.2% and 3.5% were established for the Domestic Pension Plan and Foreign Pension Plans, respectively, at December 31, 2022, compared to rates of 2.8% and 1.2% established for those respective plans at December 31, 2021.
Discount rates of 5.0% and 3.1% were established for the Domestic Pension Plan and Foreign Pension Plans, respectively, at December 31, 2023, compared to rates of 5.2% and 3.5% established for those respective plans at December 31, 2022.
Therefore, fluctuations in foreign exchange rates in any given reporting period may positively or negatively impact our financial performance. Foreign exchange translation negatively impacted our 2022 net sales performance by approximately 7%.
Therefore, fluctuations in foreign exchange rates in any given reporting period may positively or negatively impact our financial performance. Foreign exchange translation negatively impacted our 2023 net sales performance by approximately 1%.
We 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. Of our $266 million of cash and cash equivalents at December 31, 2022, $174 million was held by our foreign subsidiaries.
We 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. Of our $289 million of cash and cash equivalents at December 31, 2023, $232 million was held by our foreign subsidiaries.
Foreign exchange had a negative impact of 13% on reported net sales.
Foreign exchange had a negative impact of 2% on reported net sales.
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 92% fixed income holdings, 6% equity securities and derivatives and 2% cash at December 31, 2022.
Our investment policies attempt to achieve a mix of approximately 93% of plan investments for liability-matching, 6% for long-term growth, and 1% for near-term benefit payments. The weighted average asset allocation of the Domestic Pension Plan was 89% fixed income holdings, 10% equity securities and derivatives and 1% cash at December 31, 2023.
Availability under our revolving credit facility and various lines of credit and overdraft facilities totaled $391 million at December 31, 2022 (net of $6.0 million of stand-by letters of credit, which reduce our borrowing capacity).
Availability under our revolving credit facility and various lines of credit and overdraft facilities totaled $392 million at December 31, 2023 (net of $6.2 million of stand-by letters of credit which reduce our borrowing capacity).
The constant currency gross profit reflects increased net sales in most business lines, partially offset by higher raw material and logistics costs. 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.
The constant currency decrease in gross profit reflects lower net sales in most business lines, partially offset by lower raw material and logistics costs. The increase in gross margin was primarily due to recaptured margin on ViaForm Distribution Rights, lower net sales of products containing pass-through metals in our Assembly business, lower raw material prices and logistics costs.
Financial Borrowings Credit Facilities and Senior Notes At December 31, 2022, we had $1.90 billion of indebtedness, net of unamortized discounts and debt issuance costs of $18.7 million, which primarily included: 34 • $1.11 billion of term debt arrangements outstanding under our term loans; and • $800 million of 3.875% USD Notes due 2028.
Financial Borrowings Credit Facilities and Senior Notes At December 31, 2023, we had $1.93 billion of indebtedness, net of unamortized discounts and debt issuance costs of $17.5 million, which primarily included: • $1.15 billion of term debt arrangements outstanding under our term loans; and • $800 million of 3.875% USD Notes due 2028.
A one percent increase in the discount rate would increase the pension plan expense by approximately $0.9 million and decrease the pension benefit obligation by approximately $16.5 million, whereas a one percent decrease in the discount rate would decrease the pension plan expense by approximately $1.9 million and increase the pension benefit obligation by approximately $19.2 million.
A one percent increase in the discount rate would increase the pension plan expense by approximately $0.8 million and decrease the pension benefit obligation by approximately $16.4 million, whereas a one percent decrease in the discount rate would decrease the pension plan expense by approximately $0.7 million and increase the pension benefit obligation by approximately $19.4 million.
Foreign exchange had a negative impact of 5% on reported net sales. The increase in organic net sales was primarily due to increased global production and drilling activity and cost inflation driven pricing actions which accelerated in the second half of 2022.
Foreign exchange had a positive impact of 1% on reported net sales. The increase in organic net sales was primarily due to increased global production and drilling activity and cost inflation driven pricing actions.
We used a long-term rate of return on plan assets of 4.8% and 3.1% for our Domestic and Foreign Pension Plans, respectively, to determine our net periodic pension expense for 2022.
We used a long-term rate of return on plan assets of 7.0% and 3.6% for our Domestic and Foreign Pension Plans, respectively, to determine our net periodic pension expense for 2023.
As a result, our foreign subsidiaries will likely continue to generate 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.
As a result, our foreign subsidiaries will likely continue to generate a substantial portion of our cash. We expect to manage our worldwide cash requirements with available funds generated by the many subsidiaries through which we conduct business and cost-efficient access to those funds.
