Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

November 1, 2023

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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, 2023
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 the 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 check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of October 25, 2023, there were 220,083,039 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,
2023 2022 2023 2022
Net sales $ 1,309.0  $ 1,238.7  $ 3,886.8  $ 3,647.7 
Cost of goods sold 885.5  876.6  2,691.8  2,600.4 
Selling, general and administrative expenses 209.0  186.4  625.2  571.6 
Other operating charges 11.7  5.3  20.9  17.8 
Research and development expenses 18.5  16.5  56.2  49.6 
Amortization of acquired intangibles 20.9  30.4  66.4  94.9 
Income from operations 163.4  123.5  426.3  313.4 
Interest expense, net 55.1  35.0  157.9  101.1 
Other expense, net 5.7  3.4  15.5  12.4 
Income before income taxes 102.6  85.1  252.9  199.9 
Provision for income taxes 29.3  21.8  58.0  51.6 
Net income 73.3  63.3  194.9  148.3 
Less: Net income attributable to noncontrolling interests 0.4  0.9  0.6  0.3 
Net income attributable to controlling interests $ 72.9  $ 62.4  $ 194.3  $ 148.0 
Basic net income per share $ 0.33  $ 0.28  $ 0.88  $ 0.67 
Diluted net income per share $ 0.33  $ 0.28  $ 0.87  $ 0.66 

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,
2023 2022 2023 2022
Net income $ 73.3  $ 63.3  $ 194.9  $ 148.3 
Other comprehensive loss, before tax:
Foreign currency translation adjustments (67.1) (125.3) (20.9) (210.6)
Unrealized (loss) gain on derivatives (0.4) 2.7  (1.7) 33.6 
Unrealized gain on pension and other benefit plan obligations 0.2  0.7  0.8  2.3 
Other comprehensive loss, before tax (67.3) (121.9) (21.8) (174.7)
Income tax provision (benefit) related to items of other comprehensive loss 0.2  0.2  (0.1) 4.9 
Other comprehensive loss, net of tax (67.5) (122.1) (21.7) (179.6)
Comprehensive income (loss) 5.8  (58.8) 173.2  (31.3)
Less: Comprehensive (loss) income attributable to noncontrolling interests (0.2) (0.5) (1.4) 0.2 
Comprehensive income (loss) attributable to controlling interests $ 6.0  $ (58.3) $ 174.6  $ (31.5)

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)
September 30, 2023 December 31, 2022
Assets
Current assets:
Cash and cash equivalents $ 605.8  $ 645.2 
Restricted cash 2.3  9.7 
Accounts and notes receivable, net 1,301.1  1,067.4 
Inventories 750.0  829.6 
Prepaid expenses and other current assets 126.6  140.8 
Total current assets 2,785.8  2,692.7 
Property, plant and equipment, net 1,169.3  1,190.2 
Goodwill 1,484.0  1,498.0 
Identifiable intangibles, net 1,036.6  1,112.3 
Other assets 520.3  566.0 
Total assets $ 6,996.0  $ 7,059.2 
Liabilities, Shareholders’ Equity   
Current liabilities:
Accounts payable $ 709.9  $ 733.5 
Current portion of borrowings 32.0  31.0 
Other accrued liabilities 616.4  620.2 
Total current liabilities 1,358.3  1,384.7 
Long-term borrowings 3,510.6  3,673.3 
Accrued pensions 201.3  205.1 
Deferred income taxes 145.4  162.1 
Other liabilities 131.8  134.5 
Total liabilities 5,347.4  5,559.7 
Commitments and contingent liabilities (Note 5)
Shareholders’ equity:
Common shares, $1.00 par, 1,000.0 shares authorized, 253.7 and 252.4 shares issued at September 30, 2023 and December 31, 2022, respectively
253.7  252.4 
Capital in excess of par 1,561.2  1,536.5 
Retained earnings 1,213.1  1,018.8 
Treasury shares, at cost, 33.6 and 31.8 shares at September 30, 2023 and December 31, 2022
(937.3) (887.3)
Accumulated other comprehensive loss (486.6) (466.9)
Total Axalta shareholders’ equity 1,604.1  1,453.5 
Noncontrolling interests 44.5  46.0 
Total shareholders’ equity 1,648.6  1,499.5 
Total liabilities and shareholders’ equity $ 6,996.0  $ 7,059.2 


