Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

October 26, 2020

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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, 2020
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)

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 registrant 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 19, 2020, there were 235,476,819 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,
2020 2019 2020 2019
Net sales $ 1,026.9  $ 1,107.0  $ 2,663.1  $ 3,383.8 
Cost of goods sold 634.1  707.4  1,780.1  2,207.1 
Selling, general and administrative expenses 166.5  199.2  516.1  617.2 
Other operating charges 42.6  31.8  98.9  41.4 
Research and development expenses 13.4  17.4  41.2  53.5 
Amortization of acquired intangibles 28.6  28.2  84.5  85.1 
Income from operations 141.7  123.0  142.3  379.5 
Interest expense, net 39.8  40.2  112.4  122.5 
Other expense (income), net 2.3  (1.9) 0.9  (3.8)
Income before income taxes 99.6  84.7  29.0  260.8 
Provision (benefit) for income taxes 17.1  18.3  (22.7) 50.4 
Net income 82.5  66.4  51.7  210.4 
Less: Net income (loss) attributable to noncontrolling interests   0.9  (0.2) 3.1 
Net income attributable to controlling interests $ 82.5  $ 65.5  $ 51.9  $ 207.3 
Basic net income per share $ 0.35  $ 0.28  $ 0.22  $ 0.89 
Diluted net income per share $ 0.35  $ 0.28  $ 0.22  $ 0.88 

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,
2020 2019 2020 2019
Net income $ 82.5  $ 66.4  $ 51.7  $ 210.4 
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments 33.4  (52.8) (46.1) (40.4)
Unrealized gain (loss) on derivatives 7.0  (4.6) (36.3) (39.5)
Unrealized (loss) gain on pension plan obligations (0.5) 0.5  (0.5) 1.0 
Other comprehensive income (loss), before tax 39.9  (56.9) (82.9) (78.9)
Income tax provision (benefit) related to items of other comprehensive income (loss) 1.0  (0.5) (5.4) (5.3)
Other comprehensive income (loss), net of tax 38.9  (56.4) (77.5) (73.6)
Comprehensive income (loss) 121.4  10.0  (25.8) 136.8 
Less: Comprehensive (loss) income attributable to noncontrolling interests (0.5) 0.3  (3.0) 5.2 
Comprehensive income (loss) attributable to controlling interests $ 121.9  $ 9.7  $ (22.8) $ 131.6 

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, 2020 December 31, 2019
Assets
Current assets:
Cash and cash equivalents $ 1,341.3  $ 1,017.5 
Restricted cash 2.9  3.0 
Accounts and notes receivable, net 824.2  830.1 
Inventories 536.7  591.6 
Prepaid expenses and other current assets 145.2  131.2 
Total current assets 2,850.3  2,573.4 
Property, plant and equipment, net 1,165.2  1,223.0 
Goodwill 1,245.8  1,208.9 
Identifiable intangibles, net 1,148.6  1,223.9 
Other assets 626.6  588.8 
Total assets $ 7,036.5  $ 6,818.0 
Liabilities, Shareholders’ Equity
Current liabilities:
Accounts payable $ 482.9  $ 483.7 
Current portion of borrowings 48.7  43.9 
Other accrued liabilities 533.6  545.3 
Total current liabilities 1,065.2  1,072.9 
Long-term borrowings 4,010.9  3,790.2 
Accrued pensions 284.0  285.2 
Deferred income taxes 108.5  115.5 
Other liabilities 183.2  144.6 
Total liabilities 5,651.8  5,408.4 
Commitments and contingencies (Note 5)
Shareholders’ equity:
Common shares, $1.00 par, 1,000.0 shares authorized, 250.7 and 250.1 shares issued at September 30, 2020 and December 31, 2019, respectively
250.6  249.9 
Capital in excess of par 1,484.1  1,474.1 
Retained earnings 493.6  443.2 
Treasury shares, at cost, 15.2 shares at September 30, 2020 and December 31, 2019
(418.4) (417.5)
Accumulated other comprehensive loss (470.2) (395.5)
Total Axalta shareholders’ equity 1,339.7  1,354.2 
Noncontrolling interests 45.0  55.4 
Total shareholders’ equity 1,384.7  1,409.6 
Total liabilities and shareholders’ equity $ 7,036.5  $ 6,818.0 

