Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

October 25, 2019

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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
or
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

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.

3

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.

4

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.

5

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.

6

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

 
$
1,346.1


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


7

Table of Contents

AXALTA COATING SYSTEMS LTD.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)

 
Nine Months Ended September 30,

 
2019
 
2018
Operating activities:
 

 

Net income
 
$
210.4


$
136.5

Adjustment to reconcile net income to cash provided by operating activities:
 

 

Depreciation and amortization
 
267.3

 
274.9

Amortization of deferred financing costs and original issue discount
 
6.7

 
5.8

Debt extinguishment and refinancing related costs
 
0.2

 
8.4

Deferred income taxes
 
(5.6
)
 
(1.8
)
Realized and unrealized foreign exchange losses, net
 
1.5

 
16.2

Stock-based compensation
 
9.5

 
27.5

Loss on divestiture
 
3.4

 

Interest income on swaps designated as net investment hedges
 
(11.0
)
 
(5.9
)
Other non-cash, net
 
(3.5
)
 
(3.9
)
Changes in operating assets and liabilities:
 

 

Trade accounts and notes receivable
 
(128.9
)
 
(119.5
)
Inventories
 
(4.0
)
 
(51.8
)
Prepaid expenses and other assets
 
(95.0
)
 
(127.9
)
Accounts payable
 
29.9

 
45.4

Other accrued liabilities
 

 
(33.6
)
Other liabilities
 
8.9

 
75.2

Cash provided by operating activities
 
289.8

 
245.5

Investing activities:
 

 

Acquisitions, net of cash acquired
 
(2.1
)
 
(79.2
)
Purchase of property, plant and equipment
 
(73.9