Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

October 25, 2022

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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, 2022
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.)
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)
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, 2022, there were 220,608,935 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,
2022 2021 2022 2021
Net sales $ 1,238.7  $ 1,088.6  $ 3,647.7  $ 3,279.0 
Cost of goods sold 876.6  745.3  2,600.4  2,182.6 
Selling, general and administrative expenses 186.4  181.0  571.6  544.3 
Other operating charges (benefits) 5.3  (7.6) 17.8  49.5 
Research and development expenses 16.5  15.4  49.6  46.8 
Amortization of acquired intangibles 30.4  29.8  94.9  88.1 
Income from operations 123.5  124.7  313.4  367.7 
Interest expense, net 35.0  33.8  101.1  100.7 
Other expense (income), net 3.4  (2.4) 12.4  (10.9)
Income before income taxes 85.1  93.3  199.9  277.9 
Provision for income taxes 21.8  24.4  51.6  66.9 
Net income 63.3  68.9  148.3  211.0 
Less: Net income (loss) attributable to noncontrolling interests 0.9  (0.2) 0.3  0.3 
Net income attributable to controlling interests $ 62.4  $ 69.1  $ 148.0  $ 210.7 
Basic net income per share $ 0.28  $ 0.30  $ 0.67  $ 0.91 
Diluted net income per share $ 0.28  $ 0.30  $ 0.66  $ 0.90 

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 (Loss) Income (Unaudited)
(In millions)
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net income $ 63.3  $ 68.9  $ 148.3  $ 211.0 
Other comprehensive loss, before tax:
Foreign currency translation adjustments (125.3) (37.9) (210.6) (36.2)
Unrealized gain on derivatives 2.7  7.4  33.6  23.5 
Unrealized gain on pension and other benefit plan obligations 0.7  1.2  2.3  3.7 
Other comprehensive loss, before tax (121.9) (29.3) (174.7) (9.0)
Income tax provision related to items of other comprehensive income 0.2  1.5  4.9  4.6 
Other comprehensive loss, net of tax (122.1) (30.8) (179.6) (13.6)
Comprehensive (loss) income (58.8) 38.1  (31.3) 197.4 
Less: Comprehensive (loss) income attributable to noncontrolling interests (0.5) (0.7) 0.2  0.2 
Comprehensive (loss) income attributable to controlling interests $ (58.3) $ 38.8  $ (31.5) $ 197.2 

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, 2022 December 31, 2021
Assets
Current assets:
Cash and cash equivalents $ 517.4  $ 840.6 
Restricted cash 9.3  10.6 
Accounts and notes receivable, net 1,106.9  937.5 
Inventories 829.4  669.7 
Prepaid expenses and other current assets 205.4  117.2 
Total current assets 2,668.4  2,575.6 
Property, plant and equipment, net 1,121.5  1,186.2 
Goodwill 1,390.4  1,592.7 
Identifiable intangibles, net 1,093.5  1,278.2 
Other assets 545.2  584.5 
Total assets $ 6,819.0  $ 7,217.2 
Liabilities, Shareholders’ Equity
Current liabilities:
Accounts payable $ 746.6  $ 657.4 
Current portion of borrowings 66.7  79.7 
Other accrued liabilities 536.4  597.8 
Total current liabilities 1,349.7  1,334.9 
Long-term borrowings 3,663.3  3,749.9 
Accrued pensions 227.3  269.3 
Deferred income taxes 139.5  174.7 
Other liabilities 119.8  149.7 
Total liabilities 5,499.6  5,678.5 
Commitments and contingent liabilities (Note 6)
Shareholders’ equity:
Common shares, $1.00 par, 1,000.0 shares authorized, 252.4 and 251.8 shares issued at September 30, 2022 and December 31, 2021, respectively
252.4  251.8 
Capital in excess of par 1,526.9  1,515.5 
Retained earnings 975.2  827.2 
Treasury shares, at cost, 31.8 and 24.4 shares at September 30, 2022 and December 31, 2021, respectively
(887.3) (687.2)
Accumulated other comprehensive loss (593.9) (414.4)
Total Axalta shareholders’ equity 1,273.3  1,492.9 
Noncontrolling interests 46.1  45.8 
Total shareholders’ equity 1,319.4  1,538.7 
Total liabilities and shareholders’ equity $ 6,819.0  $ 7,217.2 