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, 2022 220.6  $ 252.4  $ 1,536.5  $ 1,018.8  $ (887.3) $ (466.9) $ 46.0  $ 1,499.5 
Comprehensive income:
Net income —  —  —  60.5  —  —  —  60.5 
Net realized and unrealized loss on derivatives, net of tax of $0.0 million
—  —  —  —  —  (1.9) —  (1.9)
Long-term employee benefit plans, net of tax of $0.0 million
—  —  —  —  —  0.2  —  0.2 
Foreign currency translation, net of tax benefit of $0.4 million
—  —  —  —  —  46.1  (0.8) 45.3 
Total comprehensive income —  —  —  60.5  —  44.4  (0.8) 104.1 
Recognition of stock-based compensation —  —  6.3  —  —  —  —  6.3 
Shares issued under compensation plans 0.9  0.9  4.5  —  —  —  —  5.4 
Balance at March 31, 2023 221.5  253.3  1,547.3  1,079.3  (887.3) (422.5) 45.2  1,615.3 
Comprehensive income:
Net income —  —  —  60.9  —  —  0.2  61.1 
Net realized and unrealized gain on derivatives, net of tax of $0.5 million
—  —  —  —  —  0.1  —  0.1 
Long-term employee benefit plans, net of tax benefit of $0.2 million
—  —  —  —  —  0.6  —  0.6 
Foreign currency translation, net of tax benefit of $0.2 million
—  —  —  —  —  2.1  (0.6) 1.5 
Total comprehensive income —  —  —  60.9  —  2.8  (0.4) 63.3 
Recognition of stock-based compensation —  —  7.3  —  —  —  —  7.3 
Shares issued under compensation plans 0.2  0.2  2.9  —  —  —  —  3.1 
Balance at June 30, 2023 221.7  253.5  1,557.5  1,140.2  (887.3) (419.7) 44.8  1,689.0 
Comprehensive income:
Net income —  —  —  72.9  —  —  0.4  73.3 
Net realized and unrealized loss on derivatives, net of tax benefit of $0.1 million
—  —  —  —  —  (0.3) —  (0.3)
Long-term employee benefit plans, net of tax of $0.0 million
—  —  —  —  —  0.2  —  0.2 
Foreign currency translation, net of tax of $0.3 million
—  —  —  —  —  (66.8) (0.6) (67.4)
Total comprehensive income —  —  —  72.9  —  (66.9) (0.2) 5.8 
Recognition of stock-based compensation —  —  5.7  —  —  —  —  5.7 
Shares issued under compensation plans 0.2  0.2  (2.0) —  —  —  —  (1.8)
Common stock purchases (1.8) —  —  —  (50.0) —  —  (50.0)
Dividends declared to non-controlling interest —  —  —  —  —  —  (0.1) (0.1)
Balance at September 30, 2023 220.1  $ 253.7  $ 1,561.2  $ 1,213.1  $ (937.3) $ (486.6) $ 44.5  $ 1,648.6 


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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, 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 benefit 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 

