October 25, 2019 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-36733

AXALTA COATING SYSTEMS LTD.

(Exact name of registrant as specified in its charter)



Bermuda	2851	98-1073028
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

Two Commerce Square

2001 Market Street

Suite 3600

Philadelphia, Pennsylvania 19103

(855) 547-1461

(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:



Common Shares, $1.00 par value	AXTA	New York Stock Exchange
(Title of class)	(Trading symbol)	(Exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Non-accelerated filer ☐ Accelerated filer ☐

Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 17, 2019, there were 234,650,360 shares of the registrant’s common shares outstanding.

Table of Contents



PART I		Financial Information
	ITEM 1.	Financial Statements (Unaudited)	3
		Condensed Consolidated Statements of Operations	3
		Condensed Consolidated Statements of Comprehensive Income (Loss)	4
		Condensed Consolidated Balance Sheets	5
		Condensed Consolidated Statements of Changes in Shareholders' Equity	6
		Condensed Consolidated Statements of Cash Flows	8
		Notes to Condensed Consolidated Financial Statements	9
	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	44
	ITEM 4.	Controls and Procedures	44
PART II		Other Information
	ITEM 1.	Legal Proceedings	45
	ITEM 1A.	Risk Factors	45
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
	ITEM 3.	Defaults Upon Senior Securities	45
	ITEM 4.	Mine Safety Disclosures	45
	ITEM 5.	Other Information	45
	ITEM 6.	Exhibits	46
		Signatures	47

Table of Contents

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

AXALTA COATING SYSTEMS LTD.

Condensed Consolidated Statements of Operations (Unaudited)

(In millions, except per share data)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net sales	$	1,107.0		$	1,146.0		$	3,383.8		$	3,530.2
Cost of goods sold	707.4			759.1			2,207.1			2,328.9
Selling, general and administrative expenses	231.5			293.4			655.2			745.8
(Gain) loss on divestiture	(0.5		)	—			3.4			—
Research and development expenses	17.4			17.0			53.5			54.3
Amortization of acquired intangibles	28.2			28.7			85.1			86.9
Income from operations	123.0			47.8			379.5			314.3
Interest expense, net	40.2			39.8			122.5			118.5
Other (income) expense, net	(1.9		)	5.5			(3.8		)	11.4
Income before income taxes	84.7			2.5			260.8			184.4
Provision for income taxes	18.3			14.1			50.4			47.9
Net income (loss)	66.4			(11.6		)	210.4			136.5
Less: Net income attributable to noncontrolling interests	0.9			1.5			3.1			4.8
Net income (loss) attributable to controlling interests	$	65.5		$	(13.1	)	$	207.3		$	131.7
Basic earnings (loss) per share	$	0.28		$	(0.05	)	$	0.89		$	0.55
Diluted earnings (loss) per share	$	0.28		$	(0.05	)	$	0.88		$	0.54

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AXALTA COATING SYSTEMS LTD.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In millions)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net income (loss)	$	66.4		$	(11.6	)	$	210.4		$	136.5
Other comprehensive loss, before tax:
Foreign currency translation adjustments	(52.8		)	(17.6		)	(40.4		)	(86.9		)
Unrealized (loss) gain on derivatives	(4.6		)	3.6			(39.5		)	16.2
Unrealized gain (loss) on pension plan obligations	0.5			0.6			1.0			(0.7		)
Other comprehensive loss, before tax	(56.9		)	(13.4		)	(78.9		)	(71.4		)
Income tax (benefit) provision related to items of other comprehensive loss	(0.5		)	0.6			(5.3		)	2.3
Other comprehensive loss, net of tax	(56.4		)	(14.0		)	(73.6		)	(73.7		)
Comprehensive income (loss)	10.0			(25.6		)	136.8			62.8
Less: Comprehensive income attributable to noncontrolling interests	0.3			0.3			5.2			1.7
Comprehensive income (loss) attributable to controlling interests	$	9.7		$	(25.9	)	$	131.6		$	61.1

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AXALTA COATING SYSTEMS LTD.

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except per share data)



	September 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	767.2		$	693.6
Restricted cash	2.9			2.8
Accounts and notes receivable, net	935.7			860.8
Inventories	597.3			613.0
Prepaid expenses and other current assets	130.0			139.4
Total current assets	2,433.1			2,309.6
Property, plant and equipment, net	1,216.7			1,298.2
Goodwill	1,183.7			1,230.8
Identifiable intangibles, net	1,236.0			1,348.0
Other assets	620.5			489.1
Total assets	$	6,690.0		$	6,675.7
Liabilities, Shareholders’ Equity
Current liabilities:
Accounts payable	$	495.3		$	522.8
Current portion of borrowings	42.4			42.2
Other accrued liabilities	497.2			475.6
Total current liabilities	1,034.9			1,040.6
Long-term borrowings	3,772.3			3,821.8
Accrued pensions	248.6			261.9
Deferred income taxes	115.8			140.8
Other liabilities	178.7			100.1
Total liabilities	5,350.3			5,365.2
Commitments and contingencies (Note 6)
Shareholders’ equity:
Common shares, $1.00 par, 1,000.0 shares authorized, 249.8 and 246.7 shares issued at September 30, 2019 and December 31, 2018, respectively	249.6			245.3
Capital in excess of par	1,463.9			1,409.5
Retained earnings	401.5			198.6
Treasury shares (at cost) of 15.2 and 11.1 shares at September 30, 2019 and December 31, 2018, respectively	(417.5		)	(312.2		)
Accumulated other comprehensive loss	(411.8		)	(336.1		)
Total Axalta shareholders’ equity	1,285.7			1,205.1
Noncontrolling interests	54.0			105.4
Total shareholders’ equity	1,339.7			1,310.5
Total liabilities and shareholders’ equity	$	6,690.0		$	6,675.7

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AXALTA COATING SYSTEMS LTD.

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(In millions)



	Common Stock
	Number of Shares		Par/Stated Value		Capital In Excess Of Par			Retained Earnings (Accumulated deficit)			Treasury Shares, at cost			Accumulated Other Comprehensive Loss			Non controlling Interests			Total
Balance at December 31, 2018	235.6		$	245.3	$	1,409.5		$	198.6		$	(312.2	)	$	(336.1	)	$	105.4		$	1,310.5
Comprehensive income (loss):
Net income	—		—		—			43.4			—			—			0.7			44.1
Net realized and unrealized loss on derivatives, net of tax benefit of $2.2 million	—		—		—			—			—			(12.4		)	—			(12.4		)
Long-term employee benefit plans, net of tax of $0.5 million	—		—		—			—			—			—			—			—
Foreign currency translation, net of tax of $0.0 million	—		—		—			—			—			12.8			0.5			13.3
Total comprehensive income	—		—		—			43.4			—			0.4			1.2			45.0
Cumulative effect of an accounting change	—		—		—			(0.7		)	—			—			—			(0.7		)
Recognition of stock-based compensation	—		—		6.7			—			—			—			—			6.7
Shares issued under compensation plans	1.1		1.7		9.7			—			—			—			—			11.4
Noncontrolling interests of acquired subsidiaries	—		—		5.7			—			—			—			(32.1		)	(26.4		)
Common stock purchases	(2.5	)	—		—			—			(65.8		)	—			—			(65.8		)
Dividends declared to noncontrolling interests	—		—		—			—			—			—			(1.1		)	(1.1		)
Balance at March 31, 2019	234.2		247.0		1,431.6			241.3			(378.0		)	(335.7		)	73.4			1,279.6
Comprehensive income (loss):
Net income	—		—		—			98.4			—			—			1.5			99.9
Net realized and unrealized loss on derivatives, net of tax benefit of $2.7 million	—		—		—			—			—			(17.6		)	—			(17.6		)
Long-term employee benefit plans, net of tax benefit of $0.4 million	—		—		—			—			—			0.4			—			0.4
Foreign currency translation, net of tax of $0.0 million	—		—		—			—			—			(3.1		)	2.2			(0.9		)
Total comprehensive income (loss)	—		—		—			98.4			—			(20.3		)	3.7			81.8
Correction to previous cumulative effect upon adoption of ASU 2014-09	—		—		—			(3.7		)	—			—			—			(3.7		)
Recognition of stock-based compensation	—		—		(1.4		)	—			—			—			—			(1.4		)
Shares issued under compensation plans	0.7		1.2		13.3			—			—			—			—			14.5
Changes in ownership of noncontrolling interests	—		—		(1.7		)	—			—			—			(22.5		)	(24.2		)
Common stock purchases	(1.6	)	—		—			—			(39.5		)	—			—			(39.5		)
Balance at June 30, 2019	233.3		248.2		1,441.8			336.0			(417.5		)	(356.0		)	54.6			1,307.1
Comprehensive income (loss):
Net income	—		—		—			65.5			—			—			0.9			66.4
Net realized and unrealized loss on derivatives, net of tax benefit of $0.7 million	—		—		—			—			—			(3.9		)	—			(3.9		)
Long-term employee benefit plans, net of tax of $0.2 million	—		—		—			—			—			0.3			—			0.3
Foreign currency translation, net of tax of $0.0 million	—		—		—			—			—			(52.2		)	(0.6		)	(52.8		)
Total comprehensive income (loss)	—		—		—			65.5			—			(55.8		)	0.3			10.0
Recognition of stock-based compensation	—		—		4.2			—			—			—			—			4.2
Shares issued under compensation plans	1.3		1.4		17.9			—			—			—			—			19.3
Changes in ownership of noncontrolling interests	—		—		—			—			—			—			(0.5		)	(0.5		)
Dividends declared to noncontrolling interests	—		—		—			—			—			—			(0.4		)	(0.4		)
Balance at September 30, 2019	234.6		$	249.6	$	1,463.9		$	401.5		$	(417.5	)	$	(411.8	)	$	54.0		$	1,339.7

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AXALTA COATING SYSTEMS LTD.

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(In millions)



	Common Stock
	Number of Shares		Par/Stated Value		Capital In Excess Of Par		Retained earnings (Accumulated deficit)			Treasury Shares, at cost			Accumulated Other Comprehensive Loss			Non controlling Interests			Total
Balance at December 31, 2017	241.9		$	242.4	$	1,354.5	$	(21.4	)	$	(58.4	)	$	(241.0	)	$	131.7		$	1,407.8
Comprehensive income:
Net income	—		—		—		69.9			—			—			1.1			71.0
Net realized and unrealized loss on derivatives, net of tax of $1.6 million	—		—		—		—			—			6.3			—			6.3
Long-term employee benefit plans, net of tax benefit of $0.3 million	—		—		—		—			—			0.6			—			0.6
Foreign currency translation, net of tax of $0.0 million	—		—		—		—			—			42.2			0.9			43.1
Total comprehensive income	—		—		—		69.9			—			49.1			2.0			121.0
Cumulative effect of an accounting change	—		—		—		12.9			—			(0.8		)	0.1			12.2
Recognition of stock-based compensation	—		—		8.4		—			—			—			—			8.4
Shares issued under compensation plans	1.4		0.9		5.3		—			—			—			—			6.2
Noncontrolling interests of acquired subsidiaries	—		—		2.9		—			—			—			(29.8		)	(26.9		)
Common stock purchases	(0.1	)	—		—		—			(3.3		)	—			—			(3.3		)
Dividends declared to noncontrolling interests	—		—		—		—			—			—			(1.0		)	(1.0		)
Balance at March 31, 2018	243.2		243.3		1,371.1		61.4			(61.7		)	(192.7		)	103.0			1,524.4
Comprehensive income (loss):
Net income	—		—		—		74.9			—			—			2.2			77.1
Net realized and unrealized loss on derivatives, net of tax of $0.4 million	—		—		—		—			—			4.3			—			4.3
Long-term employee benefit plans, net of tax of $0.0 million	—		—		—		—			—			(1.6		)	—			(1.6		)
Foreign currency translation, net of tax of $0.0 million	—		—		—		—			—			(109.6		)	(2.8		)	(112.4		)
Total comprehensive income (loss)	—		—		—		74.9			—			(106.9		)	(0.6		)	(32.6		)
Recognition of stock-based compensation	—		—		9.7		—			—			—			—			9.7
Shares issued under compensation plans	0.7		1.2		3.7		—			—			—			—			4.9
Common stock purchases	(3.3	)	—		—		—			(100.5		)	—			—			(100.5		)
Balance at June 30, 2018	240.6		244.5		1,384.5		136.3			(162.2		)	(299.6		)	102.4			1,405.9
Comprehensive income (loss):
Net (loss) income	—		—		—		(13.1		)	—			—			1.5			(11.6		)
Net realized and unrealized loss on derivatives, net of tax of $0.2 million	—		—		—		—			—			3.4			—			3.4
Long-term employee benefit plans, net of tax of $0.4 million	—		—		—		—			—			0.2			—			0.2
Foreign currency translation, net of tax of $0.0 million	—		—		—		—			—			(16.4		)	(1.2		)	(17.6		)
Total comprehensive income (loss)	—		—		—		(13.1		)	—			(12.8		)	0.3			(25.6		)
Recognition of stock-based compensation	—		—		9.4		—			—			—			—			9.4
Shares issued under compensation plans	0.7		0.6		5.5		—			—			—			—			6.1
Common stock purchases	(1.7	)	—		—		—			(49.7		)	—			—			(49.7		)
Balance at September 30, 2018	239.6		$	245.1	$	1,399.4	$	123.2		$	(211.9	)	$	(312.4	)	$	102.7		$

Form: 10-Q

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