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, 2021 227.4  $ 251.8  $ 1,515.5  $ 827.2  $ (687.2) $ (414.4) $ 45.8  $ 1,538.7 
Comprehensive income:
Net income —  —  —  41.5  —  —  (0.6) 40.9 
Net realized and unrealized gain on derivatives, net of tax of $2.6 million
—  —  —  —  —  16.9  —  16.9 
Long-term employee benefit plans, net of tax of $0.4 million
—  —  —  —  —  0.5  —  0.5 
Foreign currency translation, net of tax of $0.0 million
—  —  —  —  —  (4.4) 0.5  (3.9)
Total comprehensive income —  —  —  41.5  —  13.0  (0.1) 54.4 
Recognition of stock-based compensation —  —  5.3  —  —  —  —  5.3 
Shares issued under compensation plans 0.4  0.4  (2.3) —  —  —  —  (1.9)
Changes in ownership of noncontrolling interests —  —  (0.3) —  —  —  0.2  (0.1)
Common stock purchases (6.4) —  —  —  (175.1) —  —  (175.1)
Dividends declared to noncontrolling interests —  —  —  —  —  —  (0.1) (0.1)
Balance at March 31, 2022 221.4  252.2  1,518.2  868.7  (862.3) (401.4) 45.8  1,421.2 
Comprehensive income:
Net income —  —  —  44.1  —  —  —  44.1 
Net realized and unrealized gain on derivatives, net of tax of $1.4 million
—  —  —  —  —  10.0  —  10.0 
Long-term employee benefit plans, net of tax of $0.3 million
—  —  —  —  —  0.4  —  0.4 
Foreign currency translation, net of tax of $0.0 million
—  —  —  —  —  (82.2) 0.8  (81.4)
Total comprehensive income —  —  —  44.1  —  (71.8) 0.8  (26.9)
Recognition of stock-based compensation —  —  3.7  —  —  —  —  3.7 
Shares issued under compensation plans 0.1  0.1  (0.3) —  —  —  —  (0.2)
Common stock purchases (1.0) —  —  —  (25.0) —  —  (25.0)
Balance at June 30, 2022 220.5  252.3  1,521.6  912.8  (887.3) (473.2) 46.6  1,372.8 
Comprehensive income (loss):
Net income —  —  —  62.4  —  —  0.9  63.3 
Net realized and unrealized gain on derivatives, net of tax of $0.1 million
—  —  —  —  —  2.6  —  2.6 
Long-term employee benefit plans, net of tax of $0.1 million
—  —  —  —  —  0.6  —  0.6 
Foreign currency translation, net of tax of $0.0 million
—  —  —  —  —  (123.9) (1.4) (125.3)
Total comprehensive income (loss) —  —  —  62.4  —  (120.7) (0.5) (58.8)
Recognition of stock-based compensation —  —  5.0  —  —  —  —  5.0 
Shares issued under compensation plans 0.1  0.1  0.3  —  —  —  —  0.4 
Balance at September 30, 2022 220.6  $ 252.4  $ 1,526.9  $ 975.2  $ (887.3) $ (593.9) $ 46.1  $ 1,319.4 


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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, 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 of $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 benefit 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:
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 —  —  —  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 

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,
2022 2021
Operating activities:
Net income $ 148.3  $ 211.0 
Adjustment to reconcile net income to cash provided by operating activities:
Depreciation and amortization 229.5  234.7 
Amortization of deferred financing costs and original issue discount 7.2  6.7 
Deferred income taxes 2.8  9.3 
Realized and unrealized foreign exchange losses, net 5.5  9.5 
Stock-based compensation 14.0  11.7 
Gain on sale of facility   (8.9)
Interest income on swaps designated as net investment hedges (16.1) (14.3)
Commercial agreement restructuring charge 25.0   
Other non-cash, net (1.5) 11.3 
Changes in operating assets and liabilities:
Trade accounts and notes receivable (242.4) (168.5)
Inventories (220.8) (107.8)
Prepaid expenses and other assets (78.9) (64.3)
Accounts payable 189.7  88.3 
Other accrued liabilities (2.5) 61.3 
Other liabilities (11.6) 10.0 
Cash provided by operating activities 48.2  290.0 
Investing activities:
Acquisitions, net of cash acquired   (647.3)
Purchase of property, plant and equipment (107.5) (98.7)
Interest proceeds on swaps designated as net investment hedges 16.1  14.3 
Settlement proceeds on swaps designated as net investment hedges 25.0   
Other investing activities, net (1.5) 11.8 
Cash used for investing activities (67.9) (719.9)
Financing activities:
Payments on short-term borrowings (52.3) (54.5)
Payments on long-term borrowings (20.5) (20.1)
Financing-related costs (0.1) (2.6)
Purchases of common stock (200.1) (213.8)
Net cash flows associated with stock-based awards (1.7) 12.7 
Other financing activities, net (0.2) (1.2)
Cash used for financing activities (274.9) (279.5)
Decrease in cash (294.6) (709.4)
Effect of exchange rate changes on cash (29.9) (16.5)
Cash at beginning of period 851.2  1,364.0 
Cash at end of period $ 526.7  $ 638.1 
Cash at end of period reconciliation:
Cash and cash equivalents $ 517.4  $ 627.7 
Restricted cash 9.3  10.4 
Cash at end of period $ 526.7  $ 638.1 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In millions, unless otherwise noted)
Index
Note Page

