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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021
or
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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)
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Bermuda |
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2851 |
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98-1073028 |
(State or other jurisdiction of incorporation or organization) |
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(Primary Standard Industrial Classification Code Number) |
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(I.R.S. Employer Identification No.) |
50 Applied Bank Blvd
Suite 300
Glen Mills, Pennsylvania 19342
(855) 547-1461
(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)
Two Commerce Square, 2001 Market Street, Suite 3600, Philadelphia, Pennsylvania 19103
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Common Shares, $1.00 par value |
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AXTA |
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New York Stock Exchange |
(Title of class) |
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(Trading symbol) |
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(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, 2021, there were 228,350,964 shares of the registrant’s common shares outstanding.
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, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Net sales |
|
$ |
1,088.6 |
|
|
$ |
1,026.9 |
|
|
$ |
3,279.0 |
|
|
$ |
2,663.1 |
|
Cost of goods sold |
|
745.3 |
|
|
634.1 |
|
|
2,182.6 |
|
|
1,780.1 |
|
Selling, general and administrative expenses |
|
181.0 |
|
|
166.5 |
|
|
544.3 |
|
|
516.1 |
|
Other operating (benefits) charges |
|
(7.6) |
|
|
42.6 |
|
|
49.5 |
|
|
98.9 |
|
Research and development expenses |
|
15.4 |
|
|
13.4 |
|
|
46.8 |
|
|
41.2 |
|
Amortization of acquired intangibles |
|
29.8 |
|
|
28.6 |
|
|
88.1 |
|
|
84.5 |
|
Income from operations |
|
124.7 |
|
|
141.7 |
|
|
367.7 |
|
|
142.3 |
|
Interest expense, net |
|
33.8 |
|
|
39.8 |
|
|
100.7 |
|
|
112.4 |
|
Other (income) expense, net |
|
(2.4) |
|
|
2.3 |
|
|
(10.9) |
|
|
0.9 |
|
Income before income taxes |
|
93.3 |
|
|
99.6 |
|
|
277.9 |
|
|
29.0 |
|
Provision (benefit) for income taxes |
|
24.4 |
|
|
17.1 |
|
|
66.9 |
|
|
(22.7) |
|
Net income |
|
68.9 |
|
|
82.5 |
|
|
211.0 |
|
|
51.7 |
|
Less: Net (loss) income attributable to noncontrolling interests |
|
(0.2) |
|
|
— |
|
|
0.3 |
|
|
(0.2) |
|
Net income attributable to controlling interests |
|
$ |
69.1 |
|
|
$ |
82.5 |
|
|
$ |
210.7 |
|
|
$ |
51.9 |
|
Basic net income per share |
|
$ |
0.30 |
|
|
$ |
0.35 |
|
|
$ |
0.91 |
|
|
$ |
0.22 |
|
Diluted net income per share |
|
$ |
0.30 |
|
|
$ |
0.35 |
|
|
$ |
0.90 |
|
|
$ |
0.22 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
AXALTA COATING SYSTEMS LTD.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Net income |
|
$ |
68.9 |
|
|
$ |
82.5 |
|
|
$ |
211.0 |
|
|
$ |
51.7 |
|
Other comprehensive (loss) income, before tax: |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
(37.9) |
|
|
33.4 |
|
|
(36.2) |
|
|
(46.1) |
|
Unrealized gain (loss) on derivatives |
|
7.4 |
|
|
7.0 |
|
|
23.5 |
|
|
(36.3) |
|
Unrealized gain (loss) on pension and other benefit plan obligations |
|
1.2 |
|
|
(0.5) |
|
|
3.7 |
|
|
(0.5) |
|
Other comprehensive (loss) income, before tax |
|
(29.3) |
|
|
39.9 |
|
|
(9.0) |
|
|
(82.9) |
|
Income tax provision (benefit) related to items of other comprehensive (loss) income |
|
1.5 |
|
|
1.0 |
|
|
4.6 |
|
|
(5.4) |
|
Other comprehensive (loss) income, net of tax |
|
(30.8) |
|
|
38.9 |
|
|
(13.6) |
|
|
(77.5) |
|
Comprehensive income (loss) |
|
38.1 |
|
|
121.4 |
|
|
197.4 |
|
|
(25.8) |
|
Less: Comprehensive (loss) income attributable to noncontrolling interests |
|
(0.7) |
|
|
(0.5) |
|
|
0.2 |
|
|
(3.0) |
|
Comprehensive income (loss) attributable to controlling interests |
|
$ |
38.8 |
|
|
$ |
121.9 |
|
|
$ |
197.2 |
|
|
$ |
(22.8) |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
AXALTA COATING SYSTEMS LTD.