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,
2023 2022
Operating activities:
Net income $ 194.9  $ 148.3 
Adjustment to reconcile net income to cash provided by operating activities:
Depreciation and amortization 206.9  229.5 
Amortization of deferred financing costs and original issue discount 6.5  7.2 
Debt extinguishment and refinancing related costs 7.0  (0.6)
Deferred income taxes (8.1) 2.8 
Realized and unrealized foreign exchange losses, net 21.3  5.5 
Stock-based compensation 19.3  14.0 
Divestiture and impairment charges 15.3  0.7 
Interest income on swaps designated as net investment hedges (9.1) (16.1)
Commercial agreement restructuring charge   25.0 
Other non-cash, net 25.0  (1.6)
Changes in operating assets and liabilities:
Trade accounts and notes receivable (212.9) (242.4)
Inventories 65.8  (220.8)
Prepaid expenses and other assets (68.3) (78.9)
Accounts payable 17.3  189.7 
Other accrued liabilities 8.8  (2.5)
Other liabilities (0.4) (11.6)
Cash provided by operating activities 289.3  48.2 
Investing activities:
Purchase of property, plant and equipment (105.3) (107.5)
Interest proceeds on swaps designated as net investment hedges 9.1  16.1 
Settlement proceeds on swaps designated as net investment hedges 29.4  25.0 
Other investing activities, net 2.3  (1.5)
Cash used for investing activities (64.5) (67.9)
Financing activities:
Proceeds from short-term borrowings 8.8   
Proceeds from long-term borrowings 197.4   
Payments on short-term borrowings (39.8) (52.3)
Payments on long-term borrowings (359.5) (20.5)
Financing-related costs (8.5) (0.1)
Purchases of common stock (50.0) (200.1)
Net cash flows associated with stock-based awards 6.7  (1.7)
Deferred acquisition-related consideration (7.7)  
Other financing activities, net (0.1) (0.2)
Cash used for financing activities (252.7) (274.9)
Decrease in cash (27.9) (294.6)
Effect of exchange rate changes on cash (18.9) (29.9)
Cash at beginning of period 654.9  851.2 
Cash at end of period $ 608.1  $ 526.7 
Cash at end of period reconciliation:
Cash and cash equivalents $ 605.8  $ 517.4 
Restricted cash 2.3  9.3 
Cash at end of period $ 608.1  $ 526.7 
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

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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 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, 2023, the results of operations, comprehensive income (loss) and changes in shareholders' equity for the three and nine months ended September 30, 2023 and 2022 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, 2022. 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 ("GAAP").
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, 2023 are not necessarily indicative of the results to be expected for the full year ended December 31, 2023 or any future period(s).
Summary of Significant Accounting Policies Updates
Recently Adopted Accounting Guidance
In January 2023, we adopted Accounting Standards Update ("ASU") 2022-04, Liabilities – Supplier Finance Programs, which codifies disclosure requirements for supplier financing programs. This ASU does not affect the recognition, measurement or financial statement presentation of obligations covered by supplier finance programs. Upon adoption of this ASU, we incorporated the required disclosures in Note 14. In addition to the disclosures included in Note 14, ASU 2022-04 requires a rollforward of activity for each supplier financing program beginning with reporting for the year ended December 31, 2024, at which time we will incorporate the required rollforward disclosure.
(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 condensed consolidated balance sheets. The contract asset balances at September 30, 2023 and December 31, 2022 were $38.9 million and $40.6 million, respectively.
We provide certain customers with incremental up-front consideration, 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. We do not receive a distinct service or good in return for these BIPs, but rather receive volume commitments and/or sole supplier status from our customers over the life of the contractual arrangements. Substantially all of the termination clauses in these contractual arrangements include standard clawback provisions that enable us to collect monetary damages in the event of a customer's failure to meet its commitments under the relevant contract. BIPs are assessed for recoverability annually or more frequently when circumstances arise. At September 30, 2023 and December 31, 2022, the total carrying value of BIPs were $152.7 million and $152.3 million, respectively, and are presented within other assets in the condensed consolidated balance sheets. For the three and nine months ended September 30, 2023 and 2022, $18.9 million, $49.4 million, $14.3 million, and $44.2 million, respectively, was amortized and reflected as reductions of net sales in the condensed consolidated statements of operations. The total carrying value of BIPs excludes other up-front incentives with repayment features made in conjunction with long-term customer commitments of $5.5 million and $42.1 million at September 30, 2023 and December 31, 2022, respectively, of which $5.1 million and $4.9 million is included in prepaid expenses and other current assets in the condensed consolidated balance sheets at September 30, 2023 and December 31, 2022, 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 three months ended September 30, 2023, it was determined that $29.8 million of up-front incentives with repayments features were collectible and reclassified to accounts and notes receivable, net in the condensed consolidated balance sheets.