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Table of Contents
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, 2022, the results of operations, comprehensive (loss) income and changes in shareholders' equity for the three and nine months ended September 30, 2022 and 2021 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, 2021. 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 entities 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, 2022 are not necessarily indicative of the results to be expected for a full year.
Summary of Significant Accounting Policies Updates
Accounting Guidance Issued But Not Yet Adopted
In September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-04, Liabilities – Supplier Finance Programs. The ASU codifies disclosure requirements for supplier financing programs. The new standard is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. We are currently evaluating the impact of ASU 2022-04 on our financial statements.
Risks and Uncertainties
After experiencing significant impacts to our results of operations, financial condition and cash flows in 2020 from the coronavirus ("COVID-19") pandemic, we have seen a return to more stable quarter-over-quarter demand for our products and services during 2021 and into 2022, though 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 2022, 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, 2022 and December 31, 2021 were $41.0 million and $36.1 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 September 30, 2022 and December 31, 2021, the total carrying value of BIPs were $142.6 million and $151.2 million, respectively, and are presented within other assets in the condensed consolidated balance sheets. For the three and nine months ended September 30, 2022 and 2021, $14.3 million, $44.2 million, $17.1 million and $46.1 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 up-front incentives with repayment features made in conjunction with long-term customer commitments of $42.6 million and $72.7 million at September 30, 2022 and December 31, 2021, respectively, of which $4.8 million and $12.6 million is included in prepaid expenses and other current assets in the condensed consolidated balance sheets at September 30, 2022 and December 31, 2021, respectively, with the remainder included in other assets. These up-front incentives with repayment features are subject to the credit risk of our customers and, depending on the financial condition of our customers, it is possible that some or all of the amounts may become uncollectible.
During the nine months ended September 30, 2022, we agreed to forgo collection of a portion of previously provided up-front incentives with a certain Performance Coatings customer, contingent upon this customer completing a recapitalization and restructuring of its indebtedness and executing a new long-term exclusive sales agreement with us. In July 2022, the contingency was resolved and a new long-term exclusive sales agreement went into effect resulting in the forgiveness of the reserved amounts. During the nine months ended September 30, 2022, a charge for this concession was recorded for $25.0 million, of which $20.3 million was recorded as a reduction to net sales.
See Note 17 for disaggregated net sales by end-market.
(3)    ACQUISITIONS
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 FASB Accounting Standards Codification ("ASC") 805, Business Combinations, with identifiable assets acquired and liabilities assumed recorded at their estimated fair values as of the acquisition date.
No material adjustments were recorded during the three and nine months ended September 30, 2022, as we finalized our purchase accounting during the respective measurement period, which is one year following the closing date. After all required adjustments, the purchase price was allocated as follows:
September 15, 2021 (As initially reported) Measurement Period Adjustments September 15, 2021 (Adjusted)
Cash $ 23.7  $   $ 23.7 
Accounts and notes receivable, net 22.5  1.8  24.3 
Inventories 23.3    23.3 
Prepaid expenses and other current assets, net 3.2    3.2 
Property, plant and equipment, net 16.5  (2.4) 14.1 
Identifiable intangible assets 273.0  1.0  274.0 
Other assets 2.0  0.1  2.1 
Accounts payable (20.9) (1.8) (22.7)
Other accrued liabilities (3.9) (0.3) (4.2)
Other liabilities (0.9)   (0.9)
Deferred income taxes (68.4) (0.7) (69.1)
Net assets before goodwill from acquisition 270.1  (2.3) 267.8 
Goodwill from acquisition 349.7  2.3  352.0 
Net assets acquired $ 619.8  $   $ 619.8 

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Notes to Condensed Consolidated Financial Statements (Unaudited)
(In millions, unless otherwise noted)
(4)    GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
Goodwill
The following table shows changes in the carrying amount of goodwill from December 31, 2021 to September 30, 2022 by reportable segment:
Performance
Coatings
Mobility
Coatings
Total
Balance at December 31, 2021 $ 1,513.4  $ 79.3  $ 1,592.7 
Purchase accounting adjustments 2.5    2.5 
Foreign currency translation (196.2) (8.6) (204.8)
Balance at September 30, 2022 $ 1,319.7  $ 70.7  $ 1,390.4 
Identifiable Intangible Assets
The following tables summarize the gross carrying amounts and accumulated amortization of identifiable intangible assets by major class:
September 30, 2022 Gross Carrying
Amount
Accumulated
Amortization
Net Book
Value
Weighted average
amortization periods (years)
Technology $ 528.6  $ (425.9) $ 102.7  10.3
Trademarks—indefinite-lived 239.4  —  239.4  Indefinite
Trademarks—definite-lived 118.3  (45.8) 72.5  14.6