Condensed Consolidated Balance Sheets (Unaudited)
(In millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
December 31, 2020 |
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
627.7 |
|
|
$ |
1,360.9 |
|
Restricted cash |
|
10.4 |
|
|
3.1 |
|
Accounts and notes receivable, net |
|
1,050.1 |
|
|
869.8 |
|
Inventories |
|
677.9 |
|
|
559.9 |
|
Prepaid expenses and other current assets |
|
147.7 |
|
|
132.2 |
|
|
|
|
|
|
Total current assets |
|
2,513.8 |
|
|
2,925.9 |
|
Property, plant and equipment, net |
|
1,193.5 |
|
|
1,194.5 |
|
Goodwill |
|
1,619.8 |
|
|
1,294.9 |
|
Identifiable intangibles, net |
|
1,323.0 |
|
|
1,148.8 |
|
Other assets |
|
582.9 |
|
|
593.1 |
|
|
|
|
|
|
Total assets |
|
$ |
7,233.0 |
|
|
$ |
7,157.2 |
|
Liabilities, Shareholders’ Equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
622.5 |
|
|
$ |
564.4 |
|
Current portion of borrowings |
|
43.3 |
|
|
54.2 |
|
Other accrued liabilities |
|
610.8 |
|
|
562.3 |
|
|
|
|
|
|
Total current liabilities |
|
1,276.6 |
|
|
1,180.9 |
|
Long-term borrowings |
|
3,799.2 |
|
|
3,838.5 |
|
Accrued pensions |
|
288.0 |
|
|
309.9 |
|
Deferred income taxes |
|
177.9 |
|
|
114.0 |
|
Other liabilities |
|
204.2 |
|
|
234.1 |
|
|
|
|
|
|
Total liabilities |
|
5,745.9 |
|
|
5,677.4 |
|
Commitments and contingent liabilities (Note 6) |
|
|
|
|
Shareholders’ equity: |
|
|
|
|
Common shares, $1.00 par, 1,000.0 shares authorized, 251.7 and 250.9 shares issued at September 30, 2021 and December 31, 2020, respectively |
|
251.7 |
|
|
250.9 |
|
Capital in excess of par |
|
1,510.7 |
|
|
1,487.1 |
|
Retained earnings |
|
774.0 |
|
|
563.3 |
|
Treasury shares, at cost, 23.4 and 16.1 shares at September 30, 2021 and December 31, 2020, respectively |
|
(657.3) |
|
|
(443.5) |
|
Accumulated other comprehensive loss |
|
(438.3) |
|
|
(424.8) |
|
Total Axalta shareholders’ equity |
|
1,440.8 |
|
|
1,433.0 |
|
Noncontrolling interests |
|
46.3 |
|
|
46.8 |
|
Total shareholders’ equity |
|
1,487.1 |
|
|
1,479.8 |
|
Total liabilities and shareholders’ equity |
|
$ |
7,233.0 |
|
|
$ |
7,157.2 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
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 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
69.1 |
|
|
— |
|
|
— |
|
|
(0.2) |
|
|
68.9 |
|
Net realized and unrealized gain on derivatives, net of tax of $1.1 million |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6.3 |
|
|
— |
|
|
6.3 |
|
Long-term employee benefit plans, net of tax of $0.4 million |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
0.8 |
|
|
— |
|
|
0.8 |
|
Foreign currency translation, net of tax of $0.0 million |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(37.4) |
|
|
(0.5) |
|
|
(37.9) |
|
Total comprehensive income (loss) |
— |
|
|
— |
|
|
— |
|
|
69.1 |
|
|
— |
|
|
(30.3) |
|
|
(0.7) |
|
|
38.1 |
|
Recognition of stock-based compensation |
— |
|
|
— |
|
|
3.9 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3.9 |
|
Shares issued under compensation plans |
— |
|
|
— |
|
|
(0.1) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(0.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock purchases |
(3.1) |
|
|
— |
|
|
— |
|
|
— |
|
|
(90.1) |
|
|
— |
|
|
— |
|
|
(90.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2021 |
228.3 |
|
|
$ |
251.7 |
|
|
$ |
1,510.7 |
|
|
$ |
774.0 |
|
|
$ |
(657.3) |
|
|
$ |
(438.3) |
|
|
$ |
46.3 |
|
|
$ |
1,487.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 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 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
82.5 |
|
|
— |
|
|
— |
|
|
— |
|
|
82.5 |
|
Net realized and unrealized loss 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.
