July 26, 2021 - 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 June 30, 2021


☐			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 July 20, 2021, there were 230,160,918 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	24
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	38
	ITEM 4.	Controls and Procedures	38
PART II		Other Information
	ITEM 1.	Legal Proceedings	39
	ITEM 1A.	Risk Factors	39
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
	ITEM 3.	Defaults Upon Senior Securities	39
	ITEM 4.	Mine Safety Disclosures	39
	ITEM 5.	Other Information	39
	ITEM 6.	Exhibits	40
		Signatures	41

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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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net sales	$	1,126.8	$	652.7	$	2,190.4	$	1,636.2
Cost of goods sold	752.8		499.2		1,437.3		1,146.0
Selling, general and administrative expenses	184.2		154.2		363.3		349.6
Other operating (benefits) charges	(45.7)		24.7		57.1		56.3
Research and development expenses	15.8		11.2		31.4		27.8
Amortization of acquired intangibles	29.3		27.9		58.3		55.9
Income (loss) from operations	190.4		(64.5)		243.0		0.6
Interest expense, net	33.4		36.1		66.9		72.6
Other income, net	(8.1)		(2.2)		(8.5)		(1.4)
Income (loss) before income taxes	165.1		(98.4)		184.6		(70.6)
Provision (benefit) for income taxes	38.7		(15.2)		42.5		(39.8)
Net income (loss)	126.4		(83.2)		142.1		(30.8)
Less: Net (loss) income attributable to noncontrolling interests	—		(0.4)		0.5		(0.2)
Net income (loss) attributable to controlling interests	$	126.4	$	(82.8)	$	141.6	$	(30.6)
Basic net income (loss) per share	$	0.54	$	(0.35)	$	0.61	$	(0.13)
Diluted net income (loss) per share	$	0.54	$	(0.35)	$	0.60	$	(0.13)

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 Comprehensive Income (Loss) (Unaudited)

(In millions)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income (loss)	$	126.4	$	(83.2)	$	142.1	$	(30.8)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments	39.3		7.0		1.7		(79.5)
Unrealized gain (loss) on derivatives	6.9		(2.6)		16.1		(43.3)
Unrealized gain on pension and other benefit plan obligations	1.3		0.2		2.5		—
Other comprehensive income (loss), before tax	47.5		4.6		20.3		(122.8)
Income tax provision (benefit) related to items of other comprehensive income (loss)	1.3		(0.6)		3.1		(6.4)
Other comprehensive income (loss), net of tax	46.2		5.2		17.2		(116.4)
Comprehensive income (loss)	172.6		(78.0)		159.3		(147.2)
Less: Comprehensive income (loss) attributable to noncontrolling interests	0.6		0.5		0.9		(2.5)
Comprehensive income (loss) attributable to controlling interests	$	172.0	$	(78.5)	$	158.4	$	(144.7)

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

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AXALTA COATING SYSTEMS LTD.

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except per share data)


	June 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	1,230.9	$	1,360.9
Restricted cash	10.6		3.1
Accounts and notes receivable, net	1,035.7		869.8
Inventories	614.5		559.9
Prepaid expenses and other current assets	156.5		132.2

Total current assets	3,048.2		2,925.9
Property, plant and equipment, net	1,183.3		1,194.5
Goodwill	1,294.3		1,294.9
Identifiable intangibles, net	1,096.6		1,148.8
Other assets	587.0		593.1

Total assets	$	7,209.4	$	7,157.2
Liabilities, Shareholders’ Equity
Current liabilities:
Accounts payable	$	597.5	$	564.4
Current portion of borrowings	40.5		54.2
Other accrued liabilities	578.2		562.3

Total current liabilities	1,216.2		1,180.9
Long-term borrowings	3,813.4		3,838.5
Accrued pensions	296.0		309.9
Deferred income taxes	116.6		114.0
Other liabilities	231.9		234.1

Total liabilities	5,674.1		5,677.4
Commitments and contingent liabilities (Note 5)
Shareholders’ equity:
Common shares, $1.00 par, 1,000.0 shares authorized, 251.7 and 250.9 shares issued at June 30, 2021 and December 31, 2020, respectively	251.7		250.9
Capital in excess of par	1,506.9		1,487.1
Retained earnings	704.9		563.3
Treasury shares, at cost, 20.3 and 16.1 shares at June 30, 2021 and December 31, 2020, respectively	(567.2)		(443.5)
Accumulated other comprehensive loss	(408.0)		(424.8)
Total Axalta shareholders’ equity	1,488.3		1,433.0
Noncontrolling interests	47.0		46.8
Total shareholders’ equity	1,535.3		1,479.8
Total liabilities and shareholders’ equity	$	7,209.4	$	7,157.2

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, 2020	234.8	$	250.9	$	1,487.1	$	563.3	$	(443.5)	$	(424.8)	$	46.8	$	1,479.8
Comprehensive loss:
Net income	—	—		—		15.2		—		—		0.5		15.7

Net realized and unrealized gain on derivatives, net of tax of $1.3 million	—	—		—		—		—		7.9		—		7.9
Long-term employee benefit plans, net of tax $0.5 million	—	—		—		—		—		0.7		—		0.7
Foreign currency translation, net of tax of $0.0 million	—	—		—		—		—		(37.4)		(0.2)		(37.6)
Total comprehensive loss	—	—		—		15.2		—		(28.8)		0.3		(13.3)

Recognition of stock-based compensation	—	—		3.6		—		—		—		—		3.6
Shares issued under compensation plans	0.3	0.3		(0.2)		—		—		—		—		0.1

Common stock purchases	(2.3)	—		—		—		(63.7)		—		—		(63.7)
Dividends declared to noncontrolling interests	—	—		—		—		—		—		(0.7)		(0.7)
Balance at March 31, 2021	232.8	251.2		1,490.5		578.5		(507.2)		(453.6)		46.4		1,405.8
Comprehensive income:
Net income	—	—		—		126.4		—		—		—		126.4

Net realized and unrealized gain on derivatives, net of tax of $1.0 million	—	—		—		—		—		5.9		—		5.9
Long-term employee benefit plans, net of tax of $0.3 million	—	—		—		—		—		1.0		—		1.0
Foreign currency translation, net of tax of $0.0 million	—	—		—		—		—		38.7		0.6		39.3
Total comprehensive income	—	—		—		126.4		—		45.6		0.6		172.6
Recognition of stock-based compensation	—	—		4.2		—		—		—		—		4.2
Shares issued under compensation plans	0.5	0.5		12.2		—		—		—		—		12.7

Common stock purchases	(1.9)	—		—		—		(60.0)		—		—		(60.0)

Balance at June 30, 2021	231.4	$	251.7	$	1,506.9	$	704.9	$	(567.2)	$	(408.0)	$	47.0	$	1,535.3

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	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 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 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 income	—	—		—		(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 benefit 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 interests	—	—		(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

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)


	Six Months Ended June 30,
	2021		2020
Operating activities:
Net income (loss)	$	142.1	$	(30.8)
Adjustment to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization	155.4		163.2
Amortization of deferred financing costs and original issue discount	4.2		4.1
Debt extinguishment and refinancing related costs	0.2		2.4
Deferred income taxes	5.2		(61.2)
Realized and unrealized foreign exchange losses, net	9.4		2.8
Stock-based compensation	7.8		11.2

Divestiture and impairment charges	—		3.2
Interest income on swaps designated as net investment hedges	(7.1)		(7.3)
Other non-cash, net	9.2		8.3
Changes in operating assets and liabilities:
Trade accounts and notes receivable	(154.2)		136.8
Inventories	(59.1)		32.5
Prepaid expenses and other assets	(53.4)		(60.3)
Accounts payable	60.0		(131.0)
Other accrued liabilities	24.5		(87.9)
Other liabilities	2.9		11.5
Cash provided by (used for) operating activities	147.1		(2.5)
Investing activities:
Acquisitions, net of cash acquired	(37.6)		—
Purchase of property, plant and equipment	(60.3)		(42.4)



Interest proceeds on swaps designated as net investment hedges	7.1		7.3


Other investing activities, net	(0.5)		0.8
Cash used for investing activities	(91.3)		(34.3)
Financing activities:
Proceeds from long-term borrowings	—		500.0
Payments on short-term borrowings	(41.1)		(18.6)
Payments on long-term borrowings	(14.2)		(313.1)
Financing-related costs	(2.5)		(6.0)
Purchases of common stock	(123.7)		(0.9)
Net cash flows associated with stock-based awards	12.8		0.3

Purchase of noncontrolling interests	—		(1.6)

Other financing activities, net	(1.2)		(1.0)
Cash (used for) provided by financing activities	(169.9)		159.1
(Decrease) increase in cash	(114.1)		122.3
Effect of exchange rate changes on cash	(8.4)		(16.3)
Cash at beginning of period	1,364.0		1,020.5
Cash at end of period	$	1,241.5	$	1,126.5

Cash at end of period reconciliation:
Cash and cash equivalents	$	1,230.9	$	1,123.6
Restricted cash	10.6		2.9

Cash at end of period	$	1,241.5	$	1,126.5

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

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

Index


Note						Page
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES						10
(2) REVENUE						10
(3) GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS						11
(4) RESTRUCTURING						12
(5) COMMITMENTS AND CONTINGENCIES						12
(6) LONG-TERM EMPLOYEE BENEFITS						13
(7) STOCK-BASED COMPENSATION						14
(8) OTHER INCOME, NET						15
(9) INCOME TAXES						15
(10) NET INCOME (LOSS) PER COMMON SHARE						16
(11) ACCOUNTS AND NOTES RECEIVABLE, NET						16
(12) INVENTORIES						17
(13) PROPERTY, PLANT AND EQUIPMENT, NET						17
(14) BORROWINGS						17
(15) FINANCIAL INSTRUMENTS, HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENTS						18
(16) SEGMENTS						21
(17) ACCUMULATED OTHER COMPREHENSIVE LOSS						23
(18) SUBSEQUENT EVENTS						23

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The interim condensed consolidated financial statements included herein are unaudited. In the opinion of management, these statements include all adjustments, consisting only of normal, recurring adjustments, necessary for a fair statement of the financial position of Axalta Coating Systems Ltd., a Bermuda exempted company limited by shares, and its consolidated subsidiaries ("Axalta," the "Company," "we," "our" and "us") at June 30, 2021 and December 31, 2020, the results of operations, comprehensive income (loss) and changes in shareholders' equity for the three and six months ended June 30, 2021 and 2020, and cash flows for the six months then ended. All intercompany balances and transactions have been eliminated.

These interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The interim unaudited condensed consolidated financial statements include the accounts of Axalta and its subsidiaries, and entities in which a controlling interest is maintained. Certain of our joint ventures are accounted for on a one-month lag basis, the effect of which is not material.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for a full year.

Summary of Significant Accounting Policies

Recently Adopted Accounting Guidance

In March 2020, we adopted ASU 2020-04, "Reference Rate Reform" which provides optional expedients exercisable through December 31, 2022 to ease the potential burden in accounting for the effects of reference rate reform on financial reporting. In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope,” which clarified the scope and application of the original guidance. As of June 30, 2021, the expedients provided in this standard do not impact the Company. We will continue to monitor for potential impacts on our financial statements.

In December 2020, we adopted ASU 2019-12, "Simplifying the Accounting for Income Taxes", which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and updating provisions related to accounting for franchise (or similar) tax partially based on income and interim recognition of enactment of tax law changes. The adoption of this standard did not have a material impact on our financial statements.

Risks and Uncertainties

In March 2020, the World Health Organization characterized the coronavirus ("COVID-19") a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the pandemic and the continuously evolving responses to combat it have had a negative impact on the global economy. The Company's results of operations, financial condition and cash flows were significantly impacted during 2020 as a result of the pandemic and we continue to see impacts to our business given the continued significant presence, and actual or potential spread, of the virus globally, as well as preventative measures enacted in certain regions of the world. We are currently unable to fully determine the future impact of COVID-19 on our business, though we believe the pandemic will continue to have a negative effect on our business during 2021, and potentially longer. We are monitoring the progression of the pandemic and its ongoing and potential effect on our financial position, results of operations, and cash flows, which effects could be materially adverse in a particular quarterly reporting period as well as on an annual basis for 2021, and potentially longer.

(2) REVENUE

Consideration for products in which control has transferred to our customers that is conditional on something other than the passage of time is recorded as a contract asset within prepaid expenses and other current assets on the balance sheet. The contract asset balances at June 30, 2021 and December 31, 2020 were $39.7 million and $37.2 million, respectively.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

We provide certain customers with incremental up-front consideration, subject to clawback provisions, including Business Incentive Plan assets ("BIPs"), which is capitalized as a component of other assets and amortized over the estimated life of the contractual arrangement as a reduction of net sales. At June 30, 2021 and December 31, 2020, the total carrying value of BIPs were $156.1 million and $165.4 million, respectively, and are presented within other assets in the condensed consolidated balance sheets. For the three and six months ended June 30, 2021 and 2020, $13.7 million, $29.0 million, $16.4 million and $33.3 million, respectively, was amortized and reflected as reductions of net sales in the condensed consolidated statements of operations. The total carrying value of BIPs exclude other upfront incentives made in conjunction with long-term customer commitments of $76.9 million and $79.8 million at June 30, 2021 and December 31, 2020, respectively, which will be repaid in future periods.

See Note 16 for disaggregated net sales by end-market.