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Notes to Condensed Consolidated Financial Statements (Unaudited)
(In millions, unless otherwise noted)
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. During the nine months ended September 30, 2022, a charge for this customer contract restructuring was recorded for $25.0 million in the condensed consolidated statements of operations, of which $20.3 million was recorded as a reduction to net sales and the remaining amount recorded in other expense.
See Note 17 for disaggregated net sales by end-market.
(3)    GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
Goodwill
The following table shows changes in the carrying amount of goodwill from December 31, 2022 to September 30, 2023 by reportable segment:
Performance
Coatings
Mobility
Coatings
Total
Balance at December 31, 2022 $ 1,422.5  $ 75.5  $ 1,498.0 
Purchase accounting adjustments and divestitures (0.4) (0.1) (0.5)
Foreign currency translation (12.5) (1.0) (13.5)
Balance at September 30, 2023 $ 1,409.6  $ 74.4  $ 1,484.0 
Identifiable Intangible Assets
The following tables summarize the gross carrying amounts and accumulated amortization of identifiable intangible assets by major class:
September 30, 2023 Gross Carrying
Amount
Accumulated
Amortization
Net Book
Value
Weighted average
amortization periods (years)
Technology $ 159.2  $ (82.5) $ 76.7  11.2
Trademarks—indefinite-lived 253.5  —  253.5  Indefinite
Trademarks—definite-lived 125.2  (56.1) 69.1  14.5
Customer relationships 1,095.5  (458.2) 637.3  19.3
Total $ 1,633.4  $ (596.8) $ 1,036.6 
During the nine months ended September 30, 2023, we retired fully amortized assets totaling $396.0 million consisting of technology, trademarks, and other intangible assets.
December 31, 2022 Gross Carrying
Amount
Accumulated
Amortization
Net Book
Value
Weighted average
amortization periods (years)
Technology $ 555.2  $ (462.3) $ 92.9  10.3
Trademarks—indefinite-lived 255.6  —  255.6  Indefinite
Trademarks—definite-lived 126.7  (50.8) 75.9  14.5
Customer relationships 1,106.7  (418.8) 687.9  19.2
Other 0.6  (0.6)   5.0
Total $ 2,044.8  $ (932.5) $ 1,112.3 

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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 2023 and each of the succeeding five years is:
Remainder of 2023 $ 20.6 
2024 81.6 
2025 81.0 
2026 80.6 
2027 79.8 
2028 66.5 
(4)    RESTRUCTURING
In accordance with the applicable guidance for Accounting Standards Codification ("ASC") 712, Nonretirement Postemployment Benefits, we accounted for 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 nine months ended September 30, 2023 and 2022, we incurred benefits of $0.3 million, and costs of $2.2 million, $4.2 million, and $10.0 million, respectively, for termination benefits, net of changes in estimates. The majority of our termination benefits are recorded within other operating charges in the condensed consolidated statements of operations. The remaining payments associated with these actions are expected to be substantially completed within 12 months.
The following table summarizes the activity related to the termination benefit reserves and expenses from December 31, 2022 to September 30, 2023:
2023 Activity
Balance at December 31, 2022 $ 48.7 
Expenses, net of changes to estimates 2.2 
Payments made (33.6)
Foreign currency translation (0.1)
Balance at September 30, 2023 $ 17.2 
(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 ("Customer Obligation Guarantees"). At September 30, 2023 and December 31, 2022, we had outstanding Customer Obligation Guarantees of $8.9 million and $7.1 million, respectively. Approximately one-tenth of our Customer Obligation Guarantees expire between 2023 and 2026, while the remainder do not have specified expiration dates. We monitor the Customer Obligation Guarantees to evaluate whether we have a liability at the balance sheet date. We did not have any liabilities related to our outstanding Customer Obligation Guarantees recorded at either September 30, 2023 or December 31, 2022.
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. We concluded that losses from this matter were probable and that a majority of losses would be covered under our insurance policies, subject to deductible and policy limits as defined in our policies.
For the three and nine months ended September 30, 2023 and September 30, 2022, we recorded expenses of $0.1 million and $0.1 million, benefits of $0.1 million and expenses of $0.1 million, respectively, within other operating charges in the condensed consolidated statements of operations. At September 30, 2023 and December 31, 2022, we had $36.2 million and $38.7 million, respectively, for estimated insurance receivables within accounts and notes receivable, net in the condensed consolidated balance sheets. Liabilities of $34.1 million and $42.3 million are recorded as other accrued liabilities in the condensed consolidated balance sheets at September 30, 2023 and December 31, 2022, respectively. The recorded probable

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Notes to Condensed Consolidated Financial Statements (Unaudited)
(In millions, unless otherwise noted)
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 condensed 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 condition 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 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 pre-tax components of net periodic benefit costs for our defined benefit plans for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023 2022 2023 2022
Components of net periodic benefit cost:
Net periodic benefit cost:
Service cost $ 1.5  $ 1.5  $ 4.4  $ 4.8 
Interest cost 5.0  2.3  14.7  7.2 
Expected return on plan assets (2.9) (2.8) (8.4) (9.1)
Amortization of actuarial losses, net 0.2  0.7  0.6  2.4 
Amortization of prior service credit, net     (0.1) (0.1)
Net periodic benefit cost $ 3.8  $ 1.7  $ 11.2  $ 5.2 
All non-service components of net periodic benefit cost are recorded in other expense, net within the accompanying condensed consolidated statements of operations.
(7)    STOCK-BASED COMPENSATION
During the three and nine months ended September 30, 2023 and 2022, we recognized $5.7 million, $19.3 million, $5.0 million and $14.0 million, respectively, in stock-based compensation expense, which was allocated between costs of goods sold and selling, general and administrative expenses in the condensed consolidated statements of operations. We recognized tax benefits on stock-based compensation of $0.8 million, $2.4 million, $1.2 million and $2.2 million for the three and nine months ended September 30, 2023 and 2022, respectively.

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Notes to Condensed Consolidated Financial Statements (Unaudited)
(In millions, unless otherwise noted)
2023 Activity
A summary of stock option award activity for the nine months ended September 30, 2023 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, 2023 1.1  $ 26.56 
Granted   $  
Exercised (0.5) $ 24.01 
Forfeited / Expired (0.1) $ 31.32 
Outstanding at September 30, 2023
0.5  $ 28.05 
Vested and expected to vest at September 30, 2023
0.5  $ 28.05  $ 0.6  3.10
Exercisable at September 30, 2023
0.5  $ 28.05  $ 0.6  3.10
Cash received by the Company upon exercise of options for the nine months ended September 30, 2023 was $11.9 million.
Tax benefits on these exercises were $0.1 million.
At September 30, 2023, there was no unrecognized expense relating to unvested stock options.
Restricted Stock Units Units
(in millions)
Weighted Average
Fair Value
Outstanding at January 1, 2023 1.6  $ 27.38 
Granted 0.8  $ 29.76 
Vested (0.9) $ 27.05 
Forfeited (0.2) $ 28.80 
Outstanding at September 30, 2023 1.3  $ 28.75 
Tax benefits on the vesting of restricted stock units during the nine months ended September 30, 2023 were $0.2 million.
At September 30, 2023, there was $18.2 million of unamortized expense relating to unvested restricted stock units that is expected to be amortized over a weighted average period of 1.4 years.
Performance Share Units Units
(in millions)
Weighted Average
Fair Value
Outstanding at January 1, 2023 0.6  $ 30.44 
Granted 0.5  $ 35.85 
Vested   $  
Forfeited (0.3) $ 31.76 
Outstanding at September 30, 2023 0.8  $ 33.19 
Our performance share units allow for participants to vest in zero to 200% of the targeted number of shares granted. At September 30, 2023, there was $14.3 million of unamortized expense relating to unvested performance share units that is expected to be amortized over a weighted average period of 2.4 years. The forfeitures include portions of performance share unit grants that were determined to not have vested during the period as a result of not meeting established financial performance thresholds.