Electronics' consolidated results were positively impacted by $9.7 million of pass-through metals pricing and $13.5 million of acquisitions and Industrial & Specialty's consolidated results were positively impacted by $176 million of acquisitions.
Electronics' consolidated results were negatively impacted by $61.5 million of pass-through metals pricing and positively impacted by $9.8 million of acquisitions and Industrial & Specialty's consolidated results were positively impacted by $3.9 million of acquisitions.
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.
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.
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 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.
The Domestic Pension Plans were underfunded by $16.5 million at December 31, 2022 compared to $8.1 million at December 31, 2021. The decrease in the funding position was primarily driven by a $49.1 million loss on plan assets and $6.3 million of interest costs partially offset by $46.6 million of actuarial gains due to changes in plan assumptions and experience.
The Domestic Pension Plans were underfunded by $8.2 million at December 31, 2023 compared to $16.5 million at December 31, 2022. The increase in the funding position was primarily driven by a $20.8 million return on plan assets partially offset by $8.7 million of interest costs and $4.3 million of actuarial losses due to changes in plan assumptions and experience.
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.
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.
In 2022, we achieved net sales of $2.55 billion, to which our Electronics and Industrial & Specialty segments contributed approximately 63% and 37%, respectively.
In 2023, we achieved net sales of $2.33 billion, to which our Electronics and Industrial & Specialty segments contributed approximately 61% and 39%, respectively.
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 2022 Annual Report. 27 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.
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.
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.
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.
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.
Differences between estimated expense and actual costs are typically immaterial and are recognized in earnings in the period such differences are determined. 27 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.
Tax benefits are recognized for an uncertain tax position when we consider 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.
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. 28 Tax benefits are recognized for an uncertain tax position when we consider 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.
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.
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.
Electronics' net sales for 2022 increased 1% on a reported basis, 7% on a constant currency basis and 5% on an organic basis. • Assembly Solutions : net sales increased 2% on a reported basis and 7% on an organic basis. Pass-through metals pricing had a positive impact of 1% on reported net sales.
Electronics' net sales for 2023 decreased 12% on a reported basis, 10% on a constant currency basis and 7% on an organic basis. • Assembly Solutions : net sales decreased 11% on a reported basis and 2% on an organic basis. Pass-through metals pricing had a negative impact of 8% on reported net sales.
The following is a summary of our cash flows provided by (used in) operating, investing and financing activities during the periods indicated: Year Ended December 31, (dollars in millions) 2022 2021 2020 Cash provided by operating activities $ 295.9 $ 326.0 $ 276.0 Cash used in investing activities $ (75.2) $ (568.9) $ (39.9) Cash (used in) provided by financing activities $ (275.6) $ 290.0 $ (123.6) Year Ended December 31, 2022 compared to Year Ended December 31, 2021 Operating Activities The decrease in net cash flows provided by operating activities of $30.1 million was primarily driven by higher annual incentive compensation payments, primarily in the first quarter of 2022, that were associated with our 2021 performance, partially offset by improved management of working capital and higher cash operating profits (net income adjusted for non-cash items). 33 Investing Activities During 2022, we paid approximately $23 million in connection with the HSO Acquisition.
The following is a summary of our cash flows provided by (used in) operating, investing and financing activities during the periods indicated: Year Ended December 31, (dollars in millions) 2023 2022 2021 Cash provided by operating activities $ 333.6 $ 295.9 $ 326.0 Cash used in investing activities $ (250.2) $ (75.2) $ (568.9) Cash (used in) provided by financing activities $ (58.7) $ (275.6) $ 290.0 Year Ended December 31, 2023 compared to Year Ended December 31, 2022 Operating Activities The increase in net cash flows provided by operating activities of $37.7 million was primarily driven by lower annual incentive compensation payments and improved management of working capital, partially offset by lower cash operating profits (net income adjusted for non-cash items).
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.
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.
The following table reconciles GAAP net sales growth to constant currency and organic net sales growth: Year ended December 31, % Change (dollars in millions) 2022 2021 Reported Net Sales Growth Impact of Currency Constant Currency Pass-Through Metals Pricing Acquisitions Organic Net Sales Growth Electronics: Assembly Solutions $ 839.4 $ 824.2 2% 6% 8% (1)% —% 7% Circuitry Solutions 496.5 503.7 (1)% 5% 4% —% —% 4% Semiconductor Solutions 268.2 254.6 5% 3% 9% —% (5)% 3% Total $ 1,604.1 $ 1,582.5 1% 5% 7% (1)% (1)% 5% Industrial & Specialty: Industrial Solutions $ 728.3 $ 599.7 21% 13% 35% —% (29)% 5% Graphics Solutions 150.1 155.5 (3)% 4% 0% —% —% 0% Energy Solutions 66.9 62.1 8% 5% 12% —% —% 12% Total $ 945.3 $ 817.3 16% 11% 26% —% (22)% 5% Total $ 2,549.4 $ 2,399.8 6% 7% 13% 0% (8)% 5% NOTE: Totals may not sum due to rounding.