AXALTA COATING SYSTEMS LTD.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
Operating activities: |
|
|
|
|
Net income |
|
$ |
211.0 |
|
|
$ |
51.7 |
|
Adjustment to reconcile net income to cash provided by operating activities: |
|
|
|
|
Depreciation and amortization |
|
234.7 |
|
|
243.6 |
|
Amortization of deferred financing costs and original issue discount |
|
6.7 |
|
|
6.8 |
|
|
|
|
|
|
Deferred income taxes |
|
9.3 |
|
|
(57.2) |
|
Realized and unrealized foreign exchange losses, net |
|
9.5 |
|
|
12.7 |
|
Stock-based compensation |
|
11.7 |
|
|
15.9 |
|
|
|
|
|
|
Gain on sale of facility |
|
(8.9) |
|
|
— |
|
|
|
|
|
|
Interest income on swaps designated as net investment hedges |
|
(14.3) |
|
|
(11.0) |
|
Other non-cash, net |
|
11.3 |
|
|
8.6 |
|
Changes in operating assets and liabilities: |
|
|
|
|
Trade accounts and notes receivable |
|
(168.5) |
|
|
(14.0) |
|
Inventories |
|
(107.8) |
|
|
43.2 |
|
Prepaid expenses and other assets |
|
(64.3) |
|
|
(60.8) |
|
Accounts payable |
|
88.3 |
|
|
15.2 |
|
Other accrued liabilities |
|
61.3 |
|
|
(40.9) |
|
Other liabilities |
|
10.0 |
|
|
17.1 |
|
Cash provided by operating activities |
|
290.0 |
|
|
230.9 |
|
Investing activities: |
|
|
|
|
Acquisitions, net of cash acquired |
|
(647.3) |
|
|
— |
|
Purchase of property, plant and equipment |
|
(98.7) |
|
|
(56.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest proceeds on swaps designated as net investment hedges |
|
14.3 |
|
|
11.0 |
|
|
|
|
|
|
|
|
|
|
|
Other investing activities, net |
|
11.8 |
|
|
5.9 |
|
Cash used for investing activities |
|
(719.9) |
|
|
(39.3) |
|
Financing activities: |
|
|
|
|
Proceeds from long-term borrowings |
|
— |
|
|
500.0 |
|
Payments on short-term borrowings |
|
(54.5) |
|
|
(23.2) |
|
Payments on long-term borrowings |
|
(20.1) |
|
|
(325.3) |
|
Financing-related costs |
|
(2.6) |
|
|
(8.4) |
|
Purchases of common stock |
|
(213.8) |
|
|
(0.9) |
|
Net cash flows associated with stock-based awards |
|
12.7 |
|
|
0.3 |
|
|
|
|
|
|
Purchase of noncontrolling interests |
|
— |
|
|
(5.8) |
|
|
|
|
|
|
Other financing activities, net |
|
(1.2) |
|
|
0.1 |
|
Cash (used for) provided by financing activities |
|
(279.5) |
|
|
136.8 |
|
(Decrease) increase in cash |
|
(709.4) |
|
|
328.4 |
|
Effect of exchange rate changes on cash |
|
(16.5) |
|
|
(4.7) |
|
Cash at beginning of period |
|
1,364.0 |
|
|
1,020.5 |
|
Cash at end of period |
|
$ |
638.1 |
|
|
$ |
1,344.2 |
|
|
|
|
|
|
Cash at end of period reconciliation: |
|
|
|
|
Cash and cash equivalents |
|
$ |
627.7 |
|
|
$ |
1,341.3 |
|
Restricted cash |
|
10.4 |
|
|
2.9 |
|
|
|
|
|
|
Cash at end of period |
|
$ |
638.1 |
|
|
$ |
1,344.2 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In millions, unless otherwise noted)
Index
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 and shareholders' equity of Axalta Coating Systems Ltd., a Bermuda exempted company limited by shares, and its consolidated subsidiaries ("Axalta," the "Company," "we," "our" and "us") at September 30, 2021, the results of operations, comprehensive income (loss) and changes in shareholders' equity for the three and nine months ended September 30, 2021 and 2020, and cash flows for the nine 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 nine months ended September 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 September 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 COVID-19 outbreak was declared a national emergency in the United States. 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.