(3) GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

During the three and six months ended June 30, 2021, we acquired a producer of wire enamels used in a range of consumer electronics, electric vehicle and industrial applications, based in China. The acquisition was accounted for as a business combination within our industrial end-market and Performance Coatings segment. The overall impacts to our condensed consolidated financial statements were not considered material as of and for the three and six months ended June 30, 2021. As of June 30, 2021, we have not yet finalized the purchase accounting related to the acquisition and the amounts recorded represent preliminary values. We expect to finalize our purchase accounting during the measurement period which will be no later than one year following the acquisition date.

Goodwill

The following table shows changes in the carrying amount of goodwill from December 31, 2020 to June 30, 2021 by reportable segment:


	Performance Coatings		Mobility Coatings		Total
Balance at December 31, 2020	$	1,211.3	$	83.6	$	1,294.9
Goodwill from acquisitions	23.1		—		23.1
Foreign currency translation	(22.1)		(1.6)		(23.7)
Balance at June 30, 2021	$	1,212.3	$	82.0	$	1,294.3

Identifiable Intangible Assets

The following tables summarize the gross carrying amounts and accumulated amortization of identifiable intangible assets by major class:


June 30, 2021	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Weighted average amortization periods (years)
Technology	$	561.5	$	(404.3)	$	157.2	10.4
Trademarks—indefinite-lived	276.8		—		276.8		Indefinite
Trademarks—definite-lived	103.1		(40.3)		62.8		15.8
Customer relationships	949.2		(352.0)		597.2		19.0
Other	15.0		(12.4)		2.6		5.0
Total	$	1,905.6	$	(809.0)	$	1,096.6


December 31, 2020	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Weighted average amortization periods (years)
Technology	$	564.8	$	(383.6)	$	181.2	10.4
Trademarks—indefinite-lived	282.9		—		282.9		Indefinite
Trademarks—definite-lived	103.6		(37.5)		66.1		16.0
Customer relationships	943.6		(329.3)		614.3		19.0
Other	15.3		(11.0)		4.3		5.0
Total	$	1,910.2	$	(761.4)	$	1,148.8

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

The estimated amortization expense related to the fair value of acquired intangible assets for the remainder of 2021 and each of the succeeding five years is:


Remainder of 2021	$	58.5
2022	114.6
2023	73.7
2024	68.7
2025	68.0
2026	67.5

(4) RESTRUCTURING

In accordance with the applicable guidance for ASC 712, Nonretirement Postemployment Benefits, we accounted for contractual termination benefits and recognized liabilities when the loss was considered probable that employees were entitled to benefits and the amounts could be reasonably estimated.

During the three and six months ended June 30, 2021 and 2020, we incurred costs for termination benefits of $22.5 million, $27.0 million, $13.7 million and $32.2 million, respectively. Pretax charges during the three and six months ended June 30, 2021 primarily relate to additional employee severance charges within Europe that were excluded from the previously announced global restructuring during July 2020 as we resolved the open aspects related to works council consultations and local legal requirements during the quarter. The majority of our termination benefits are recorded within other operating (benefits) charges in the condensed consolidated statements of operations. The remaining payments associated with these actions are expected to be substantially completed within 24 months.

The following table summarizes the activity related to termination benefit reserves and expenses from December 31, 2020 to June 30, 2021:


	2021 Activity
Balance at December 31, 2020	$	55.8
Expenses, net of changes to estimates	27.0
Payments made	(24.7)
Foreign currency translation	(1.2)
Balance at June 30, 2021	$	56.9

(5) COMMITMENTS AND CONTINGENCIES

Guarantees

We guarantee certain of our customers’ obligations to third parties, whereby any default by our customers on their obligations could force us to make payments to the applicable creditors. At June 30, 2021 and December 31, 2020, we had outstanding bank guarantees of $6.6 million and $8.5 million, respectively. A portion of our bank guarantees expire between 2021 and 2026, while others do not have specified expiration dates. We monitor the customer obligations and bank guarantees to evaluate whether we have a liability at the balance sheet date. During the six months ended June 30, 2020, we incurred a $1.0 million charge related to our outstanding bank guarantees. We did not have any liabilities related to our outstanding bank guarantees recorded at June 30, 2021 and December 31, 2020.

Operational Matter

In January 2021, we became aware of an operational matter affecting certain North America Mobility Coatings customer manufacturing sites. The matter involves the use and application of certain of our products in combination with and incorporated within third party products. The matter occurred over a discrete period during the fourth quarter of 2020.

When we filed, and as disclosed in, our Annual Report on Form 10-K for the year ended December 31, 2020, we estimated that it was reasonably possible that losses associated with the matter could have been up to $250 million. Subsequent to the filing of our Annual Report on Form 10-K and through the filing of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, there were further developments which led us to conclude that losses from this matter were probable and, therefore, recorded a charge of $94.4 million for such probable estimated losses during the three months ended March 31, 2021. We also disclosed that, at the time, based on the information then currently available surrounding the full scope and

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

associated responsibilities among relevant parties, we believed that it was reasonably possible that we could incur losses, in addition to the recorded probable losses, of up to $65 million.

Given further developments during the three months ended June 30, 2021, we have reduced our previously recorded estimated charge by $71.8 million which has resulted in a benefit for the three months ended June 30, 2021. This reflects an estimated $29.4 million for insurance receivables recorded within Accounts and notes receivable, net in the condensed consolidated balance sheets at June 30, 2021, as we have obtained confirmation from our insurance carriers that the relevant policies provide coverage for certain losses arising under this matter. The updated amount of the charge also reflects a net decrease of approximately $42.4 million, as we have learned more about the matter, including actual costs to repair the impacted products and the number of impacted products. Liabilities of $50.1 million are recorded as Other accrued liabilities in the condensed consolidated balance sheets at June 30, 2021 and we do not believe at this time that there are any incremental reasonably possible losses. The recorded probable losses remain an estimate and actual costs arising from this matter could be materially lower or higher depending on the actual costs incurred to repair the impacted products as well as the availability of additional insurance coverage.

Other

We are subject to various pending lawsuits, legal proceedings and other claims in the ordinary course of business, including civil, regulatory and environmental matters. These matters may involve third-party indemnification obligations and/or insurance covering all or part of any potential damage incurred by us. All of these matters are subject to many uncertainties and, accordingly, we cannot determine the ultimate outcome of the proceedings and other claims at this time. The potential effects, if any, on our consolidated financial statements will be recorded in the period in which these matters are probable and estimable. Except as set forth in the "Operational Matter" section above, we believe that any sum we may be required to pay in connection with proceedings or claims in excess of the amounts recorded would likely not have a material adverse effect upon our results of operations, financial conditions or cash flows on a consolidated annual basis but could have a material adverse impact in a particular quarterly reporting period.

We are involved in environmental remediation and ongoing compliance activities at several sites. The timing and duration of remediation and ongoing compliance activities are determined on a site by site basis depending on local regulations. The liabilities recorded represent our estimable future remediation costs and other anticipated environmental liabilities. We have not recorded liabilities at sites where a liability is probable, but that a range of loss is not reasonably estimable. We believe that any sum we may be required to pay in connection with environmental remediation matters in excess of the amounts recorded would likely occur over a period of time and would likely not have a material adverse effect upon our results of operations, financial condition or cash flows on a consolidated annual basis but could have a material adverse impact in a particular quarterly reporting period.

(6) LONG-TERM EMPLOYEE BENEFITS

Components of Net Periodic Benefit Cost

The following table sets forth the components of net periodic benefit costs for the three and six months ended June 30, 2021 and 2020:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Components of net periodic benefit cost:
Net periodic benefit cost:
Service cost	$	2.0	$	1.9	$	3.8	$	3.7
Interest cost	1.9		2.3		3.9		4.6
Expected return on plan assets	(3.5)		(3.1)		(6.9)		(6.3)
Amortization of actuarial loss, net	1.3		0.8		2.5		1.8

Plan curtailments	—		(0.6)		—		(1.8)
Net periodic benefit cost	$	1.7	$	1.3	$	3.3	$	2.0

All non-service components of net periodic benefit cost are recorded in other income, net within the accompanying condensed consolidated statements of operations.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

(7) STOCK-BASED COMPENSATION

During the three and six months ended June 30, 2021 and 2020, we recognized expenses of $4.2 million, $7.8 million, $6.1 million and $11.2 million, respectively, in stock-based compensation, which was allocated between costs of goods sold and selling, general and administrative expenses on the condensed consolidated statements of operations. We recognized tax benefits on stock-based compensation of $0.9 million, $1.2 million, $1.3 million, and $1.5 million for the three and six months ended June 30, 2021 and 2020, respectively.

2021 Activity

A summary of award activity by type for the six months ended June 30, 2021 is presented below.


Stock Options	Awards (in millions)	Weighted- Average Exercise Price		Aggregate Intrinsic Value (in millions)	Weighted Average Remaining Contractual Life (years)
Outstanding at January 1, 2021	2.5	$	27.34
Granted	—	$	—
Exercised	(0.5)	$	28.26
Forfeited / Expired	(0.4)	$	32.00
Outstanding at June 30, 2021

Form: 10-Q

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