The following table reconciles GAAP net sales growth to constant currency and organic net sales growth: Year ended December 31, % Change (dollars in millions) 2023 2022 Reported Net Sales Growth Impact of Currency Constant Currency Pass-Through Metals Pricing Acquisitions Organic Net Sales Growth Electronics: Assembly Solutions $ 726.1 $ 819.5 (11)% 2% (9)% 8% —% (2)% Circuitry Solutions 424.3 503.5 (16)% 2% (14)% —% —% (14)% Semiconductor Solutions 264.3 288.2 (8)% 1% (8)% —% (3)% (11)% Total $ 1,414.7 $ 1,611.2 (12)% 2% (10)% 4% (1)% (7)% Industrial & Specialty: Industrial Solutions $ 699.0 $ 728.3 (4)% 1% (3)% —% (1)% (4)% Graphics Solutions 142.7 143.0 0% (1)% (1)% —% —% (1)% Energy Solutions 76.8 66.9 15% (1)% 14% —% —% 14% Total $ 918.5 $ 938.2 (2)% 1% (2)% —% 0% (2)% Total $ 2,333.2 $ 2,549.4 (8)% 1% (7)% 2% (1)% (5)% NOTE: Totals may not sum due to rounding.
Other income (expense), net Other income, net for 2022 included $0.3 million of net gains associated with metals derivative contracts ($1.6 million of realized gains and $1.3 million of unrealized losses). Other expense, net for 2021 included $11.9 million of net losses associated with metals derivative contracts ($12.0 million of realized losses and $0.1 million of unrealized gains).
Other income, net for 2022 included $2.9 million of charges due to highly inflationary accounting for our operations in Turkey and $0.3 million of net gains associated with metals derivative contracts ($1.6 million of realized gains and $1.3 million of unrealized losses).
Segment Adjusted EBITDA Performance Year Ended December 31, Change (dollars in millions) 2022 2021 Reported Constant Currency Adjusted EBITDA: Electronics $ 362.1 $ 372.0 (3)% 3% Industrial & Specialty 164.5 152.8 8% 21% Total $ 526.6 $ 524.8 0% 8% Adjusted EBITDA margin: Electronics 22.6 % 23.5 % (90) bps (90) bps Industrial & Specialty 17.4 % 18.7 % (130) bps (90) bps Total 20.7 % 21.9 % (120) bps (110) bps Electronics' Adjusted EBITDA for 2022 decreased 3% on a reported basis and increased 3% on a constant currency basis.
Segment Adjusted EBITDA Performance Year Ended December 31, Change (dollars in millions) 2023 2022 Reported Constant Currency Net income: Total $ 118.2 $ 188.0 (37)% Adjusted EBITDA: Electronics $ 317.7 $ 360.7 (12)% (9)% Industrial & Specialty 164.6 165.9 (1)% 1% Total $ 482.3 $ 526.6 (8)% (6)% Net income margin: Total 5.1 % 7.4 % (230) bps Adjusted EBITDA margin: Electronics 22.5 % 22.4 % 10 bps 30 bps Industrial & Specialty 17.9 % 17.7 % 20 bps 50 bps Total 20.7 % 20.7 % 0 bps 20 bps Electronics' Adjusted EBITDA for 2023 decreased 12% on a reported basis and 9% on a constant currency basis.
Gross Profit Year Ended December 31, Change (dollars in millions) 2022 2021 Reported Constant Currency Gross profit: Electronics $ 594.1 $ 617.5 (4)% 0% Industrial & Specialty 358.6 343.3 4% 14% Total $ 952.7 $ 960.8 (1)% 5% Gross profit margin: Electronics 37.0 % 39.0 % (200) bps (240) bps Industrial & Specialty 37.9 % 42.0 % (410) bps (430) bps Total 37.4 % 40.0 % (260) bps (300) bps Electronics' gross profit for 2022 decreased 4% on a reported basis and remained approximately flat on a constant currency basis.
Gross Profit Year Ended December 31, Change (dollars in millions) 2023 2022 Reported Constant Currency Gross profit: Electronics $ 558.2 $ 593.9 (6)% (4)% Industrial & Specialty 360.3 358.8 0% 2% Total $ 918.5 $ 952.7 (4)% (2)% Gross profit margin: Electronics 39.5 % 36.9 % 260 bps 270 bps Industrial & Specialty 39.2 % 38.2 % 100 bps 130 bps Total 39.4 % 37.4 % 200 bps 220 bps Electronics' gross profit for 2023 decreased 6% on a reported basis and 4% on a constant currency basis.
The Coventya Acquisition had a positive impact on Industrial & Specialty's Adjusted EBITDA including synergies, which was partially offset by higher logistics costs and raw material prices and unfavorable product mix. 32 Comparison of Fiscal Years 2021 and 2020 For the comparison of fiscal years 2021 and 2020, see " Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020 " in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our 2021 Annual Report on Form 10-K and incorporated by reference into this 2022 Annual Report.
Comparison of Fiscal Years 2022 and 2021 For the comparison of fiscal years 2022 and 2021, see " Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 " in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our 2022 Annual Report on Form 10-K and incorporated by reference into this 2023 Annual Report.
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, including unrealized gains/losses on metals derivative contracts, or are considered to be associated with our capital structure.
For a reconciliation of GAAP net sales growth to organic net sales growth, see " Net Sales " within the "Results of Operations" section below. 29 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.
Our reporting units are determined based upon our organizational structure in place at the date of the goodwill impairment test. The fair value of a reporting unit is based equally on market multiples and the present value of discounted future cash flows.
The fair value of a reporting unit is based equally on market multiples and the present value of discounted future cash flows.
Industrial & Specialty's net sales for 2022 increased 16% on a reported basis, 26% on a constant currency basis and 5% on an organic basis. • Industrial Solutions : net sales increased 21% on a reported basis and 5% on an organic basis. The Coventya and HSO Acquisitions had a positive impact of 29% on reported net sales.
Industrial & Specialty's net sales for 2023 decreased 2% on a reported basis, 2% on a constant currency basis and 2% on an organic basis. • Industrial Solutions : net sales decreased 4% on a reported basis and 4% on an organic basis. Acquisitions had a positive impact of 1% on reported net sales.
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.
A valuation allowance is required to be recognized to reduce 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.
These metal derivative contracts primarily represented hedges on our inventory associated with pass-through metals pricing in our Assembly business. See Note 12, Financial Instruments, for further discussion of these derivative instruments. Income Tax The income tax expense for 2022 totaled $85.8 million, as compared to $48.3 million in 2021.
See Note 12, Financial Instruments , to the Consolidated Financial Statements for further discussion of these derivative instruments. Income Tax The income tax expense for 2023 totaled $13.0 million, as compared to $85.8 million in 2022.
Financing Activities During 2022, we paid $151 million in aggregate for the repurchase of shares of our common stock under our stock repurchase program, $78.4 million of cash dividends on shares of our common stock and $24.0 million for shares of our common stock withheld by the Company to satisfy the tax withholding requirements related to the vesting of RSUs included in "Other, net." 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, and paid $61.9 million of cash dividends on shares of our common stock and $19.6 million in aggregate for the repurchase of shares of our common stock under our stock repurchase program.
We paid $77.4 million of cash dividends on shares of our common stock and $7.7 million for shares of our common stock withheld by the Company to satisfy the tax withholding requirements related to the vesting of RSUs included in "Other, net." During 2022, we paid $151 million in aggregate for the repurchase of shares of our common stock under our stock repurchase program, $78.4 million of cash dividends on shares of our common stock and $24.0 million for shares of our common stock withheld by the Company to satisfy the tax withholding requirements related to the vesting of RSUs included in "Other, net." 35 Pension Plans We maintain "Domestic Pension Plans," which consist of a non-contributory domestic defined benefit pension plan and Supplemental Executive Retirement Plans (SERPs).
Foreign exchange had a negative impact of 6% on reported net sales. The increase in organic net sales was primarily due to strong demand from power electronics customers and continued growth across most core assembly end-markets. • Circuitry Solutions : net sales decreased 1% on a reported basis and increased 4% on an organic basis.
Foreign exchange had a negative impact of 2% on reported net sales. The decrease in organic net sales was primarily due to lower SMT volumes due to demand weakness in Asia, primarily China. • Circuitry Solutions : net sales decreased 16% on a reported basis and 14% on an organic basis.
The constant currency increase was primarily driven by lower operating expenses. Industrial & Specialty's Adjusted EBITDA for 2022 increased 8% on a reported basis and 21% on a constant currency basis.
The constant currency decrease was primarily driven by lower gross profits. Industrial & Specialty's Adjusted EBITDA for 2023 decreased 1% on a reported basis and increased 1% on a constant currency basis. The constant currency increase was primarily driven by growth in the Energy Solutions business and easing cost pressures partially offset by declines in the Graphics Solutions business.
We have also elected the practical expedient to expense incremental costs for obtaining contracts with terms of less than one year. 26 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.
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 decrease in gross margin was primarily due to higher raw material prices, particularly attributable to our Graphics business, and logistics costs, as well as unfavorable product mix.
The increase in gross margin was primarily due to lower logistics costs and growth in our higher margin Energy Solutions business.
The increase in organic net sales was primarily due to growth in automotive, construction and industrial manufacturing markets, partially offset by reduced activity in Asia in the second half of 2022. • Graphics Solutions : net sales decreased 3% on a reported basis and was approximately flat on an organic basis.
The decrease in organic net sales was primarily due to lower demand from European construction and industrial manufacturing markets partially offset by a significant equipment sale for a new production line under a multi-year 31 chemistry sales agreement with an automotive customer in the third quarter of 2023 which contributed approximately 1% to organic sales. • Graphics Solutions : net sales remained approximately flat on a reported basis and decreased 1% on an organic basis.
Future impairments of these reporting units may occur if the businesses do not achieve their expected cash flows or macroeconomic conditions result in an increase in the WACC used to estimate fair value. See Note 7, Goodwill and Intangible Assets , to the Consolidated Financial Statements included in this 2022 Annual Report for additional information.
Future impairment of this reporting unit may occur if it does not achieve its expected cash flows or macroeconomic conditions result in an increase in the WACC used to estimate fair value. In 2023, the estimated fair value of our remaining reporting units was considered to be substantially in excess of their respective carrying value.
Operating Expenses Year ended December 31, Change (dollars in millions) 2022 2021 Reported Constant Currency Selling, technical, general and administrative (STG&A) $ 578.6 $ 611.2 (5)% (1)% Research and development (R&D) 48.8 49.7 (2)% 0% Total $ 627.4 $ 660.9 (5)% (1)% Operating Expenses as % of Net Sales STG&A 22.7 % 25.5 % (280) bps (320) bps R&D 1.9 % 2.1 % (20) bps (30) bps Total 24.6 % 27.5 % (290) bps (340) bps Operating expenses for 2022 decreased 5% on a reported basis and 1% on a constant currency basis.
Operating Expenses Year ended December 31, Change (dollars in millions) 2023 2022 Reported Constant Currency Selling, technical, general and administrative $ 596.8 $ 578.6 3% 4% Research and development 68.1 48.8 40% 40% Goodwill impairment 80.0 — (nm) (nm) Total $ 744.9 $ 627.4 19% 19% Operating expenses as % of net sales Selling, technical, general and administrative 25.6 % 22.7 % 290 bps 270 bps Research and development 2.9 % 1.9 % 100 bps 100 bps Goodwill impairment 3.4 % — % (nm) (nm) Total 31.9 % 24.6 % 730 bps 700 bps (nm) Calculation not meaningful. 32 During the third quarter of 2023, we recorded an impairment charge in our Industrial & Specialty segment of $80.0 million related to our Graphics Solutions reporting unit.
Industrial & Specialty's gross profit for 2022 increased 4% on a reported basis and 14% on a constant currency basis. The constant currency increase in gross profit was primarily driven by the contribution of $59.0 million from the Coventya Acquisition.
Industrial & Specialty's gross profit for 2023 remained approximately flat on a reported basis and increased 2% on a constant currency basis. The constant currency increase in gross profit was primarily driven by lower raw material costs in the Industrial Solutions business and growth in the Energy Solutions business, partially offset by declines in the Graphics Solutions business.
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 the recorded deferred tax asset to the amount that will more likely than not be realized.
See Note 7, Goodwill and Intangible Assets , to the Consolidated Financial Statements included in this 2023 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.
Foreign exchange had a negative impact of 5% on reported net sales. The increase in organic net sales was primarily due to growth in the memory disk business in the first half of 2022, new customer wins and pricing actions. • Semiconductor Solutions : net sales increased 5% on a reported basis and 3% on an organic basis.
The decrease in organic net sales was primarily due to the rationalization of lower-margin packaging customers and the loss of a large newsprint customer, partially offset by new customer wins and cost inflation driving pricing actions. • Energy Solutions : net sales increased 15% on a reported basis and 14% on an organic basis.