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Notes to Condensed Consolidated Financial Statements (Unaudited)
(In millions, unless otherwise noted)
(8)    OTHER EXPENSE, NET
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023 2022 2023 2022
Foreign exchange losses, net $ 6.7  $ 5.8  $ 18.6  $ 13.3 
Debt extinguishment and refinancing-related costs 4.0  (0.4) 7.0  (0.6)
Other miscellaneous income, net (1)
(5.0) (2.0) (10.1) (0.3)
Total $ 5.7  $ 3.4  $ 15.5  $ 12.4 
(1)    Activity during the nine months ended September 30, 2022 includes expense of $4.7 million related to a reserve for a customer concession discussed further in Note 2.
(9)    INCOME TAXES
Our effective income tax rates for the nine months ended September 30, 2023 and 2022 are as follows:
Nine Months Ended
September 30,
2023 2022
Effective Tax Rate 22.9  % 25.8  %
The lower effective tax rate for the nine months ended September 30, 2023 was primarily due to the favorable impact of changes in unrecognized tax benefits in 2023.
The effective tax rate for the nine months ended September 30, 2023 differs from the U.S. Federal statutory rate due to various items that impacted the effective rate both favorably and unfavorably. We recorded favorable adjustments for earnings in jurisdictions where the statutory rate is lower than the U.S. Federal statutory rate and for decreases in unrecognized tax benefits. These adjustments were primarily offset by the unfavorable impacts for changes in the valuation allowance.
The Company anticipates that it is reasonably possible its unrecognized tax benefits will decrease by $10.7 million, exclusive of interest and penalties, within the next 12 months mainly due to the expected receipt of a final assessment in the previously disclosed income tax audit in Germany for the tax period 2010-2013. During the nine months ended September 30, 2023, the Company recorded a decrease in unrecognized tax benefits of $5.2 million, exclusive of interest and penalties, due to the conclusion of an income tax audit.
(10)    NET INCOME PER COMMON SHARE
Basic net income per common share excludes the dilutive impact of potentially dilutive securities and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per common share includes the effect of potential dilution from the hypothetical exercise of outstanding stock options and vesting of restricted stock units and performance share units. A reconciliation of our basic and diluted net income per common share is as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(In millions, except per share data) 2023 2022 2023 2022
Net income to common shareholders $ 72.9  $ 62.4  $ 194.3  $ 148.0 
Basic weighted average shares outstanding 221.0  220.6  221.3  222.0 
Diluted weighted average shares outstanding 221.9  221.2  222.1  222.6 
Net income per common share:
Basic net income per share $ 0.33  $ 0.28  $ 0.88  $ 0.67 
Diluted net income per share $ 0.33  $ 0.28  $ 0.87  $ 0.66 
The number of anti-dilutive shares that have been excluded in the computation of diluted net income per share for the three and nine months ended September 30, 2023 and 2022 were 0.5 million, 0.5 million, 1.1 million and 1.1 million, respectively.

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Notes to Condensed Consolidated Financial Statements (Unaudited)
(In millions, unless otherwise noted)
(11)    ACCOUNTS AND NOTES RECEIVABLE, NET
Trade accounts receivable are stated at the amount we expect to collect. We maintain allowances for doubtful accounts for estimated losses by applying historical loss percentages, combined with reasonable and supportable forecasts of future losses, to respective aging categories. Management considers the following factors in developing its current estimate of expected credit losses: customer credit-worthiness, past transaction history with the customer, current economic industry trends, changes in market or regulatory matters, changes in geopolitical matters, and changes in customer payment terms, as well as other macroeconomic factors.
September 30, 2023 December 31, 2022
Accounts receivable - trade, net (1)
$ 1,088.0  $ 909.3 
Notes receivable 57.2  23.1 
Other (2)
155.9  135.0 
Total $ 1,301.1  $ 1,067.4 
(1)    Allowance for doubtful accounts was $24.7 million and $22.6 million at September 30, 2023 and December 31, 2022, respectively.
(2)    Includes $36.2 million and $38.7 million at September 30, 2023 and December 31, 2022, respectively, of insurance recoveries related to an operational matter discussed further in Note 5.
Bad debt expense of $2.3 million, $7.0 million, $0.9 million and $1.0 million was included within selling, general and administrative expenses for the three and nine months ended September 30, 2023 and 2022, respectively, and benefits of $0.2 million and $1.6 million and expense of $0.1 million and $3.2 million related to sanctions imposed on Russia in response to the conflict with Ukraine was included in other operating charges for the three and nine months ended September 30, 2023 and 2022, respectively.
(12)    INVENTORIES
September 30, 2023 December 31, 2022
Finished products $ 392.0  $ 438.6 
Semi-finished products 132.9  130.8 
Raw materials 196.0  233.7 
Stores and supplies 29.1  26.5 
Total $ 750.0  $ 829.6 
Inventory reserves were $28.1 million and $16.6 million at September 30, 2023 and December 31, 2022, respectively.
(13)    PROPERTY, PLANT AND EQUIPMENT, NET
September 30, 2023 December 31, 2022
Property, plant and equipment $ 2,416.0  $ 2,368.9 
Accumulated depreciation (1,246.7) (1,178.7)
Property, plant, and equipment, net $ 1,169.3  $ 1,190.2 
Depreciation expense amounted to $30.5 million, $89.6 million, $29.0 million and $89.0 million for the three and nine months ended September 30, 2023 and 2022, respectively.
During April 2023, approximately $33.8 million of capitalized project costs relating to a manufacturing facility previously classified as construction in progress was placed in service and depreciation was initiated. The costs will be depreciated over a weighted average useful life of approximately 22 years.
During May 2023, approximately $86.2 million of capitalized project costs relating to an enterprise resource planning system implementation previously classified as construction in progress was placed in service and depreciation was initiated. The costs will be depreciated over a weighted average useful life of approximately 12 years.

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Notes to Condensed Consolidated Financial Statements (Unaudited)
(In millions, unless otherwise noted)
(14)    SUPPLIER FINANCE PROGRAMS
We have a supplier financing program in China, which is utilized to finance the purchases of goods and services from our suppliers through local banking institutions. The payment terms under the program vary, but the program has a weighted average maturity date that is approximately 90 days from each respective financing inception. These financing arrangements are included in the current portion of borrowings within the condensed consolidated balance sheets and at the time of issuance each transaction is treated as a non-cash financing activity within the condensed consolidated statements of cash flows. Upon settlement of the financing, the cash outflow is classified as a financing activity within the condensed consolidated statements of cash flows. Amounts outstanding under this program were $7.5 million and $13.0 million at September 30, 2023 and 2022, respectively, including $0.1 million and $1.9 million, respectively, related to purchases of property, plant and equipment. Cash outflows under this program were $34.4 million and $52.3 million for the nine months ended September 30, 2023 and 2022, respectively.
We maintain a voluntary supply chain financing ("SCF") program with a global financial institution which allows a select group of suppliers to sell their receivables to the participating financial institution at the discretion of both parties on terms that are negotiated between the supplier and the financial institution. The supplier invoices that have been confirmed as valid under the program are paid by us to the financial institution according to the terms we have with the supplier. Amounts outstanding under the SCF program were $26.1 million and $29.8 million at September 30, 2023 and December 31, 2022, respectively.
We also participate in a virtual card program with a global financial institution, in which we pay supplier invoices on the due date using a Virtual Card Account ("VCA") and subsequently pay the balance in full 25 days after the billing statement date of the VCA. The program allows for suppliers to receive an accelerated payment for a fee at each supplier's discretion. Fees paid by our suppliers are negotiated directly with the financial institution without our involvement. Amounts outstanding under the VCA program were $8.2 million and $6.8 million at September 30, 2023 and December 31, 2022, respectively.
The payment terms we have with our suppliers who participate in the SCF and VCA programs are consistent with the typical terms we have with our suppliers who do not participate. These financing arrangements are included in accounts payable within the condensed consolidated balance sheets and the associated payments are included in operating activities within the condensed consolidated statements of cash flows.
(15)    BORROWINGS
Borrowings are summarized as follows:
September 30, 2023 December 31, 2022
2029 Dollar Term Loans $ 1,840.4  $ 2,000.0 
2025 Euro Senior Notes 473.3  479.1 
2027 Dollar Senior Notes 500.0  500.0 
2029 Dollar Senior Notes 700.0  700.0 
Short-term and other borrowings 68.5  74.5 
Unamortized original issue discount (17.6) (22.4)
Unamortized deferred financing costs (22.0) (26.9)
Total borrowings, net 3,542.6  3,704.3 
Less:
Short-term borrowings 13.5  16.0 
Current portion of long-term borrowings 18.5  15.0 
Long-term debt $ 3,510.6  $ 3,673.3 
Our senior secured credit facilities (the "Senior Secured Credit Facilities") consist of a term loan due 2029 (the "2029 Dollar Term Loans") and a revolving credit facility (the "Revolving Credit Facility") that is governed by a credit agreement (as amended, the "Credit Agreement").
Revolving Credit Facility
At September 30, 2023 and December 31, 2022, letters of credit issued under the Revolving Credit Facility totaled $20.3 million and $20.7 million, respectively, which reduced the availability under the Revolving Credit Facility as of such dates. Availability under the Revolving Credit Facility was $529.7 million and $529.3 million at September 30, 2023 and December 31, 2022, respectively.