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 Treasury Shares, at cost Accumulated Other Comprehensive Loss Non controlling Interests Total
Balance at December 31, 2019 234.9  $ 249.9  $ 1,474.1  $ 443.2  $ (417.5) $ (395.5) $ 55.4  $ 1,409.6 
Comprehensive income (loss):
Net income —  —  —  52.2  —  —  0.2  52.4 
Net realized and unrealized loss on derivatives, net of tax benefit of $6.0 million
—  —  —  —  —  (34.7) —  (34.7)
Long-term employee benefit plans, net of tax benefit of $0.2 million
—  —  —  —  —  (0.4) —  (0.4)
Foreign currency translation, net of tax of $0.0 million
—  —  —  —  —  (83.3) (3.2) (86.5)
Total comprehensive income (loss) —  —  —  52.2  —  (118.4) (3.0) (69.2)
Cumulative effect of an accounting change —  —  —  (1.5) —  —  —  (1.5)
Recognition of stock-based compensation —  —  5.1  —  —  —  —  5.1 
Shares issued under compensation plans 0.4  0.5  (1.6) —  —  —  —  (1.1)
Ownership changes relating to noncontrolling interests —  —  0.5  —  —  —  (2.1) (1.6)
Dividends declared to noncontrolling interests —  —  —  —  —  —  (0.5) (0.5)
Balance at March 31, 2020 235.3  250.4  1,478.1  493.9  (417.5) (513.9) 49.8  1,340.8 
Comprehensive income (loss):
Net loss —  —  —  (82.8) —  —  (0.4) (83.2)
Net realized and unrealized loss on derivatives, net of tax benefit of $0.4 million
—  —  —  —  —  (2.2) —  (2.2)
Long-term employee benefit plans, net of tax of $0.2 million
—  —  —  —  —  0.4  —  0.4 
Foreign currency translation, net of tax of $0.0 million
—  —  —  —  —  6.1  0.9  7.0 
Total comprehensive income (loss) —  —  —  (82.8) —  4.3  0.5  (78.0)
Recognition of stock-based compensation —  —  6.1  —  —  —  —  6.1 
Shares issued under compensation plans 0.1  0.1  1.1  —  —  —  —  1.2 
Changes in redeemable noncontrolling interest —  —  (5.8) —  —  —  (4.8) (10.6)
Common stock purchases —  —  —  —  (0.9) —  —  (0.9)
Balance at June 30, 2020 235.4  250.5  1,479.5  411.1  (418.4) (509.6) 45.5  1,258.6 
Comprehensive income (loss):
Net income —  —  —  82.5  —  —  —  82.5 
Net realized and unrealized gain on derivatives, net of tax of $1.0 million
—  —  —  —  —  6.0  —  6.0 
Long-term employee benefit plans, net of tax of $0.0 million
—  —  —  —  —  (0.5) —  (0.5)
Foreign currency translation, net of tax of $0.0 million
—  —  —  —  —  33.9  (0.5) 33.4 
Total comprehensive income (loss) —  —  —  82.5  —  39.4  (0.5) 121.4 
Recognition of stock-based compensation —  —  4.7  —  —  —  —  4.7 
Shares issued under compensation plans 0.1  0.1  (0.1) —  —  —  —   
Balance at September 30, 2020 235.5  $ 250.6  $ 1,484.1  $ 493.6  $ (418.4) $ (470.2) $ 45.0  $ 1,384.7 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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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 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:
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 
Ownership changes relating to noncontrolling interests —  —  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 
Ownership changes relating to 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.

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AXALTA COATING SYSTEMS LTD.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
Nine Months Ended September 30,
2020 2019
Operating activities:
Net income $ 51.7  $ 210.4 
Adjustment to reconcile net income to cash provided by operating activities:
Depreciation and amortization 243.6  267.3 
Amortization of deferred financing costs and original issue discount 6.8  6.7 
Debt extinguishment and refinancing related costs 2.4  0.2 
Deferred income taxes (57.2) (5.6)
Realized and unrealized foreign exchange losses, net 12.7  1.5 
Stock-based compensation 15.9  9.5 
Divestitures and impairment charges 3.5  3.4 
Interest income on swaps designated as net investment hedges (11.0) (11.0)
Other non-cash, net 2.7  (3.5)
Changes in operating assets and liabilities:
Trade accounts and notes receivable (14.0) (128.9)
Inventories 43.2  (4.0)
Prepaid expenses and other assets (60.8) (95.0)
Accounts payable