Liquidity and Capital Resources Our primary sources of liquidity during 2022 were available cash generated from operations and cash on hand.
Liquidity and Capital Resources Our primary sources of liquidity during 2023 were the proceeds from the syndication of our new term loans B of approximately $1.15 billion, the monetization of certain interest rate swaps and cross-currency swaps as well as available cash generated from operations.
Our interest rate swaps and cross-currency swaps associated with the initial $750 million term loans expire on January 2024. Expiration of these hedges could result in a material increase to interest expense. 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.
Expiration of these hedges could result in a material increase to interest expense. Our first significant debt principal payment of approximately $800 million is related to the maturity of our 3.875% USD Notes due 2028. In the fourth quarter of 2023, we paid a cash dividend of 8 cents per share.
These decreases were partially offset by $52.0 million of incremental operating expenses related to the Coventya and HSO Acquisitions (which include the impact of purchase accounting and restructuring costs of $18.2 million). 31 Other (Expense) Income, net Year Ended December 31, (dollars in millions) 2022 2021 Interest expense, net $ (51.2) $ (54.2) Foreign exchange (loss) gain (5.0) 15.8 Other income (expense), net 2.9 (9.8) Total $ (53.3) $ (48.2) Interest expense, net Interest expense, net reflects increased interest costs associated with the $400 million Add-on Term Loan, which was borrowed on September 1, 2021, offset by the impact of the weakening of the euro, as compared to the U.S. dollar, as our interest rate and cross-currency swaps have effectively converted our U.S. dollar denominated Term Loans into fixed-rate euro-denominated debt and increased interest income of $1.6 million.
Other (Expense) Income, net Year Ended December 31, (dollars in millions) 2023 2022 Interest expense, net $ (49.3) $ (51.2) Foreign exchange gain (loss) 7.9 (5.0) Other (expense) income, net (3.1) 2.9 Total $ (44.5) $ (53.3) Interest expense, net Interest expense, net decreased $1.9 million driven primarily by higher interest income partially offset by the applicable interest related to the $150 million incremental term loans A, which were outstanding from June 2023 through December 18, 2023 when the term loans A were fully prepaid.
Such adjustments are recognized in the period in which they are identified.
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 2023 Annual Report.
The HKW Acquisition had a positive impact of 5% on reported net sales. Foreign exchange had a negative impact of 3% on reported net sales. The increase in organic net sales was primarily due to strong end-market demand in the first half of 2022 and new customer wins in advanced packaging chemistries for high-end electronics end-markets.
The decrease in organic net sales was primarily due to lower demand for advanced packaging chemistries in the mobile phone and high-end electronics end-markets and precious metal based products partially offset by strong demand from power electronics customers.
See Note 12, Financial Instruments, for further discussion of these derivative instruments. Foreign exchange (loss) gain Foreign exchange loss increased $20.8 million, primarily due to the remeasurement of euro-denominated intercompany balances.
See Note 11, Debt , to the Consolidated Financial Statements for further discussion of this prepayment. Foreign exchange gain (loss) For the year ended December 31, 2023, the fluctuations in foreign exchange gain (loss) were primarily driven by the remeasurement of intercompany loans.
Removed
The segment provides specialty chemical solutions through the following businesses: Industrial Solutions, Graphics Solutions and Energy Solutions. 2022 Highlights • Resilient Financial Performance in a Challenging Market – During the year, the business grew its reported and organic sales by 6% and 5%, respectively, despite declines in volume in its key end-markets, including mobile phones and consumer electronics.
Added
The segment provides specialty chemical solutions through the following businesses: Industrial Solutions, Graphics Solutions and Energy Solutions. 2023 Highlights • ViaForm Distribution Rights - On June 1, 2023, we reacquired the right to market and distribute directly (rather than through our exclusive distributor) our ViaForm ® electrochemical deposition products by terminating a long-standing distribution agreement for $200 million, including $170 million paid at closing and a deferred payment of $30.0 million which was paid in the fourth quarter of 2023.
Removed
This resilience was driven by strong commercial execution with new customers in existing and new markets and significant pricing actions.
Added
Following the completion of the transaction, we now manage all aspects of the ViaForm® product line in-house, which we believe will result in a more efficient supply chain and improved customer outcomes for leading semiconductor fabricators. • Kuprion Acquisition - On May 19, 2023, we completed the Kuprion Acquisition for $15.9 million, net of cash with potential additional payments in various installments to be made upon the achievement of certain milestones associated with product qualification and revenue through December 31, 2030.
Removed
In spite of volumes in our end-market declining and meaningful inflation in our supply chains increasing our costs, we modestly grew our Adjusted EBITDA. • HSO Acquisition - On January 26, 2022, we completed the HSO Acquisition for approximately $23 million, net of cash.
Added
Kuprion, Inc. is a developer of next-generation nano-copper technology for the semiconductor, circuit board and electronics assembly markets. 26 • Syndication of $1.15 Billion Term Loans and Debt Reduction - In December 2023, we successfully completed the syndication of $1.15 billion of new term loans B-2, which mature in December 2030.
Removed
HSO 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.
Added
The proceeds of this transaction, together with cash on hand, were used to prepay our then existing $1.11 billion term loans B-1 and $150 million term loans A, reducing our gross debt by approximately $105 million.
Removed
HSO is included in our Industrial Solutions business line within our Industrial & Specialty segment. • Repurchases of Common Stock - During the year ended December 31, 2022, we repurchased 8.0 million shares of our common stock for $151 million.
Added
As a result of the swap agreements associated with the new term loans B-2, the Company's effective interest rate was approximately 3.3% at December 31, 2023 with approximately 80% of its capital structure fixed through 2028. • Cash Dividends - During the year ended December 31, 2023, approximately $77.4 million was returned to our stockholders in the form of cash dividends.
Removed
The remaining authorization under our stock repurchase program was approximately $581 million at December 31, 2022. 25 • Cash Dividends - During the year ended December 31, 2022, approximately $78.4 million was returned to our shareholders in the form of cash dividends.
Added
Acquisitions We may pursue targeted and opportunistic acquisitions in our existing or adjacent end-markets that seek to strengthen our current businesses, expand and diversify our product offerings, and enhance our growth and strategic position.
Removed
As part of our goodwill impairment test in the fourth quarter of 2022, we determined that the excess of the fair values of the Graphics Solutions and Energy Solutions reporting units within our Industrial & Specialty segment exceeded their carrying values by approximately 20%.
Added
During the third quarter of 2023, given the lower-than-expected results of the Graphics Solutions reporting unit, we determined that it was more likely than not that the fair value of this reporting unit was less than its carrying value.
Removed
Goodwill assigned to the Graphics Solutions and Energy Solutions reporting units was approximately $212 million and $233 million, respectively, as of the assessment date.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

13 edited+2 added−1 removed4 unchanged
Biggest changeOur business is exposed to foreign currency risk from changes in the exchange rate primarily between the U.S. dollar and the following currencies: euro, Chinese yuan, British pound, and Taiwan dollar. As a result, our operating results could be affected by foreign currency exchange rate volatility relative to the U.S. dollar.
Biggest changeGenerally, our foreign subsidiaries use their local currency as their functional currency; the currency in which they incur operating expenses and collect accounts receivable. Our business is exposed to foreign currency risk from changes in the exchange rate primarily between the U.S. dollar and the following currencies: euro, Chinese yuan and British pound.
Our policies prohibit us from speculating in financial instruments for profit on exchange rate price fluctuations, from trading in currencies for which there are no underlying exposures and from entering into trades for any currency to intentionally increase the underlying exposure. 35 Commodity Price Risk Some raw materials and supplies are subject to price and supply fluctuations caused by market dynamics.
Our policies prohibit us from speculating in financial instruments for profit on exchange rate price fluctuations, from trading in currencies for which there are no underlying exposures and from entering into trades for any currency to intentionally increase the underlying exposure. Commodity Price Risk Some raw materials and supplies are subject to price and supply fluctuations caused by market dynamics.
These swaps effectively convert all of our term loans under the Credit Agreement, which are U.S. dollar denominated debt obligations, into fixed-rate euro-denominated debt through the expiration of the swaps.
These swaps effectively convert our outstanding term loans under the Credit Agreement, which are U.S. dollar denominated debt obligations, into fixed-rate euro-denominated debt through the expiration of the swaps.
We use interest rate swaps and cross-currency swaps designed to reduce our exposure to interest rate risk and foreign currency risk. We designate the interest rate swaps as cash flow hedges and the cross-currency swaps as net investment hedges.
We use interest rate swaps and cross-currency swaps designed to reduce our exposure to interest rate risk and foreign currency risk. We designated the interest rate swaps as cash flow hedges and the cross-currency swaps as net investment hedges.
At December 31, 2022, we had total debt of $1.90 billion, net of unamortized discounts and debt issuance costs of $18.7 million, including approximately $1.11 billion of variable interest rate debt based on the one-month Secured Overnight Financing Rate (SOFR).
At December 31, 2023, we had total debt of $1.93 billion, net of unamortized discounts and debt issuance costs of $17.5 million, including approximately $1.15 billion of variable interest rate debt based on the one-month Secured Overnight Financing Rate (SOFR).
Their fair value at December 31, 2022 was a $0.3 million net current liability, and net realized and unrealized losses on such contracts for 2022 totaled $2.3 million.
Their fair value at December 31, 2023 was a $0.7 million net current liability, and the net realized and unrealized gains on such contracts for 2023 totaled $0.5 million.
We review the credit ratings of our counterparties and adjust our exposure as deemed appropriate on a periodic basis. At December 31, 2022, we believe that our exposure to counterparty risk was immaterial. Foreign Currency Risk We conduct a significant portion of our business in currencies other than the U.S. dollar, our financial reporting currency.
At December 31, 2023, we believe that our exposure to counterparty risk was immaterial. Foreign Currency Risk We conduct a significant portion of our business in currencies other than the U.S. dollar, our financial reporting currency. In 2023, approximately 75% of our net sales were generated outside of the U.S.
Our hedging programs include strategies to mitigate our foreign currency denominated balance sheet exposures as well as foreign currency anticipated cash flows. At December 31, 2022, the aggregate U.S. dollar notional amount of foreign currency forward contracts totaled $105 million. None of these foreign currency forward contracts were designated as hedges for accounting purposes.
At December 31, 2023, the aggregate U.S. dollar notional amount of foreign currency forward contracts totaled $93.9 million. None of these foreign currency forward contracts were designated as hedges for accounting purposes.
See Note 12, Financial Instruments, to the Consolidated Financial Statements included in this 2022 Annual Report for additional information. Counterparty Risk Outstanding financial derivative instruments expose us to credit loss in the event of non-performance by our counterparties. The credit exposure related to these financial instruments is considered in the fair values of such contracts.
Counterparty Risk Outstanding financial derivative instruments expose us to credit loss in the event of non-performance by our counterparties. The credit exposure related to these financial instruments is considered in the fair values of such contracts. We review the credit ratings of our counterparties and adjust our exposure as deemed appropriate on a periodic basis.
At December 31, 2022, the aggregate U.S. dollar notional amount of metals futures contracts, none of which were designated as hedges for accounting purposes, totaled $45.7 million. The fair value of the metals forward contracts at December 31, 2022 was a $2.5 million net current liability and net realized and unrealized gains on such contracts for 2022 totaled $0.3 million.
At December 31, 2023, the aggregate U.S. dollar notional amount of metals futures contracts, none of which were designated as hedges for accounting purposes, totaled $63.8 million.
The net result of these hedges, which expire in January 2024 and 2025, respectively, was an interest rate of approximately 1.6% at December 31, 2022, which could vary in the future due to changes in the euro and the U.S. dollar exchange rate.
The net result of these hedges was an interest rate of approximately 3.3% at December 31, 2023 on the term loans B-2, which could vary in the future due to changes in the euro and the U.S. dollar exchange rate. See Note 12, Financial Instruments , to the Consolidated Financial Statements included in this 2023 Annual Report for additional information.
We are not able to project, in any meaningful way, the possible effect of these foreign currency fluctuations on translated amounts or future earnings. We actively assess our foreign exchange risk exposure and may enter into foreign exchange hedges designed to mitigate such risk and protect ourselves against transaction exposures.
As a result, our operating results could be affected by foreign currency exchange rate volatility relative to the U.S. dollar. We are not able to project, in any meaningful way, the possible effect of these foreign currency fluctuations on translated amounts or future earnings.
Item 8. Financial Statements and Supplementary Data See “Index to Consolidated Financial Statements” in this 2022 Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.
Removed
In 2022, approximately 75% of our net sales were generated outside of the U.S. Generally, our foreign subsidiaries use their local currency as their functional currency; the currency in which they incur operating expenses and collect accounts receivable.
Added
We actively assess our foreign exchange risk exposure and may enter into foreign exchange hedges designed to mitigate such risk and protect ourselves against transaction exposures. Our hedging programs include strategies to mitigate our foreign currency denominated balance sheet exposures as well as foreign currency anticipated cash flows.
Added
The fair value of the metals forward 37 contracts at December 31, 2023 was a $1.2 million net current liability and net realized and unrealized losses on such contracts for 2023 totaled $0.1 million. Item 8. Financial Statements and Supplementary Data See “Index to Consolidated Financial Statements” in this 2023 Annual Report. Item 9.

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