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Notes to Condensed Consolidated Financial Statements (Unaudited)
(In millions, unless otherwise noted)
Pursuant to the Credit Agreement, on July 1, 2023, an interest rate based on the London Interbank Offered Rate ("LIBOR") was automatically replaced with an interest rate based on the Secured Overnight Financing Rate ("SOFR") as the interest rate benchmark for loans denominated in U.S. Dollars under the Revolving Credit Facility available under the Credit Agreement. On the same date, we entered into the Twelfth Amendment to the Credit Agreement to reflect this transition and make other related conforming changes to the Credit Agreement.
Significant Transactions
During the nine months ended September 30, 2023, we voluntarily prepaid $150.0 million of the outstanding principal amount of the 2029 Dollar Term Loans. As a result of these prepayments, we recorded a loss on extinguishment of debt of $2.4 million for the nine months ended September 30, 2023, which comprised the proportionate write-off of unamortized deferred financing costs and original issue discounts.
During August 2023, we entered into the Thirteenth Amendment to the Credit Agreement to lower the interest rate spread applicable to the 2029 Dollar Term Loans from 3.00% to 2.50% when bearing interest at a rate based on SOFR. The other material terms of the Credit Agreement, including the outstanding principal amount and maturity date of the 2029 Dollar Term Loans, remain unchanged. As a result of the repricing, we recorded a $4.0 million loss on financing-related costs during the three and nine months ended September 30, 2023, of which $2.1 million related to the write-off of unamortized deferred financing costs and original issue discount and $1.9 million related to fees incurred to complete the repricing.
Future repayments
Below is a schedule of required future repayments of all borrowings outstanding at September 30, 2023.
Remainder of 2023 $ 14.8 
2024 22.7 
2025 495.2 
2026 22.1 
2027 522.3 
Thereafter 2,505.1 
Total borrowings 3,582.2 
Unamortized original issue discount (17.6)
Unamortized deferred financing costs (22.0)
Total borrowings, net $ 3,542.6 
(16)    FINANCIAL INSTRUMENTS, HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENTS
Fair value of financial instruments
Equity securities with readily determinable fair values - Balances of equity securities are recorded within other assets, with any changes in fair value recorded within other expense, net. The fair values of equity securities are based upon quoted market prices, which are considered Level 1 inputs.
Long-term borrowings - The estimated fair values of these borrowings are based on recent trades, as reported by a third-party pricing service. Due to the infrequency of trades, these inputs are considered to be Level 2 inputs.
Derivative instruments - The Company’s interest rate swaps, cross-currency swaps and foreign currency forward contracts are valued using broker quotations, or market transactions in either the listed or over-the-counter markets. As such, these derivative instruments are included in the Level 2 hierarchy.
Fair value of contingent consideration