(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 September 30, 2021 and December 31, 2020 were $39.6 million and $37.2 million, respectively.
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 September 30, 2021 and December 31, 2020, the total carrying value of BIPs were $155.8 million and $165.4 million, respectively, and are presented within other assets in the condensed consolidated balance sheets. For the three and nine months ended September 30, 2021 and 2020, $17.1 million, $46.1 million, $16.6 million and $49.9 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 $77.0 million and $79.8 million at September 30, 2021 and December 31, 2020, respectively, which we expect to be repaid in future periods.
See Note 17 for disaggregated net sales by end-market.
(3) ACQUISITIONS
The pro-forma impacts on our results of operations, including the pro-forma effect of events that are directly attributable to the following acquisitions, were not significant.
Acquisition of U-POL Holdings Limited
On September 15, 2021, we completed the acquisition of U-POL Holdings Limited (“U-POL”) for an aggregate purchase price of $619.8 million. The acquisition of U-POL, a leading supplier of paint, protective coatings and accessories primarily for the automotive aftermarket, strengthens Axalta’s global refinish leadership position and supports its broader growth strategy. The results of the business are reported within our Performance Coatings segment. The U-POL acquisition was recorded as a business combination under ASC 805, Business Combinations, with identifiable assets acquired and liabilities assumed recorded at their estimated fair values as of the acquisition date.
At September 30, 2021, we have not finalized the purchase accounting related to the U-POL acquisition and these amounts represent preliminary values. The allocation of the purchase price may be modified up to one year from the closing date of the acquisition as more information is obtained about the fair value of assets acquired and liabilities assumed. The purchase price was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
September 15, 2021 |
Cash |
|
$ |
23.7 |
|
Accounts and notes receivable, net |
|
22.5 |
|
Inventories |
|
23.3 |
|
Prepaid expenses and other current assets, net |
|
3.2 |
|
Property, plant and equipment, net |
|
16.5 |
|
Identifiable intangible assets |
|
273.0 |
|
Other assets |
|
2.0 |
|
Accounts payable |
|
(20.9) |
|
Other accrued liabilities |
|
(3.9) |
|
Other liabilities |
|
(0.9) |
|
Deferred income taxes |
|
(68.4) |
|
Net assets before goodwill from acquisition |
|
270.1 |
|
Goodwill from acquisition |
|
349.7 |
|
Net assets acquired |
|
$ |
619.8 |
|
Goodwill was recognized as the excess of the purchase price over the net identifiable assets recognized. The goodwill is primarily attributed to the assembled workforce and the anticipated future economic benefits and is allocated to our refinish reporting unit. The goodwill recognized at September 30, 2021 is not deductible for income tax purposes.
We incurred and expensed acquisition-related transaction costs for the U-POL acquisition of $8.8 million, included within other operating (benefits) charges on the condensed consolidated statements of operations for the three and nine months ended September 30, 2021.
The fair value associated with definite-lived intangible assets was $273.0 million, comprised of $38.0 million in developed technology, $35.0 million in trademarks and $200.0 million in customer relationships. The definite-lived intangible assets will be amortized over an average term of 16.9 years.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In millions, unless otherwise noted)
Other Acquisitions
During April 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 nine months ended September 30, 2021. As of September 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.
(4) GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
Goodwill
The following table shows changes in the carrying amount of goodwill from December 31, 2020 to September 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 |
|
372.8 |
|
|
— |
|
|
372.8 |
|
Foreign currency translation |
|
(45.2) |
|
|
(2.7) |
|
|
(47.9) |
|
Balance at September 30, 2021 |
|
$ |
1,538.9 |
|
|
$ |
80.9 |
|
|
$ |
1,619.8 |
|
Identifiable Intangible Assets
The following tables summarize the gross carrying amounts and accumulated amortization of identifiable intangible assets by major class: