2018 Annual Report
Dear Shareholders,
It is my pleasure to share this 2018 Annual Report with you as Axalta’s new CEO. I look forward to building
upon our company’s prior achievements and driving our business to the next level of success. Serving as
Axalta’s Chief Financial Officer for the past five and a half years has offered many unique insights and has
helped me design a vision that I believe will move us forward in a meaningful and strategic way. There is
much to do, and I am excited about how energized our team is to act decisively to unlock new opportunities
that will enable continued and sustainable profitable growth at Axalta.
2018 was a strong year of accomplishment for Axalta. Our entire management team and I are steadfast in
our commitment to building a company that customers want to partner with, that employees want to work
for, and that delivers results for our investors. This is aligned with our vision to be the preferred coatings
partner for customers seeking the most innovative products and services, delivered by the most talented
team in the industry.
Our vision is to be the preferred coatings
partner for customers seeking the most
services,
innovative
delivered by the most talented team in
the industry.
products
and
Axalta performed very well in 2018 in the face of headwinds, including
substantially higher raw material costs, a slowdown in certain coatings markets –
most notably in China – and overall increased global competition. Net Sales for the
year increased more than seven percent to $4.7 billion, Adjusted EBITDA increased
roughly six percent to $937 million, and we delivered cash from operations of $496
million.
Overall Financial Performance
Net Sales
Adjusted EBITDA
$4,353
$1,678
$2,675
2017
$4,670
$1,644
$3,026
2018
$885
$321
$564
2017
$937
$269
$668
2018
Performance Coa�ngs
Transporta�on Coa�ngs
Performance Coa�ngs
Transporta�on Coa�ngs
Cash from Opera�ons
$540
$496
2017
2018
The 2018 Annual Report to Shareholders includes certain non-GAAP financial measures, including adjusted EBITDA. These non-GAAP financial measures should be considered only as
supplemental to and not as superior to, financial measures prepared in accordance with GAAP. Please refer to the Annual Report on Form 10-K included within the 2018 Annual Report to
shareholders for a reconciliation of the non-GAAP financial measures included herein to the most directly comparable financial measures prepared in accordance with GAAP. Adjusted
EBITDA means earnings, before interest, taxes, depreciation, and amortization adjusted for non-cash, non recurring or other items.
All of these statements are based on management’s expectations as well as estimates and assumptions prepared by management that, although they believe to be reasonable are
inherently uncertain. These statements involve risks and uncertainties. Including, but not limited to, economic, competitive, governmental and technological factors outside of Axalta’s
control that may cause its business, industry, strategy, financing activities or actual results to differ materially. Axalta undertakes no obligation to update or revise may of the forward-
looking statements contained herein, whether as a result of new information, future events or otherwise.
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We were able to hold margins nearly constant for the year with a combination of incremental global pricing
actions and substantial productivity gains. Our ability to successfully implement pricing actions is a
testament to the value customers recognize in our partnership, the innovative solutions we provide, and
the high quality of our products.
In 2018, the safety of our people remained a top priority as we enhanced existing programs and engaged
employees to drive performance for all Company operations in accordance with the Responsible Care®
Guiding Principles.
We’re proud of our 2018 results.
INVESTMENTS IN OUR FUTURE
We made significant investments in our facilities around the world in 2018. From technology centers to
customer training facilities, we expanded our footprint into new end-markets, geographies, and customers.
In November 2018, we celebrated the opening of our Global Innovation
Center in Philadelphia, the largest color and coatings research and
development center in the world. The 175,000 square foot Global
Innovation Center is now the central hub for our global research, product
development, and technology initiatives. It is here where we develop the
most innovative coatings products in the world. Whether in color
technology, polymer and formulation chemistry, or application knowledge,
the world-class capabilities and talent at Axalta’s Global Innovation Center will fuel new products and
deliver the solutions necessary for our customers to grow their businesses into the future.
Our new regional office and expansion of our Refinish Training Center in Chengdu, China is a good example
of how Axalta continues to invest for success and global growth. These facilities provide customers in
Western China with greater access to advanced coating technologies and value-added services. In addition,
Axalta can now more effectively serve light vehicle and commercial vehicle OEMs, refinish customers, and
industrial customers in the region with high-quality coatings, sustainable applications, and customized
value services.
We opened several sites designed to bring our products and innovations
closer to our customers, including a Learning and Development Center
dedicated to industrial wood coatings technology in Pomona, California and
a new automotive refinish coatings technology facility in Midrand, South
Africa. Both facilities include state-of-the-art learning and training
environments, complete with practical equipment for hands-on training for
the professionals who use our products every day. In addition, we opened a
new research and development, manufacturing,
and warehouse facility in Fridley, Minnesota.
Axalta’s new coatings plant in Gujarat, India doubles our manufacturing capacity
in India to meet the growing demand for coatings in the light vehicle, commercial
vehicle, and industrial markets. We also acquired a state-of-the-art
2
manufacturing and distribution facility in Sacramento, California to support growth in our North American
Industrial and Refinish businesses. The 150,000 square foot facility has production capacity of more than 15
million gallons of refinish and industrial application products.
COMMITMENT TO INNOVATION
Investing in technology and innovation is central to Axalta’s growth as a company. Axalta once again
invested more than four percent of sales in research and development, which continues to be amongst the
leaders in our industry peer group.
Global innovation at Axalta relies on a robust portfolio that encompasses technology and product
development, color processes, application fundamentals, and technical support to offer sustainable
coatings solutions for our customers. Our scientists and technicians engage in a broad spectrum of research
leading to the development of innovative products and processes that our customers demand.
In 2018, we introduced more than 250 new products across our portfolio, marking the third consecutive
year in beating that target.
In our Industrial business, we released Imron® 3.5+ FX Flexible
Topcoat into our existing portfolio of high performance Imron
Industrial coatings. Imron 3.5+ FX Black Flexible Topcoat is a
premium coating solution that provides superior weathering
performance, distinctness of image, and a consistent high-gloss
finish to industrial applications.
We also introduced the new Colorista color collection for the
architectural powder coatings market. Axalta co-launched this powder coating technology with Allure
Industries to produce zero-VOC (volatile organic compound) products to meet international standards and
specific customer needs for durability, weathering, abrasion, chemical or corrosion resistance, and excellent
finishes with a wide range of colors and textures.
Wood Vibes, a new industrial wood coatings campaign inspired by the beauty
of nature and power of wildlife, explores color and design trends of the wood
coatings industry. The collection emphasizes the beauty, strength, and
versatility of our portfolio.
We also proudly launched the
Corroless® protective industrial
coatings brand worldwide in 2018. The Corroless portfolio is
engineered to provide exceptional, long-term chemical and
corrosion resistance to a wide array of iron and steel
substrates while remaining cost effective. Corroless products
have become a staple among customers that require the
utmost protection and durability to battle the harshest of
environments.
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To complement our latest waterborne basecoat technology for the refinish market,
Cromax® EZ, Axalta released a streamlined suite of low-VOC undercoat and clearcoat
products: Cromax Premier LE 35XXS series, LE 8300S™, and LE 8700S™. These products
are designed to achieve a premium appearance while reducing complexity, waste, and
inventory. The system is designed to boost efficiency, which allows body shops to better
serve their customers.
In addition to new coatings products, we introduced our Audurra range of refinish accessories in Europe.
Axalta’s Audurra products include abrasives, masking tapes, films, nitrile gloves, degreasing wipes, polishing
cloths, mixing cups, stirring sticks, and paint stands. With Audurra, the consolidation of the paint and non-
paint requirements means one-stop shopping for automotive body shops. Audurra products will bring a
new level of quality to vehicle repairs.
We are also continually seeking ways to help our customers be more
productive and efficient. To that end, we launched a mobile application
for the North American commercial transportation aftermarket repair
industry to guide users to refinish system recommendations based on
project criteria. The Commercial Transportation System Selector app’s
intuitive design allows users to input project criteria and receive
recommendations for good, better, and best finishing systems along with
specific product information, including mix ratio, activator, dry time, and
technical data sheets in English and Spanish.
To continue providing high-quality coatings and service to our OEM
customers, we introduced new brand names for the four principal coating layers
supplied to light vehicle manufacturers in 2018. The addition of HyperDurTM,
HyperDyneTM, ChromaDyneTM, and LumeeraTM make it easier for customers to
understand Axalta’s product offerings in this key segment of the coatings industry
and help differentiate Axalta’s technologies in the marketplace.
RECOGNITION FOR OUR ACHIEVEMENTS
We are proud to be regularly recognized for our leadership, work, and products in the industries we serve.
In 2018, we received the SURCAR Technology Achievement Award with Ford Motor Company for publishing
a research report entitled, “Exterior Multiple Color Coatings for Car Body.” The report reflects Axalta’s
contributions of research and coating technology in digital paint applications, which provides the
automotive coatings industry with the ability to print various coatings and colors directly onto a vehicle
body. This increases OEMs’ accuracy and styling capabilities, while helping to eliminate the waste that
results from current atomized spray application techniques.
4
Axalta was also acknowledged with the Green Pillar Award from Ford,
which recognized the Company as a top-performing global supplier for its
leadership in coatings sustainability and its commitment to transparency
in the Ford product supply chain.
Axalta’s General Industrial System
Selector app won a 2018 Prestige Award in Innovation from PaintSquare,
the online global hub for the protective and marine coatings industry. The
Prestige Awards recognize the most important people, products, and
innovations in the industry worldwide.
SUSTAINABILITY AT AXALTA
Axalta has taken a deliberate approach to sustainability in our business and addressing the related goals of
our stakeholders through the lens of our impact on the environment, social performance, and good
We published our latest Sustainability Report in June, which describes our initiatives and
governance.
performance in technology, operations, our people, and corporate social responsibility. We are proud to
have received a “B” on our 2018 CDP climate change response, which reflects our strategies and
performance on climate change, energy, and emissions. This score reflects the hard work of our employees
to improve the environmental footprint of our facilities and to innovate our products and services to
provide sustainability benefits for our customers.
In 2018, we also continued to support the communities where our employees live and work, collaborating
with partners globally to promote environmental stewardship and science, technology, engineering, and
math (STEM) education.
Our longstanding partnership with Ducks Unlimited has made a significant impact in wetlands conservation
in North America. In 2018, our partnership installed two wastewater treatment plants in key communities
in Michoacán, Mexico to improve water pollution in Lake Cuitzeo, the country’s second-largest water body.
We also installed 145 eco-technologies such as dry toilets, solar heaters, and bio-digesters. In India, Axalta
partnered with the S.M. Sehgal Foundation to construct a 3-million-liter capacity pond in the drought-
ridden Bhooriya Baas village in the Alwar district. This pond will be used to collect and store rainwater in
the community to support local farming and animal husbandry, the main sources of livelihood for the
residents. This project also involved the planting of more than 500 fruit plants to prevent soil erosion,
provide shade, and revive the biodiversity of the area.
For the fourth year, we continued our Axalta All-Pro Teachers program in partnership with The Philadelphia
Eagles. This program honors middle and secondary school STEM teachers in the greater Philadelphia area
who have demonstrated exceptional educational drive, innovative use of technology, and community
commitment to benefit their students. In Detroit, Axalta partners with DRIVE One, an automotive industry
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training center, which in 2018 installed an Axalta-branded paint booth where students receive hands-on
training on automotive coatings. Our projects with DRIVE One expose students to automotive design,
modeling, color selection, and engineering concepts. And, in alignment with China’s Sustainable Education
Program, we have continued to host Campus Talks, our annual program for universities in China to create
awareness and educate local academic communities on STEM and industry trends related to coatings.
LOOKING AHEAD
As we look ahead, our team is unified behind a shared vision and focused on excellence in execution. Our
14,000 global employees will continue to focus on our customers and deliver innovations and new
technologies. Each will be key to driving our long-term success and value for our shareholders. I am
confident that, together, we will deliver another strong year in 2019 and beyond.
Sincerely,
Robert W. Bryant
Chief Executive Officer and President
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
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
(State or other jurisdiction of
incorporation or organization)
2851
(Primary Standard Industrial
Classification Code Number)
98-1073028
(I.R.S. Employer
Identification No.)
Two Commerce Square
2001 Market Street
Suite 3600
Philadelphia, Pennsylvania 19103
(855) 547-1461
(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares, $1.00 par value
(title of class)
New York Stock Exchange
(Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
No
No
No
No
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act Yes
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
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
Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer
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
As of June 30, 2018, the last day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the registrant's
common stock held by non-affiliates of the registrant was approximately $7,646.5 million (based on the closing sale price of the common stock on
that date on the New York Stock Exchange).
As of February 19, 2019, there were 234,282,735 shares of the registrant’s common shares outstanding.
Emerging growth company
Non-accelerated filer
Accelerated filer
Small reporting
No
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the registrant's Proxy Statement for the 2019 Annual Meeting of the Shareholders. Such proxy
statement will be filed with the Securities and Exchange Commission within 120 days of the close of the registrant's fiscal year ended
December 31, 2018.
“This Page Intentionally Left Blank”
Table of Contents
PART I
Business
ITEM 1.
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2.
ITEM 3.
ITEM 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART II
PART III
PART IV
ITEM 5. Market for Registrant's Common Equity, Related Shareholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
ITEM 6.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.
Financial Statements and Supplementary Data
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information
ITEM 10. Directors, Executive Officers and Corporate Governance
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
ITEM 13. Certain Relationships and Related Transactions and Director Independence
ITEM 14. Principal Accountant Fees and Services
ITEM 15. Exhibits and Financial Statement Schedules
ITEM 16. Form 10-K Summary
Signatures
2
11
27
27
28
28
29
31
32
57
59
109
109
109
110
111
111
111
111
112
119
120
1 PART I
ITEM 1. BUSINESS
Axalta Coating Systems Ltd. ("Axalta," the "Company," "we," "our" and "us"), is a leading global manufacturer, marketer
and distributor of high performance coatings systems. We have over a 150-year heritage in the coatings industry and are
known for manufacturing high-quality products with well-recognized brands supported by market-leading technology and
customer service. Over the course of our history we have remained at the forefront of our industry by continually developing
innovative coatings technologies designed to enhance the performance and appearance of our customers' products, while
improving their productivity and profitability.
Axalta is a Bermuda exempted company incorporated at the direction of an affiliate of The Carlyle Group L.P. ("Carlyle") on
August 24, 2012 for the purpose of consummating the acquisition of DuPont Performance Coatings ("DPC"), a business
formerly owned by E. I. du Pont de Nemours and Company ("DuPont"), including certain assets of DPC and all of the capital
stock and other equity interests of certain entities engaged in the DPC business (the "Acquisition"). Axalta, through its
wholly-owned indirect subsidiaries, acquired DPC on February 1, 2013.
Axalta is a holding company with no business operations or assets other than primarily cash and cash equivalents. Our global
operations are conducted by indirect wholly-owned subsidiaries and indirect majority-owned subsidiaries.
Our diverse global footprint of 50 manufacturing facilities, four technology centers, 47 customer training centers and more
than 14,000 employees allows us to meet the needs of customers in over 130 countries. We serve our customer base through
an extensive sales force and technical support organization, as well as through approximately 4,000 independent, locally-
based distributors. Our scale and strong local presence are critical to our success, allowing us to leverage our technology
portfolio and customer relationships globally while meeting customer demands locally. We operate our business in two
operating segments, Performance Coatings and Transportation Coatings, serving four end-markets globally as highlighted
below. See the discussion and reconciliation of Adjusted EBITDA to the closest U.S. GAAP numbers in Item 7 and Note 19
to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
The table above reflects numbers for the year ended December 31, 2018. Adjusted EBITDA Margin is calculated as Adjusted
EBITDA divided by Net sales.
2 Net sales for our four end-markets and four regions for the year ended December 31, 2018 are highlighted below:
Note: Latin America includes Mexico. EMEA represents Europe, Middle East and Africa.
SEGMENT OVERVIEW
Performance Coatings
Through our Performance Coatings segment, we provide high-quality liquid and powder coatings solutions to a fragmented
and local customer base, as well as a number of regional and global customers. We are one of only a few suppliers with the
technology to provide precise color matching and highly durable coatings systems. The end-markets within this segment are
refinish and industrial.
Performance Coatings End-Markets
Refinish
Sales in the refinish end-market are driven by the number of vehicle collisions, owners’ propensity to repair their vehicles, the
number of miles vehicle owners drive and the size of the car parc. Although refinish coatings typically represent only a small
portion of the overall vehicle repair cost, they are critical to the vehicle owner’s satisfaction given their impact on
appearance. As a result, body shop operators are most focused on coatings brands with a strong track record of performance
and reliability. Body shops look for suppliers and brands with productivity enhancements, regulatory compliance, consistent
quality, the presence of ongoing technical support and exact color match technologies. Color matching is a critical component
of coatings supplier selection, since inexact matching adversely impacts vehicle appearance, and if repainting is required due
to a poor match, it can significantly impact the speed and volume of repairs at a given shop.
We develop, market and supply a complete portfolio of innovative coatings systems and color matching technologies to
facilitate faster automotive collision repairs relative to competing technologies. Our color matching technology provides
Axalta-specific formulations that enable body shops to accurately match thousands of vehicle colors, regardless of vehicle
brand, color, age or supplier of the original paint during production. It would be time consuming and costly for a new entrant
to create such an extensive color inventory.
3 Industrial
The industrial end-market is comprised of liquid and powder coatings used in a broad array of end-market applications.
Within the industrial end-market, we focus on the following:
• General Industrial: coatings for a wide and diverse array of applications, including HVAC, shelving, appliances and
electrical storage components, metal furniture, industrial components, sports equipment and playground equipment
as well as ACE, fencing, valves and specialized coatings used for coating the interior of metal drums and packaging
and coatings for the exterior of glass bottles.
• Electrical Insulation Systems: coatings to insulate copper wire used in motors and transformers and coatings to
insulate sheets forming magnetic circuits of motors and transformers, computer elements and other electrical
components.
• Architectural: exterior powder and liquid coatings typically used in the construction of extrusions for commercial
structures, residential windows, doors and cladding.
•
Transportation: liquid and powder coatings for vehicle components, chassis and wheels to protect against corrosion,
provide increased durability and impart appropriate aesthetics.
• Oil & Gas: liquid and powder products to coat tanks, pipelines, valves and fittings protecting against chemicals,
corrosion and extreme temperatures in the oil & gas industry.
• Coil: coatings utilized in various applications such as metal building roof and wall panels, residential and
commercial steel roofing, gutters, appliances, lighting, garage and entry doors, HVAC, office furniture and truck
trailers.
• Wood: coatings utilized in OEM and aftermarket industrial wood markets, including building products, cabinets,
flooring and furniture.
Demand in this end-market is driven by a wide variety of macroeconomic factors, such as growth in GDP, new residential
and commercial construction and industrial production. There has also been an increase in demand for products that enhance
environmental sustainability, corrosion resistance, productivity, and color aesthetics. These global trends are bolstered by
regional and industry specific trends. Customers select industrial coatings based on protection, durability and appearance.
Performance Coatings Products and Brands
We offer a comprehensive range of specially-formulated waterborne and solventborne products and systems used by the
global automotive repair industry to refinish damaged vehicles. Our refinish products and systems include a range of coatings
layers required to match the vehicle’s color and appearance, producing a repair surface indistinguishable from the adjacent
surface.
We provide systems that enable body shops to match more than 200,000 color variations, using a database with more than
four million formulations, in the global market. Our color technology is manifested in the pigment technology that goes into
our tints, one of the most technologically advanced parts of the refinish coatings system, which makes up the majority of our
products in a body shop. We have a large color library and a number of well-known, long-standing premium brands,
including Cromax®, Standox®, Spies Hecker®, and our newest mainstream product, Syrox™, which was introduced in EMEA
in 2016, as well as other regional and local brands.
Our color matching and retrieval systems allow customers to quickly match any color, preventing body shop technicians from
having to repeat the color matching process, saving time and materials. The color matching process begins with a technician
scanning a damaged vehicle with one of our advanced color matching tools, such as our Acquire Plus EFX™ hand-held
spectrophotometer. The Acquire Plus EFX lens reads the color, evaluating both the unique flake and color characteristics of
the specific vehicle. These characteristics may vary significantly, even for vehicles of the same make, model and original
color, due to a variety of factors, including a vehicle’s age, plant at which it was assembled, weather conditions and operating
history. The Acquire Plus EFX electronically connects with our ColorNet® database and generates for the paint technician the
precise mix of tints and colors needed to recreate that specific color needed for the part being repaired. In addition to the
Acquire Plus EFX, we offer customers several other color matching tools, including our VINdicator® database, which
identifies vehicle color based on its vehicle identification number, and traditional color matching wheels and fan decks.
4 We are also a leading global developer, manufacturer and supplier of functional and decorative liquid and powder coatings
for a large number of diversified applications in the industrial end-market. We provide a full portfolio of products for
applications including architectural cladding and fittings, automotive components, general industrial, job coaters, electrical
insulation coatings, HVAC, appliances, aluminum extrusions, rebar and oil & gas pipelines. Through an acquisition
completed in 2017, we have also become a leading manufacturer and supplier of wood coatings sold into the building
product, cabinet, flooring and furniture end-markets in North America. Our liquid systems are used to provide insulation and
corrosion protection for electrical conductors and components, provide chemical resistance for the interiors of metal
packaging drums, protect automotive parts and serve as basecoats for alloy and steel wheels. Powder coatings products are
often an environmentally responsible, higher transfer efficiency alternative to liquid coatings. These coatings are typically
electrostatically sprayed using a specialized spray gun and cured to create a uniform, high-quality finish. In the oil & gas
industry our powder and liquid products are used to protect components from corrosion and severe conditions such as
extreme temperatures.
Our major industrial brands include Voltatex®, AquaEC™, ZENITH®, Durapon®, Hydropon® and Ceranamel® for liquid
coatings and Alesta®, Nap-Gard®, Abcite® and Plascoat® for powder.
Performance Coatings Sales, Marketing and Distribution
We leverage a large global refinish sales and technical support team to effectively serve our broad refinish customer base of
approximately 80,000 body shops. The majority of our products are supplied by our network of approximately 4,000
independent local distributors. In select regions, including parts of Europe, we also sell directly to customers. Distributors
maintain an inventory of our products to fill orders from body shops in their market and assume credit risk and responsibility
for logistics, delivery and billing. In certain countries, we utilize importers that buy directly from us and actively market our
products to body shops. Our relationships with our top ten distributors are longstanding and continue to contribute to our
success in the global refinish market.
Our large sales force manages relationships directly with our end-customers to drive demand for our products, which in turn
are purchased through customers in our distributor network. Due to the local nature of the refinish industry, our sales force
operates on a regional/country basis to provide clients with responsive customer service and local insight. As part of their
coverage efforts, salespeople introduce new products to body shops and provide technical support and ongoing training. We
have 47 customer training centers established globally, which helps to deepen our customer relationships.
Our sales force also helps to drive shop productivity improvements and to install or upgrade body shop color matching and
mixing equipment to improve shop profitability. Once a coating and color system is installed, a body shop almost exclusively
uses its specific supplier’s products. The proprietary nature of a coatings supplier’s color systems, the substantial inventory
needed to support a body shop and the body shop’s familiarity with an established brand lead to high levels of customer
retention. Our customer retention rate levels have been and continue to be strong.
To effectively reach our customers in the industrial end-market we generally ship directly and leverage a dedicated sales force
and technical service team that operates on a regional basis. We are one of only three truly global powder coatings producers
that can satisfy the needs and specifications of a customer in multiple regions of the world, while maximizing productivity
from the broad scale and scope of our operations.
Performance Coatings Customers
Within our Performance Coatings segment, we sell coatings to customers in more than 130 countries. Our top ten customers
accounted for approximately 18% of our Performance Coatings net sales during the year ended December 31, 2018.
In our industrial and refinish end-markets we serve a broad, fragmented customer base. Our industrial end-market is
comprised of a wide variety of industrial manufacturers, while our refinish end-market is comprised of approximately 80,000
body shops, including:
•
Independent Body Shops: Single location body shops that utilize premium, mainstream or economy brands based on
the local market.
5 • Multi-Shop Operators ("MSOs"): Body shops with more than one location focused on providing premium paint jobs
with industry leading efficiency. MSOs use premium/mainstream coatings and state-of-the-art painting technology to
increase shop productivity, allowing them to repair more vehicles faster.
• Original Equipment Manufacturer Dealership Body Shops: High-productivity body shops, located in OEM car
dealerships, that operate like MSOs and provide premium services to customers using premium/mainstream
coatings.
Performance Coatings Competition
Our primary competitors in the refinish end-market include PPG, BASF and Akzo Nobel, but we also compete against
regional players in local markets. Similarly, in the industrial end-market, we compete against multi-national suppliers, such as
Akzo Nobel, PPG, Sherwin-Williams and a large number of local and regional players in local markets. We are one of the
few performance coatings companies that can provide the customer service, technology, color design capability and product
performance necessary to deliver exceptional value to our customers.
Transportation Coatings
Through our Transportation Coatings segment, we provide advanced coatings technologies to OEMs of light and commercial
vehicles. These increasingly global customers require a high level of technical support coupled with cost-effective,
environmentally responsible coatings systems that can be applied with a high degree of precision, consistency and speed.
Transportation Coatings End-Markets
Light Vehicle
Demand for light vehicle products is driven by the production of light vehicles in a particular region. Light vehicle OEMs
select coatings providers on the basis of their global ability to deliver advanced technological solutions that improve exterior
appearance and durability and provide long-term corrosion protection. Customers also look for suppliers that can enhance
process efficiency to reduce overall manufacturing costs and provide on-site technical support. Rigorous environmental and
durability testing as well as obtaining engineering approvals are also key criteria used by global light vehicle OEMs when
selecting coatings providers. Globally integrated suppliers are important because they offer products with consistent
standards across regions and are able to deliver high-quality products in sufficient quantity while meeting OEM service
requirements. Our global scale, differentiated technology platform and customer focus, including on-site support, position us
to be a global partner and solutions provider to the most discerning and demanding light vehicle OEMs. We are one of the
few coatings producers that can provide OEMs with global product specifications, standardized color development,
compatibility with an ever-increasing number of substrates, increasingly complex colors and environmentally responsible
coatings while continuing to simplify and reduce steps in the coating application process.
Commercial Vehicle
Sales in the commercial vehicle end-market are generated from a variety of applications, including non-automotive
transportation (e.g., HDT, bus and rail), motorcycles, marine and aviation, as well as related markets such as trailers,
recreational vehicles and personal sport vehicles. This end-market is primarily driven by global commercial vehicle
production, which is influenced by overall economic activity, government infrastructure spending, equipment replacement
cycles and evolving environmental standards.
6 Commercial vehicle OEMs select coatings providers on the basis of their ability to consistently deliver advanced
technological solutions that improve exterior appearance, protection and durability and provide extensive color libraries and
matching capabilities at the lowest total cost-in-use, while meeting stringent environmental requirements. Particularly for
HDT applications, truck owners demand a greater variety of custom colors and advanced product technologies to enable
custom designs. Our strong market position and growth are driven by our ability to provide customers with our market-
leading brand, Imron®, as well as leveraging our global product lines, regional knowledge and service. Additionally, to
capture further growth we are launching a new suite of products to meet our customers’ evolving needs.
Transportation Coatings Products and Brands
We develop and supply a complete coatings product line for light vehicle OEMs for the original coating of new vehicles.
Products are designed to enhance the styling and appearance of a vehicle’s exterior while providing protection from the
elements, extending the life of the vehicle. Widely recognized in the industry for our advanced and patented technologies, our
products not only increase productivity and profitability for OEMs but also produce attractive and durable finishes. Our light
vehicle coatings portfolio is one of the broadest in the industry.
The coatings operation is a critical component of the vehicle assembly process, requiring a high degree of precision and
speed. The paint shop process typically includes a dip process, three application zones and three high-temperature ovens that
cure each coating layer at temperatures ranging from 320°F to 400°F (i.e., "high bake"). Our key products consist of the four
main coatings layers: electrocoat (AquaEC™), primer (HyperDur™), basecoat (ChromaDyne™) and clearcoat (Lumeera™).
The coatings process accounts for a majority of the total energy consumed during the vehicle manufacturing process. As a
result, we have developed Harmonized Coating TechnologiesTM, including 3-Wet, Eco-Concept and 2-Wet Monocoat, that
help our OEM customers lower costs by reducing energy consumption while increasing productivity.
OEMs are also increasingly looking to reduce the weight of vehicles in response to increasing vehicle emissions and fuel
consumption regulations. As a result, OEMs are constructing vehicle platforms using a variety of new materials in addition to
steel and plastic, including aluminum, carbon fiber and other substrates, each of which requires specialized coatings
formulations to create a uniform color and finish. We continue to innovate with our OEM customers in driving this trend, as
evidenced by use of our coatings on their flagship vehicle platforms.
We also develop and supply a wide array of coatings systems for a broad range of commercial applications including HDT,
bus, rail and ACE. These products simultaneously enhance aesthetic appearance and provide protection from the elements.
We meet the demands of commercial vehicle customers with our extensive offering of over 75,000 different colors. In the
HDT market, because the metal and composite components are painted simultaneously in an automatic process, most truck
OEMs use low bake coatings to ensure that the plastic composite parts on a truck’s exterior do not deform during the process.
Truck owners demand a wide variety of custom colors that are formulated using a combination of on-site mixing machines at
the OEM or direct shipments of premixed high-volume colors from us. Our commercial vehicle brands include Imron®,
Imron ExcelPro®, Imron Elite®, Centari®, Rival®, Corlar® epoxy undercoats and AquaEC™.
Transportation Coatings Sales, Marketing and Distribution
We have full-time technical representatives stationed at OEM facilities around the world. These on-site representatives
provide customer support, monitor the painting process and track paint demand at each assembly plant. Monitoring OEM line
performance in real-time allows our technical support teams to help improve paint department operating efficiency and
provide performance feedback to our formulating chemists and paint manufacturing teams. Our customer technical support
representatives also help OEMs manage their physical inventory by forecasting facility coatings demand based on the
customer’s build schedule.
We sell and ship products directly to light vehicle OEM customers in each of our four regions coordinated via a global point
of contact for each customer and assist OEMs with on-site customer support. Located in 14 countries, our manufacturing
facilities provide a local presence that enables us to cultivate strong relationships, gain intimate customer knowledge, provide
superior technical support to our key customers and maintain "just-in-time" product delivery capabilities critical to OEMs.
Our local presence also allows us to quickly react to changing local dynamics, offer high-quality products and provide
excellent customer service.
In the commercial vehicle end-market, we employ a dedicated sales and technical service team to support our diverse
customer base, including a direct sales force supporting the HDT market. We ship our coatings directly to commercial vehicle
OEMs and provide on-site technical service representatives that play an important role by helping optimize the painting
process and by providing responsive customer support.
7 Transportation Coatings Customers
We provide our products to light and commercial vehicle customers at over 200 assembly plants worldwide, including nine of
the top ten global automotive manufacturers. We have a stable customer base with several relationships dating back
approximately 90 years and believe we are well positioned with the fastest growing OEMs in both the developed and
emerging markets. Our top ten customers accounted for approximately 68% of our Transportation Coatings net sales during
the year ended December 31, 2018.
Transportation Coatings Competition
We primarily compete against large multi-national suppliers such as PPG and BASF in the light and commercial vehicle end-
markets. Additionally, we compete against certain regional players in Asia Pacific. With our state-of-the-art coatings solutions
and local presence in key OEM markets, we are one of the few competitors in the industry that offers global manufacturers
the combination of high-quality products, personalized, top-rate technical service and short lead-times for product delivery.
KEY RAW MATERIALS
We use thousands of different raw materials, which fall into seven broad categories: liquid resins, powder resins, pigments,
solvents, monomers, isocyanates and additives. On average, our total raw material spend represents between 45% and 55% of
our cost of sales. We purchase raw materials from a diverse group of suppliers, with our top ten suppliers representing
approximately 30% of our 2018 spending on raw materials.
Approximately 65% of the raw materials we procure are derived from crude oil and natural gas. While prices for these raw
materials fluctuate with energy prices, such fluctuations are somewhat mitigated by the fact that the majority of our raw
materials are fourth to sixth generation derivatives of crude oil and natural gas. The dynamics of supply and demand play a
much more critical role in our cost of raw materials than just the price of crude oil. Non-petrochemical based inputs such as
minerals that are used to manufacture coating pigments are not significantly affected by volatility in crude oil prices but tend
to be impacted by the supply-demand dynamics of their industry.
Historically, to manage raw material volatility, we have used a combination of price increases to customers and, in limited
circumstances, contractual raw material recovery mechanisms. Since 2001, our variable cost of sales has remained stable
between 35% and 43% of net sales.
RESEARCH AND DEVELOPMENT
Our focus on technology has allowed us to proactively provide customers with next-generation offerings that enhance
product performance, improve productivity and satisfy increasingly strict environmental regulations. Since our entry into the
coatings industry over 150 years ago, we believe we have consistently been at the forefront of coatings technology
innovation. These innovations have played a fundamental role in our ability to maintain and grow our global market share as
well as deliver substantial financial returns.
We believe that we are a technology leader well positioned to benefit from continued industry shifts in customer needs. Our
markets are among the most demanding in the coatings industry with high levels of product performance that continuously
evolves, with increasing expectations for productivity on customer lines and with environmentally responsible products. Our
technology development is led by a highly experienced and educated workforce that is focused on new product development,
color development, technical customer support and improving our manufacturing processes. As such, our technology
development covers two critical interrelated aspects for us, including research and development as well as technical
support and manufacturing. In total, as of December 31, 2018, we have approximately 1,400 employees dedicated to
technology development. We operate four major technology centers throughout the world where we develop and align our
technology investments with regional business needs complemented by over 30 regional laboratories which provide local
connection to our global customer base. This includes our new Global Innovation Center located in Philadelphia,
Pennsylvania which opened in 2018 for global research, product development and technology initiatives.
PATENTS, LICENSES AND TRADEMARKS
As of December 31, 2018, we had a portfolio of over 740 issued patents and more than 400 trademarks. We actively apply
for and obtain U.S. and foreign patents and trademarks on new products and process innovations and as of December 31,
2018, 189 patent applications were pending throughout the world.
Our primary purpose in obtaining patents is to protect the results of our research for use in operations and licensing. We are
also party to a substantial number of patent licenses and other technology agreements. We have a significant number of
trademarks and trademark registrations in the United States and in other countries, as described below.
8 We own or otherwise have rights to the trademarks, service marks, copyrights and trade names used in conjunction with the
marketing and sale of our products and services. These trademarks include Abcite®, Alesta®, AquaEC™, AudurraTM,
Centari®, Ceranamel®, ChallengerTM, ChemophanTM, ColorNet®, Corlar®, Cromax®, Cromax Mosaic®, Durapon 70®,
DuxoneTM, Harmonized Coating Technologies®, Hydropon®, Imron®, Imron Elite®, Imron ExcelPro®, LutophenTM, Nap-
Gard®, Nason®, Rival®, Spies Hecker®, Standox®, StollaquidTM, SyntopalTM, SyroxTM, Vermeera® and Voltatex®, which are
protected under applicable intellectual property laws and are the property of us and our subsidiaries.
Although we consider that our patents, licenses and trademarks in the aggregate constitute a valuable asset, we do not regard
our business as being materially dependent on any single or group of related patents, licenses or trademarks.
JOINT VENTURES
We are party to 12 joint ventures, five of which are focused on the industrial end-market. We are the majority shareholder,
and/or exercise control in our nine consolidated joint ventures. Our fully consolidated joint venture-related net sales were
$315.6 million, $296.0 million and $231.7 million for the years ended December 31, 2018, 2017 and 2016, respectively. See
Part I, Item 1A, "Risk Factors—Risks Related to our Business—Risks Related to Other Aspects of our Business—Our joint
ventures may not operate according to our business strategy if our joint venture partners fail to fulfill their obligations."
EMPLOYEES
As of December 31, 2018, we had approximately 14,000 employees located throughout the world consisting of sales,
technical, manufacturing operations, supply chain, administrative and customer service personnel.
As of December 31, 2018, approximately 38% of our employees globally were covered by organized labor agreements,
including works councils, with fewer than 10 employees in the United States covered by organized labor agreements. We
consider our employee relations to be good overall.
ENVIRONMENTAL, HEALTH AND SAFETY
We are committed to environmental stewardship and to health, safety and sustainability excellence in our global operations.
As such, we operate in compliance with applicable laws and regulations governing the protection of the environment and
health and safety of our employees and neighboring communities.
Safety is integrated into the way we do business. Our safety program is structured on the foundation that every employee is
engaged and committed to improving safe operating practices and eliminating injuries. When health and safety incidents do
occur, we strive to determine the causes and eliminate the potential for future similar incidents. In 2018, Axalta’s injury and
illness performance resulted in a 0.38 OSHA Recordable Incident Rate, compared to the 2.0 OSHA Recordable Incident Rate
for the General Chemical Industry (according to the US Bureau of Labor Statistics 2017 data).
Our Environment, Health, Safety (EHS) and Sustainability policies and standards are a key element of the foundation upon
which we develop, market, manufacture, and distribute products and services to our global customers. In 2017 we established
a Board-level committee responsible for our EHS and Sustainability policies, performance, strategy and compliance matters.
We operate our manufacturing facilities using a common set of internal standards. These standards support a consistent
approach to EHS and Sustainability performance improvement. We strive to assure that all our manufacturing and
distribution facilities are operated in compliance in all known material respects to applicable environmental requirements.
Many of our manufacturing sites have a long history of industrial operations and government required remediation is or may
be required at a number of these locations. Although we are indemnified by DuPont for certain environmental liabilities and
we do not expect outstanding remediation obligations to have a material impact on our financial position, the ultimate cost of
remediation is subject to a number of variables and difficult to accurately predict. We may also incur significant additional
costs as a result of contamination that is discovered and/or government required remediation obligations that are imposed at
these or other properties in the future.
During 2016, Axalta achieved and continues to maintain a global, multi-site certification for RC14001. This certification
incorporates the elements of the American Chemistry Council’s Responsible Care Program including product safety and
compliance, process safety and security, as well as the ISO 14001 certification specifically related to our environmental
stewardship program. We anticipate all manufacturing locations will be covered by this certificate by 2020.
9 WHERE YOU CAN FIND MORE INFORMATION
Our website address is www.axalta.com. We post, and shareholders may access without charge, our recent filings and any
amendments thereto of our annual reports on Form 10-K, quarterly reports on Form 10-Q and proxy statements as soon as
reasonably practicable after such reports are filed with the Securities and Exchange Commission ("SEC"). We also post all
financial press releases, including earnings releases, to our website. All other reports filed or furnished to the SEC on the
SEC’s website, www.sec.gov, including current reports on Form 8-K, are available via direct link on our website. Reference
to our and the SEC’s websites herein do not incorporate by reference any information contained on those websites and such
information should not be considered part of this Form 10-K.
10 ITEM 1A. RISK FACTORS
As a global manufacturer, marketer and distributor of high performance coatings systems, we operate in a business
environment that includes risks. These risks are not unlike the risks we have faced in the recent past nor are they unlike risks
faced by our competitors. If any of the events contemplated by the following discussion of risks should occur, our business,
results of operations, financial condition and cash flows could suffer significantly. While the factors listed here are
considered to be the more significant factors, they should not be considered to be a complete statement of all potential risks
and uncertainties. Unlisted factors may present significant additional obstacles which may adversely affect our businesses
and our results of operations.
Risks Related to our Business
Risks Related to Execution of our Strategic and Operating Plans
Our financial position, results of operations and cash flows could be materially adversely affected by difficult economic
conditions, and/or significant volatility in the capital, credit and commodities markets.
Several of the end-markets we serve are cyclical, and macroeconomic and other factors beyond our control could reduce
demand from these end-markets for our products, materially adversely affecting our business, financial condition and results
of operations. Weak economic conditions could depress new car sales and/or production, reducing demand for our light
vehicle OEM coatings and limit the growth of the car parc. These factors could, in turn, cause a related decline in demand for
our automotive refinish coatings because, as the age of a vehicle increases, the propensity of car owners to pay for cosmetic
repairs generally decreases. Also, during difficult economic times, car owners may refrain from seeking repairs for their
damaged vehicles. Similarly, periods of reduced global economic activity could hinder global industrial output, which could
decrease demand for our industrial and commercial coating products.
Our global business is adversely affected by decreases in the general level of economic activity, such as decreases in business
and consumer spending, construction activity and industrial manufacturing. Disruptions in the United States, Europe or other
economies, or weakening of emerging markets, such as Brazil or China, could adversely affect our sales, profitability and/or
liquidity.
Further, a tightening of credit in financial markets could adversely affect the ability of our customers and suppliers to obtain
financing for significant purchases and operations, could result in a decrease in or cancellation of orders for our products and
services and could impact the ability of our customers to make payments owed to us. Similarly, a tightening of credit in
financial markets could adversely affect our supplier base and increase the potential for one or more of our suppliers to
experience financial distress or bankruptcy.
We may be unable to successfully execute on our growth initiatives, business strategies or operating plans.
We are executing on a number of growth initiatives, strategies and operating plans designed to enhance our business. For
example, we are undertaking certain operational improvement initiatives with respect to realigning our manufacturing
facilities in multiple regions. In 2018, we announced the closing of our Mechelen, Belgium manufacturing facility as part of
our restructuring initiative. We anticipate completion of the restructuring and closure activities during the second half of 2020
and will continue this realignment in the coming years. We are also growing our sales force in emerging markets and end-
markets where we are underrepresented. The anticipated benefits from these efforts are based on several assumptions that
may prove to be inaccurate. A variety of risks could cause us not to realize some or all of the expected benefits. These risks
include, among others, delays in the anticipated timing of activities related to such growth initiatives, strategies and operating
plans; increased difficulty and cost in implementing these efforts; and the incurrence of other unexpected costs associated
with operating the business. Further, our continued implementation of these programs may disrupt our operations and
performance. As a result, we cannot assure you that we will realize these benefits. If, for any reason, the benefits we realize
are less than our estimates or the implementation of these growth initiatives, strategies and operating plans adversely affect
our operations or cost more or take longer to effectuate than we expect, or if our assumptions prove inaccurate, our results of
operations may be materially adversely affected.
Increased competition may adversely affect our business, financial condition and results of operations.
We face substantial competition from many international, national, regional and local competitors of various sizes in the
manufacturing, distribution and sale of our coatings and related products. Some of our competitors are larger than us and
have greater financial resources than we do. Other competitors are smaller and may be able to offer more specialized
products. We believe that technology, product quality, product innovation, breadth of product line, technical expertise,
distribution, service, local presence and price are the key competitive factors for our business. Competition in any of these
areas may reduce our net sales and adversely affect our earnings or cash flow by resulting in decreased sales volumes,
reduced prices and increased costs of manufacturing, distributing and selling our products.
11 Improved safety features on vehicles, insurance company influence, the introduction of new business models or new
methods of travel, and weather conditions may reduce the demand for some of our products and could have a negative
effect on our business, financial condition and results of operations.
Vehicle manufacturers continue to develop new safety features such as collision avoidance technology and self-driving
vehicles that may reduce vehicle collisions in the future, potentially negatively impacting demand for our refinish coatings.
Insurance companies may influence vehicle owners to use body shops that do not use our products, which could also
potentially negatively impact demand for our refinish coatings. In addition, through the introduction of new technologies,
new business models or new methods of travel, such as ridesharing, the number of automotive OEM new-builds may decline,
potentially reducing demand for our automotive OEM coatings. Furthermore, from time to time, weather conditions have an
adverse effect on our sales of coatings and related products. For example, unusually mild weather during winter months may
lead to fewer vehicle collisions, reducing market demand for our refinish coatings. Any resulting reduction in demand for our
refinish coatings could have a material adverse effect on our business, financial condition and results of operations.
The loss of or reduced purchases by any of our largest customers, or the consolidation of MSOs, distributors and/or body
shops, could adversely affect our business, financial condition and results of operations.
We have some customers that purchase a large amount of products from us and we are also reliant on distributors to assist us
in selling our products. Our largest single customer accounted for approximately 6.3% of our 2018 net sales and our largest
distributor accounted for approximately 4.0% of our 2018 net sales. Consolidation of any of our customers, including MSOs,
distributors and body shops, could decrease our customer base and impact our results of operations if the resulting business
seeks different sales terms or chooses to use one of our competitors for the consolidated business. The loss of any of our large
customers or significant changes in their level of purchases, as a result of changes in business conditions, working capital
levels, product requirements, consolidation or otherwise, could have a material adverse effect on our business, financial
condition and results of operations.
We rely on our distributor network and third-party delivery services for the distribution and export of certain of our
products. A significant disruption in these services or significant increases in prices for those services may disrupt our
ability to export material or increase our costs.
We ship a significant portion of our products to our customers through our distributor network as well as independent third-
party delivery companies. If any of our key distributors or third-party delivery providers experiences a significant disruption
such that our products cannot be delivered in a timely fashion or such that we incur additional shipping costs that we could
not pass on to our customers, our costs may increase and our relationships with certain of our customers may be adversely
affected. In addition, if our distributors or third-party delivery providers increase prices and we are not able to pass along
these increases to customers, find comparable alternatives or adjust our delivery network, our business, financial condition
and results of operations could be adversely affected.
We take on credit risk exposure from our customers in the ordinary course of our business.
We routinely offer customers pre-bates, loans and other financial incentives to purchase our products. These arrangements
generally obligate the customer to purchase products from us and/or repay us for products over time. In the event that a
customer is unwilling or unable to fulfill its obligations under these arrangements, we may incur a financial loss. In addition,
in the ordinary course of our business, we guarantee certain of our customers’ obligations to third parties. Any default by our
customers on their obligations could force us to make payments to the applicable creditor. It is possible that customer defaults
on obligations owed to us and on third-party obligations that we have guaranteed could be significant, which could have a
material adverse effect on our business, financial condition and results of operations.
Price increases, business interruptions or declines in the supply of raw materials could have a significant impact on our
ability to grow or sustain earnings.
Our manufacturing processes consume significant amounts of raw materials, the costs of which are subject to worldwide
supply and demand as well as other factors beyond our control. We use a significant amount of raw materials derived from
crude oil and natural gas. As a result, volatile oil and gas prices can cause significant variations in our raw materials costs,
affecting our operating results. In rising raw material price environments, we may be unable to pass along these increased
costs to our customers. In declining raw material price environments, customers may seek price concessions from us greater
than any raw material cost savings we realize. If we are not able to fully offset the effects of higher raw materials costs, or if
customers demand greater raw material price concessions than we obtain in low raw material cost environments, our financial
results could deteriorate. In addition to the risks associated with raw materials prices, supplier capacity constraints, supplier
production disruptions, including supply disruptions, increasing costs for energy, or the unavailability of certain raw materials
could result in harm to our manufacturing capabilities or supply imbalances that may have a material adverse effect on our
business, financial condition and results of operations.
12 Failure to develop and market new products and manage product life cycles could impact our competitive position and
have a material adverse effect on our business, financial condition and results of operations.
Our operating results are largely dependent on our development and management of our portfolio of current, new and
developing products and services as well as our ability to bring those products and services to market. We plan to grow our
business by focusing on developing and marketing our solutions to meet increasing demand for productivity. Our ability to
execute this strategy and our other growth plans successfully could be adversely affected by difficulties or delays in product
development, such as the inability to identify viable new products, successfully complete research and development, obtain
relevant regulatory approvals, effectively manage our manufacturing process or costs, obtain intellectual property protection,
or gain market acceptance of new products and services. Because of the lengthy and costly development process,
technological challenges and intense competition, we cannot assure you that any of the products we are currently developing,
or that we may develop in the future, will achieve substantial commercial success. For example, in addition to developing
technologically advanced products, commercial success of those products will depend on customer acceptance and
implementation of those products. A failure to develop commercially successful products or to develop additional uses for
existing products could materially adversely affect our business, financial results or results of operations. Further, sales of our
new products could replace sales of some of our current products, offsetting the benefit of even a successful product
introduction.
Our information technology systems are subject to security risks.
We rely on information technology systems to conduct business. Information security risks have generally increased in recent
years because of the proliferation of new technologies and the increased sophistication and activities of cyber attackers. In
addition, by utilizing third parties to perform certain business and administrative functions, we may be exposed to greater risk
of data security breaches. Our information technology systems may be susceptible to damage, disruptions or shutdowns due
to power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors,
catastrophes or other unforeseen events. Any such event relating to our systems (or the systems of third parties that we rely
on), could result in theft, misuse, modification or destruction of information, including trade secrets and confidential business
information, and cause business disruptions, reputational damage and third-party claims, any of which could have a material
adverse effect on our business, financial condition or results of operations. Since the techniques used to obtain unauthorized
access to systems or to otherwise sabotage them, change frequently and are often not recognized until launched against a
target, we may be unable to anticipate these techniques or to implement adequate preventative measures. While we have
designed and implemented controls to restrict access to our data and information technology infrastructure, it is still
vulnerable to unauthorized access through cyber attacks, theft and other security breaches. These types of attacks have been
attempted against our systems from time to time, with no material adverse impacts to date, and our protective measures may
not be adequate to ensure that our operations will not be disrupted, should another such event occur in the future. Although
we continually seek to improve our countermeasures to prevent such events, we may be unable to anticipate every scenario
and it is possible that certain cyber threats or vulnerabilities will be undetected or unmitigated in time to prevent an attack on
us and our customers.
Our ability to conduct our business might be negatively impacted if we experience difficulties with outsourcing and similar
third-party relationships.
We outsource certain business and administrative functions and rely on third parties to perform certain services on our behalf.
We may do so increasingly in the future. If we fail to develop and implement our outsourcing strategies, such strategies prove
to be ineffective or fail to provide expected cost savings, or our third-party providers fail to perform as anticipated, we may
experience operational difficulties, increased costs, reputational damage and a loss of business that may have a material
adverse effect on our business, financial condition and results of operations.
13 Risks Related to our Global Operations
As a global business, we are subject to risks associated with our non-U.S. operations that are not present in the United
States.
We conduct our business on a global basis, with approximately 66% of our 2018 net sales occurring outside the United
States. We anticipate that international sales will continue to represent a substantial portion of our net sales and that our
strategy for continued growth and profitability will entail further international expansion, particularly in emerging markets.
Changes in local and regional economic conditions could affect product demand in our non-U.S. operations. Specifically, our
financial results could be affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities
of U.S. and non-U.S. governments, agencies and similar organizations. These conditions include, but are not limited to,
changes in a country’s or region’s social, economic or political conditions, trade regulations affecting production, pricing and
marketing of products, local labor conditions and regulations, reduced protection of intellectual property rights in some
countries, changes in the regulatory or legal environment, restrictions on currency exchange activities, burdensome taxes and
tariffs and other trade barriers, as well as the imposition of economic or other trade sanctions, each of which could impact our
ability to do business in certain jurisdictions or with certain persons. For example, the U.S. government has taken actions or
made proposals that are intended to address trade imbalances, specifically with China, among other countries, which include
encouraging increased production in the United States. These actions and proposals have resulted or could result in increased
customs duties and the renegotiation of some U.S. trade agreements. In addition, it is not known how the withdrawal by the
United States from the Trans-Pacific Partnership trade agreement may also affect our business. As another example, new
legislation known as the Worldwide Harmonized Light Vehicle Testing Procedure ("WLTP"), which requires all vehicles sold
in Europe to comply with new fuel economy testing and carbon emissions standards, has and may continue to impact light
vehicle production in Europe, which could result in reduced net sales and profitability. Our international operations also
present risks associated with terrorism, political hostilities, war and other civil disturbances, the occurrence of which could
lead to reduced net sales and profitability. Our international sales and operations are also sensitive to changes in foreign
national priorities, including government budgets.
Our day-to-day operations outside the United States are subject to cultural and language barriers and the need to adopt
different business practices in different geographic areas. In addition, we are required to create compensation programs,
employment policies and other administrative programs that comply with the laws of multiple countries. We also must
communicate and monitor standards and directives across our global operations. Our failure to successfully manage our
geographically diverse operations could impair our ability to react quickly to changing business and market conditions and to
enforce compliance with non-U.S. standards and procedures.
Any payment of distributions, loans or advances to and from our subsidiaries could be subject to restrictions on or taxation
of, dividends or repatriation of earnings under applicable local law, monetary transfer restrictions, foreign currency exchange
regulations in the jurisdictions in which our subsidiaries operate or other restrictions imposed by current or future
agreements, including debt instruments, to which our non-U.S. subsidiaries may be a party. In particular, our operations in
Brazil, China and India where we maintain local currency cash balances are subject to import authorization or pricing
controls.
Currency risk may adversely affect our financial condition and cash flows.
We derive a significant portion of our net sales from outside the United States and conduct our business and incur costs in the
local currency of most countries in which we operate. Because our financial statements are presented in U.S. dollars, we must
translate our financial results as well as assets and liabilities into U.S. dollars for financial statement reporting purposes at
exchange rates in effect during or at the end of each reporting period, as applicable. Therefore, increases or decreases in the
value of the U.S. dollar against other currencies in countries where we operate will affect our results of operations and the
value of balance sheet items denominated in foreign currencies. In particular, we are exposed to the Euro, the Brazilian real,
the Chinese yuan, the British pound, the Australian dollar and the Russian ruble. For example, unfavorable movement in the
Euro negatively impacted our results of operations in prior periods and future declines of the Euro could affect future periods.
Furthermore, many of our local businesses import or buy raw materials in a currency other than their functional currency,
which can impact the operating results for these operations if we are unable to mitigate the impact of the currency exchange
fluctuations. We cannot accurately predict the effects of exchange rate fluctuations upon our future operating results because
of the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange
rates. Accordingly, fluctuations in foreign exchange rates may have an adverse effect on our financial condition and cash
flows.
14 Terrorist acts, conflicts, wars and natural disasters may materially adversely affect our business, financial condition and
results of operations.
As a multinational company with a large international footprint, we are subject to increased risk of damage or disruption to
us, our employees, facilities, partners, suppliers, distributors, resellers or customers due to terrorist acts, conflicts, wars,
adverse weather conditions, natural disasters, power outages, pandemics or other public health crises and environmental
incidents, wherever located around the world. The potential for future terrorist attacks and natural disasters, the national and
international responses to terrorist attacks and natural disasters or perceived threats to national security and other actual or
potential conflicts or wars may create economic and political uncertainties. In addition, as a multinational company with
headquarters and significant operations located in the United States, actions against or by the United States could result in a
decrease in demand for our products, make it difficult or impossible to deliver products to our customers or to receive
components from our suppliers, create delays and inefficiencies in our supply chain and pose risks to our employees,
resulting in the need to impose travel restrictions. A catastrophic loss of the use of all or a portion of one of our key
manufacturing facilities due to accident, labor issues, weather conditions, acts of war, political unrest, geopolitical risk,
terrorist activity, natural disaster or otherwise, whether short- or long-term, and any interruption in production capability
could require us to make substantial capital expenditures to remedy the situation, which could negatively affect our business,
financial condition and results of operations.
The United Kingdom’s withdrawal from the European Union may have a negative effect on global economic conditions,
financial markets and our business.
In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union ("EU") in a national
referendum (commonly referred to as "Brexit"). In March 2017, the UK government initiated the exit process under Article
50 of the Treaty of the European Union, commencing a period of up to two years for the United Kingdom and the other EU
member states to negotiate the terms of the withdrawal. The British government and the European Union have now
negotiated a withdrawal agreement, and the European Union has approved that agreement, but the British Parliament has not
yet approved it. Brexit has created significant uncertainty about the future relationship between the United Kingdom and the
European Union, including with respect to the laws and regulations that will apply as the United Kingdom determines which
European Union laws to replace or replicate in the event of a withdrawal. Failure to obtain parliamentary approval of the
negotiated withdrawal agreement would mean that the United Kingdom would leave the European Union on March 29, 2019,
potentially with no agreement (a so-called "hard Brexit"). We have substantial R&D and manufacturing operations in Europe
and a significant portion of our business involves cross border transactions throughout the region. The consequences for the
economies of the European Union members and of the United Kingdom exiting the European Union are unknown and
unpredictable, especially in the case of a hard Brexit. Depending on the final terms of Brexit, we could face new regulatory
costs and challenges and greater volatility in the Pound Sterling and the Euro. Any adjustments we make to our business and
operations as a result of Brexit could result in significant time and expense to complete. In addition, these developments, or
the perception that any of them could occur, have caused and may continue to cause significant volatility in the global
financial markets as well as business conditions in Europe and beyond. This volatility may significantly reduce global market
liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could
depress economic activity and restrict our access to capital, which could have a material adverse effect on our business,
financial condition and results of operations and reduce the price of our common shares.
15 Risks Related to Legal and Regulatory Compliance and Litigation
Our failure to comply with the anti-corruption laws of the United States and various international jurisdictions could
negatively impact our reputation and results of operations.
Doing business on a global basis requires us to comply with the laws and regulations of the U.S. government and those of
various international and sub-national jurisdictions, and our failure to successfully comply with these rules and regulations
may expose us to liabilities. These laws and regulations apply to companies, individual directors, officers, employees and
agents, and may restrict our operations, trade practices, investment decisions and partnering activities. In particular, our
international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the U.S. Foreign Corrupt
Practices Act (the "FCPA"), the United Kingdom Bribery Act 2010 (the "Bribery Act") as well as anti-corruption laws of the
various jurisdictions in which we operate. The FCPA, the Bribery Act and other laws prohibit us and our officers, directors,
employees and agents acting on our behalf from corruptly offering, promising, authorizing or providing anything of value to
foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining
favorable treatment. As part of our business, we deal with state-owned business enterprises, the employees and
representatives of which may be considered foreign officials for purposes of the FCPA or the Bribery Act. We are subject to
the jurisdiction of various governments and regulatory agencies outside of the United States, which may bring our personnel
into contact with foreign officials responsible for issuing or renewing permits, licenses or approvals or for enforcing other
governmental regulations. In addition, some of the international locations in which we operate lack a developed legal system
and have elevated levels of corruption. Our global operations expose us to the risk of violating, or being accused of violating,
the foregoing or other anti-corruption laws. Such violations could be punishable by criminal fines, imprisonment, civil
penalties, disgorgement of profits, injunctions and exclusion from government contracts, as well as other remedial measures.
Investigations of alleged violations can be very expensive, disruptive and damaging to our reputation. Although we have
implemented anti-corruption policies and procedures and introduced training since becoming an independent company, there
can be no guarantee that these policies, procedures and training will effectively prevent violations by our employees or
representatives in the future. Additionally, we face a risk that our distributors and other business partners may violate the
FCPA, the Bribery Act or similar laws or regulations. Such violations could expose us to FCPA and Bribery Act liability and/
or our reputation may potentially be harmed by their violations and resulting sanctions and fines.
Our international operations require us to comply with anti-terrorism laws and regulations and applicable trade
embargoes.
We are subject to trade and economic sanctions laws and other restrictions on international trade. The U.S. and other
governments and their agencies impose sanctions and embargoes on certain countries, their governments and designated
parties. In the United States, the economic and trade sanctions programs are principally administered and enforced by the
U.S. Treasury Department’s Office of Foreign Assets Control. If we fail to comply with these laws, we could be subject to
civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect our business, financial
condition and results of operations. Although we have implemented trade-related policies and procedures and introduced
training since becoming an independent company, we cannot assure you that such policies, procedures and training will
effectively prevent violations in the future, particularly as the scope of certain laws may be unclear and may be subject to
changing interpretations.
We cannot predict the nature, scope or effect of future regulatory requirements to which our international sales and
manufacturing operations might be subject or the manner in which existing laws might be administered or interpreted. Future
regulations could limit the countries in which some of our products may be manufactured or sold, or could restrict our access
to, or increase the cost of obtaining, products from foreign sources. The occurrence of any of the foregoing could have a
material adverse effect on our business, financial condition and results of operations.
We are subject to complex and evolving data privacy laws.
Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection and
other matters. We could be liable for loss or misuse of our customers’ personal information and/or our employee’s personally-
identifiable information if we fail to prevent or mitigate such misuse or breach. Although we have developed systems and
processes that are designed to protect customer and employee information and prevent misuse of such information and other
security breaches, failure to prevent or mitigate such misuse or breaches may affect our reputation and operating results
negatively and may require significant management time and attention.
16 As a result of our current and past operations and/or products, including operations and/or products related to our
businesses prior to the Acquisition, we could incur significant environmental liabilities and costs.
We are subject to various laws and regulations around the world governing the protection of the environment and health and
safety, including the discharge of pollutants to air and water and the management and disposal of hazardous substances.
These laws and regulations not only govern our current operations and products, but also impose potential liability on us for
our or our predecessors’ past operations. We could incur fines, penalties and other sanctions as a result of violations of such
laws and regulations. In addition, as a result of our operations and/or products, including our past operations and/or products
related to our businesses prior to the Acquisition, we could incur substantial costs, including costs relating to remediation and
restoration activities and third-party claims for property damage or personal injury. The ultimate costs under environmental
laws and the timing of these costs are difficult to accurately predict. Our accruals for costs and liabilities at sites where
contamination is being investigated or remediated may not be adequate because the estimates on which the accruals are based
depend on a number of factors including the nature of the matter, the complexity of the site, site geology, the nature and
extent of contamination, the type of remedy, the outcome of discussions with regulatory agencies and, at multi-party sites,
other Potentially Responsible Parties ("PRPs") and the number and financial viability of other PRPs. Additional
contamination may also be identified, and/or additional cleanup obligations may be incurred, at these or other sites in the
future. For example, periodic monitoring or investigation activities are ongoing at a number of our sites where contaminants
have been detected or are suspected, and we may incur additional costs if more active or extensive remediation is required. In
addition, in connection with the Acquisition, DuPont has, subject to certain exceptions and exclusions, agreed to indemnify
us for certain liabilities relating to environmental remediation obligations and certain claims relating to the exposure to
hazardous substances and products manufactured prior to our separation from DuPont. We could incur material additional
costs if DuPont fails to meet its obligations, if the indemnification proves insufficient or if we otherwise are unable to recover
costs associated with such liabilities. The costs of our current operations complying with complex environmental laws and
regulations, as well as internal voluntary programs, are significant and will continue to be so for the foreseeable future as
environmental regulations become more stringent. These laws and regulations also change frequently, and we may incur
additional costs complying with stricter environmental requirements that are promulgated in the future. Concerns over global
climate change as well as more frequent and severe weather events have also promoted a number of legal and regulatory
measures as well as social initiatives intended to reduce greenhouse gas and other carbon emissions. We cannot predict the
impact that changing climate conditions or more frequent and severe weather events, if any, will have on our business, results
of operations or financial condition. Moreover, we cannot predict how legal, regulatory and social responses to concerns
about global climate change will impact our business.
As a producer of coatings, we transport certain materials that are inherently hazardous due to their toxic nature.
In our business, we handle and transport hazardous materials. If mishandled or released into the environment, these materials
could cause substantial property damage or personal injuries resulting in significant legal claims against us. In addition,
evolving regulations concerning the handling and transportation of certain materials could result in increased future capital or
operating costs.
Our results of operations could be adversely affected by litigation.
We face risks arising from various litigation matters that have been asserted against us or that may be asserted against us in
the future, including, but not limited to, claims for product liability, patent and trademark infringement, antitrust, warranty,
contract and third-party property damage or personal injury. For instance, we have noted a nationwide trend in purported
class actions against chemical manufacturers generally seeking relief such as medical monitoring, property damages, off-site
remediation and punitive damages arising from alleged environmental torts without claiming present personal injuries. We
have also noted a trend in public and private nuisance suits being filed on behalf of states, counties, cities and utilities
alleging harm to the general public. In addition, various factors or developments can lead to changes in current estimates of
liabilities such as a final adverse judgment, significant settlement or changes in applicable law. A future adverse ruling or
unfavorable development could result in future charges that could have a material adverse effect on us. An adverse outcome
in any one or more of these matters could be material to our business, financial condition and results of operations. In
particular, product liability claims, regardless of their merits, could be costly, divert management’s attention and adversely
affect our reputation and demand for our products.
Risks Related to Human Resources
We may not be able to recruit and retain the experienced and skilled personnel we need to compete.
Our future success depends on our ability to attract, retain, develop and motivate highly skilled personnel. We must have
talented personnel to succeed and competition for senior management in our industry is intense. Our ability to meet our
performance goals depends upon the personal efforts and abilities of the principal members of our senior management who
provide strategic direction, develop our business, manage our operations and maintain a cohesive and stable work
environment. We cannot assure you that we will retain or successfully recruit senior executives, or that their services will
remain available to us.
17 We rely on qualified managers and skilled employees, such as scientists, with technical and manufacturing industry
experience in order to operate our business successfully. From time to time, there may be a shortage of skilled labor, which
may make it more difficult and expensive for us to attract and retain qualified employees. If we are unable to attract and
retain sufficient numbers of qualified individuals or our costs to do so increase significantly, our operations could be
materially adversely affected.
In 2018 we appointed a new Chief Executive Officer and Chief Financial Officer. There are inherent risks and uncertainties
related to the transition in leadership which may cause our business, strategy or results to materially differ.
If we are required to make unexpected payments to any pension plans applicable to our employees, our financial
condition may be adversely affected.
We have defined benefit pension plans in which many of our current and former employees outside the United States
participate or have participated. Many of these plans are underfunded or unfunded and the liabilities in relation to these plans
will need to be satisfied as they mature from our operating reserves. In jurisdictions where the defined benefit pension plans
are intended to be funded with assets in a trust or other funding vehicle, the liabilities exceed the corresponding assets in
many of the plans. Various factors, such as changes in actuarial estimates and assumptions (including as to life expectancy,
discount rates and rate of return on assets) as well as actual return on assets, can increase the expenses and liabilities of the
defined benefit pension plans. The assets and liabilities of the plans must be valued from time to time under applicable
funding rules and as a result we may be required to increase the cash payments we make in relation to these defined benefit
pension plans.
Our financial condition and results of operations may be adversely affected to the extent that we are required to make any
additional payments to any relevant defined benefit pension plans in excess of the amounts assumed in our current
projections and assumptions or report higher pension plan expenses under relevant accounting rules.
We are subject to work stoppages, union negotiations, labor disputes and other matters associated with our labor force,
which may adversely impact our operations and cause us to incur incremental costs.
Many of our employees globally are in unions or otherwise covered by labor agreements, including works councils. As of
December 31, 2018, less than 0.1% of our U.S. workforce was unionized and approximately 50% of our workforce outside
the United States was unionized or otherwise covered by labor agreements. Consequently, we may be subject to potential
union campaigns, work stoppages, union negotiations and other potential labor disputes. Additionally, negotiations with
unions or works councils in connection with existing labor agreements may result in significant increases in our cost of labor,
divert management’s attention away from operating our business or break down and result in the disruption of our operations.
The occurrence of any of the preceding outcomes could impair our ability to manufacture our products and result in increased
costs and/or decreased operating results. Further, we may be impacted by work stoppages at our suppliers or customers that
are beyond our control.
Risks Related to Intellectual Property
Our inability to protect and enforce our intellectual property rights could adversely affect our financial results.
Intellectual property rights both in the United States and in foreign countries, including patents, trade secrets, confidential
information, trademarks and trade names, are important to our business and will be critical to our ability to grow and succeed
in the future. We make strategic decisions on whether to apply for intellectual property protection and what kind of protection
to pursue based on a cost benefit analysis. While we endeavor to protect our intellectual property rights in certain
jurisdictions in which our products are produced or used and in jurisdictions into which our products are imported, the
decision to file for intellectual property protection is made on a case-by-case basis. Because of the differences in foreign
trademark, patent and other laws concerning proprietary rights, our intellectual property rights may not receive the same
degree of protection in foreign countries as they would in the United States. Our failure to obtain or maintain adequate
protection of our intellectual property rights for any reason could have a material adverse effect on our business, financial
condition and results of operations.
We have applied for patent protection relating to certain existing and proposed products, processes and services in certain
jurisdictions. While we generally consider applying for patents in those countries where we intend to make, have made, use
or sell patented products, we may not accurately assess all of the countries where patent protection will ultimately be
desirable. If we fail to timely file a patent application in any such country, we may be precluded from doing so at a later date.
Furthermore, we cannot assure you that our pending patent applications will not be challenged by third parties or that such
applications will eventually be issued by the applicable patent offices as patents. We also cannot assure you that the patents
issued as a result of our foreign patent applications will have the same scope of coverage as our U.S. patents. It is possible
that only a limited number of the pending patent applications will result in issued patents, which may have a materially
adverse effect on our business and results of operations.
18 The patents we own could be challenged, invalidated or circumvented by others and may not be of sufficient scope or
strength to provide us with any meaningful protection or commercial advantage. Furthermore, our existing patents are subject
to challenges from third parties that may result in invalidations and will all eventually expire, after which we will not be able
to prevent our competitors from using our previously patented technologies, which could materially adversely affect our
competitive advantage stemming from those products and technologies. We also cannot assure you that competitors will not
infringe our patents, or that we will have adequate resources to enforce our patents.
We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar
technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary
information, we require certain employees, consultants, advisors and collaborators to enter into confidentiality agreements as
we deem appropriate. We cannot assure you that we will be able to enter into these confidentiality agreements or that these
agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event
of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If
we are unable to maintain the proprietary nature of our technologies, we could be materially adversely affected.
We rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors
and have registered or applied to register many of these trademarks. We cannot assure you that our trademark applications
will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of the
trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which
could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands.
Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to
enforce our trademarks. We also license third parties to use our trademarks. In an effort to preserve our trademark rights, we
enter into license agreements with these third parties that govern the use of our trademarks and contain limitations on their
use. Although we make efforts to police the use of our trademarks by our licensees, we cannot assure you that these efforts
will be sufficient to ensure that our licensees abide by the terms of their licenses. In the event that our licensees fail to do so,
our trademark rights could be diluted.
If we are sued for infringing intellectual property rights of third parties, it may be costly and time consuming, and an
unfavorable outcome in any litigation could harm our business.
We cannot assure you that our activities will not, unintentionally or otherwise, infringe on the patents, trademarks or other
intellectual property rights owned by others. We may spend significant time and effort and incur significant litigation costs if
we are required to defend ourselves against intellectual property rights claims brought against us, regardless of whether the
claims have merit. If we are found to have infringed on the patents, trademarks or other intellectual property rights of others,
we may be subject to substantial claims for damages, which could materially impact our cash flow, business, financial
condition and results of operations. We may also be required to cease development, use or sale of the relevant products or
processes, or we may be required to obtain a license on the disputed rights, which may not be available on commercially
reasonable terms, if at all.
Risks Related to Other Aspects of our Business
We may continue to engage in acquisitions and divestitures, and may encounter difficulties integrating acquired
businesses with, or disposing of divested businesses from, our current operations and, as a result, we may not realize the
anticipated benefits of these acquisitions and divestitures.
We may continue to seek to grow through strategic acquisitions, joint ventures or other arrangements. Our due diligence
reviews in these transactions may not identify all of the material issues necessary to accurately estimate the cost or potential
loss contingencies with respect to a particular transaction, including potential exposure to regulatory sanctions resulting from
a counterparty’s previous activities. We may incur unanticipated costs or expenses, including post-closing asset impairment
charges, expenses associated with eliminating duplicate facilities, litigation and other liabilities. We may also face regulatory
scrutiny as a result of perceived concentration in certain markets, which could cause additional delay or prevent us from
completing certain acquisitions that would be beneficial to our business. We may also encounter difficulties in integrating
acquisitions with our operations, applying our internal controls processes to these acquisitions or in managing strategic
investments. Additionally, we may not achieve the benefits we anticipate when we first enter into a transaction in the amount
or on the timeframe anticipated. Any of the foregoing could adversely affect our business and results of operations. In
addition, accounting requirements relating to business combinations, including the requirement to expense certain acquisition
costs as incurred, may cause us to experience greater earnings volatility and generally lower earnings during periods in which
we acquire new businesses. Furthermore, we may make strategic divestitures from time to time. These divestitures may result
in continued financial involvement in the divested businesses, such as through indemnities, guarantees or other financial
arrangements. These arrangements could result in financial obligations imposed upon us and could affect our future financial
condition and results of operations. Acquisitions and divestitures may also require us to devote significant internal resources
and could divert management's attention away from operating our business.
19 Our joint ventures may not operate according to our business strategy if our joint venture partners fail to fulfill their
obligations.
As part of our business, we have entered into certain joint venture arrangements, and may enter into additional joint venture
arrangements in the future. The nature of a joint venture requires us to share control over significant decisions with
unaffiliated third parties. Since we may not exercise control over our current or future joint ventures, we may not be able to
require our joint ventures to take actions that we believe are necessary to implement our business strategy. Additionally,
differences in views among joint venture participants may result in delayed decisions or failures to agree on major issues. If
these differences cause the joint ventures to deviate from our business strategy, our results of operations could be materially
adversely affected.
The insurance we maintain may not fully cover all potential exposures.
Our product liability, property, business interruption and casualty insurance coverages may not cover all risks associated with
the operation of our business and may not be sufficient to offset the costs of any losses, lost sales or increased costs
experienced during business interruptions. For some risks, we may elect not to obtain insurance. As a result of market
conditions, premiums and deductibles for certain insurance policies can increase substantially and, in some instances, certain
insurance policies may become unavailable or available only for reduced amounts of coverage. As a result, we may not be
able to renew our insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. Losses
and liabilities from uninsured or underinsured events and delay in the payment of insurance proceeds could have a material
adverse effect on our business, financial condition and results of operations.
DuPont’s potential breach of its obligations in connection with the Acquisition, including failure to comply with its
indemnification obligations, may materially affect our business and operating results.
Although the Acquisition closed on February 1, 2013, DuPont still has performance obligations to us, including fulfilling
indemnification requirements. We could incur material additional costs if DuPont fails to meet its obligations or if we
otherwise are unable to recover costs associated with such liabilities.
We may be subject to changes in our tax rates and the adoption of tax legislation or exposure to additional tax liabilities
that may adversely affect our results of operations.
We are subject to taxes in the U.S. and non-U.S. jurisdictions where our subsidiaries are organized. Due to economic and
political conditions, tax rates in various jurisdictions may be subject to significant change. Our future effective tax rates could
be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of
deferred tax assets and liabilities, changes in available tax credits or tax deductions and changes in tax laws or their
interpretation, such as interpretations as to the legality of tax advantages granted under the EU state aid rules. Additionally,
we and our subsidiaries are engaged in a number of intercompany transactions across multiple tax jurisdictions. Although we
believe we have clearly reflected the economics of these transactions and the proper local transfer pricing documentation is in
place, tax authorities may propose and sustain adjustments that could result in changes that may impact our mix of earnings
in countries with differing statutory tax rates. Our tax returns and other tax matters are subject to examination by local tax
authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these
examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these
examinations. If our effective tax rates were to increase, or if the ultimate determination of the taxes owed by us is for an
amount in excess of amounts previously accrued, our operating results, cash flows and financial condition could be adversely
affected.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act ("U.S. TCJA") legislation was enacted into law, which significantly
revised the U.S. Internal Revenue Code of 1986 ("the Code"), as amended. While our current tax accounting is complete
based on legislative updates relating to the U.S. TCJA currently, further interpretive guidance of the U.S TCJA's provisions
could result in further adjustments that could have an impact on our future results of operations, cash flows or financial
positions. In addition, it is uncertain if and to what extent various states and localities will conform to the U.S. TCJA.
20 If we are treated as a financial institution under FATCA, withholding tax may be imposed on payments on our common
shares.
Sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), and applicable Treasury
Regulations commonly referred to as “FATCA” may impose 30% withholding on “foreign passthru payments” made by a
“foreign financial institution” (as defined in the Code) that has entered into an agreement with the U.S. Internal Revenue
Service to perform certain diligence and reporting obligations with respect to the foreign financial institution’s U.S.-owned
accounts. Such withholding on “foreign passthru payments” will apply from January 1, 2019 at the earliest. The applicable
Treasury Regulations treat an entity as a “financial institution” if it is a holding company formed in connection with or
availed of by a private equity fund or other similar investment vehicle established with an investment strategy of investing,
reinvesting or trading in financial assets. The term “foreign passthru payment” is currently not defined. The United States has
entered into an intergovernmental agreement (an “IGA”) with Bermuda, which modifies the FATCA withholding regime
described above. It is not clear whether we would be treated as a financial institution subject to the diligence, reporting and
withholding obligations under FATCA or the Bermuda IGA. Furthermore, it is not yet clear how the Bermuda IGA will
address foreign passthru payments. Prospective investors should consult their tax advisors regarding the potential impact of
FATCA, the Bermuda IGA and any non-U.S. legislation implementing FATCA, on their investment in our common shares.
We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax
consequences to U.S. holders of our common shares.
Based on the market price of our common shares and the composition of our income, assets and operations, we do not expect
to be treated as a passive foreign investment company ("PFIC") for U.S. federal income tax purposes for the current taxable
year or in the foreseeable future. However, the application of the PFIC rules is subject to uncertainty in several respects, and
we cannot assure you the U.S. Internal Revenue Service will not take a contrary position. Furthermore, this is a factual
determination that must be made annually after the close of each taxable year. If we are a PFIC for any taxable year during
which a U.S. person holds our common shares, certain adverse U.S. federal income tax consequences could apply to such
U.S. person.
Risks Related to our Indebtedness
Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our
ability to react to changes in the economy and our industry, expose us to interest rate risk to the extent of our variable rate
debt and prevent us from meeting our obligations with respect to our indebtedness.
As of December 31, 2018, we had approximately $3.9 billion of indebtedness on a consolidated basis. As of December 31,
2018, we were in compliance with all of the covenants under our outstanding debt instruments.
Our substantial indebtedness could have important consequences to you. For example, it could:
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limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes;
require us to devote a substantial portion of our annual cash flow to the payment of interest on our indebtedness;
expose us to the risk of increased interest rates as, over the term of our debt, the interest cost on a significant portion
of our indebtedness is subject to changes in interest rates;
hinder our ability to adjust rapidly to changing market conditions;
limit our ability to secure adequate bank financing in the future with reasonable terms and conditions or at all; and
increase our vulnerability to and limit our flexibility in planning for, or reacting to, a potential downturn in general
economic conditions or in one or more of our businesses.
We are more leveraged than some of our competitors, which could adversely affect our business plans. A relatively greater
portion of our cash flow is used to service debt and other financial obligations. This reduces the funds we have available for
working capital, capital expenditures, acquisitions and other purposes and may make it more difficult for us to borrow in the
future. Similarly, our relatively greater leverage increases our vulnerability to, and limits our flexibility in planning for,
adverse economic and industry conditions and creates other competitive disadvantages compared with other companies with
relatively less leverage.
In addition, the indentures governing the New Senior Notes and the agreements governing our Senior Secured Credit
Facilities (as defined herein) contain affirmative and negative covenants that limit our and certain of our subsidiaries’ ability
to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in
an event of default that, if not cured or waived, could result in the acceleration of all of our debts.
21 To service all of our indebtedness, we will require a significant amount of cash and our ability to generate cash depends
on many factors beyond our control.
Our operations are conducted through our subsidiaries and our ability to make cash payments on our indebtedness will
depend on the earnings and the distribution of funds from our subsidiaries. None of our subsidiaries, however, are obligated
to make funds available to us for payment on our indebtedness. Our ability to make cash payments on and refinance our debt
obligations, to fund planned capital expenditures and to meet other cash requirements will depend on our financial condition
and operating performance, which are subject to prevailing economic and competitive conditions and to financial, business,
legislative, regulatory and other factors beyond our control. We might not be able to maintain a level of cash flows from
operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
Our business may not generate sufficient cash flow from operations and future borrowings may not be available under our
Senior Secured Credit Facilities in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity
needs, including planned capital expenditures. In such circumstances, we may need to refinance all or a portion of our
indebtedness on or before maturity. We may not be able to refinance any of our indebtedness on commercially reasonable
terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, issuing additional
equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. Such actions, if
necessary, may not be effected on commercially reasonable terms or at all. The instruments governing our indebtedness
restrict our ability to sell assets and our use of the proceeds from such sales, and we may not be able to consummate those
dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.
If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments
of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants
in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such
indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed
thereunder to be due and payable, together with accrued and unpaid interest, the lenders under our Revolving Credit Facility
could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings
against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in
the future need to obtain waivers from the required lenders under the credit agreement governing our Senior Secured Credit
Facilities or the indentures governing the New Senior Notes to avoid being in default. If we breach our covenants under our
Senior Secured Credit Facilities or New Senior Notes or we are in default thereunder and seek a waiver, we may not be able
to obtain a waiver from the required lenders. If this occurs, we would be in default under the credit agreement governing our
Senior Secured Credit Facilities and our New Senior Notes, the lenders could exercise their rights, as described above, and
we could be forced into bankruptcy or liquidation.
Despite our current level of indebtedness and restrictive covenants, we and our subsidiaries may incur additional
indebtedness. This could further exacerbate the risks associated with our substantial financial leverage.
We and our subsidiaries may incur significant additional indebtedness under the agreements governing our indebtedness.
Although the indentures governing the New Senior Notes and the credit agreement governing our Senior Secured Credit
Facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of
thresholds, qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could
be substantial. Additionally, these restrictions also will not prevent us from incurring obligations that, although preferential to
our common shares in terms of payment, do not constitute indebtedness.
In addition, if new debt is added to our and/or our subsidiaries’ debt levels, the related risks that we now face as a result of
our leverage would intensify. See Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Liquidity and Capital Resources—Financial Condition."
We are dependent upon our lenders for financing to execute our business strategy and meet our liquidity needs. If our
lenders are unable or unwilling to fund borrowings under their credit commitments or we are unable to borrow, it could
negatively impact our business.
We are dependent upon our lenders for financing to execute our business strategy and meet our liquidity needs. If our lenders
are unable to fund borrowings under their credit commitments or we are unable to borrow from them for any reason, our
business could be negatively impacted. During periods of volatile credit markets, there is risk that any lenders, even those
with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations
under existing credit commitments, including, but not limited to, extending credit up to the maximum permitted by a credit
facility, allowing access to additional credit features and otherwise accessing capital and/or honoring loan commitments. If
our lenders are unable or unwilling to fund borrowings under their revolving credit commitments or we are unable to borrow
from them, it could be difficult in such environments to obtain sufficient liquidity to meet our operational needs.
22 Our ability to obtain additional capital on commercially reasonable terms may be limited.
Although we believe our cash and cash equivalents, together with cash we expect to generate from operations and unused
capacity available under our Revolving Credit Facility, provide adequate resources to fund ongoing operating requirements,
we may need to seek additional financing to compete effectively.
If we are unable to obtain capital on commercially reasonable terms, it could:
•
•
•
•
reduce funds available to us for purposes such as working capital, capital expenditures, research and development,
strategic acquisitions and other general corporate purposes;
restrict our ability to introduce new products or exploit business opportunities;
increase our vulnerability to economic downturns and competitive pressures in the markets in which we operate; and
place us at a competitive disadvantage.
Difficult and volatile conditions in the capital, credit and commodities markets and in the overall economy could have a
material adverse effect on our financial position, results of operations and cash flows.
Difficult global economic conditions, including concerns about sovereign debt and significant volatility in the capital, credit
and commodities markets, could have a material adverse effect on our financial position, results of operations and cash flows.
These global economic factors, combined with low levels of business and consumer confidence and high levels of
unemployment in certain parts of the world, have precipitated a slow recovery from the global recession and concern about a
return to recessionary conditions. The difficult conditions in these markets and the overall economy affect our business in a
number of ways. For example:
•
•
•
as a result of the volatility in commodity prices, we may encounter difficulty in achieving sustained market
acceptance of past or future price increases, which could have a material adverse effect on our financial position,
results of operations and cash flows;
under difficult market conditions there can be no assurance that borrowings under our Revolving Credit Facility
would be available or sufficient, and in such a case, we may not be able to successfully obtain additional financing
on reasonable terms, or at all;
in order to respond to market conditions, we may need to seek waivers from various provisions in the credit
agreement governing our Senior Secured Credit Facilities or the indentures governing the New Senior Notes, and in
such case, there can be no assurance that we can obtain such waivers at a reasonable cost, if at all;
• market conditions could cause the counterparties to the derivative financial instruments we may use to hedge our
exposure to interest rate, commodity or currency fluctuations to experience financial difficulties and, as a result, our
efforts to hedge these exposures could prove unsuccessful and, furthermore, our ability to engage in additional
hedging activities may decrease or become more costly; and
• market conditions could result in our key customers experiencing financial difficulties and/or electing to limit
spending, which in turn could result in decreased sales and earnings for us.
In general, downturns in economic conditions can cause fluctuations in demand for our and our customers’ products, product
prices, volumes and margins. Future economic conditions may not be favorable to our industry and future growth in demand
for our products, if any, may not be sufficient to alleviate any existing or future conditions of excess industry capacity. A
decline in the demand for our products or a shift to lower-margin products due to deteriorating economic conditions could
have a material adverse effect on our financial condition and results of operations and could also result in impairments of
certain of our assets. We do not know if market conditions or the state of the overall economy will continue to improve in the
near future. We cannot provide assurance that a continuation of current economic conditions or a further economic downturn
in one or more of the geographic regions in which we sell our products would not have a material adverse effect on our
business, financial condition and results of operations.
Our debt obligations may limit our flexibility in managing our business.
The indentures governing our New Senior Notes and the credit agreement governing our Senior Secured Credit Facilities
require us to comply with a number of customary financial and other covenants, such as maintaining leverage ratios in certain
situations and maintaining insurance coverage. See Part II, Item 7, "Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity and Capital Resources—Financial Condition." These covenants may limit
our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the
applicable indebtedness even if we had satisfied our payment obligations. If we were to default on the indentures governing
our New Senior Notes, the credit agreement governing our Senior Secured Credit Facilities or other debt instruments, our
financial condition and liquidity would be adversely affected.
23 We are subject to risks associated with the current interest rate environment and to the extent we use debt to fund our
operations, changes in interest rates will affect our cost of debt.
LIBOR is the subject of recent proposals for reform. In July 2017, the head of the United Kingdom Financial Conduct
Authority announced the desire to phase out the use of LIBOR by the end of 2021. There is currently no definitive
information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of
any such event on our cost of debt cannot yet be determined. LIBOR reforms may cause LIBOR to cease to exist, new
methods of calculating LIBOR to be established or the establishment of an alternative reference rate(s). These consequences
cannot be reliably predicted and any further changes or reforms to the determination or supervision of LIBOR may result in a
sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the value of any
LIBOR-linked instruments and other financial obligations or extensions of credit held by or due to us and could have a
material adverse effect on our business, financial condition and results of operations.
Risks Related to Ownership of our Common Shares
Axalta Coating Systems Ltd. is a holding company with no operations of its own. Because our operations are conducted
almost entirely through our subsidiaries and joint ventures, we are largely dependent on our receipt of distributions and
dividends or other payments from our subsidiaries and joint ventures for cash to fund all of our operations and expenses,
including to make future dividend payments, if any.
Our operations are conducted almost entirely through our subsidiaries and our ability to generate cash to meet our debt
service obligations or to make future dividend payments, if any, is highly dependent on the earnings and the receipt of funds
from our subsidiaries in the form of dividends, loans or advances and through repayment of loans or advances from us.
Payments to us by our subsidiaries and joint ventures will be contingent upon our subsidiaries’ or joint ventures’ earnings and
other business considerations and may be subject to statutory or contractual restrictions. In addition, there may be significant
tax and other legal restrictions on the ability of foreign subsidiaries or joint ventures to remit money to us.
The price of our common shares may fluctuate significantly, and you could lose all or part of your investment.
Volatility in the market price of our common shares may prevent you from being able to sell your common shares at or above
the price you paid for your common shares. The market price of our common shares could fluctuate significantly for various
reasons, including:
•
•
•
•
•
•
•
•
•
our operating and financial performance and prospects;
our quarterly or annual earnings or those of other companies in our industry;
the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
changes in, or failure to meet, earnings estimates or recommendations by research analysts who track our common
shares or the stock of other companies in our industry;
the failure of research analysts to cover our common shares;
strategic actions by us, our customers or our competitors, such as acquisitions, divestitures, restructurings or site
closures, including asset closures, or market rumors regarding such actions;
new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
changes in accounting standards, policies, guidance, interpretations or principles;
the impact on our profitability temporarily caused by the time lag between when we experience cost increases until
these increases flow through cost of sales because of our method of accounting for inventory, or the impact from our
inability to pass on such price increases to our customers;
• material litigations or government investigations;
•
•
•
•
•
•
•
changes in general conditions in the United States and global economies or financial markets, including those
resulting from war, incidents of terrorism or responses to such events;
risks and uncertainties relating to the change in our leadership;
changes in key personnel;
sales of common shares by us or members of our management team;
the granting of restricted common shares, stock options and other equity awards;
volume of trading in our common shares; and
the realization of any risks described under this “Risk Factors” section.
24
In addition, over the past several years, the stock markets have experienced significant price and volume fluctuations. This
volatility has had a significant impact on the market price of securities issued by many companies, including companies in
our industry. The changes frequently appear to occur without regard to the operating performance of the affected companies.
Hence, the price of our common shares could fluctuate based upon factors that have little or nothing to do with our company,
and these fluctuations could materially reduce our share price and cause you to lose all or part of your investment. Further, in
the past, market fluctuations and price declines in a company’s stock have led to securities class action litigations. If such a
suit were to arise, it could have a substantial cost and divert our resources regardless of the outcome.
If we fail to maintain proper and effective internal controls over financial reporting, our ability to produce accurate and
timely financial statements could be impaired and investors’ views of us could be harmed.
The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") requires, among other things, that we maintain effective internal
control over financial reporting and disclosure controls and procedures. One key aspect of the Sarbanes-Oxley Act is that we
must perform system and process evaluation and testing of our internal control over financial reporting to allow management
and our independent registered public accounting firm to report on the effectiveness of our internal control over financial
reporting, as required by Section 404 of the Sarbanes-Oxley Act, with auditor attestation of the effectiveness of our internal
controls. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent
registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be
material weaknesses, the market price of our common shares could decline and we could be subject to sanctions or
investigations by the New York Stock Exchange ("NYSE"), the SEC or other regulatory authorities, which would require
additional financial and management resources.
Our ability to successfully implement our business plan and comply with the Sarbanes-Oxley Act requires us to be able to
prepare timely and accurate financial statements, among other requirements. Any delay in the implementation of, or
disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we
may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on
internal controls from our auditors. Moreover, we cannot be certain that these measures would ensure that we implement and
maintain adequate controls over our financial processes and reporting in the future. Even if we were to conclude, and our
independent registered public accounting firm were to concur, that our internal control over financial reporting provided
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"),
because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements.
This, in turn, could have an adverse impact on the market price for our common shares, and could adversely affect our ability
to access the capital markets.
We do not intend to pay dividends on our common shares and, consequently, your ability to achieve a return on your
investment will depend on appreciation in the price of our common shares.
We do not intend to declare and pay dividends on our common shares for the foreseeable future. Therefore, you are not likely
to receive any dividends on your common shares for the foreseeable future and the success of an investment in our common
shares will depend upon any future appreciation in their value. There is no guarantee that our common shares will appreciate
in value or even maintain the price at which our shareholders have purchased their shares. The payment of future dividends,
however, will be at the discretion of our Board of Directors and will depend on, among other things, our earnings, financial
condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of
dividends and other considerations that our Board of Directors deems relevant. The credit agreement governing our Senior
Secured Credit Facilities and the indentures governing the New Senior Notes also limit our ability to pay dividends. In
addition, Bermuda law imposes requirements that may restrict our ability to pay dividends to holders of our common shares.
As a consequence of these limitations and restrictions, we may not be able to make, or may have to reduce or eliminate, the
payment of dividends on our common shares.
Future sales of our common shares in the public market could lower our share price, and any additional capital raised by
us through the sale of equity or convertible debt securities may dilute your ownership in us and may adversely affect the
market price of our common shares.
We and our shareholders may sell additional common shares in subsequent offerings. We may also issue additional common
shares or convertible debt securities. As of February 19, 2019, we had 1,000,000,000 common shares authorized and
234,282,735 common shares outstanding.
We cannot predict the size of future issuances or sales of our common shares or the effect, if any, that future issuances and
sales of our common shares will have on the market price of our common shares. Sales of substantial amounts of our
common shares (including sales that may occur pursuant to the registration rights of Berkshire, sales by members of
management and shares that may be issued in connection with an acquisition), or the perception that such sales could occur,
may adversely affect prevailing market prices for our common shares. See Part III, Item 13, “Certain Relationships and
Related Transactions and Director Independence.”
25 We are a Bermuda company and it may be difficult for you to enforce judgments against us or our directors and executive
officers.
We are a Bermuda exempted company. As a result, the rights of our shareholders are governed by Bermuda law and our
memorandum of association and bye-laws. The rights of shareholders under Bermuda law may differ from the rights of
shareholders of companies incorporated in another jurisdiction, and a substantial portion of our assets are located outside the
United States. As a result, it may be difficult for investors to effect service of process on those persons in the United States or
to enforce in the United States judgments obtained in U.S. courts against us or those persons based on the civil liability
provisions of the U.S. securities laws. It is doubtful whether courts in Bermuda will enforce judgments obtained in other
jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions
or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.
Bermuda law differs from the laws in effect in the United States and may afford less protection to our shareholders.
We are organized under the laws of Bermuda. As a result, our corporate affairs are governed by the Companies Act 1981 (the
"Companies Act"), which differs in some material respects from laws typically applicable to U.S. corporations and
shareholders, including the provisions relating to interested directors, amalgamations, mergers and acquisitions, takeovers,
shareholder lawsuits and indemnification of directors. Generally, the duties of directors and officers of a Bermuda company
are owed to the company only. Shareholders of Bermuda companies typically do not have rights to take action against
directors or officers of the company and may only do so in limited circumstances. Shareholder class actions are not available
under Bermuda law. The circumstances in which shareholder derivative actions may be available under Bermuda law are
substantially more proscribed and less clear than they would be to shareholders of U.S. corporations. The Bermuda courts,
however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a
wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or
would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be
given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance,
where an act requires the approval of a greater percentage of the company’s shareholders than those who actually approved it.
When the affairs of a company are being conducted in a manner that is oppressive or prejudicial to the interests of some
shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees
fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of
any shareholders by other shareholders or by the company. Additionally, under our bye-laws and as permitted by Bermuda
law, each shareholder has waived any claim or right of action against our directors or officers for any action taken by
directors or officers in the performance of their duties, except for actions involving fraud or dishonesty. In addition, the rights
of our shareholders and the fiduciary responsibilities of our directors under Bermuda law are not as clearly established as
under statutes or judicial precedent in existence in jurisdictions in the United States, particularly the State of Delaware.
Therefore, our shareholders may have more difficulty protecting their interests than would shareholders of a corporation
incorporated in a jurisdiction within the United States.
We have anti-takeover provisions in our bye-laws that may discourage a change of control.
Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our
Board of Directors. These provisions provide for:
•
•
•
•
a classified Board of Directors with staggered three-year terms; although on May 2, 2018, our shareholders approved
the elimination of our classified board structure over a three-year transition period;
directors only to be removed for cause;
restrictions on the time period in which directors may be nominated; and
our Board of Directors to determine the powers, preferences and rights of our preference shares and to issue the
preference shares without shareholder approval.
These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company
and may prevent our shareholders from receiving the benefit from any premium to the market price of our common shares
offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may
adversely affect the prevailing market price of our common shares if the provisions are viewed as discouraging takeover
attempts in the future. These provisions could also discourage proxy contests, make it more difficult for you and other
shareholders to elect directors of your choosing and cause us to take corporate actions other than those you desire.
26 ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters is located in Philadelphia, PA. Our extensive geographic footprint is comprised of 50
manufacturing facilities (including 13 manufacturing sites operated by our joint ventures), four major technology centers and
47 customer training centers supporting our global operations. The table below presents summary information regarding our
facilities as of December 31, 2018.
Type of Facility/Country
Location
Segment
Manufacturing Facilities
North America
Canada
United States of America
Latin America
Argentina
Brazil
Mexico
EMEA
Austria
Belgium
France
Germany
Netherlands
Sweden
Switzerland
Turkey
United Kingdom
Asia Pacific
China
India
Malaysia
Thailand
Ajax
Cornwall
Front Royal, VA
Ft. Madison, IA
Houston, TX
High Point, NC
Hilliard, OH
Jacksonville, TX
Mt. Clemens, MI
Orrville, OH
Sacramento, CA
Fridley, MN
Buenos Aires
Guarulhos
Monterrey
Ocoyoacac
Tlalnepantla
Guntramsdorf
Mechelen
Montbrison
Wuppertal
Landshut
Zuidland
Vastervik
Bulle
Gebze
Darlington
Farnham
Huthwaite
Tewksbury
West Bromwich
Changchun
Jiading
Savli
Kuala Lumpur
Shah Alam
Bangplee
Transportation
Performance
Performance; Transportation
Performance; Transportation
Performance
Performance
Performance; Transportation
Performance
Performance; Transportation
Performance
Performance
Performance
Performance; Transportation
Performance; Transportation
Performance
Performance; Transportation
Performance; Transportation
Performance; Transportation
Performance; Transportation
Performance
Performance; Transportation
Performance
Performance
Performance
Performance
Performance; Transportation
Performance
Performance
Performance
Performance
Performance
Performance; Transportation
Performance; Transportation
Performance; Transportation
Performance
Performance
Performance
27
Location
Segment
Type of Facility/Country
Joint Venture Manufacturing
Facilities
China
Colombia
Indonesia
Taiwan
Guatemala
United States of America
Chengdu
Dongguan
Huangshan
Qingpu
Shangdong
Cartagena de Indias
Cikarang
Taipei
Amatitlan
Madison, AL
Riverside, CA
Joint Venture Partner Manufacturing
Facilities
South Africa
Russia
Port Elizabeth
Moscow
Performance
Performance
Performance
Performance
Performance
Performance
Performance
Transportation
Performance
Performance
Performance
Transportation
Transportation
Technology Centers
China
Germany
United States of America
Customer Training Centers
Shanghai
Wuppertal
Mt. Clemens, MI
Philadelphia, PA
Location by Region
North America
Latin America
EMEA
Asia Pacific
Performance; Transportation
Performance; Transportation
Performance; Transportation
Performance; Transportation
Number of Facilities
8
7
18
14
ITEM 3. LEGAL PROCEEDINGS
We are from time to time party to legal proceedings that arise in the ordinary course of business. We are not involved in any
litigation other than that which has arisen in the ordinary course of business. We do not expect that any currently pending
lawsuits will have a material effect on us as discussed in Note 6 to the consolidated financial statements included elsewhere
in this Annual Report on Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
28
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Share Price and Dividends
Our common shares are traded on the New York Stock Exchange under the symbol "AXTA."
As of February 19, 2019, there were 12 registered holders of record of Axalta’s common stock as shown on the records of the
Company’s transfer agent. A substantially greater number of holders of Axalta common stock are “street name” or beneficial
holders, whose shares of record are held by banks, brokers and other financial institutions. Since our incorporation in August
2012, we have not paid dividends on our common shares, and we do not currently intend to pay dividends in the foreseeable
future. The declaration and payment of any dividends in the future will be determined by our Board of Directors, in its
discretion, and will depend on a number of factors, including our earnings, capital requirements, overall financial condition
and contractual restrictions, including covenants in the agreements governing our New Senior Notes and Senior Secured
Credit Facilities, which may limit our ability to pay dividends.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
The following table summarizes the Company's share repurchase activity through its share repurchase program for the three
months ended December 31, 2018:
(in thousands, except per share
data)
Month
October 2018
November 2018
December 2018
Total
Total Number of Shares
Purchased
Average Price Paid per
Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Programs (1)
915.0
$
1,797.3
1,310.5
4,022.8
$
27.60
24.97
23.03
24.94
915.0
1,797.3
1,310.5
4,022.8
Approximate Dollar
Value of Shares That
May Yet Be Purchased
Under Our Share
Repurchase Agreement(1)
441,517.6
$
396,636.5
366,455.5
366,455.5
$
(1) Shares were repurchased through the $675.0 million share repurchase program announced in March 2017. We repurchased $100.3
million of our common shares during the three months ended December 31, 2018 and $208.2 million in prior periods. At December 31,
2018, the Company had remaining authorization to repurchase $366.5 million of shares. There is no expiration date on the share
repurchase program.
29 Stock Performance
The line graph illustrated below compares the cumulative total shareholder value return of our common shares since our
initial public offering with the cumulative total returns of an overall stock market index, the Standard & Poor's Composite
500 Index ("S&P 500"), and our peer group index, Standard & Poor's 500 Chemicals Index ("S&P 500 Chemicals"). This
graph assumes an investment of $100 in our common shares and each index (with all dividends reinvested) on November 12,
2014, the date on which our common shares began trading on the NYSE.
30
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data and other information of Axalta and should be read in
conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations” and our audited
consolidated financial statements and the related notes included elsewhere in this Form 10-K. The selected consolidated
financial data for the years ended December 31, 2018, 2017 and 2016 and as of December 31, 2018 and 2017 are derived
from our audited financial statements included elsewhere in this Form 10-K. The selected consolidated financial data for the
years ended December 31, 2015 and 2014 and as of December 31, 2016, 2015 and 2014 are derived from our audited
financial statements not included in this Form 10-K.
(In millions, except per share data)
Statements of Operations Data:
Net sales
Other revenue
Total revenue
Cost of goods sold
Selling, general and administrative expenses (1)
Venezuela asset impairment and deconsolidation charge
Research and development expenses
Amortization of acquired intangibles
Income from operations
Interest expense, net
Other expense, net
Income before taxes
Provision for income taxes
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to controlling interests
Per share data:
Net income per share:
Basic net income per share
Diluted net income per share
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
Other Financial Data:
Cash flows from:
Operating activities
Investing activities
Financing activities
Depreciation and amortization
Purchases of property, plant and equipment
(In millions)
Balance sheet data:
Cash and cash equivalents
Working capital (2)
Total assets
Indebtedness
Total liabilities
Total shareholders’ equity
Cash dividends declared per common share
$
$
$
$
$
$
2018
Year Ended December 31,
2016
2015
2017
2014
$
$
$
$
$
4,669.7
26.3
4,696.0
3,106.3
959.1
—
73.1
115.4
442.1
159.6
15.0
267.5
54.2
213.3
6.2
207.1
0.87
0.85
239.0
242.9
496.1
(216.1)
(341.3)
369.1
(143.4)
$
$
$
$
$
4,352.9
24.1
4,377.0
2,780.5
995.4
70.9
65.3
101.2
363.7
147.0
27.1
189.6
141.9
47.7
11.0
36.7
0.15
0.15
240.4
246.1
540.0
(689.6)
367.3
347.5
(125.0)
$
$
$
$
$
4,068.8
23.9
4,092.7
2,528.8
959.8
57.9
57.7
83.4
405.1
178.2
144.2
82.7
38.1
44.6
5.8
38.8
0.16
0.16
238.1
244.4
559.3
(257.0)
(232.6)
322.1
(136.2)
$
$
$
$
$
4,083.9
26.1
4,110.0
2,603.5
908.8
—
51.6
80.7
465.4
196.5
111.0
157.9
62.1
95.8
4.2
91.6
0.39
0.38
233.8
239.7
409.8
(166.2)
(84.7)
307.7
(138.1)
4,356.6
29.8
4,386.4
2,899.2
990.1
—
49.5
83.8
363.8
217.7
114.4
31.7
0.1
31.6
7.3
24.3
0.11
0.11
229.3
230.3
251.4
(173.8)
(123.2)
308.7
(188.4)
2018
2017
2016
2015
2014
December 31,
$
693.6
1,269.0
6,675.7
3,864.0
5,365.2
1,310.5
—
$
769.8
1,233.4
6,832.2
3,915.6
5,424.4
1,407.8
—
$
535.4
977.9
5,866.2
3,263.9
4,619.6
1,246.6
—
$
485.0
955.2
5,839.8
3,441.5
4,706.5
1,133.3
—
382.1
854.7
6,152.4
3,614.3
5,046.3
1,106.1
—
(1) Selling, general and administrative expense for the years ended December 31, 2018, 2017, 2016 and 2015 include costs primarily
associated with our Axalta Way cost-savings initiatives of $82.8 million, $63.8 million, $77.6 million and $64.4 million,
respectively. Selling, general and administrative expense for the year ended December 31, 2014 include costs primarily associated
with transition-related and cost-savings initiatives of $127.1 million.
(2) Working capital is defined as current assets less current liabilities.
31 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with
our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K, as well
as the information presented under Part II, Item 6, "Selected Financial Data" of this Annual Report on Form 10-K.
FORWARD-LOOKING STATEMENTS
Many statements made in the following discussion and analysis of our financial condition and results of operations and
elsewhere in this Annual Report on Form 10-K that are not statements of historical fact, including statements about our
beliefs and expectations, are "forward-looking statements" within the meaning of federal securities laws and should be
evaluated as such. Forward-looking statements include information regarding industry outlook as well as possible or assumed
future results of operations, including descriptions of our business plan, strategies and capital structure. These statements
often include words such as "anticipate," "expect," "suggests," "plan," "believe," "intend," "estimates," "targets," "projects,"
"should," "could," "would," "may," "will," "forecast" and other similar expressions. We base these forward-looking
statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in
the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other
factors we believe are appropriate under the circumstances and at such time. As you read and consider this Annual Report on
Form 10-K, you should understand that these statements are not guarantees of performance or results. The forward-looking
statements and projections are subject to and involve risks, uncertainties and assumptions, including, but not limited to, the
risks and uncertainties described in "Non-GAAP Financial Measures" and "Forward-Looking Statements," as well as "Risk
Factors" and you should not place undue reliance on these forward-looking statements or projections. Although we believe
that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you
should be aware that many factors could affect our actual financial results or results of operations and could cause actual
results to differ materially from those expressed in the forward-looking statements and projections. Factors that may
materially affect such forward-looking statements and projections include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
adverse developments in economic conditions and, particularly, in conditions in the automotive and transportation
industries;
volatility in the capital, credit and commodities markets;
our inability to successfully execute on our growth strategy;
increased competition;
reduced demand for some of our products as a result of improved safety features on vehicles, insurance company
influence, new business models or new methods of travel
risks of the loss or change in purchasing levels of any of our significant customers or the consolidation of MSOs,
distributors and/or body shops;
our reliance on our distributor network and third-party delivery services for the distribution and export of certain of our
products;
credit risk exposure from our customers;
price increases or business interruptions in our supply of raw materials;
failure to develop and market new products and manage product life cycles;
business disruptions, security threats and security breaches, including security risks to our information technology
systems;
risks associated with our outsourcing strategies;
risks associated with our non-U.S. operations;
currency-related risks;
terrorist acts, conflicts, wars and natural disasters that may materially adversely affect our business, financial condition
and results of operations;
risks associated with the United Kingdom’s withdrawal from the European Union;
failure to comply with the anti-corruption laws of the United States and various international jurisdictions;
32 •
•
•
•
•
•
•
failure to comply with anti-terrorism laws and regulations and applicable trade embargoes;
risks associated with protecting data privacy;
significant environmental liabilities and costs as a result of our current and past operations or products, including
operations or products related to our business prior to the Acquisition;
transporting certain materials that are inherently hazardous due to their toxic nature;
litigation and other commitments and contingencies;
ability to recruit and retain the experienced and skilled personnel we need to compete;
unexpected liabilities under any pension plans applicable to our employees;
• work stoppages, union negotiations, labor disputes and other matters associated with our labor force;
•
•
•
•
•
•
•
•
•
•
•
our ability to protect and enforce intellectual property rights;
intellectual property infringement suits against us by third parties;
our ability to realize the anticipated benefits of any acquisitions and divestitures;
our joint ventures’ ability to operate according to our business strategy should our joint venture partners fail to fulfill their
obligations;
risk that the insurance we maintain may not fully cover all potential exposures;
risks associated with changes in tax rates or regulations, including unexpected impacts of the new U.S. TCJA legislation,
which may differ with further regulatory guidance and changes in our current interpretations and assumptions;
our substantial indebtedness;
our ability to obtain additional capital on commercially reasonable terms may be limited;
any statements of belief and any statements of assumptions underlying any of the foregoing;
other factors disclosed in this Annual Report on Form 10-K and our other filings with the SEC; and
other factors beyond our control.
These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this Annual
Report on Form 10-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
OVERVIEW
We are a leading global manufacturer, marketer and distributor of high performance coatings systems. We have over a 150-
year heritage in the coatings industry and are known for manufacturing high-quality products with well-recognized brands
supported by market-leading technologies and customer service. Our diverse global footprint of 50 manufacturing facilities,
four technology centers, 47 customer training centers and approximately 14,000 employees allows us to meet the needs of
customers in over 130 countries. We serve our customers through an extensive sales force and technical support organization,
as well as through approximately 4,000 independent, locally based distributors.
We operate our business in two operating segments, Performance Coatings and Transportation Coatings. Our segments are
based on the type and concentration of customers served, service requirements, methods of distribution and major product
lines.
Through our Performance Coatings segment, we provide high-quality liquid and powder coatings solutions to a fragmented
and local customer base. We are one of only a few suppliers with the technology to provide precise color matching and highly
durable coatings systems. The end-markets within this segment are refinish and industrial.
Through our Transportation Coatings segment we provide advanced coating technologies to OEMs of light and commercial
vehicles. These increasingly global customers require a high level of technical support coupled with cost-effective,
environmentally responsible, coatings systems that can be applied with a high degree of precision, consistency and speed.
The end-markets within this segment are light vehicle and commercial vehicle.
33 BUSINESS HIGHLIGHTS
General Business Highlights
Our net sales increased 7.3% for the year ended December 31, 2018 compared to the year ended December 31, 2017, driven
by volume growth of 4.1%, primarily within our Performance Coatings segment. Acquisitions contributed to 3.5% of the
volume increase. Average selling prices increased net sales by 2.6% resulting from both end-markets within the Performance
Coatings segment which were slightly offset by pricing concessions within the Transportation Coatings segment. Favorable
currency translation contributed to a further increase of net sales of 0.6% due primarily to the impacts of the strengthening
Euro and Chinese Renminbi compared to the U.S. Dollar. The following trends have impacted our segment and end-market
sales performance:
•
•
Performance Coatings: Net sales increased 13.1% compared to 2017 driven primarily by stronger volumes in
our industrial end-market, including the impacts of acquisitions, as well as increases in average selling prices
across both end-markets.
Transportation Coatings: Net sales decreased by 2.0% compared to 2017 driven primarily by lower average
selling prices within the light vehicle end-market, partially offset by increased organic sales volumes in our
commercial vehicle end-market.
Our business serves four end-markets globally as follows:
(In millions)
Performance Coatings
Refinish
Industrial
Total Net sales Performance Coatings
Transportation Coatings
Light Vehicle
Commercial Vehicle
Total Net sales Transportation Coatings
Total Net sales
Acquisitions Highlights
Year Ended December 31,
2018 vs 2017
2017 vs 2016
2018
2017
2016
% change
% change
$ 1,754.2
$ 1,645.2
$ 1,679.7
1,271.5
3,025.7
1,290.2
353.8
1,644.0
1,029.9
2,675.1
1,322.8
355.0
1,677.8
718.8
2,398.5
1,337.7
332.6
1,670.3
$ 4,669.7
$ 4,352.9
$ 4,068.8
6.6 %
23.5 %
13.1 %
(2.5)%
(0.3)%
(2.0)%
7.3 %
(2.1)%
43.3 %
11.5 %
(1.1)%
6.7 %
0.4 %
7.0 %
During the year ended December 31, 2018, we successfully completed seven strategic acquisitions ("2018 Acquisitions"),
including two based in Asia Pacific, two based in North America, and three based in Europe, all of which benefited our
Performance Coatings segment. See further detail at Note 3 to the consolidated financial statements included elsewhere in
this Annual Report on Form 10-K. Our 2018 aggregate spending for these 2018 Acquisitions was $79.9 million.
In addition, during the year ended December 31, 2018, pursuant to the stock purchase agreement for a joint venture acquired
during the year ended December 31, 2016, we purchased an additional 24.5% interest for $26.9 million, increasing our total
ownership percentage to 75.5%.
Belgium Manufacturing Facility Closure
During the year ended December 31, 2018, we approved a restructuring plan involving the closure of our manufacturing
facility at our Mechelen, Belgium site and transfer of production capabilities to other Axalta facilities. In connection with the
announced closure and transfer of production to other Axalta facilities, we currently expect to incur aggregate pre-tax charges
of approximately $120-130 million, subject to future changes in estimates. Completion of the transfer and start-up of
production at other Axalta manufacturing facilities is estimated to require capital expenditures of approximately $65-75
million. Components of the pre-tax charges include severance costs and non-cash accelerated depreciation costs associated
with the reduced useful lives of the impacted manufacturing assets.
Severance costs specifically associated with the announced closure amounted to $70.6 million for the year ended
December 31, 2018. At the date of assessment, the useful lives of the manufacturing assets totaling $55.8 million (€47.7
million) were truncated. The impact to pre-tax earnings from incremental accelerated depreciation for the year ended
December 31, 2018 was $10.3 million and was recorded to cost of goods sold. We estimate that, at the midpoint of the range,
future pre-tax charges will be incurred in fiscal years 2019 and 2020 of approximately $30 million and $10 million,
respectively. No impairments to the associated long-lived assets are expected. We expect the charges to result in annual pre-
tax savings of approximately $30 million which are expected to begin to be realized during the second half of 2020.
34 Capital and Liquidity Highlights
During the year ended December 31, 2018, we completed the Sixth and Seventh Amendments of our Senior Secured Credit
Facilities and the Seventh Supplemental Indenture of our Senior Notes. The Sixth Amendment repriced the 2024 Dollar Term
Loans and increased the aggregate principal balance by $475.0 million to $2,430.0 million. Proceeds from the Sixth
Amendment, along with cash on the balance sheet, were used to extinguish the existing 2023 Euro Term Loans. The Seventh
Amendment and Seventh Supplemental Indenture updated the applicable guarantor structures and limitations in order to
permit the Company and its subsidiaries to effect certain corporate transactions. They had no impact on principal balances or
interest rates. For additional information, refer to Note 17 to the consolidated financial statements included elsewhere in this
Annual Report on Form 10-K and our Liquidity and Capital Resources discussion within this Item 7.
During the year ended December 31, 2018, we executed interest rate and cross-currency swaps to convert $475.0 million of
the 2024 Dollar Term Loans principal into Euro fixed-rate debt at an interest rate of 1.44%, which matures in 2023. The
combined effect of the refinancing and the swaps are expected to result in annual cash interest savings of approximately $14
million. In the fourth quarter of 2018, we settled three existing cross-currency swaps previously executed in 2018 and
executed three new cross-currency swaps that resulted in cash proceeds of $22.5 million. The interest rate and cross-currency
swaps are designated as cash flow and net investment hedges, respectively.
Other Highlights
During the year ended December 31, 2018, we repurchased 9.1 million shares for total consideration of $253.8 million as we
continue to execute against our share repurchase program.
Factors Affecting Our Operating Results
The following discussion sets forth certain components of our statements of operations as well as factors that impact those
items.
Net sales
We generate revenue from the sale of our products across all major geographic areas. Our net sales include total sales less
estimates for returns and price allowances. Price allowances include discounts for prompt payment as well as volume-based
incentives. Our overall net sales are generally impacted by the following factors:
•
•
•
•
•
•
•
•
fluctuations in overall economic activity within the geographic markets in which we operate;
underlying growth in one or more of our end-markets, either worldwide or in particular geographies in which we
operate;
the type of products used within existing customer applications, or the development of new applications requiring
products similar to ours;
changes in product sales prices (including volume discounts and cash discounts for prompt payment);
changes in the level of competition faced by our products, including price competition and the launch of new
products by competitors;
our ability to successfully develop and launch new products and applications;
changes in buying habits of our customers (including our distributors); and
fluctuations in foreign exchange rates.
While the factors described above impact net sales in each of our operating segments, the impact of these factors on our
operating segments can differ, as described below. For more information about risks relating to our business, see Part I, Item
1A, "Risk Factors—Risks Related to our Business."
Other revenue
Other revenue consists primarily of consulting and other service revenue and royalty income.
Cost of goods sold ("cost of sales")
Our cost of sales consists principally of the following:
• Production materials costs. We purchase a significant amount of the materials used in production on a global lowest-
cost basis.
35 •
•
•
Employee costs. These include the compensation and benefit costs, including share-based compensation expense, for
employees involved in our manufacturing operations and on-site technical support services. These costs generally
increase on an aggregate basis as production volumes increase and may decline as a percent of net sales as a result of
economies of scale associated with higher production volumes.
Depreciation expense. Property, plant and equipment are stated at cost and depreciated or amortized on a straight-
line basis over their estimated useful lives. Property, plant and equipment acquired through the Acquisition were
recorded at their estimated fair value on the acquisition date resulting in a new cost basis for accounting purposes.
Other. Our remaining cost of sales consists of freight costs, warehousing expenses, purchasing costs, costs
associated with closing or idling of production facilities, functional costs supporting manufacturing, product claims
and other general manufacturing expenses, such as expenses for utilities and energy consumption.
The main factors that influence our cost of goods sold as a percentage of net sales include:
•
•
•
•
changes in the price of raw materials;
production volumes;
the implementation of cost control measures aimed at improving productivity, including reduction of fixed
production costs, refinements in inventory management and the coordination of purchasing within each subsidiary
and at the business level; and
fluctuations in foreign exchange rates.
Selling, general and administrative expenses ("SG&A")
Our selling, general and administrative expense consists of all expenditures incurred in connection with the sales and
marketing of our products, as well as technical support for our customers and administrative overhead costs, including:
•
•
compensation and benefit costs for management, sales personnel and administrative staff, including share-based
compensation expense. Expenses relating to our sales personnel increase or decrease principally with changes in
sales volume due to the need to increase or decrease sales personnel to meet changes in demand. Expenses relating
to administrative personnel generally do not increase or decrease directly with changes in sales volume; and
depreciation, advertising and other selling expenses, such as expenses incurred in connection with travel and
communications.
Changes in selling, general and administrative expense as a percentage of net sales have historically been impacted by a
number of factors, including:
•
•
•
•
•
changes in sales volume, as higher volumes enable us to spread the fixed portion of our administrative expense over
higher sales;
changes in our customer base, as new customers may require different levels of sales and marketing attention;
new product launches in existing and new markets, as these launches typically involve a more intense sales activity
before they are integrated into customer applications;
customer credit issues requiring increases to the allowance for doubtful accounts; and
fluctuations in foreign exchange rates.
Research and development expenses
Research and development expenses represent costs incurred to develop new products, services, processes and technologies
or to generate improvements to existing products or processes.
Interest expense, net
Interest expense, net consists primarily of interest expense on institutional borrowings and other financing obligations and
changes in fair value of interest rate derivative instruments, net of capitalized interest expense. Interest expense, net also
includes the amortization of debt issuance costs and debt discounts associated with our Senior Secured Credit Facilities and
other indebtedness.
Other expense, net
Other expense, net represents costs incurred, net of income, on various non-operational items including costs incurred in
conjunction with our debt refinancing and extinguishment transactions, interest income, as well as foreign exchange gains
and losses and non-operational impairment losses unrelated to our core business.
36 Provision for income taxes
We and our subsidiaries are subject to income tax in the various jurisdictions in which we operate. While the extent of our
future tax liability is uncertain, changes to the debt and equity capitalization of our subsidiaries, and the realignment of the
functions performed, and risks assumed by the various subsidiaries are among the factors that will determine the future book
and taxable income of the respective subsidiary and the Company as a whole.
NON-GAAP FINANCIAL MEASURES
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
To supplement our financial information presented in accordance with U.S. GAAP, we use the following non-GAAP financial
measures to clarify and enhance an understanding of past performance: EBITDA and Adjusted EBITDA. We believe that the
presentation of these financial measures enhances an investor’s understanding of our financial performance. We further
believe that these financial measures are useful financial metrics to assess our operating performance from period-to-period
by excluding certain items that we believe are not representative of our core business. We define our core business as those
operations relating to the Company's ongoing performance and the concept is used to make resource allocation and
performance evaluation decisions. We use these financial measures for business planning purposes and in measuring our
performance relative to that of our competitors. We utilize Adjusted EBITDA as the primary measure of segment
performance.
EBITDA consists of net income before interest, taxes, depreciation and amortization. Adjusted EBITDA consists of EBITDA
adjusted for (i) non-cash items included within net income, (ii) items the Company does not believe are indicative of ongoing
operating performance or (iii) nonrecurring, unusual or infrequent items that have not occurred within the last two years or
we believe are not reasonably likely to recur within the next two years. We believe that making such adjustments provides
investors meaningful information to understand our operating results and ability to analyze financial and business trends on a
period-to-period basis.
We believe these financial measures are commonly used by investors to evaluate our performance and that of our
competitors. However, our use of the terms EBITDA and Adjusted EBITDA may vary from that of others in our industry.
These financial measures should not be considered as alternatives to income before income taxes, net income, earnings per
share or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance.
EBITDA and Adjusted EBITDA have important limitations as analytical tools and you should not consider them in isolation
or as substitutes for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
• EBITDA and Adjusted EBITDA:
•
do not reflect the significant interest expense on our debt, including the Senior Secured Credit Facilities and the
New Senior Notes; and
•
eliminate the impact of income taxes on our results of operations;
•
•
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have
to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any expenditures for such replacements;
and
other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their
usefulness as comparative measures.
We compensate for these limitations by using EBITDA and Adjusted EBITDA along with other comparative tools, together
with U.S. GAAP measurements, to assist in the evaluation of operating performance. Such U.S. GAAP measurements include
income before income taxes, net income, earnings per share and other performance measures.
In evaluating these financial measures, you should be aware that in the future we may incur expenses similar to those
eliminated in this presentation. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference
that our future results will be unaffected by the excluded items noted above.
37 The following table reconciles net income to the EBITDA and Adjusted EBITDA measures discussed above for the periods
presented:
Net income
Interest expense, net
Provision for income taxes
Depreciation and amortization
EBITDA
Debt extinguishment and refinancing related costs (a)
Foreign exchange remeasurement losses (b)
Long-term employee benefit plan adjustments (c)
Termination benefits and other employee related costs (d)
Consulting and advisory fees (e)
Transition-related costs (f)
Offering and transactional costs (g)
Stock-based compensation (h)
Other adjustments (i)
Dividends in respect of noncontrolling interest (j)
Deconsolidation and site closure related impacts (k)
Adjusted EBITDA
Year Ended December 31,
2018
2017
2016
$
213.3
$
47.7
$
159.6
54.2
369.1
796.2
9.5
9.2
(1.9)
81.7
—
(0.2)
1.2
37.3
5.2
(1.0)
—
147.0
141.9
347.5
684.1
13.4
7.4
1.4
35.3
(0.1)
7.7
18.4
38.5
3.6
(3.0)
78.5
44.6
178.2
38.1
322.1
583.0
97.6
30.6
1.5
61.8
10.4
—
6.0
41.1
5.0
(3.0)
68.4
$
937.2
$
885.2
$
902.4
(a) During the years ended December 31, 2018, 2017 and 2016 we refinanced and restructured our term loans and senior notes, which
resulted in losses of $9.5 million, $13.0 million and $88.0 million, respectively. In addition, during the years ended December 31,
2017 and 2016 we prepaid outstanding principal on our term loans, resulting in non-cash losses on extinguishment of $0.4 million
and $9.6 million, respectively. We do not consider these items to be indicative of our ongoing operating performance.
(b) Eliminates foreign exchange gains and losses resulting from the remeasurement of assets and liabilities denominated in foreign
currencies, net of the impacts of our foreign currency instruments used to hedge our balance sheet exposures. Exchange effects
attributable to the remeasurement of our Venezuelan subsidiary represented losses of $1.8 million and $23.5 million for the years
ended December 31, 2017 and 2016, respectively.
(c) Eliminates the non-cash, non-service components of long-term employee benefit plans.
(d) Represents expenses and associated changes to estimates related to employee termination benefits and other employee-related costs,
which includes Axalta CEO recruitment fees. Employee termination benefits are associated with Axalta Way initiatives. These
amounts are not considered indicative of our ongoing operating performance.
(e) Represents fees paid to consultants, and associated true-ups to estimates, for professional services primarily related to our Axalta
Way initiatives, which are not considered indicative of our ongoing operating performance.
(f) Represents integration costs and associated changes to estimates related to the 2017 acquisition of the Industrial Wood business that
was a carve-out business from Valspar. We do not consider these items to be indicative of our ongoing operating performance.
(g) Represents acquisition-related expenses, including changes in the fair value of contingent consideration, as well as $10.0 million of
costs associated with contemplated merger activities during the three months ended December 31, 2017 and costs associated with the
2016 secondary offerings of our common shares by Carlyle, all of which are not considered indicative of our ongoing operating
performance.
(h) Represents non-cash costs associated with stock-based compensation.
(i) Represents certain non-operational or non-cash gains and losses unrelated to our core business and which we do not consider
indicative of ongoing operations, including indemnity losses associated with the Acquisition, gains and losses from the sale and
disposal of property, plant and equipment, gains and losses from the remaining foreign currency derivative instruments and from
non-cash fair value inventory adjustments associated with our business combinations.
(j) Represents the payment of dividends to our joint venture partners by our consolidated entities that are not 100% owned, which are
reflected to show the cash operating performance of these entities on Axalta's financial statements.
(k) During the year ended December 31, 2017, we recorded a loss in conjunction with the deconsolidation of our Venezuelan subsidiary
of $70.9 million. During the year ended December 31, 2016 we recorded non-cash impairments at our Venezuelan subsidiary of
$68.4 million associated with our operational long-lived assets and a real estate investment (See Note 21 to the consolidated
financial statements included elsewhere in this Annual Report on Form 10-K). Additionally, during the year ended December 31,
2017, we recorded non-cash impairment charges related to certain manufacturing facilities previously announced for closure of $7.6
million. We do not consider these to be indicative of our ongoing operating performance.
38 RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information contained in the accompanying financial
statements and related notes included elsewhere in this Annual Report on Form 10-K. Our historical results of operations
summarized and analyzed below may not necessarily reflect what will occur in the future.
Net sales
Years Ended December 31,
2018 vs 2017
Years Ended December 31,
2017 vs 2016
2018
2017
$ Change % Change
2017
2016
$ Change % Change
Net sales
$ 4,669.7
$
4,352.9
$ 316.8
7.3% $ 4,352.9
$
4,068.8
$ 284.1
Volume effect
Impact of acquisitions
Price/Mix effect
Exchange rate effect
2018 Compared to 2017
0.6%
3.5%
2.6%
0.6%
7.0 %
0.2 %
7.4 %
(1.0)%
0.4 %
Net sales increased due to the following:
Impacts of acquisitions within our Performance Coatings segment
Higher average selling prices across both end-markets within our Performance Coatings segment, partially offset by
lower average selling prices in our Transportation Coatings segment
Increase in organic sales volumes primarily attributable to increases in our industrial end-market, which was partially
offset by declines in our refinish end-market
Favorable foreign currency translation due primarily to the impacts of the strengthening Euro and Chinese Renminbi
compared to the U.S. Dollar
2017 Compared to 2016
Net sales increased due to the following:
Impacts of acquisitions within our Performance Coatings segment
Favorable foreign currency translation due primarily to the impacts of the strengthening Euro compared to the U.S.
Dollar which were slightly offset by the weakening of certain currencies within Latin America and Asia against the U.S.
dollar
Increases in organic sales volumes in our commercial vehicle and industrial end-markets, largely offset by our refinish
end-market, particularly within Latin America and North America
Partially offset by:
Lower average selling prices across both end-markets within our Transportation Coatings segment
Other revenue
Other revenue
$
26.3
$
24.1
$
2.2
9.1% $
24.1
$
23.9
$
0.2
0.8%
Years Ended December 31,
2018 vs 2017
Years Ended December 31,
2017 vs 2016
2018
2017
$ Change % Change
2017
2016
$ Change % Change
2018 Compared to 2017
Other revenue increased due to the following:
Increases in service revenues, primarily within our European light vehicle end-market, and favorable impacts of foreign
currency of 2.6%, primarily related to the strengthening Euro compared to the U.S. Dollar
2017 Compared to 2016
Other revenue increased due to the following:
Favorable impacts of foreign currency of 1.4%, primarily related to the strengthening Euro compared to the U.S. Dollar
39
Cost of sales
Cost of sales
$ 3,106.3
$ 2,780.5
$ 325.8
11.7% $ 2,780.5
$ 2,528.8
$ 251.7
10.0%
Years Ended December 31,
2018 vs 2017
Years Ended December 31,
2017 vs 2016
2018
2017
$ Change % Change
2017
2016
$ Change % Change
Impact of ASU 2014-09 (1)
Cost of sales, excluding impact
of ASU 2014-09
% of net sales, excluding
impact of ASU 2014-09
67.3
—
—
—
$ 3,039.0
$ 2,780.5
$ 258.5
9.3% $ 2,780.5
$ 2,528.8
$ 251.7
10.0%
65.1%
63.9%
63.9%
62.2%
(1) See Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K
2018 Compared to 2017
Cost of sales, excluding the impact of ASU 2014-09, increased due to the following:
Increased raw material costs across both segments
Higher sales volumes, inclusive of impacts of acquisitions of 4.1%
Increased incremental accelerated depreciation expense of $6.0 million, from $4.3 million during the year ended
December 31, 2017 to $10.3 million in 2018
Unfavorable impacts of foreign currency of 0.7%, primarily related to the strengthening Euro and Chinese Renminbi
compared to the U.S. Dollar
Cost of sales, excluding the impacts of ASU 2014-09, as a percentage of net sales increased due to the following:
Increased raw material costs which surpassed our price recapture in net sales
2017 Compared to 2016
Cost of sales increased due to the following:
Higher sales volumes, inclusive of impacts of acquisitions of 7.6%
Increased raw material costs
Unfavorable impacts of foreign currency of 0.5% primarily related to the strengthening Euro compared to the U.S.
Dollar offset partially by the weakening of certain currencies within Latin America and Asia compared to the U.S. Dollar
Cost of sales as a percentage of net sales increased due to the following:
Lower average selling prices and raw material inflation
Selling, general and administrative expenses
SG&A
$
959.1
$
995.4
$
(36.3)
(3.6)% $
995.4
$
959.8
$
35.6
3.7%
Years Ended December 31,
2018 vs 2017
Years Ended December 31,
2017 vs 2016
2018
2017
$ Change % Change
2017
2016
$ Change % Change
Impact of ASU 2014-09 (1)
SG&A, excluding impact of
ASU 2014-09
% of net sales, excluding
impact of ASU 2014-09
(64.0)
—
—
—
$ 1,023.1
$
995.4
$
27.7
2.8 % $
995.4
$
959.8
$
35.6
3.7%
21.9%
22.9%
22.9%
23.6%
(1) See Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K
2018 Compared to 2017
Selling, general and administrative expenses, excluding the impact of ASU 2014-09, increased due to the following:
Axalta Way cost savings initiatives and acquisition related costs of $82.8 million, inclusive of $70.6 million of severance
costs from the announced closure of our Mechelen, Belgium manufacturing facility, as compared to $63.8 million for the
year ended December 31, 2017, resulting in a $19.0 million increase over the comparable period
Incremental impact from our acquisitions of $5.9 million
Unfavorable impacts of foreign currency of 1.0%, primarily related to the strengthening of the Euro and Chinese
Renminbi against the U.S. Dollar
Partially offset by:
Reductions in costs due to operational efficiencies associated with our cost savings initiatives
40
2017 Compared to 2016
Selling, general and administrative expenses increased due to the following:
Impacts of acquisitions of $48.6 million as well as our focus on opportunities to expand our market presence and invest
in commercial capabilities
Unfavorable impacts of foreign currency of 0.6%, primarily related to the strengthening of the Euro against the U.S.
Dollar
Partially offset by:
Decreases in costs associated with our Axalta Way cost savings initiatives
Decreases in our costs savings initiatives and acquisition-related costs which were $63.8 million for the year
ended December 31, 2017 as compared to $77.6 million of costs for the year ended December 31, 2016, resulting in
an $13.8 million decrease over the comparable period
Venezuela asset impairment
Years Ended December 31,
2018 vs 2017
Years Ended December 31,
2017 vs 2016
2018
2017
$ Change % Change
2017
2016
$ Change % Change
Venezuela asset impairment
and deconsolidation charge
$
— $
70.9
$
(70.9)
(100.0)% $
70.9
$
57.9
$
13.0
22.5%
2018 Compared to 2017
During the year ended December 31, 2017, we recorded a loss in conjunction with the deconsolidation of our Venezuelan
subsidiary. There were no corresponding losses recorded during the year ended December 31, 2018.
2017 Compared to 2016
During the year ended December 31, 2017, we recorded a loss in conjunction with the deconsolidation of our Venezuelan
subsidiary. During the year ended December 31, 2016, we recorded an asset impairment charge relating to our long-lived
assets within our Venezuelan subsidiary. See further discussion in Note 21 to the consolidated financial statements included
elsewhere in this Annual Report on Form 10-K.
Research and development expenses
Years Ended December 31,
2018 vs 2017
Years Ended December 31,
2017 vs 2016
2018
2017
$ Change % Change
2017
2016
$ Change % Change
$
73.1
$
65.3
$
7.8
11.9% $
65.3
$
57.7
$
7.6
13.2%
Research and development
expenses
2018 Compared to 2017
Research and development expenses increased due to the following:
Impacts of acquisitions of $5.4 million due to ongoing research and development activities at the acquired businesses
Unfavorable impacts of foreign currency of 1.2%, primarily related to the strengthening of the Euro and Chinese
Renminbi against the U.S. Dollar
2017 Compared to 2016
Research and development expenses increased due to the following:
Impacts of acquisitions of $9.1 million
Unfavorable impacts of foreign currency of 1.9%, primarily related to the strengthening of the Euro and certain
currencies in Latin America against the U.S. dollar
Partially offset by:
Decreases resulting from the impacts of our cost savings initiatives
41
Amortization of acquired intangibles
Years Ended December 31,
2018 vs 2017
Years Ended December 31,
2017 vs 2016
2018
2017
$ Change % Change
2017
2016
$ Change % Change
$
115.4
$
101.2
$
14.2
14.0% $
101.2
$
83.4
$
17.8
21.3%
Amortization of acquired
intangibles
2018 Compared to 2017
Amortization of acquired intangibles increased due to the following:
Definite-lived intangible assets from our recent acquisitions
Unfavorable impacts of foreign currency of 0.2%, primarily related to the strengthening of the Euro and Chinese
Renminbi against the U.S. Dollar
2017 Compared to 2016
Amortization of acquired intangibles increased due to the following:
Definite-lived intangible assets from our recent acquisitions
Impairment related to abandoned in-process research and development intangible assets of $1.7 million
Interest expense, net
Interest expense, net
$
159.6
$
147.0
$
12.6
8.6 % $
147.0
$
178.2
$
(31.2)
(17.5)%
Years Ended December 31,
2018 vs 2017
Year Ended December 31,
2017 vs 2016
2018
2017
$ Change % Change
2017
2016
$ Change % Change
2018 Compared to 2017
Interest expense, net increased due to the following:
Strengthening of the Euro compared to the U.S. Dollar of 4.7%
Increases in average interest rates due to LIBOR increases on our variable rate debt over the comparable period and
higher average principal balances resulting from the incremental indebtedness used to finance the Industrial Wood
acquisition which were outstanding for only part of the year ended December 31, 2017, compared to the entire period for
the year ended December 31, 2018
Partially offset by:
Favorable impacts of our derivative instruments and our refinancings of $14.0 million
2017 Compared to 2016
Interest expense, net decreased due to the following:
Refinancing of our indebtedness during 2016 and 2017 which reduced the overall interest rates of our debt portfolio
Partially offset by:
Increases resulting from the incremental indebtedness used to finance the Industrial Wood Acquisition
42
Other expense, net
Other expense, net
$
15.0
$
27.1
$
(12.1)
(44.6)% $
27.1
$
144.2
$ (117.1)
(81.2)%
Years Ended December 31,
2018 vs 2017
Years Ended December 31,
2017 vs 2016
2018
2017
$ Change % Change
2017
2016
$ Change % Change
2018 Compared to 2017
Other expense, net decreased due to the following:
The absence of impairments of $7.6 million for certain manufacturing facilities previously announced for closure
incurred during the year ended December 31, 2017
A reduction in debt extinguishment and refinancing related costs of $3.9 million with $9.5 million incurred during the
year ended December 31, 2018 compared to $13.4 million incurred during the year ended December 31, 2017
2017 Compared to 2016
Other expense, net decreased due to the following:
Decrease in debt extinguishment and refinancing related costs incurred during the year ended December 31, 2016 which
resulted in an $84.2 million decrease over the comparable period
A reduction in foreign exchange losses, net from $30.6 million during the year ended December 31, 2016 to $7.4
million for the year ended December 31, 2017, resulting in a $23.2 million decrease over the comparable period, driven
by our Venezuela subsidiary
Decrease in impairments of $2.9 million to $7.6 million during the year ended December 31, 2017 associated with
impairments related to the manufacturing facilities closures, compared to impairments of $10.5 million related to our
real estate investment in Venezuela incurred during the year ended December 31, 2016.
Provision for income taxes
Income before income taxes
Provision for income taxes
Statutory U.S. Federal income tax rate
Effective tax rate
Effective tax rate vs. statutory U.S. Federal income tax rate
Items impacting the effective tax rate vs. statutory U.S. federal income tax rate
Earnings generated in jurisdictions where the statutory rate is lower than the U.S. Federal rate (1)
Changes in valuation allowance
Foreign exchange gain (loss), net
Stock-based compensation excess tax benefits
Non-deductible expenses and interest
Increase in unrecognized tax benefits (2)
U.S. tax reform (3)
Pre-tax deconsolidation charge - Venezuelan subsidiary
Pre-tax impairment charges - Venezuelan subsidiary
Years Ended December 31,
2018
2017
2016
$ 267.5
$
189.6
$
54.2
21.0 %
20.3 %
(0.7)%
141.9
35.0%
74.8%
39.8%
82.7
38.1
35.0%
46.1%
11.1%
$
(Favorable) Unfavorable Impact
2018
2017
2016
(24.8) $
(37.5)
24.7
(6.6)
8.6
18.9
(12.5)
—
—
(56.2) $
45.3
(17.7)
(13.1)
14.4
3.1
107.8
24.8
—
(45.6)
9.6
3.1
(13.4)
11.4
7.1
—
—
23.8
(1) Primarily related to earnings in Bermuda, Germany, Luxembourg, and Switzerland.
(2) The 2018 unrecognized tax benefit is primarily associated with the financial impacts surrounding the announced closure of our manufacturing facility at
our Mechelen, Belgium site.
(3) Primarily related to the revaluation of our deferred tax assets and impact on certain tax attributes. See Note 10 to the consolidated financial statements
included elsewhere in this Annual Report on Form 10-K for additional information.
43
SEGMENT RESULTS
The Company's products and operations are managed and reported in two operating segments: Performance Coatings and
Transportation Coatings. See Note 19 to the consolidated financial statements included elsewhere in this Annual Report on
Form 10-K for additional information.
Performance Coatings Segment
Years Ended December 31,
2018 vs 2017
Years Ended December 31,
2017 vs 2016
Net sales
Volume effect
Impact of acquisitions
Price/Mix effect
Exchange rate effect
Adjusted EBITDA
Adjusted EBITDA Margin
2018 Compared to 2017
2018
$ 3,025.7
2017
$ 2,675.1
$ Change % Change
$
350.6
13.1% $ 2,675.1
2017
1.2%
5.7%
5.1%
1.1%
2016
$ 2,398.5
$ Change % Change
11.5 %
$ 276.6
(1.3)%
12.0 %
0.5 %
0.3 %
$
668.3
$
564.2
$
104.1
18.5% $
22.1%
21.1%
$
564.2
21.1%
549.7
22.9%
$
14.5
2.6 %
Net sales increased due to the following:
Benefits from acquisitions across both end-markets
Organic volume increases, which were comprised of industrial end-market increases, partially offset by decreases in our
refinish end-market
Favorable currency translation primarily related to the strengthening of the Euro and Chinese Renminbi compared to the
U.S. Dollar
Higher average selling prices across all regions and end-markets
Adjusted EBITDA increased due to the following:
Increases in sales volumes, including the impacts of our recent acquisitions
Higher average selling prices across all regions and end-markets
Favorable currency translation primarily related to the strengthening of the Euro and Chinese Renminbi compared to the
U.S. Dollar
Partially offset by:
Higher raw material costs across all regions and end-markets
2017 Compared to 2016
Net sales increased due to the following:
Sales volumes benefits from acquisitions
Higher average selling prices
Favorable currency translation primarily related to the strengthening of the Euro compared to the U.S. Dollar
Partially offset by:
Organic volume decreases, which were comprised of industrial end-market increases more than offset by decreases in
our refinish end-market driven by distributor working capital adjustments in North America, as well as the absence of our
now deconsolidated Venezuelan operations
Adjusted EBITDA increased due to the following:
Impacts of acquisitions
Higher average selling prices
Partially offset by:
Higher variable costs across all regions and end-markets
44
Transportation Coatings Segment
Years Ended December 31,
2018 vs 2017
Years Ended December 31,
2017 vs 2016
Net sales
Volume effect
Impact of acquisitions
Price/Mix effect
Exchange rate effect
Adjusted EBITDA
Adjusted EBITDA Margin
2018 Compared to 2017
2018
$ 1,644.0
2017
$ 1,677.8
$ Change % Change
$
(33.8)
2017
(2.0)% $ 1,677.8
(0.4)%
— %
(1.5)%
(0.1)%
2016
$ 1,670.3
7.5
$ Change % Change
0.4 %
$
2.3 %
0.7 %
(3.1)%
0.5 %
$
268.9
$
321.0
$
(52.1)
(16.2)% $
321.0
$
352.7
$
(31.7)
(9.0)%
16.4%
19.1%
19.1%
21.1%
Net sales decreased due to the following:
Lower average selling prices across both end-markets, primarily driven by the light vehicle end-market in China
Volume decreases primarily in our light vehicle end-market
Partially offset by:
Increases in sales volumes in our North America and Latin America commercial vehicle end-markets
Adjusted EBITDA decreased due to the following:
Higher raw materials costs
Lower average selling prices across both end-markets, primarily driven by the light vehicle end-market in China
Unfavorable impacts of currency exchange related to the weakening of certain currencies in Latin America compared to
the U.S. Dollar
Partially offset by:
Increases in sales volumes in our North America and Latin America commercial vehicle end-markets
2017 Compared to 2016
Net sales increased due to the following:
Increases in organic sales volumes in both end-markets
Impacts of acquisitions
Favorable impacts of currency exchange related to strengthening of the Euro and certain currencies in Latin America
compared to the U.S. Dollar
Partially offset by:
Lower average selling prices across both end-markets
Adjusted EBITDA decreased due to the following:
Lower average selling prices and higher variable costs in our light vehicle end-market
Partially offset by:
Volume growth across both end-markets
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash on hand, cash flow from operations and available borrowing capacity under our
Senior Secured Credit Facilities.
At December 31, 2018, availability under the Revolving Credit Facility was $355.2 million, net of $44.8 million of letters of
credit outstanding. All such availability may be utilized without violating any covenants under the credit agreement
governing such facility or the indentures governing the New Senior Notes. At December 31, 2018, we had $17.9 million of
outstanding borrowings under other lines of credit. Our remaining available borrowing capacity under other lines of credit in
certain non-U.S. jurisdictions totaled $9.7 million.
45
We or our affiliates, at any time and from time to time, may purchase shares of our common stock, the New Senior Notes or
other indebtedness. Any such purchases may be made through the open market or privately negotiated transactions with third
parties or pursuant to one or more redemption, tender or exchange offers or otherwise, upon such terms and at such prices, as
well as with such consideration, as we, or any of our affiliates, may determine.
Cash Flows
Years ended December 31, 2018, 2017 and 2016
(In millions)
Net cash provided by (used for):
Operating activities:
Net income
Depreciation and amortization
Amortization of deferred financing costs and original issue discount
Debt extinguishment and refinancing related costs
Deferred income taxes
Realized and unrealized foreign exchange losses (gains), net
Stock-based compensation
Asset impairments
Loss on deconsolidation of Venezuela
Interest income on swaps designated as net investment hedges
Other non-cash, net
Net income adjusted for non-cash items
Changes in operating assets and liabilities
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash
Year Ended December 31, 2018
Net Cash Provided by Operating Activities
Year Ended December 31,
2018
2017
2016
$
213.3
$
47.7
$
369.1
347.5
8.0
9.5
6.1
17.3
37.3
—
—
(9.4)
(0.9)
650.3
(154.2)
496.1
(216.1)
(341.3)
(15.2)
(76.5) $
8.0
13.4
91.7
(3.6)
38.5
7.6
70.9
—
4.4
626.1
(86.1)
540.0
(689.6)
367.3
17.1
234.8
$
$
44.6
322.1
17.8
97.6
(15.9)
35.5
41.1
68.4
—
—
(1.9)
609.3
(50.0)
559.3
(257.0)
(232.6)
(19.3)
50.4
Net cash provided by operating activities for the year ended December 31, 2018 was $496.1 million. Net income adjusted for
non-cash items (depreciation, amortization and other non-cash items) generated cash of $650.3 million. This was partially
offset by uses of working capital of $154.2 million. The most significant drivers of the uses of working capital were increases
in prepaid expenses and other assets of $157.3 million, inventory of $48.1 million and accounts receivables of $22.3 million,
and a decrease in other accrued liabilities of $8.4 million. These outflows were primarily driven by customer incentive
payments, increased inventory builds to support ongoing operational demands and incremental net sales during the year
ended December 31, 2018. Partially offsetting these outflows were increases in other liabilities and accounts payable of $32.4
million and $49.5 million, respectfully.
Net Cash Used for Investing Activities
Net cash used for investing activities for the year ended December 31, 2018 was $216.1 million. This use was driven by
purchases of property, plant and equipment of $143.4 million, business acquisitions of $82.8 million (net of cash acquired),
and an investment in a non-controlling interest of $26.9 million. These outflows were partially offset by interest and
settlement proceeds on swaps designated as net investment hedges of $22.5 million and $9.4 million, respectively, as well as
$5.1 million of other investing activities, net.
46 Net Cash Used for Financing Activities
Net cash used for financing activities for the year ended December 31, 2018 was $341.3 million. This outflow was driven by
payments of $556.0 million on short-term and long-term borrowings inclusive of the repayment of the 2023 Euro Term
Loans, purchases of treasury stock totaling $253.8 million, and payments of $17.8 million consisting of financing-related
costs, deferred acquisition-related consideration associated with historical acquisitions, and dividends to noncontrolling
interests of consolidated joint ventures. These outflows were partially offset by net proceeds of $468.9 million relating to the
refinancing of our 2024 Dollar Term Loans and proceeds from stock option exercises of $17.4 million.
Other Impacts on Cash
Currency exchange impacts on cash for the year ended December 31, 2018 were unfavorable by $15.2 million, which was
driven primarily by the Euro, Chinese Renminbi and certain currencies within Latin America.
Year Ended December 31, 2017
Net Cash Provided by Operating Activities
Net cash provided by operating activities for the year ended December 31, 2017 was $540.0 million. Net income adjusted for
non-cash items (depreciation, amortization and other non-cash items) generated cash of $626.1 million. This was partially
offset by uses of working capital of $86.1 million. The most significant drivers in working capital were increases in accounts
receivables of $15.2 million, inventory of $19.9 million and other assets of $84.9 million. These were primarily caused by
incremental net sales, increased inventory builds to support ongoing operational demands and upfront customer incentive
payments during the year ended December 31, 2017. Other uses were due to a reduction in other liabilities of $12.6
million related to payments of normal operating activities, offset by increases in accounts payable of $39.8 million and other
accrued liabilities of $6.7 million.
Net Cash Used for Investing Activities
Net cash used for investing activities for the year ended December 31, 2017 was $689.6 million. This use was driven by
business acquisitions of $564.4 million (net of cash acquired), purchases of property, plant and equipment of $125.0 million,
reduction of cash due to the deconsolidation of our Venezuelan operations of $4.3 million, and net cash provided for other
investing activities of $4.1 million.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the year ended December 31, 2017 was $367.3 million. This inflow was driven
by net proceeds from borrowings of $483.6 million primarily relating to the refinancing of our Dollar Term Loans and
proceeds of $24.8 million from cash received from stock option exercises. These proceeds were partially offset by purchases
of treasury stock for $58.4 million and other payments of $82.7 million consisting of financing-related costs, pay-down of
short-term and long-term borrowings, deferred acquisition-related consideration and dividends to noncontrolling interests of
consolidated joint ventures.
Other Impacts on Cash
Favorable currency exchange impacts on cash for the year ended December 31, 2017 were $17.1 million, which were driven
primarily by the strengthening of the Euro compared to the U.S. dollar.
Year ended December 31, 2016
Net Cash Provided by Operating Activities
Net cash provided by operating activities for the year ended December 31, 2016 was $559.3 million. Net income adjusted for
non-cash items (depreciation, amortization and other non-cash items) generated cash of $609.3 million. This was partially
offset by net increases in operating assets and liabilities of $50.0 million. The most significant drivers in working capital were
increases in accounts receivables and other assets of $132.3 million due primarily to incremental net sales and upfront
customer payments, offset by net increases in current and non-current liabilities of $84.0 million primarily related to cost
savings initiatives and timing of operating activities, which includes increases in accounts payable of $32.3 million.
Net Cash Used for Investing Activities
Net cash used for investing activities for the year ended December 31, 2016 was $257.0 million. This use was primarily
driven by purchases of property, plant and equipment of $136.2 million and acquisitions of $114.8 million (net of cash
acquired), and $6.0 million of other investing activities that includes $3.9 million of asset acquisitions.
47 Net Cash Used for Financing Activities
Net cash used for financing activities for the year ended December 31, 2016 was $232.6 million. This use was driven by
payments of $1,755.7 million relating to the redemption of our 2021 Dollar and Euro Senior Notes, the net paydown and
early repayments of our 2020 Term Loans, and quarterly principal payments as required under the Credit Agreement. These
payments were offset by proceeds of $1,604.3 million relating to the issuance of our new 2024 Dollar and Euro Senior Notes
and our new 2025 Euro Senior Notes, as well as the increase in principal on our 2023 Euro Term Loans as a part of the
refinancing. The issuance and refinancing of our new indebtedness required us to pay financing costs of $86.3 million, which
included a premium for early redemption of our 2021 Dollar and Euro Senior Notes of $56.6 million.
In addition, we had cash received from stock options exercised for $16.7 million, which is offset by repayments of short-term
borrowings of $8.6 million, dividends paid to noncontrolling interests of $3.0 million, and $0.2 million of other financing
activities.
Other Impacts on Cash
Unfavorable currency exchange impacts on cash for the year ended December 31, 2016 were $19.3 million primarily driven
by the weakening of the U.S. dollar associated with our Venezuelan subsidiary which contributed $14.0 million.
Financial Condition
We had cash and cash equivalents at December 31, 2018 and 2017 of $693.6 million and $769.8 million, respectively. Of
these balances, $417.1 million and $398.9 million were maintained in non-U.S. jurisdictions as of December 31, 2018 and
2017, respectively. We believe our organizational structure allows us the necessary flexibility to move funds throughout our
subsidiaries to meet our operational working capital needs.
Our business may not generate sufficient cash flow from operations and future borrowings may not be available under our
Senior Secured Credit Facilities in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity
needs, including planned capital expenditures. In such circumstances, we may need to refinance all or a portion of our
indebtedness on or before maturity. We may not be able to refinance any of our indebtedness on commercially reasonable
terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional
equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. Our primary sources of
liquidity are cash on hand, cash flow from operations and available borrowing capacity under our Senior Secured Credit
Facilities. Based on our forecasts, we believe that cash flow from operations, available cash on hand and available borrowing
capacity under our Senior Secured Credit Facilities and existing lines of credit will be adequate to service debt, fund our cost
saving initiatives, meet liquidity needs and fund necessary capital expenditures for the next twelve months.
Our ability to make scheduled payments of principal or interest on, or to refinance, our indebtedness or to fund working
capital requirements, capital expenditures and other current obligations will depend on our ability to generate cash from
operations. Such cash generation is subject to general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control.
If required, our ability to raise additional financing and our borrowing costs may be impacted by short and long-term debt
ratings assigned by independent rating agencies, which are based, in significant part, on our performance as measured by
certain credit metrics such as interest coverage and leverage ratios. Our highly leveraged nature may limit our ability to
procure additional financing in the future.
48 The following table details our borrowings outstanding at the periods indicated:
(In millions)
2024 Dollar Term Loans
2023 Euro Term Loans
2024 Dollar Senior Notes
2024 Euro Senior Notes
2025 Euro Senior Notes
Short-term and other borrowings
Unamortized original issue discount
Deferred financing costs, net
Less:
Short term borrowings
Current portion of long-term borrowings
Long-term debt
December 31,
2018
2,411.8
—
500.0
383.3
514.9
103.8
(12.6)
(37.2)
3,864.0
17.9
24.3
3,821.8
$
$
$
$
2017
1,960.0
472.5
500.0
399.7
536.9
94.8
(9.1)
(39.2)
3,915.6
12.9
24.8
3,877.9
$
$
$
$
Our indebtedness, including the Senior Secured Credit Facilities and New Senior Notes, is more fully described in Note 17 to
the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We continue to maintain sufficient liquidity to meet our requirements, including our leverage and associated interest as well
as our working capital needs. Availability under the Revolving Credit Facility was $355.2 million and $364.5 million at
December 31, 2018 and December 31, 2017, respectively, all of which may be borrowed by us without violating any
covenants under the credit agreement governing such facility or the indentures governing the New Senior Notes.
In April 2018, we entered into the Sixth Amendment, which repriced the 2024 Dollar Term Loans and increased the aggregate
principal balance of our 2024 Dollar Term Loans by $475.0 million to $2,430.0 million. Proceeds from the Sixth
Amendment, along with cash on the balance sheet, were used to extinguish the existing 2023 Euro Term Loans.
Concurrent with the refinancing, we executed interest rate and cross-currency swaps to convert $475.0 million of the 2024
Dollar Term Loans principal into Euro fixed-rate debt at an interest rate of 1.44%, which matures in 2023. The combined
effect of the refinancing and the swaps are expected to result in annual cash interest savings of approximately $14 million.
The following table details our borrowings outstanding, average effective interest rates and the associated interest expense,
inclusive of the amortization of debt issuance costs, debt discounts and the impact of derivative instruments for the years
ended December 31, 2018 and 2017, respectively:
Year Ended December 31,
2018
2017
(In millions)
Term Loans
Revolving Credit Facility
Senior Notes
Short-term and other borrowings
Total
Principal
$ 2,411.8
—
1,398.2
103.8
$ 3,913.8
Average Effective
Interest Rate
Interest
Expense
3.8% $
N/A
4.5%
Various
$
91.5
1.9
64.3
1.9
159.6
Principal
$ 2,432.5
—
1,436.6
94.8
$ 3,963.9
Average Effective
Interest Rate
Interest
Expense
3.5% $
N/A
4.5%
Various
$
80.0
1.9
62.2
2.9
147.0
49 Contractual Obligations
The following table summarizes our contractual obligations at December 31, 2018:
(In millions)
Debt, including current portion (1)
Senior Secured Credit Facilities, consisting of the
following:
2024 Dollar Term Loans
Senior Notes, consisting of the following:
2024 Dollar Senior Notes
2024 Euro Senior Notes
2025 Euro Senior Notes
Other borrowings
Interest payments (2)
Sale-leaseback financing (3)
Operating leases
Pension contributions (4)
Purchase obligations (5)
Uncertain tax positions, including interest and penalties (6)
Total
Contractual Obligations Due In:
Total
2019
2020-2021
2022-2023
Thereafter
$ 2,411.8
$
24.3
$
48.6
$
48.6
$ 2,290.3
500.0
383.3
514.9
46.4
908.4
104.6
116.5
6.7
184.0
—
—
—
—
17.9
161.2
5.3
34.6
6.7
104.3
—
—
—
—
1.0
318.9
10.8
40.6
—
52.0
—
—
—
—
27.5
311.4
11.4
24.7
—
17.8
—
500.0
383.3
514.9
—
116.9
77.1
16.6
—
9.9
—
$ 5,176.6
$
354.3
$
471.9
$
441.4
$ 3,909.0
(1) During the year ended December 31, 2018, we repriced our 2024 Dollar Term Loans and increased the aggregate principal balance
by $475.0 million, for which the proceeds were used, along with cash on the balance sheet, to extinguish the existing 2023 Euro
Term Loan (see Note 17 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K).
Amounts assume that the Senior Secured Credit Facilities and New Senior Notes are repaid upon maturity, and the Revolving
Credit Facility remains undrawn, which may or may not reflect future events.
(2) Interest payments are based on principal amounts of our Senior Secured Credit Facilities and New Senior Notes at December 31,
2018 including commitment fees on the unused portion of the Revolving Credit Facility. Future interest payments assume
December 31, 2018 variable rates will prevail throughout all future periods and do not consider the effect of our derivative
instruments. See Note 17 and Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form
10-K for disclosures of our interest rates and derivatives, respectively.
(3) We currently have three lease arrangements that are treated as sale-leaseback financing transactions, for which we reflect the total
cash rental costs to be paid over the terms of these leases within the table above.
(4) We expect to make contributions to our defined benefit pension plans beyond 2019; however, the amount of any contributions is
dependent on the future economic environment and investment returns, and we are unable to reasonably estimate the pension
contributions beyond 2019.
(5) Purchase obligations include various commitments, including contractual commitments to acquire ownership interests in a joint
venture as a result of business acquisitions completed in 2016. At December 31, 2018, we were committed to pay $27.0 million in
2019 related to the purchase of the remaining interest in a 75.5% owned joint venture. In addition, we have $9.9 million in interest
rate caps which will be paid through 2021 and $30.0 million in commitments to prepay rebates to certain customers in 2019, which
will be earned or repaid in future periods.
(6) At December 31, 2018, we had approximately $40.1 million of gross uncertain tax positions, including interest and penalties that
could result in potential payments. Due to the high degree of uncertainty regarding future timing of cash flows associated with
these liabilities, we are unable to estimate the years in which settlement will occur with the respective taxing authorities.
Off Balance Sheet Arrangements
See Note 6 "Commitments and Contingencies" to the consolidated financial statements included elsewhere in this Annual
Report on Form 10-K for disclosure of our guarantees of certain customers’ obligations to third parties.
Recent Accounting Guidance
See Note 1 "Basis of Presentation and Summary of Significant Accounting Policies" to the consolidated financial statements
included elsewhere in this Annual Report on Form 10-K for a summary of recent accounting guidance.
50 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of results of operations and financial condition are based upon our consolidated financial
statements. These financial statements have been prepared in accordance with U.S. GAAP unless otherwise noted. The
preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the
financial statements. We base our estimates and judgments on historical experiences and assumptions believed to be
reasonable under the circumstances and re-evaluate them on an ongoing basis. Actual results could differ from our estimates
under different assumptions or conditions. Our significant accounting policies, which may be affected by our estimates and
assumptions, are more fully described in Note 1 to the consolidated financial statements included elsewhere in this Annual
Report on Form 10-K.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about
matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been
used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the
financial statements. Management believes the following critical accounting policies reflect its most significant estimates and
assumptions used in the preparation of the financial statements.
Accounting for Business Combinations
We account for business combinations under the acquisition method of accounting. This method requires the recording of
acquired assets, including separately identifiable intangible assets, and assumed liabilities at their acquisition date fair values.
The excess of the purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill.
Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the
use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows,
discount rates, royalty rates, customer attrition rates, technology migration rates, asset lives and market multiples, among
other items.
The fair values of intangible assets are estimated using an income approach, either the excess earnings method (customer
relationships) or the relief from royalty method (technology and trademarks). Under the excess earnings method, an
intangible asset’s fair value is equal to the present value of the incremental after-tax cash flows attributable solely to the
intangible asset over its remaining useful life. With respect to customer relationships, fair values are calculated using the
excess earnings method and customer attrition is a key input used to determine the applicable after-tax cash flows. Under the
relief from royalty method, fair value is measured by estimating future revenue associated with the intangible asset over its
useful life and applying a royalty rate to the revenue estimate. These intangible assets enable us to secure markets for our
products, develop new products to meet the evolving business needs and competitively produce our existing products.
The fair values of real properties acquired are based on the consideration of their highest and best use in the market. The fair
values of property, plant and equipment, other than real properties, are based on the consideration that unless otherwise
identified, they will continue to be used "as is" and as part of the ongoing business. In contemplation of the in-use premise
and the nature of the assets, the fair value is developed primarily using a cost approach.
The determination of the fair value of assets acquired and liabilities assumed involves assessing factors such as the expected
future cash flows associated with individual assets and liabilities and appropriate discount rates at the date of the acquisition.
The fair value of noncontrolling interests, when applicable, are estimated by applying an income approach and is based on
significant inputs that are not observable in the market and thus represents a fair value measurement categorized within Level
3 of the fair value hierarchy. Key assumptions in the valuation of noncontrolling interest included a discount rate, a terminal
value based on a range of long-term sustainable growth rates and adjustments because of the lack of control that market
participants would consider when measuring the fair value of the noncontrolling interests.
The fair value of the contingent consideration liabilities is estimated by applying an income approach using the Black-
Scholes option pricing model. The fair value measurements are based on significant inputs that are not observable in the
market and thus represents a fair value measurement categorized within Level 3 of the fair value hierarchy. Key assumptions
in the valuation of contingent consideration liabilities included discount rates, expected terms, volatility rates and operating
results as applicable based on the targets identified in the respective acquisition agreements.
The results of operations for businesses acquired are included in the financial statements from the date of the acquisition. See
Note 3 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail on
the related accounting.
Asset Impairments
Factors that could result in future impairment charges or changes in useful lives, among others, include changes in worldwide
economic conditions, changes in technology, changes in competitive conditions and customer preferences, and fluctuations in
foreign currency exchange rates. These risk factors are discussed in Part I, Item 1A, "Risk Factors," included elsewhere in
this Annual Report on Form 10-K.
51 Goodwill and indefinite-lived intangible assets
As discussed in Note 1 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, the
Company tests goodwill and identifiable intangible assets with indefinite lives for impairment at least annually as of October
1st. We initially test goodwill and indefinite-lived intangible assets for impairment by performing a qualitative evaluation.
The qualitative evaluation is an assessment of factors, including reporting unit or asset specific operating results and cost
factors, as well as industry, market and macroeconomic conditions, to determine whether it is more likely than not (more than
50%) that the fair values of a reporting unit or asset are less than the respective carrying amounts, including goodwill. If
based on this qualitative assessment we determine that an impairment is more likely than not, or if we elect not to perform a
qualitative assessment, we would be required to perform a quantitative impairment test. For the quantitative impairment test,
we compare the fair value of each reporting unit or indefinite-lived asset to its carrying value and if the fair value exceeds its
carrying value, no impairment exists, and no further testing is required. If the fair value of the reporting unit or indefinite-
lived asset is less than the carrying value, the difference is recorded as an impairment loss. Fair values under the quantitative
test are estimated using a combination of discounted projected future earnings or cash flow methods, that are based on
projections of the amounts and timing of future revenue and cash flows, and multiples of earnings in estimating fair value. In
conjunction with our impairment assessments of indefinite-lived intangible assets, we also review the reasonableness of the
indefinite useful lives associated with these assets, in which we evaluate whether indicators exist that future cash flows
associated with these assets could be realized over a finite period.
For the 2018 impairment tests of our goodwill and indefinite-lived intangible assets, management concluded that the fair
values exceeded the respective carrying values and no impairments existed. In addition, during 2017 we changed certain
indefinite-lived intangible assets to definite-lived intangible assets, as discussed further in Note 4 to the consolidated
financial statements included elsewhere in this Annual Report on Form 10-K.
The inputs utilized in a quantitative analysis are classified as Level 3 inputs within the fair value hierarchy as defined in ASC
820, Fair Value Measurement. The process of evaluating the potential impairment of goodwill and indefinite-lived intangible
assets is subjective because it requires the use of estimates and assumptions as to our future cash flows, discount rates
commensurate with the risks involved in the assets, future economic and market conditions, as well as other key assumptions.
We believe that the amounts recorded in the financial statements related to goodwill and indefinite-lived intangible assets are
based on the best estimates and judgments of the appropriate Axalta management, although actual outcomes could differ from
our estimates.
Goodwill is allocated to, and evaluated for impairment at, the reporting unit level, which is defined as an operating segment
or one level below an operating segment. We have two operating segments - Performance Coatings and Transportation
Coatings - that also serve as our reportable segments. We have goodwill allocated to each of our four reporting units. At
December 31, 2018, our $1,230.8 million in total goodwill is allocated to reportable segments as follows: $1,151.5 million in
Performance Coatings and $79.3 million in Transportation Coatings.
Other intangible assets
Definite-lived intangible assets, such as technology, trademarks, customer relationships and non-compete agreements are
amortized over their estimated useful lives, generally for periods ranging from 2 to 25 years. The reasonableness of the useful
lives of these assets is continually evaluated. Once these assets are fully amortized, they are removed from the balance sheet.
The in-process research and development projects we acquired in conjunction with the Acquisition are considered indefinite-
lived intangible assets until the abandonment or completion of the associated research and development efforts. Upon
completion of the research and development process, the carrying values of acquired in process research and development
projects are reclassified as definite-lived assets and are amortized over their useful lives. If the project is abandoned, we
record the write-off as a loss in the statement of operations.
Long-Lived Assets
Long-lived assets, which includes property, plant and equipment, and definite-lived intangible assets, are assessed for
impairment at the asset group level whenever events or changes in circumstances indicate the carrying amount of the asset
group may not be recoverable. The impairment testing involves comparing the carrying amount of the asset group to the
forecasted undiscounted future cash flows generated by that asset group (i.e. a recoverability test). In the event the carrying
amount of the asset group exceeds the undiscounted future cash flows generated by that asset group and the carrying amount
is not considered recoverable, an impairment exists. An impairment loss is measured as the excess of the asset group’s
carrying amount over its fair value. An impairment loss is recognized in the statement of operations in the period that the
impairment occurs.
Assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other
assets.
52 Stock-Based Compensation
Compensation expense related to service-based, non-qualified stock options is equivalent to the grant-date fair value of the
awards determined under the Black-Scholes option pricing model and is recognized as compensation expense over the
service period utilizing the graded vesting attribution method.
Compensation expense related to the restricted stock awards and restricted stock units is equal to the grant-date fair value of
the awards determined by the closing share price on the date of the grant. The related expense is recognized as compensation
expense over the service period utilizing the graded vesting attribution method.
Compensation expense related to performance stock awards and performance share units is equivalent to the grant-date fair
value of the awards determined using a valuation methodology (Monte Carlo simulation model) to account for the market
conditions linked to these awards. These awards are tied to the Company’s total shareholder return ("TSR") relative to the
TSR of a selected industry peer group or S&P 500. Each award covers a three-year performance cycle with a three-year
service period vesting requirement. Awards will cliff vest upon meeting the applicable TSR thresholds and the three-year
service requirement. The actual number of shares awarded is adjusted to between zero and 200% of the target award amount
based upon achievement of pre-determined objectives relative to a peer group. TSR relative to peers is considered a market
condition under applicable authoritative guidance. The related expense is recognized as compensation expense over the
service period utilizing the graded vesting attribution method.
We recognize compensation expense net of forfeitures, which we have elected to record at the time of occurrence.
See Note 8 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail
on stock-based compensation.
Retirement Benefits
The amounts recognized in the audited financial statements related to pension benefits are determined from actuarial
valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at which
liabilities could have been settled, rate of increase in future compensations levels, and mortality rates. These assumptions are
updated annually and are disclosed in Note 7 to the consolidated financial statements included elsewhere in this Annual
Report on Form 10-K. In accordance with U.S. GAAP, actual results that differed from the assumptions are accumulated and
amortized over future periods and therefore, affect expense recognized in future periods.
For the majority of our defined benefit pension obligations, we utilize prevailing long-term high quality corporate bond
indices applicable to the respective country at each measurement date. In countries where established corporate bond markets
do not exist, we utilize other index movement and duration analysis to determine discount rates. The calculation separately
discounts benefit payments using the spot rates from a long-term, high-quality corporate bond yield curve.
The estimated impact of either a 100 basis point increase or decrease of the discount rate to the net periodic benefit cost for
2019 would result in an increase of approximately $0.1 million or $0.5 million, respectively. The estimated impact of a 100
basis point increase or decrease of the expected return on asset assumption on the net periodic benefit cost for 2019 would
result in a decrease or increase of approximately $2.8 million, respectively.
Income taxes
The provision for income taxes was determined using the asset and liability approach of accounting for income taxes. Under
this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets
and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current
year plus the change in deferred taxes during the period. Deferred taxes result from differences between the financial and tax
basis of our assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation
allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
Deferred tax assets and liabilities are measured using enacted tax rates applicable in the years in which they are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in income in the
period that includes the enactment date.
At December 31, 2018, we had a net deferred tax asset balance of $44.0 million, after valuation allowances of $159.0 million.
At December 31, 2017, we had a net deferred tax asset balance of $45.5 million, after valuation allowances of $214.2 million.
Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as
well as from net operating loss, interest and tax credit carryforwards. The Company records a valuation allowance if, based
upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be
realized. The Company must generate approximately $323.2 million of taxable income to fully realize its consolidated net
deferred tax assets as of December 31, 2018.
53 We evaluate the recoverability of deferred tax assets on a jurisdictional basis by assessing the adequacy of future expected
taxable income from all sources, including the reversal of taxable temporary differences, forecasted core business earnings
and available tax planning strategies. Of our net deferred tax asset balance as of December 31, 2018, $114.5 million, net of
valuation allowances of $24.2 million, relates to our operations within the U.S. In instances where we are in a three-year
cumulative loss, we assess all positive and negative factors including any potential aberrational items which may be included
within our taxable results. The aberrational items which have impacted our results include transition-related costs associated
with the separation from our predecessor coupled with significant taxable losses associated with the exercises of pre-IPO
stock options that were deep in the money at the time they were exercised, as well as debt extinguishment, refinancing and
acquisition related costs. We believe, and have assumed, these types of losses are not indicative of our core earnings for
purposes of assessing the appropriateness of a valuation allowance. Assumptions around sources of taxable income inherently
rely heavily on estimates. We use our historical experience and our short and long-range business forecasts to provide insight.
While the Company believes that its judgments and estimations regarding deferred tax assets are appropriate, significant
differences in actual experience may require the Company to adjust its valuation allowance and could materially affect the
Company’s future financial results.
On December 22, 2017, the U.S. TCJA legislation was enacted into law and contained several key tax provisions that affected
us, including the reduction of the U.S. corporate income tax rate to 21% effective January 1, 2018, among others. In
December 2017, the SEC staff issued Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts
and Jobs Act ("SAB 118"), which allowed us to record provisional amounts during a measurement period not to extend
beyond one year of the enactment date. December 22, 2018 marked the end of the measurement period for purposes of SAB
118 and we have completed our accounting for the income tax effects of the U.S. TCJA, which is discussed in more detail in
Note 10 to the consolidated financial statements.
We provide for income and foreign withholding taxes, where applicable, on unremitted earnings of all subsidiaries and
related companies to the extent that such earnings are not deemed to be permanently invested. At December 31, 2018 and
2017, deferred income taxes of approximately $7.4 million have been provided on such subsidiary earnings, respectively. At
December 31, 2018, and 2017, we have not recorded a deferred tax liability related to withholding taxes of approximately
$4.0 million and $4.2 million, respectively, on unremitted earnings of subsidiaries that are permanently invested.
The breadth of our operations and the global complexity of tax regulations require assessments of uncertainties and
judgments in estimating taxes we will ultimately pay. The final taxes paid are dependent upon many factors, including
negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from
federal, state and international tax audits in the normal course of business. A liability for unrecognized tax benefits is
recorded when management concludes that the likelihood of sustaining such positions upon examination by taxing authorities
is less than "more likely than not." Interest and penalties accrued related to unrecognized tax benefits are included in the
provision for income taxes. At December 31, 2018 and 2017, the Company had gross unrecognized tax benefits, excluding
interest and penalties, for both domestic and foreign operations of $37.0 million and $17.2 million, respectively.
See Note 10 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further
detail on our accounting for income taxes.
Derivatives and Hedging
For derivatives designated as cash flow hedges, we measure hedge effectiveness by formally assessing, at least quarterly, the
probable high correlation of the expected future cash flows of the hedged item and the derivative hedging instrument. If the
hedging relationship ceases to be highly effective or it becomes probable that an expected transaction will no longer occur,
future gains or losses on the derivative instrument are recorded in the statement of operations.
We account for interest rate swaps and certain of our interest rate caps related to our existing long-term borrowings as cash
flow hedges. The changes in the fair values of these derivatives are recorded in other comprehensive income and are
reclassified to interest expense in the period in which earnings are impacted by the hedged items or in the period that the
transaction no longer qualifies as a cash flow hedge.
We account for cross currency swaps related to exchange rate impacts between the U.S. Dollar and Euro as net investment
hedges. The changes in the fair value of these derivatives are recorded in other comprehensive income as unrealized currency
translation adjustments, while the accrued and settled interest is recorded as interest expense, net in the statement of
operations. Interest and settlement proceeds are recorded within cash flows from investing activities in the statement of cash
flows.
If no hedging relationship is designated, derivatives are marked to market through the statement of operations. Cash flows
from derivatives are recognized in the statement of cash flows in a manner consistent with the underlying transactions.
See Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further
detail on our derivatives and hedging instruments.
54 Foreign Currency Translation
Our reporting currency is the U.S. Dollar. Due primarily to our legal entity organization structure, global cash management
and raw material sourcing strategies, we determined that the functional currency of certain subsidiaries operating outside of
the United States is generally the local currency of the respective subsidiaries. Assets and liabilities of these operations are
translated into U.S. Dollars at end-of-period exchange rates; income and expenses are translated using the average exchange
rates for the reporting period. Resulting cumulative translation adjustments are recorded as a component of shareholders’
equity in the consolidated balance sheet.
Gains and losses from transactions denominated in foreign currencies other than an entities’ functional currency are included
in the consolidated statement of operations in other expense, net.
During the year ended December 31, 2018, our subsidiary in Argentina was determined to be U.S. Dollar functional currency.
This determination was made upon conclusion that the Argentinian Peso was hyper-inflationary.
Sales deductions
In our refinish end-market, our product sales are typically supplied through a network of distributors. Control transfers and
revenue is recognized when our products are delivered to our distribution customers. Variable consideration in the form of
price, less discounts and rebates, are estimated and recorded, as a reduction to net sales, upon the sale of our products based
on our ability to make a reasonable estimate of the amounts expected to be received or incurred. The estimates of variable
consideration involve significant assumptions based on the best estimates of inventory held by distributors, applicable
pricing, as well as the use of historical actuals for sales, discounts and rebates, which may result in changes in estimates in
the future.
The timing of payments associated with the above arrangements may differ from the timing associated with the satisfaction
of our performance obligations. The period between the satisfaction of the performance obligation and the receipt of payment
is dependent on terms and conditions specific to the customers. For transactions in which we expect, at contract inception, the
period between the transfer of our products or services to our customer and when the customer pays for that good or service
to be greater than one year, we adjust the promised amount of consideration for the effects of any significant financing
components.
See Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail
on our revenue.
Allowance for doubtful accounts
We maintain an allowance for doubtful accounts that reduces receivables to amounts that are expected to be collected. In
estimating the allowance, management considers factors such as current overall geographic and industry-specific economic
conditions, statutory requirements, accounts receivable turnover, historical and anticipated customer performance, historical
experience with write-offs as a standalone company and the level of past-due amounts. Changes in these conditions may
result in additional allowances. After all attempts to collect a receivable have failed and local legal requirements are met, the
receivable is written off against the allowance.
Contingencies
Contingencies, by their nature, relate to uncertainties that require management to exercise judgment both in assessing the
likelihood that a liability has been incurred as well as in estimating the amount of potential loss. The most important
contingencies impacting our financial statements are those related to environmental remediation, pending or threatened
litigation against the Company and the resolution of matters related to open tax years.
Environmental remediation costs are accrued when it is probable that a liability has been incurred and the amount can be
reasonably estimated. Estimates of environmental reserves require evaluating government regulation, available technology,
site-specific information and remediation alternatives. We accrue an amount equal to our best estimate of the costs to
remediate based upon the available information. The extent of environmental impacts may not be fully known, and the
processes and costs of remediation may change as new information is obtained or technology for remediation is improved.
Our process for estimating the expected cost for remediation considers the information available, technology that can be
utilized and estimates of the extent of environmental damage. Adjustments to our estimates are made periodically as
additional information received as remediation progresses.
55 We are subject to legal proceedings and claims arising out of our business operations. We routinely assess the likelihood of
any adverse outcomes to these matters, as well as ranges of probable losses. A determination of the amount of the reserves
required, if any, for these contingencies is made after analysis of each known claim. We have an active risk management
program consisting of numerous insurance policies secured from many carriers. These policies often provide coverage that is
intended to minimize the financial impact, if any, of the legal proceedings. The required reserves may change in the future
due to new developments in each matter.
For more information on these matters, see Note 6 and Note 10 to the consolidated financial statements included elsewhere in
this Annual Report on Form 10-K.
56 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations
through fixed and variable rate debt instruments and denominate our transactions in a variety of foreign currencies. We are
also exposed to changes in the prices of certain commodities that we use in production. Changes in these rates and
commodity prices may have an impact on future cash flow and earnings.
We manage these risks through normal operating and financing activities and, when deemed appropriate, through the use of
derivative financial instruments. We do not enter into derivative financial instruments for trading or speculative purposes.
By using derivative instruments, we are subject to credit and market risk. The fair market value of the derivative instruments
is determined by using valuation models whose inputs are derived using market observable inputs, including interest rate
yield curves, as well as foreign exchange and commodity spot and forward rates, and reflects the asset or liability position as
of the end of each reporting period. When the fair value of a derivative contract is positive, the counterparty owes us, thus
creating a receivable risk for us. We are exposed to counterparty credit risk in the event of non-performance by counterparties
to our derivative agreements. We minimize counterparty credit (or repayment) risk by entering into transactions with major
financial institutions of investment grade credit rating.
Our exposure to market risk is not hedged in a manner that completely eliminates the effects of changing market conditions
on earnings or cash flow.
Interest rate risk
We are subject to interest rate market risk in connection with our borrowings. A one-eighth percent change in the applicable
interest rate for borrowings under the Senior Secured Credit Facilities (assuming the Revolving Credit Facility is undrawn)
would have an annual impact of approximately $1.4 million on cash interest expense considering the impact of our hedging
positions currently in place.
We selectively use derivative instruments to reduce market risk associated with changes in interest rates. The use of
derivatives is intended for hedging purposes only and we do not enter into derivative instruments for speculative purposes.
During the year ended December 31, 2017, we entered into four 1.5% interest rate caps with aggregate notional amounts
totaling $850.0 million to hedge the variable interest rate exposures on our 2024 Dollar Term Loans. Three of these interest
rate caps, comprising $600.0 million of the notional value, expire December 31, 2019 and had a deferred premium of $8.6
million at inception. The fourth interest rate cap, comprising the remaining $250.0 million of the notional value,
expires December 31, 2021 and had a deferred premium of $8.1 million at inception. All deferred premiums are paid
quarterly over the term of the respective interest rate caps. These interest rate caps are marked to market at each reporting
date and any unrealized gains or losses are included in accumulated other comprehensive (loss) income ("AOCI") and
reclassified to interest expense in the same period or periods during which the hedged transactions affect earnings.
During the year ended December 31, 2018, we entered into three interest rate swaps and three fixed for fixed cross-currency
swaps, both with aggregate notional amounts totaling $475.0 million, to hedge interest rate exposures related to variable rate
borrowings and variability of exchange rate impacts between the U.S. Dollar and Euro, under the Senior Secured Credit
Facilities. Under the terms of the interest rate swap agreements, the Company is required to pay the counter-parties a stream
of fixed interest payments at a rate of 2.72% and, in turn, receives variable interest payments based on 3-month LIBOR from
the counter-parties. Under the terms of the cross-currency swap agreements, the Company notionally exchanged $475.0
million at a weighted average interest rate of 4.47% for €416.6 million at a weighted average interest rate of 1.44%. The
interest rate swaps and the cross-currency swaps are designated as cash flow and net investment hedges, respectively, and
expire on March 31, 2023. The interest rate swaps are marked to market at each reporting date and any unrealized gains or
losses are included in AOCI and reclassified to interest expense in the same period or periods during which the hedged
transactions affect earnings. The cross-currency swaps are marked to market at each reporting date and any unrealized gains
or losses are included in unrealized currency translation adjustments, within AOCI, while the accrued and settled interest is
recorded as interest expense, net in the statement of operations.
Foreign exchange rates risk
We are exposed to foreign currency exchange risk by virtue of the translation of our international operations from local
currencies into the U.S. Dollar. The majority of our net sales for the years ended December 31, 2018, 2017 and 2016 were
from operations outside the United States. At December 31, 2018 and 2017, the accumulated other comprehensive
loss account on the consolidated balance sheets included a cumulative translation loss of $299.4 million and $208.8 million,
respectively. A hypothetical 10% increase in the value of the U.S. Dollar relative to all foreign currencies would have
increased the cumulative translation loss by $178.2 million. This sensitivity analysis is inherently limited as it assumes that
rates of multiple foreign currencies are moving in the same direction relative to the value of the U.S. Dollar.
Uncertainty in the global market conditions has resulted in, and may continue to cause, significant volatility in foreign
currency exchange rates which could increase these risks.
57 In the majority of our jurisdictions, we earn revenue and incur costs in the local currency of such jurisdiction. We earn
significant revenues and incur significant costs in foreign currencies including the Euro, Mexican peso, Brazilian real and the
Chinese yuan/renminbi. As a result, movements in exchange rates could cause our revenues and expenses to materially
fluctuate, impacting our future profitability and cash flows. Our purchases of raw materials in Latin America, EMEA and
Asia Pacific and future business operations and opportunities, including the continued expansion of our business outside
North America, may further increase the risk that cash flows resulting from these activities may be adversely affected by
changes in currency exchange rates. If and when appropriate, we intend to manage these risks through foreign currency
hedges and/or by utilizing local currency funding of these expansions. We do not intend to hold financial instruments for
trading or speculative purposes.
Additionally, in order to fund the purchase price for certain assets of DPC and the capital stock and other equity interests of
certain non-U.S. entities, a combination of equity contributions and intercompany loans were utilized to capitalize certain
non-U.S. subsidiaries. In certain instances, the intercompany loans are denominated in currencies other than the functional
currency of the affected subsidiaries. Where intercompany loans are not a component of permanently invested capital of the
affected subsidiaries, increases or decreases in the value of the subsidiaries’ functional currency against other currencies will
affect our results of operations. We use these intercompany loans to offset the exposure to profitability and cash flows created
by external loans denominated in currencies that are different from the function currency of the issuing entities, including our
2024 and 2025 Euro Senior Notes, which are denominated in Euros.
Commodity price risk
We are subject to changes in our cost of sales caused by movements in underlying commodity prices (primarily oil and
natural gas). Between 45% and 55% of our cost of sales is represented by raw materials. A substantial portion of the
purchased raw materials include monomers, pigments, resins and solvents. Our price fluctuations generally follow industry
indices. We historically have not entered into long-term purchase contracts related to the purchase of raw materials. If and
when appropriate, we intend to manage these risks using purchase contracts with our suppliers.
Treasury policy
Our treasury policy seeks to ensure that adequate financial resources are available for the development of our businesses
while managing our currency and interest rate risks. Our policy is to not engage in speculative transactions. Our policies with
respect to the major areas of our treasury activity are set forth above.
58 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Axalta Coating Systems Ltd.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Axalta Coating Systems Ltd. and its subsidiaries (the
“Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive
income (loss), changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31,
2018, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period
ended December 31, 2018 appearing under item 15(a)(2) (collectively referred to as the “consolidated financial statements”).
We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
Change in Accounting Principle
As discussed in Notes 1 and 2 to the consolidated financial statements, the Company changed the manner in which it
accounts for revenue from contracts with customers in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility
is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over
financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in
all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
59 Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 26, 2019
We have served as the Company’s auditor since 2011.
60 AXALTA COATING SYSTEMS LTD.
Consolidated Statements of Operations
(In millions, except per share data)
Net sales
Other revenue
Total revenue
Cost of goods sold
Selling, general and administrative expenses
Venezuela asset impairment and deconsolidation charge
Research and development expenses
Amortization of acquired intangibles
Income from operations
Interest expense, net
Other expense, net
Income before income taxes
Provision for income taxes
Net income
Year Ended December 31,
2018
4,669.7
$
2017
4,352.9
$
2016
4,068.8
$
26.3
4,696.0
3,106.3
959.1
—
73.1
115.4
442.1
159.6
15.0
267.5
54.2
213.3
6.2
207.1
0.87
0.85
$
$
$
24.1
4,377.0
2,780.5
995.4
70.9
65.3
101.2
363.7
147.0
27.1
189.6
141.9
47.7
11.0
36.7
0.15
0.15
$
$
$
23.9
4,092.7
2,528.8
959.8
57.9
57.7
83.4
405.1
178.2
144.2
82.7
38.1
44.6
5.8
38.8
0.16
0.16
Less: Net income attributable to noncontrolling interests
Net income attributable to controlling interests
Basic net income per share
Diluted net income per share
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
61
AXALTA COATING SYSTEMS LTD.
Consolidated Statements of Comprehensive Income (Loss)
(In millions)
Net income
Other comprehensive (loss) income, before tax:
Foreign currency translation adjustments
Unrealized gain on securities
Unrealized gain on derivatives
Unrealized (loss) gain on pension and other benefit plan obligations
Other comprehensive (loss) income, before tax
Income tax (benefit) provision related to items of other comprehensive
income
Other comprehensive (loss) income, net of tax
Comprehensive income (loss)
Less: Comprehensive income attributable to noncontrolling interests
Year Ended December 31,
2018
2017
2016
$
213.3
$
47.7
$
44.6
(94.1)
—
2.4
(6.4)
(98.1)
(0.3)
(97.8)
115.5
2.7
85.6
0.4
0.9
31.3
118.2
6.6
111.6
159.3
13.2
(59.5)
0.3
2.0
(28.9)
(86.1)
(4.9)
(81.2)
(36.6)
5.7
(42.3)
Comprehensive income (loss) attributable to controlling interests
$
112.8
$
146.1
$
The accompanying notes are an integral part of these consolidated financial statements.
62
AXALTA COATING SYSTEMS LTD.
Consolidated Balance Sheets
(In millions, except per share data)
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Accounts and notes receivable, net
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Identifiable intangibles, net
Other assets
Total assets
Liabilities, Shareholders’ Equity
Current liabilities:
Accounts payable
Current portion of borrowings
Other accrued liabilities
Total current liabilities
Long-term borrowings
Accrued pensions
Deferred income taxes
Other liabilities
Total liabilities
Commitments and contingent liabilities (Note 6)
Shareholders’ equity
Common shares, $1.00 par, 1,000.0 shares authorized, 246.7 and 243.9 shares issued at
December 31, 2018 and 2017, respectively
Capital in excess of par
Retained earnings (Accumulated deficit)
Treasury shares, at cost, 11.1 and 2.0 shares at December 31, 2018 and 2017,
respectively
Accumulated other comprehensive loss
Total Axalta shareholders’ equity
Noncontrolling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2018
2017
$
693.6
$
2.8
860.8
613.0
139.4
$
2,309.6
$
1,298.2
1,230.8
1,348.0
489.1
769.8
3.1
870.2
608.6
63.9
2,315.6
1,388.6
1,271.2
1,428.2
428.6
$
$
$
6,675.7
$
6,832.2
522.8
$
42.2
475.6
1,040.6
$
3,821.8
261.9
140.8
100.1
554.9
37.7
489.6
1,082.2
3,877.9
279.1
152.9
32.3
$
5,365.2
$
5,424.4
$
245.3
$
242.4
1,409.5
198.6
(312.2)
(336.1)
1,205.1
105.4
1,310.5
6,675.7
$
$
$
1,354.5
(21.4)
(58.4)
(241.0)
1,276.1
131.7
1,407.8
6,832.2
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
63 AXALTA COATING SYSTEMS LTD.
Consolidated Statement of Changes in Shareholders’ Equity
(In millions)
Balance December 31, 2015
Comprehensive income (loss):
Net income
Net unrealized gain on securities, net of tax
of $0.0 million
Net realized and unrealized loss on
derivatives, net of tax of $0.8 million
Long-term employee benefit plans, net of
tax benefit of $5.7 million
Foreign currency translation, net of tax of
$0.0 million
Total comprehensive income (loss)
Cumulative effect of an accounting change
Recognition of stock-based compensation
Shares issued under compensation plans
Noncontrolling interests of acquired subsidiaries
Dividends declared to noncontrolling interests
Balance December 31, 2016
Comprehensive income:
Net income
Net unrealized gain on securities, net of tax
of $0.0 million
Net realized and unrealized gain on
derivatives, net of tax of $0.5 million
Long-term employee benefit plans, net of
tax of $6.1 million
Foreign currency translation, net of tax of
$0.0 million
Total comprehensive income
Recognition of stock-based compensation
Shares issued under compensation plans
Treasury share repurchases
Dividends declared to noncontrolling interests
Balance December 31, 2017
Comprehensive income (loss):
Net income
Net realized and unrealized gain on
derivatives, net of tax of $1.1 million
Long-term employee benefit plans, net of
tax benefit of $1.4 million
Foreign currency translation, net of tax of
$0.0 million
Total comprehensive income (loss)
Cumulative effect of an accounting change
Recognition of stock-based compensation
Shares issued under compensation plans
Noncontrolling interests of acquired subsidiaries
Treasury share repurchases
Dividends declared to noncontrolling interests
Common Stock
Number
of
Shares
Par/
Stated
Value
Capital In
Excess Of
Par
Retained
earnings
(Accumulated
deficit)
Treasury
Shares,
at cost
Accumulated
Other
Comprehensive
Loss
Non-
controlling
Interests
Total
237.9
$ 237.0
$ 1,238.8
$
(140.8) $
— $
(269.3) $
67.5
$ 1,133.2
—
—
—
—
—
—
—
—
2.6
—
—
—
—
—
—
—
—
—
—
2.3
—
—
—
—
—
—
—
—
—
41.1
14.4
—
—
38.8
—
—
—
—
38.8
43.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.3
1.2
(23.2)
(59.4)
(81.1)
—
—
—
—
—
5.8
44.6
—
—
—
(0.1)
5.7
—
—
—
51.3
(3.0)
0.3
1.2
(23.2)
(59.5)
(36.6)
43.9
41.1
16.7
51.3
(3.0)
240.5
$ 239.3
$ 1,294.3
$
(58.1) $
— $
(350.4) $
121.5
$ 1,246.6
—
—
—
—
—
—
—
3.4
(2.0)
—
—
—
—
—
—
—
—
3.1
—
—
—
—
—
—
—
—
38.5
21.7
—
—
36.7
—
—
—
—
36.7
—
—
—
—
—
—
—
—
—
—
—
—
(58.4)
—
—
0.4
0.4
25.2
83.4
109.4
—
—
—
—
11.0
47.7
—
—
—
2.2
13.2
—
—
—
(3.0)
0.4
0.4
25.2
85.6
159.3
38.5
24.8
(58.4)
(3.0)
241.9
$ 242.4
$ 1,354.5
$
(21.4) $ (58.4) $
(241.0) $
131.7
$ 1,407.8
—
—
—
—
—
—
—
2.8
—
(9.1)
—
—
—
—
—
—
—
—
2.9
—
—
—
—
—
—
—
—
—
37.3
14.8
2.9
—
—
207.1
—
—
—
207.1
12.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(253.8)
—
—
1.3
(5.0)
(90.6)
(94.3)
(0.8)
—
—
—
—
—
6.2
213.3
—
—
(3.5)
2.7
0.1
—
—
(28.1)
—
(1.0)
1.3
(5.0)
(94.1)
115.5
12.2
37.3
17.7
(25.2)
(253.8)
(1.0)
Balance December 31, 2018
235.6
$ 245.3
$ 1,409.5
$
198.6
$ (312.2) $
(336.1) $
105.4
$ 1,310.5
The accompanying notes are an integral part of these consolidated financial statements.
64
AXALTA COATING SYSTEMS LTD.
Consolidated Statements of Cash Flows
(In millions)
Operating activities:
Net income
Adjustment to reconcile net income to cash provided by operating activities:
Depreciation and amortization
Amortization of deferred financing costs and original issue discount
Debt extinguishment and refinancing related costs
Deferred income taxes
Realized and unrealized foreign exchange losses (gains), net
Stock-based compensation
Asset impairments
Loss on deconsolidation of Venezuela
Interest income on swaps designated as net investment hedges
Other non-cash, net
Changes in operating assets and liabilities:
Trade accounts and notes receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Other accrued liabilities
Other liabilities
Cash provided by operating activities
Investing activities:
Acquisitions, net of cash acquired
Investment in non-controlling interest
Purchase of property, plant and equipment
Interest proceeds on swaps designated as net investment hedges
Proceeds from settlement of swaps designated as net investment hedges
Other investing activities, net
Cash used for investing activities
Financing activities:
Proceeds from long-term borrowings
Payments on short-term borrowings
Payments on long-term borrowings
Financing-related costs
Dividends paid to noncontrolling interests
Purchase of treasury stock
Proceeds from option exercises
Deferred acquisition-related consideration
Cash (used for) provided by financing activities
(Decrease) increase in cash and cash equivalents
Effect of exchange rate changes on cash
Cash at beginning of period
Cash at end of period
Cash at end of period reconciliation:
Cash and cash equivalents
Restricted cash
Cash at end of period
Supplemental cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized
Income taxes, net of refunds
Non-cash investing activities:
Accrued capital expenditures
Year Ended December 31,
2018
2017
2016
$
213.3
$
47.7
$
44.6
369.1
8.0
9.5
6.1
17.3
37.3
—
—
(9.4)
(0.9)
(22.3)
(48.1)
(157.3)
49.5
(8.4)
32.4
496.1
$
(82.8) $
(26.9)
(143.4)
9.4
22.5
5.1
(216.1) $
468.9
(44.7)
(511.3)
(10.8)
(1.0)
(253.8)
17.4
(6.0)
(341.3) $
(61.3) $
(15.2)
772.9
696.4
$
$
$
$
$
693.6
2.8
696.4
152.4
57.4
347.5
8.0
13.4
91.7
(3.6)
38.5
7.6
70.9
—
4.4
(15.2)
(19.9)
(84.9)
39.8
6.7
(12.6)
540.0
$
(564.4) $
—
(125.0)
—
—
(0.2)
(689.6) $
483.6
(14.1)
(50.0)
(10.4)
(3.0)
(58.4)
24.8
(5.2)
367.3
217.7
17.1
538.1
772.9
769.8
3.1
772.9
130.1
61.7
$
$
$
$
$
$
$
322.1
17.8
97.6
(15.9)
35.5
41.1
68.4
—
—
(1.9)
(67.8)
(1.7)
(64.5)
32.3
58.7
(7.0)
559.3
(114.8)
—
(136.2)
—
—
(6.0)
(257.0)
1,604.3
(8.6)
(1,755.7)
(86.3)
(3.0)
—
16.7
—
(232.6)
69.7
(19.3)
487.7
538.1
535.4
2.7
538.1
169.4
39.2
10.1
$
30.2
$
28.7
$
$
$
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
65 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated balance sheets of Axalta Coating Systems Ltd. (“Axalta,” the “Company,” “we,” “our” and
“us”), at December 31, 2018 and 2017 and the related consolidated statements of operations, consolidated statements of
comprehensive income (loss), consolidated statements of cash flows and consolidated statements of changes in shareholders'
equity for the years ended December 31, 2018, 2017 and 2016 included herein have been prepared in accordance with
accounting principles generally accepted in the United States of America (“GAAP”) and are audited. In the opinion of
management, these statements include all adjustments, consisting only of normal, recurring adjustments, necessary for a fair
statement of the financial position of Axalta.
Venezuela Deconsolidation
During the year ended December 31, 2017, we deconsolidated our Venezuelan subsidiary from our consolidated financial
statements and began accounting for our investment in our 100% owned Venezuelan subsidiary using the cost method of
accounting. See Note 21 for additional information.
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Axalta and its subsidiaries, and entities in which a controlling
interest is maintained. For those consolidated subsidiaries in which the Company’s ownership is less than 100%, the outside
shareholders’ interests are shown as noncontrolling interests. Investments in companies in which Axalta, directly or
indirectly, owns 20% to 50% of the voting stock and has the ability to exercise significant influence over operating and
financial policies of the investee are accounted for using the equity method of accounting. As a result, Axalta’s share of the
earnings or losses of such equity affiliates is included in the accompanying consolidated statements of operations and our
share of these companies’ stockholders’ equity is included in the accompanying consolidated balance sheet. Certain of our
joint ventures are accounted for on a one-month lag basis, the effect of which is not material. We eliminated all intercompany
accounts and transactions in the preparation of the accompanying consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of sales and
expenses during the period. The estimates and assumptions include, but are not limited to, receivable and inventory
valuations, fixed asset valuations, valuations of goodwill and identifiable intangible assets, including analysis of impairment,
valuations of long-term employee benefit obligations, income taxes, environmental matters, litigation, stock-based
compensation, restructuring and allocations of costs. Our estimates are based on historical experience, facts and
circumstances available at the time and various other assumptions that are believed to be reasonable. Actual results could
differ materially from those estimates.
Accounting for Business Combinations
We account for business combinations under the acquisition method of accounting. This method requires the recording of
acquired assets, including separately identifiable intangible assets and assumed liabilities at their acquisition date fair values.
The method records any excess purchase price over the fair value of acquired net assets as goodwill. Included in the
determination of the purchase price is the fair value of contingent consideration, if applicable, based on the terms and
applicable targets described within the acquisition agreements (e.g., projected revenues or EBITDA). Subsequent to the
acquisition date, the fair value of the liability, if determined to be payable in cash, is revalued at each balance sheet date with
adjustments recorded within earnings.
The determination of the fair value of assets acquired, liabilities assumed and noncontrolling interests involves assessments
of factors such as the expected future cash flows associated with individual assets and liabilities and appropriate discount
rates at the closing date of the acquisition. When necessary, we consult with external advisors to help determine fair value.
For non-observable market values determined using Level 3 assumptions, we determine fair value using acceptable valuation
principles, including most commonly the excess earnings method for customer relationships, relief from royalty method for
technology and trademarks, cost method for inventory and a combination of cost and market methods for property, plant and
equipment, as applicable.
We included the results of operations from the acquisition date in the financial statements for all businesses acquired.
66 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Revenue Recognition
See Note 2 for disclosure of our revenue recognition accounting policy.
Cash and Cash Equivalents
Cash equivalents represent highly liquid investments considered readily convertible to known amounts of cash within
three months or less from time of purchase. They are carried at cost plus accrued interest, which approximates fair value
because of the short-term maturity of these instruments. Cash balances may exceed government insured limits in certain
jurisdictions.
Restricted cash on our consolidated balance sheets primarily represents certain customer guarantees.
Fair Value Measurements
GAAP defines a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument’s level within
the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The following valuation techniques are used to measure fair value for assets and liabilities:
Level 1—Quoted market prices in active markets for identical assets or liabilities;
Level 2—Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for
identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest
rate and yield curves, and market-corroborated inputs); and
Level 3—Unobservable inputs for the asset or liability, which are valued based on management’s estimates of assumptions
that market participants would use in pricing the asset or liability.
Derivatives and Hedging
The Company from time to time utilizes derivatives to manage exposures to currency exchange rates and interest rate risk.
The fair values of all derivatives are recognized as assets or liabilities at the balance sheet date. Changes in the fair value of
these instruments are reported in income or AOCI, depending on the use of the derivative and whether it qualifies for hedge
accounting treatment and is designated as such.
Gains and losses on derivatives that qualify and are designated as cash flow hedging instruments are recorded in AOCI, to the
extent the hedges are effective, until the underlying transactions are recognized in income.
Gains and losses on derivatives that qualify and are designated as net investment hedges are recorded in AOCI, to the extent
the hedges are effective, until the underlying transactions are recognized in income.
Gains and losses on derivatives qualifying and designated as fair value hedging instruments, as well as the offsetting losses
and gains on the hedged items, are reported in income in the same accounting period. Derivatives not designated as hedging
instruments are marked-to-market at the end of each accounting period with the results included in income.
Cash flows from derivatives are recognized in the consolidated statements of cash flows in a manner consistent with the
underlying transactions.
Receivables and Allowance for Doubtful Accounts
Receivables are carried at amounts that approximate fair value. Receivables are recognized net of an allowance for doubtful
accounts receivable. The allowance for doubtful accounts receivable reflects the best estimate of losses inherent in the
accounts receivable portfolio determined on the basis of historical experience, specific allowances for known troubled
accounts and other available evidence. Accounts receivable are written down or off when a portion or all of such account
receivable is determined to be uncollectible.
67 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Inventories
Inventories are valued at the lower of cost or net realizable value with cost being determined on the weighted average cost
method. Elements of cost in inventories include:
•
•
raw materials,
direct labor, and
• manufacturing and indirect overhead.
Stores and supplies are valued at the lower of cost or net realizable value; cost is generally determined by the weighted
average cost method. Inventories deemed to have costs greater than their respective market values are reduced to net
realizable value with a loss recorded in income in the period recognized.
Property, Plant and Equipment
Property, plant and equipment acquired in an acquisition are recorded at fair value as of the acquisition date and are
depreciated over the estimated useful life using the straight-line method. Subsequent additions to property, plant and
equipment, including the fair value of any asset retirement obligations upon initial recognition of the liability, are recorded at
cost and are depreciated over the estimated useful life using the straight-line method. See Note 14 for a range of estimated
useful lives used for each property, plant and equipment class.
Software included in property, plant and equipment represents the costs of software developed or obtained for internal use.
Software costs are amortized on a straight-line basis over their estimated useful lives. Upgrades and enhancements are
capitalized if they result in added functionality, which enables the software to perform tasks it was previously incapable of
performing. Software maintenance and training costs are expensed in the period in which they are incurred.
Goodwill and Other Identifiable Intangible Assets
Goodwill represents the excess of purchase price over the fair values of underlying net assets acquired in a business
combination. Goodwill and indefinite-lived intangible assets are tested for impairment on an annual basis as of October 1st;
however, these tests are performed more frequently if events or changes in circumstances indicate that the asset may be
impaired. The fair value methodology is based on prices of similar assets or other valuation methodologies including
discounted cash flow techniques.
When testing goodwill and indefinite-lived intangible assets for impairment, we first have an option to assess qualitative
factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not
(more than 50%) that an impairment exists. Such qualitative factors may include the following: macroeconomic conditions;
industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events. If
based on this qualitative assessment we determine that an impairment is more likely than not, or if we elect not to perform a
qualitative assessment, we would be required to perform a quantitative impairment test.
In 2018, we tested goodwill and indefinite-lived intangible assets for impairment by performing a qualitative analysis and
determined that it was not more likely than not that the fair values of our reporting units and assets was less than the
respective carrying amounts. If based on this qualitative assessment, we determined that an impairment was more likely than
not, we would have conducted the simplified goodwill impairment test in accordance with ASU 2017-04. Under the
simplified test, we compare the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit
exceeds its carrying value, no impairment exists and no further testing is required. If the fair value of the reporting unit is less
than the carrying value, an impairment charge is recognized for the amount by which the carrying amount exceeds the
reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that
reporting unit.
Definite-lived intangible assets, such as technology, trademarks, customer relationships and non-compete agreements are
amortized over their estimated useful lives, generally for periods ranging from 2 to 25 years. The reasonableness of the useful
lives of these assets is regularly evaluated. Once these assets are fully amortized, they are removed from the balance sheet.
We evaluate these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of
these assets might not be recoverable.
68 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Impairment of Long-Lived Assets
The carrying value of long-lived assets to be held and used is evaluated when events or changes in circumstances indicate the
carrying value may not be recoverable. The carrying value of a long-lived asset is considered impaired when the total
projected undiscounted cash flows from the asset is less than its carrying value. In that event, a loss is recognized based on
the amount by which the carrying value exceeds the fair value of the long-lived asset. The fair value methodology used is an
estimate of fair market value and is based on prices of similar assets or other valuation methodologies including present value
techniques. Long-lived assets to be disposed of other than by sale are classified as held for use until their disposal. Long-lived
assets to be disposed of by sale are classified as held for sale and are reported at the lower of carrying amount or fair market
value less cost to sell. Depreciation is discontinued for long-lived assets classified as held for sale.
Research and Development
Research and development costs incurred in the normal course of business consist primarily of employee-related costs and
are expensed as incurred. In process research and development projects acquired in a business combination are recorded as
intangible assets at their fair value as of the acquisition date, using Level 3 assumptions. Subsequent costs related to acquired
in process research and development projects are expensed as incurred. In process research and development intangible assets
are considered indefinite-lived until the abandonment or completion of the associated research and development efforts.
These indefinite-lived intangible assets are tested for impairment consistent with the impairment testing performed on other
indefinite-lived intangible assets discussed above. Upon completion of the research and development process, the carrying
value of acquired in process research and development projects is reclassified as a finite-lived asset and is amortized over its
useful life.
Environmental Liabilities and Expenditures
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. Accrued environmental liabilities are not discounted. Claims for recovery from third
parties, if any, are reflected separately as an asset. We record recoveries at the earlier of when the gain is probable and
reasonably estimable or realized. For the years ending December 31, 2018, 2017 and 2016, we have not recognized income
associated with recoveries from third parties.
Costs related to environmental remediation are charged to expense in the period incurred. Other environmental costs are also
charged to expense in the period incurred, unless they increase the value of the property or reduce or prevent contamination
from future operations, in which case, they are capitalized and depreciated.
Litigation
We accrue for liabilities related to litigation matters when available information indicates that the liability is probable, and the
amount can be reasonably estimated. Legal costs such as outside counsel fees and expenses are charged to expense in the
period incurred.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets are also
recognized for tax losses, interest and tax credit carryforwards. Valuation allowances are recorded to reduce deferred tax
assets when it is more likely than not that a tax benefit will not be realized. Deferred tax assets and liabilities are measured
using enacted tax rates applicable in the years in which they are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax law is recognized in income in the period that includes the enactment date.
Where we do not intend to indefinitely reinvest earnings of our subsidiaries, we provide for income taxes and withholding
taxes, where applicable, on unremitted earnings. We do not provide for income taxes on unremitted earnings of our
subsidiaries that are intended to be indefinitely reinvested.
We recognize the benefit of an income tax position only if it is "more likely than not" that the tax position will be sustained.
The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being
realized. Additionally, we recognize interest and penalties accrued related to unrecognized tax benefits as a component of
provision for income taxes. The current portion of unrecognized tax benefits is included in "Other accrued liabilities" and the
long-term portion is included in "Other liabilities" in the accompanying consolidated balance sheets.
69 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Foreign Currency Translation
The reporting currency is the U.S. Dollar. In most cases, our non-U.S. based subsidiaries use their local currency as the
functional currency for their respective business operations. Assets and liabilities of these operations are translated into
U.S. Dollars at end-of-period exchange rates; income and expenses are translated using the average exchange rates for the
reporting period. Resulting cumulative translation adjustments are recorded as a component of shareholders’ equity in the
accompanying consolidated balance sheets in AOCI.
Gains and losses from transactions denominated in currencies other than the functional currencies are included in the
consolidated statements of operations in other expense, net.
Employee Benefits
Defined benefit plans specify an amount of pension benefit that an employee will receive upon retirement, usually dependent
on factors such as age, years of service and compensation. The obligation in respect of defined benefit plans is calculated
separately for each plan by estimating the amount of the future benefits that employees earn in return for their service in the
current and prior periods. These benefits are then discounted to determine the present value of the obligations and are then
adjusted for the impact of any unamortized prior service costs. The discount rate used is based upon market indicators in the
region (generally, the yield on bonds that are denominated in the currency in which the benefits will be paid) and that have
maturity dates approximating the terms of the obligations. The calculations are performed by qualified actuaries using the
projected unit credit method. The obligation of defined benefit plans recorded on our consolidated balance sheets is net of the
current fair value of assets. See Note 7 for further information.
Stock-Based Compensation
Our stock-based compensation is comprised of Axalta stock options, restricted stock awards, restricted stock units,
performance stock awards and performance share units and are measured at fair value on the grant date or date of
modification, as applicable. We recognize compensation expense on a graded-vesting attribution basis over the requisite
service period, inclusive of impacts of any current period modifications of previously granted awards. Compensation expense
is recorded net of forfeitures, which we have elected to record in the period they occur.
Earnings per Common Share
Basic earnings per common share is computed by dividing net income attributable to Axalta’s common shareholders by the
weighted average number of shares outstanding during the period. Diluted earnings per common share is computed by
dividing net income attributable to Axalta’s common shareholders by the weighted average number of shares outstanding
during the period increased by the number of additional shares that would have been outstanding related to potentially
dilutive securities; anti-dilutive securities are excluded from the calculation. These potentially dilutive securities are
calculated under the treasury stock method and consist of stock options, restricted stock awards, restricted stock units,
performance stock awards and performance share units.
70 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Recently Adopted Accounting Guidance
On January 1, 2018, we adopted ASU 2014-09, “Revenue from Contracts with Customers,” and all related amendments
comprising ASC 606 (the “new revenue standard”), electing to use the modified retrospective method. We also elected to
apply certain practical expedients, including the application of the modified retrospective method to open contracts at
December 31, 2017. Comparative information has not been recast and continues to be reported under historical U.S. GAAP in
effect to those applicable periods. The following table summarizes the cumulative effect made to our consolidated balance
sheet as a result of the adoption to this standard.
Assets
Inventories
Prepaid expenses and other current assets (1)
Other assets (2)
Liabilities
Other accrued liabilities (3)
Deferred income taxes
Equity
Retained earnings (Accumulated deficit)
Noncontrolling interests
December 31, 2017
Adjustments due
to ASU 2014-09
January 1, 2018
$
$
$
608.6
$
63.9
428.6
489.6
$
152.9
(21.4) $
131.7
(22.7) $
41.7
(1.9)
$
$
1.9
3.0
12.1
0.1
585.9
105.6
426.7
491.5
155.9
(9.3)
131.8
(1) Includes the impact to contract assets resulting from the modified retrospective adoption of the new revenue standard.
(2) Includes the impact to deferred income taxes resulting from the modified retrospective adoption of the new revenue standard.
(3) Includes the impact of estimated variable consideration on certain arrangements in our refinish end-market.
The impacts to the balance sheet as of the adoption date represent the acceleration of revenue for certain arrangements,
primarily within our light vehicle end-market, for which we determined our performance obligation has been satisfied.
Specifically, we concluded that the transfer of control to the customer, as defined under the new revenue standard, occurs at a
date prior to consumption. Additionally, certain costs historically reported in selling, general and administrative expenses
under historical U.S. GAAP related to on-site technical support services that are not considered material in the context of our
contracts with certain customers are now reported within cost of goods sold on the consolidated statements of operations, as
they represent costs incurred in satisfaction of performance obligations. See Note 2 for further discussion.
On January 1, 2018 we retrospectively adopted ASU 2017-07,"Compensation—Retirement Benefits," which requires that an
employer report the service cost component of net periodic pension costs in the same line item or items as other
compensation costs arising from services rendered by the pertinent employees during the period. It also requires the other
components of net periodic pension costs to be presented in the statement of operations separately from the service cost
component and outside a subtotal of income from operations. Adoption resulted in a reclassification on the consolidated
statements of operations of a benefit of $1.4 million for the year ended December 31, 2017, from income from operations to
other expense, net.
On January 1, 2018, we adopted ASU 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial
Assets and Financial Liabilities," which requires equity investments in unconsolidated entities, excluding those accounted for
using the equity method of accounting, to be remeasured at exit price fair value, with changes recorded in the statement of
operations. This standard was adopted using the modified retrospective application resulting in a cumulative adjustment to
retained earnings of $0.8 million at January 1, 2018. See Note 20 for more information.
71 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Of the accounting standards we have adopted in 2018, the below standards did not have a material impact:
ASU
2017-12 Derivatives and Hedging
2017-09
Compensation—Stock Compensation
2017-04
Simplifying the Test for Goodwill Impairment
2017-01
Clarifying the Definition of a Business
2016-15
Statement of Cash Flows
Accounting Guidance Issued But Not Yet Adopted
Effective Date
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
In February 2016, the FASB issued ASU 2016-02, "Leases," which, together with amendments comprising ASC 842, requires
lessees to identify arrangements that should be accounted for as leases and generally recognize, for operating and finance
leases with terms exceeding twelve months, a right-of-use asset (or "ROU") and lease liability on the balance sheet. In
addition to this main provision, this standard included a number of additional changes to lease accounting. This standard is
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early
adoption is permitted prior to this date. A modified retrospective transition approach is required, applying the new standard to
all leases existing at the date of initial application. An entity may choose to use either the adoption date or the beginning of
the earliest comparative period presented in the financial statements as its date of initial application. We have elected to adopt
the new standard on January 1, 2019 and use the effective date as our date of initial application. As a result, historical
financial information will not be updated, and the disclosures required under the new standard will not be provided as of and
for periods before January 1, 2019.
The new standard provides a number of optional practical expedients in transition. We expect to elect the package of practical
expedients, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease
classification and initial direct costs. We also expect to elect the practical expedient pertaining to land easements which
permits entities to forgo the evaluation of existing land easement arrangements in transition to determine if they contain a
lease. We do not expect to elect the use-of-hindsight practical expedient. The new standard also provides practical expedients
for an entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that
qualify, meaning we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease
liabilities for existing short-term leases (leases with a term of less than 12 months from lease commencement) of those assets
in transition. We also currently expect to elect the practical expedient to not separate lease and non-lease components for all
asset classes.
The Company is in process of implementing an outsourced software solution to support the ongoing accounting requirements
that this standard will have on our consolidated financial statements. We are finalizing the implementation steps including
evaluating completeness and accuracy of lease data entered into the software solution to assess the effect of the new guidance
on our financial statements and assessing our procedural and policy requirements and impacts to our internal controls. While
the Company is still evaluating the impacts of implementing the ASU, we expect to recognize a material increase to total
assets and total liabilities on our consolidated balance sheets due to the recognition of ROU assets and corresponding lease
liabilities. Additionally, we will record a one-time impact to retained earnings on our consolidated balance sheets and
consolidated statement of changes in shareholders’ equity related to the net difference of derecognition of existing assets and
debt obligations associated with our leases currently accounted for as sale-leaseback financings, for which the ASU requires
accounting for as a lease at the date of initial application. The Company does not expect the adoption of the ASU to have a
material effect on the Company’s results of operations. We are currently evaluating the expanded disclosures necessary to be
in compliance with this standard, including expanded disclosures regarding qualitative and quantitative information about our
leases, the significant judgments made in applying the lease guidance, and the amounts recognized in the financial statements
related to those leases.
(2) REVENUE
We recognize revenue at the point our contractual performance obligations with our customers are satisfied. This occurs at
the point in time when control of our products transfers to the customer based on considerations of right to payment, transfer
of legal title, physical possession, risks and rewards of ownership and customer acceptance. For the majority of our revenue,
control transfers upon shipment of our products to our customers. Our remaining revenue is recorded upon delivery or
consumption for our product sales or as incurred for services provided and royalties earned.
72 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Revenue is measured as the amount of consideration we expect to receive in exchange for our products or services. Our
contracts, including those subject to standard terms and conditions under multi-year agreements, are largely short-term in
nature and each customer purchase order typically represents a contract with the delivery of coatings representing the only
separate performance obligation.
For certain customer arrangements within our light vehicle, industrial and commercial vehicle end-markets, revenue is
recognized upon shipment, as this is the point in time we have concluded that control of our product has transferred to our
customer based on our considerations of the indicators of control in the contracts, including right of use and risk and reward
of ownership. For consignment arrangements, revenue is recognized upon actual consumption by our customers, as this
represents the point in time that control is determined to have transferred to the customer based on the contractual
arrangement.
In our refinish end-market, our product sales are typically supplied through a network of distributors. Control transfers and
revenue is recognized when our products are delivered to our distribution customers. Variable consideration in the form of
price, less discounts and rebates, are estimated and recorded, as a reduction to net sales, upon the sale of our products based
on our ability to make a reasonable estimate of the amounts expected to be received or incurred. The estimates of variable
consideration involve significant assumptions based on the best estimates of inventory held by distributors, applicable
pricing, as well as the use of historical actuals for sales, discounts and rebates, which may result in changes in estimates in
the future.
The timing of payments associated with the above arrangements may differ from the timing associated with the satisfaction
of our performance obligations. The period between the satisfaction of the performance obligation and the receipt of payment
is dependent on terms and conditions specific to the customers. For transactions in which we expect, at contract inception, the
period between the transfer of our products or services to our customer and when the customer pays for that good or service
to be greater than one year, we adjust the promised amount of consideration for the effects of any significant financing
components.
All costs incurred directly in satisfaction of our performance obligations associated with revenue are reported in cost of goods
sold on the statements of operations. We also 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, which approximates a five-year weighted average useful life. 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. At December 31, 2018 and 2017, the total carrying value of BIPs
were $190.8 million and $173.0 million, respectively, and are presented within other assets on the consolidated balance
sheets. For the years ended December 31, 2018, 2017 and 2016 $65.5 million, $65.0 million and $53.5 million, respectively,
was amortized and reflected as reductions of net sales in the consolidated statements of operations. The total carrying value
of BIPs exclude other upfront incentives made in conjunction with long-term customer commitments of $56.0 million and
zero at December 31, 2018 and 2017, respectively, which will be repaid in future periods.
We accrue for sales returns and other allowances based on our historical experience, as well as expectations based on current
information relevant to our customers. We include the amounts billed to customers for shipping and handling fees in net sales
and include costs incurred for the delivery of goods as cost of goods sold in the statement of operations.
Recognition of licensing and royalty income occurs at the point in time when agreed upon performance obligations are
satisfied, the amount is fixed or determinable, and collectability is reasonably assured.
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 December 31, 2018 and January 1, 2018 were $47.2 million and $41.7 million, respectively.
The arrangements discussed above that have changed under the new revenue standard have resulted in a difference in timing
of revenue recognition and classification of associated costs compared with historical U.S. GAAP. In addition to the
application of the modified retrospective method to open contracts at the date of adoption (discussed in Note 1), we have
applied certain other policy elections upon adoption of the new revenue standard beginning January 1, 2018, including
accounting for shipping and handling costs as contract fulfillment costs, as well as excluding from the transaction price any
taxes imposed on and collected from customers in revenue producing transactions. Other practical expedients associated with
the new revenue standard were assessed by management and concluded to be not applicable, including the application of a
portfolio approach, costs to obtain a contract, existence of significant financing components, contract modifications and right
to invoice.
73 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
The following tables summarizes the impact to our consolidated statements of operations and balance sheets in accordance
with the new revenue standard:
For the year ended December 31, 2018
Prior to ASU
2014-09
Increases /
(Decreases)
As reported
Net sales
Cost of goods sold
Selling, general and administrative expenses
Provision for income taxes
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to controlling interests
Assets
Inventories
Prepaid expenses and other current assets
Other assets
Liabilities
Other accrued liabilities
Deferred income taxes
Equity
Retained earnings
Accumulated other comprehensive loss
Noncontrolling interests
Revenue Streams
$
$
$
$
$
$
4,669.7
$
3,106.3
959.1
54.2
213.3
6.2
207.1
$
$
4,662.6
$
3,039.0
1,023.1
53.2
210.5
6.1
204.4
$
$
7.1
67.3
(64.0)
1.0
2.8
0.1
2.7
At December 31, 2018
Prior to ASU
2014-09
Increases /
(Decreases)
As reported
613.0
$
638.0
$
139.4
489.1
92.2
491.7
475.6
$
140.8
473.7
$
137.5
$
198.6
(336.1)
105.4
$
183.8
(335.5)
105.2
(25.0)
47.2
(2.6)
1.9
3.3
14.8
(0.6)
0.2
Our revenue streams are disaggregated based on the types of products and services offered in contracts with our customers,
which are depicted in each of our four end-markets.
• Refinish - We develop, market and supply a complete portfolio of innovative coatings systems and color matching
technologies to facilitate faster automotive collision repairs relative to competing technologies. Our refinish
products and systems include a range of coatings layers required to match the vehicle’s color and appearance,
producing a repair surface indistinguishable from the adjacent surface.
•
Industrial - The industrial end-market is comprised of liquid and powder coatings used in a broad array of end-
market applications. We are also a leading global developer, manufacturer and supplier of functional and decorative
liquid and powder coatings for a large number of diversified applications in the industrial end-market. We provide a
full portfolio of products for applications including architectural cladding and fittings, automotive coatings, general
industrial, job coaters, electrical insulation coatings, HVAC, appliances, industrial wood, coil, rebar and oil & gas
pipelines.
• Light Vehicle - Light vehicle OEMs select coatings providers on the basis of their global ability to deliver advanced
technological solutions that improve exterior appearance and durability and provide long-term corrosion protection.
Customers also look for suppliers that can enhance process efficiency to reduce overall manufacturing costs and
provide on-site technical support.
74 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
• Commercial Vehicle - Sales in the commercial vehicle end-market are generated from a variety of applications
including non-automotive transportation (e.g., heavy duty truck, bus and rail) and Agricultural, Construction and
Earthmoving, as well as related markets such as trailers, recreational vehicles and personal sport vehicles. This end-
market is primarily driven by global commercial vehicle production, which is influenced by overall economic
activity, government infrastructure spending, equipment replacement cycles and evolving environmental standards.
Commercial vehicle OEMs select coatings providers on the basis of their ability to consistently deliver advanced
technological solutions that improve exterior appearance, protection and durability and provide extensive color
libraries and matching capabilities at the lowest total cost-in-use, while meeting stringent environmental
requirements.
We also have other revenue streams which include immaterial revenues relative to the net sales of our four end-markets,
comprised of sales of royalties and services, primarily within our light vehicle and refinish end-markets.
See Note 19 for net sales by end-market.
(3) ACQUISITIONS
Acquisition of Industrial Wood Business
On June 1, 2017, the Company completed its acquisition from The Valspar Corporation ("Valspar") of certain assets
constituting its North American Industrial Wood Coatings business (the "Industrial Wood" business), for a purchase price of
$420.0 million, subject to working capital adjustments. Axalta and Valspar finalized the working capital adjustments to the
purchase price which resulted in an increase of $10.3 million to $430.3 million (the "Industrial Wood Acquisition"). The
Industrial Wood Acquisition was funded through the refinancing of our Dollar Term Loans discussed further at Note 17.
The Industrial Wood business is one of the leading providers of coatings for OEM and aftermarket industrial wood markets,
including building products, cabinets, flooring and furniture, in North America. The Industrial Wood 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.
After preliminary working capital adjustments, the Company paid an aggregate purchase price of $430.3 million, which was
comprised of the following:
Accounts and notes receivable—trade
Inventories
Prepaid expenses and other current assets
Property, plant and equipment
Identifiable intangibles
Accounts payable
Other accrued liabilities
Net assets acquired before goodwill on acquisition
Goodwill on acquisition
Net assets acquired
$
$
June 1, 2017 (As
Initially Reported)
23.3
$
Measurement Period
Adjustments
June 1, 2017
(As Adjusted)
$
$
$
— $
(0.2)
—
0.1
4.9
0.2
0.4
$
5.4
(5.8)
(0.4) $
23.3
24.7
0.2
23.1
259.1
(22.2)
(4.7)
303.5
126.8
430.3
24.9
0.2
23.0
254.2
(22.4)
(5.1)
298.1
132.6
430.7
Goodwill was recognized as the excess of the purchase price over the net identifiable assets recognized. The goodwill is
primarily attributed to our assembled workforce and the anticipated future economic benefits and is recorded within our
industrial end-market in our Performance Coatings segment. The goodwill recognized at December 31, 2018 that is expected
to be deductible for income tax purposes is $126.8 million.
The Company incurred and expensed acquisition-related transaction costs on the Industrial Wood Acquisition of $5.3 million,
included within selling, general and administrative expense on the consolidated statements of operations for the year ended
December 31, 2017.
The fair value associated with identifiable intangible assets was $259.1 million, comprised of $34.6 million in technology
(inclusive of in-process research and development), $8.0 million in trademarks, $203.0 million in customer relationships
and $13.5 million associated with favorable contractual arrangements which have been determined to have a fair value. The
definite-lived intangible assets will be amortized over an average term of approximately 19 years.
75 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Supplemental Pro Forma Information
The Company's net sales and income before income taxes for the year ended December 31, 2017 include net sales of $146.1
million and pre-tax income of $2.4 million related to the Industrial Wood business. The following supplemental pro forma
information represents the results of operations as if the Company had acquired Industrial Wood on January 1, 2016:
(in millions, except per share data)
Net sales
Net income
Net income attributable to controlling interests
Net income per share (Basic)
Net income per share (Diluted)
For the years ended
December 31, 2017
4,454.2
$
55.0
$
44.0
$
0.18
$
0.18
$
December 31, 2016
4,293.1
$
45.9
$
40.1
$
0.17
$
0.16
$
The 2017 supplemental pro forma net income was adjusted to exclude $5.3 million ($3.3 million, net of pro forma income tax
impact) of acquisition-related costs incurred in 2017 and $2.8 million ($1.8 million, net of pro forma income tax impact) of
non-recurring expense related to the fair market value adjustment to acquisition date inventory. The unaudited pro forma
consolidated information does not necessarily reflect the actual results that would have occurred had the acquisition taken
place on January 1, 2016, nor is it meant to be indicative of future results of operations of the combined companies under the
ownership and operation of the Company.
Other Acquisitions
During the year ended December 31, 2018, we successfully completed seven strategic acquisitions, including two based in
Asia Pacific, two based in North America, and three based in Europe all of which operate within our Performance Coatings
segment ("2018 Acquisitions"). Our aggregate spending for these acquisitions for the year ended December 31, 2018 was
$79.9 million. The overall impacts to our consolidated financial statements were not considered to be material, either
individually or in the aggregate. The fair value associated with identifiable intangible assets from the 2018 Acquisitions
was $64.6 million, comprised primarily of technology and customer relationship assets, which will be amortized over a
weighted average term of approximately nine years.
At December 31, 2018, for the 2018 Acquisitions treated as business combinations we have not finalized the related purchase
accounting and the amounts recorded represent preliminary values. We expect to finalize our purchase accounting during the
respective measurement periods which will be no later than one year following the closing dates.
In addition, during the year ended December 31, 2018, pursuant to the stock purchase agreement for a joint venture acquired
during the year ended December 31, 2016, we purchased an additional 24.5% interest for $26.9 million, increasing our total
ownership percentage to 75.5%.
(4) GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
Goodwill
The following table shows changes in the carrying amount of goodwill from December 31, 2016 to December 31, 2018 by
reportable segment:
December 31, 2016
Goodwill from acquisitions
Purchase accounting adjustments
Foreign currency translation
December 31, 2017
Goodwill from acquisitions
Purchase accounting adjustments
Foreign currency translation
December 31, 2018
Performance
Coatings
Transportation
Coatings
Total
$
$
$
889.4
207.2
(15.2)
107.8
1,189.2
2.9
(0.2)
(40.4)
1,151.5
$
$
$
74.7
—
—
7.3
82.0
—
—
(2.7)
79.3
$
$
$
964.1
207.2
(15.2)
115.1
1,271.2
2.9
(0.2)
(43.1)
1,230.8
76 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Identifiable Intangible Assets
The following table summarizes the gross carrying amounts and accumulated amortization of identifiable intangible assets by
major class:
December 31, 2018
Technology
Trademarks—indefinite-lived
Trademarks—definite-lived
Customer relationships
Other
Total
December 31, 2017
Technology
Trademarks—indefinite-lived
Trademarks—definite-lived
Customer relationships
Other
Total
Gross Carrying
Amount
Accumulated
Amortization
Net Book
Value
Weighted average
amortization periods
(years)
$
$
$
$
545.7
269.0
100.6
929.9
15.7
1,860.9
Gross Carrying
Amount
498.0
277.2
102.6
945.1
16.6
1,839.5
$
$
$
$
(260.7) $
—
(24.0)
(222.9)
(5.3)
(512.9) $
285.0
269.0
76.6
707.0
10.4
1,348.0
10.4
Indefinite
15.8
19.1
5.1
Accumulated
Amortization
Net Book
Value
Weighted average
amortization periods
(years)
(213.6) $
—
(17.7)
(176.8)
(3.2)
(411.3) $
284.4
277.2
84.9
768.3
13.4
1,428.2
10.5
Indefinite
15.9
19.0
4.8
During the year ended December 31, 2017, we changed certain indefinite-lived trademark intangibles to definite-lived
intangible assets. The change was made as a result of decisions regarding our anticipated future use of these trademarks.
During this period, we commenced amortizing the assets on a straight-line basis over a 20-year useful life.
In-process research and development projects, classified within technology assets were $2.3 million at December 31, 2018
and 2017, respectively.
The estimated amortization expense related to the fair value of acquired intangible assets for each of the succeeding five
years is:
2019
2020
2021
2022
2023
(5) RESTRUCTURING
$
$
$
$
$
114.2
113.9
113.3
111.1
71.3
In accordance with the applicable guidance for 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.
We have incurred costs in connection with involuntary termination benefits associated with our corporate-related initiatives
and cost-saving opportunities associated with our Fit For Growth and Axalta Way initiatives. These amounts are recorded
within selling, general and administrative expenses in the consolidated statements of operations. The payments associated
with these actions are expected to be completed within 12 to 24 months from the balance sheet date.
77 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
The following table summarizes the activity related to the restructuring reserves and expenses for the years ended
December 31, 2018, 2017 and 2016:
Balance at January 1, 2016
Expense recorded
Payments made
Foreign currency translation
Balance at December 31, 2016
Expense recorded
Payments made
Foreign currency translation
Venezuela deconsolidation impact
Balance at December 31, 2017
Expense recorded
Payments made
Foreign currency translation
Balance at December 31, 2018
$
$
$
$
41.3
58.5
(31.0)
(2.7)
66.1
36.2
(36.1)
6.8
(1.5)
71.5
79.8
(46.4)
(2.2)
102.7
Restructuring charges incurred during 2018 and 2017 included actions to reduce operational costs through activities to
rationalize our manufacturing footprint, including the impacts from the announced closure of our Mechelen, Belgium
manufacturing facility announced during the year ended December 31, 2018. We are projecting to incur aggregate pre-tax
charges of approximately $120-130 million, subject to future changes in estimates, in connection with the announced closure
and transfer of production to other Axalta facilities. Components of the pre-tax charges include estimated non-cash
accelerated depreciation costs of approximately $50-60 million associated with the reduced useful lives of the impacted
manufacturing assets. Also included in these projections were $70.6 million in severance costs incurred during the year ended
December 31, 2018, as previously communicated. No impairments to the associated long-lived assets were recorded.
Manufacturing assets were also assessed, including assessment of assets totaling $55.8 million (€47.7 million) at our
Mechelen, Belgium manufacturing facility, and as a result, useful lives of the assets were truncated.
The impacts to pre-tax earnings from incremental accelerated depreciation resulting from our manufacturing footprint
assessments, including our Mechelen, Belgium site, for the years ended December 31, 2018 and 2017 were $10.3 million and
$4.3 million, respectively, and were recorded to cost of goods sold. During the year ended December 31, 2017, we also
recorded impairment losses of $7.6 million associated with these manufacturing facilities based on market price estimates
recorded within other expense, net.
(6) COMMITMENTS AND CONTINGENCIES
Leases - Sales Leaseback Obligations
We have three lease arrangements that are treated as sale-leaseback financing transactions. The lessors' building costs are
depreciated over an estimated useful life beginning at the commencement of the rental terms, at which point such lease assets
recorded in property, plant and equipment had a corresponding offset within long-term borrowings. The table below reflects
the total remaining cash payments related to all transactions during the rental term at December 31, 2018:
2019
2020
2021
2022
2023
Thereafter
Total minimum payments
Sale-leaseback
obligations
5.3
5.4
5.4
5.7
5.7
77.1
104.6
$
$
78
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Leases - Other
We use various leased facilities and equipment in our operations. The terms for these leased assets vary depending on the
lease agreement. Net rental expense under operating leases were $49.7 million, $52.7 million and $48.0 million for the years
ended December 31, 2018, 2017 and 2016, respectively.
At December 31, 2018, future minimum payments under non-cancelable operating leases were as follows:
2019
2020
2021
2022
2023
Thereafter
Total minimum payments
Guarantees
Operating
Leases
34.6
23.5
17.1
13.2
11.5
16.6
116.5
$
$
We guarantee certain of our customers’ obligations to third parties, whereby any default by our customers on their obligations
could force us to make payments to the applicable creditors. At December 31, 2018 and 2017, we had outstanding bank
guarantees of $12.7 million and $15.2 million, respectively, which expire between 2019 and 2022. We monitor the
obligations to evaluate whether we have a liability at the balance sheet date, for which none existed as of December 31, 2018
and 2017.
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 litigation matters may involve third-party indemnification obligations and/
or insurance covering all or part of any potential damage against 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, although
management does not believe that such proceedings, individually or in the aggregate, will have a material adverse effect on
the consolidated financial statements of Axalta. The potential effects, if any, on such consolidated financial statements will be
recorded in the period in which these matters are probable and estimable.
79 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(7) LONG-TERM EMPLOYEE BENEFITS
Defined Benefit Pensions
Axalta has defined benefit plans that cover certain employees worldwide, with over 85% of the projected benefit obligation
within the European region as of December 31, 2018.
Obligations and Funded Status
The measurement date used to determine defined benefit obligations was December 31. The following table sets forth the
changes to the projected benefit obligations ("PBO") and plan assets for the years ended December 31, 2018 and 2017 and
the funded status and amounts recognized in the accompanying consolidated balance sheets at December 31, 2018 and 2017
for our defined benefit pension plans:
Change in benefit obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Participant contributions
Actuarial gains, net
Plan curtailments, settlements and special termination benefits
Benefits paid
Business combinations and other adjustments
Foreign currency translation
Projected benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Participant contributions
Benefits paid
Settlements
Business combinations and other adjustments
Foreign currency translation
Fair value of plan assets at end of year
Funded status, net
Amounts recognized in the consolidated balance sheets consist of:
Other assets
Other accrued liabilities
Accrued pensions
Net amount recognized
Year Ended December 31,
2018
2017
636.9
8.8
13.1
1.3
(3.3)
(19.4)
(25.6)
0.7
(28.8)
583.7
$
$
$
365.0
(1.4)
24.6
1.3
(25.6)
(12.5)
(0.1)
(19.0)
332.3
$
(251.4) $
$
22.0
(11.5)
(261.9)
(251.4) $
547.6
9.0
13.8
1.3
(13.8)
(12.9)
(23.3)
51.2
64.0
636.9
288.7
22.2
27.4
1.3
(23.3)
(13.9)
32.4
30.2
365.0
(271.9)
19.2
(12.0)
(279.1)
(271.9)
$
$
$
$
$
$
$
The PBO is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of
estimated future pay increases. The accumulated benefit obligation ("ABO") is the actuarial present value of benefits
attributable to employee service rendered to date but does not include the effects of estimated future pay increases.
80 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
The following table reflects the ABO for all defined benefit pension plans as of December 31, 2018 and 2017. Further, the
table reflects the aggregate PBO, ABO and fair value of plan assets for pension plans with PBO in excess of plan assets and
for pension plans with ABO in excess of plan assets.
ABO
Plans with PBO in excess of plan assets:
PBO
ABO
Fair value plan assets
Plans with ABO in excess of plan assets:
PBO
ABO
Fair value plan assets
Year Ended December 31,
2018
2017
559.9
375.6
352.0
102.2
370.2
349.1
99.3
$
$
$
$
$
$
$
605.4
401.2
370.0
110.1
393.3
364.9
104.7
$
$
$
$
$
$
$
The pre-tax amounts not yet reflected in net periodic benefit cost and included in AOCI include the following related to
defined benefit plans:
Accumulated net actuarial losses
Accumulated prior service credit
Total
Year Ended December 31,
2018
2017
$
$
(51.8) $
1.6
(50.2) $
(46.4)
2.6
(43.8)
The accumulated net actuarial losses for pensions relate primarily to differences between the actual net periodic expense and
the expected net periodic expense resulting from differences in the significant assumptions, including return on assets,
discount rates and compensation trends, used in these estimates. For individual plans in which the accumulated net actuarial
gains or losses exceed 10% of the higher of the fair value of plan assets or the PBO at the beginning of the year, amortization
of such excess has been included in net periodic benefit costs. The amortization period is the average remaining service
period of active employees expected to receive benefits unless a plan is mostly inactive in which case the amortization period
is the average remaining life expectancy of the plan participants. Accumulated prior service credit is amortized over the
future service periods of those employees who are active at the dates of the plan amendments and who are expected to receive
benefits.
The estimated pre-tax amounts that are expected to be amortized from AOCI into net periodic benefit cost during 2019 for the
defined benefit plans is as follows:
Amortization of net actuarial losses, net
Amortization of prior service credit, net
Total
2019
(2.0)
0.1
(1.9)
$
$
81
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
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 years
ended December 31, 2018, 2017 and 2016.
Components of net periodic benefit cost and amounts recognized in
comprehensive (income) loss:
Net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss, net
Amortization of prior service credit
Curtailment gain
Settlement (gain) loss
Special termination benefit loss
Net periodic benefit cost
Changes in plan assets and benefit obligations recognized in other
comprehensive (income) loss:
Net actuarial (gain) loss, net
Amortization of actuarial loss, net
Prior service (credit) cost
Amortization of prior service credit
Curtailment gain
Settlement gain (loss)
Other adjustments
Total (gain) loss recognized in other comprehensive (income) loss
Total recognized in net periodic benefit cost and comprehensive
(income) loss
Year Ended December 31,
2018
2017
2016
$
8.8
$
9.0
$
13.1
(16.1)
1.3
(0.1)
(0.7)
0.6
—
6.9
6.7
(1.3)
0.8
0.1
0.7
(0.6)
—
6.4
13.3
$
$
$
$
13.8
(15.0)
1.4
—
—
0.2
1.0
10.4
$
(20.6) $
(1.4)
(1.2)
—
—
(0.2)
(7.9)
(31.3) $
(20.9) $
$
$
$
$
10.7
15.1
(12.6)
0.4
—
(1.1)
(0.5)
0.2
12.2
27.7
(0.4)
—
—
1.1
0.5
—
28.9
41.1
Included in the other adjustments recognized in other comprehensive (income) loss for the year ended December 31, 2017
was a pension plan adjustment related to the deconsolidation of our Venezuelan subsidiary and the corresponding write-off of
the accumulated actuarial loss on our Venezuela pension plan. This resulted in a decrease of $8.5 million in AOCI ($5.9
million, net of tax), as discussed further in Note 21.
Assumptions
We used the following assumptions in determining the benefit obligations and net periodic benefit cost of our defined benefit
plans:
Weighted-average assumptions:
Discount rate to determine benefit obligation
Discount rate to determine net cost
Rate of future compensation increases to determine benefit obligation
Rate of future compensation increases to determine net cost
Rate of return on plan assets to determine net cost
2018
2017
2016
2.27%
2.13%
2.68%
2.69%
4.47%
2.13%
2.52%
2.69%
3.07%
4.73%
2.52%
3.05%
3.07%
3.03%
4.75%
The rate of future compensation increases to determine benefit obligation in 2016 includes the impacts of inflationary
assumptions of our now deconsolidated Venezuelan subsidiary, which are absent in the 2017-2018 assumptions.
82
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
The discount rates used reflect the expected future cash flow based on plan provisions, participant data and the currencies in
which the expected future cash flows will occur. For the majority of our defined benefit pension obligations, we utilize
prevailing long-term high quality corporate bond indices applicable to the respective country at the measurement date. In
countries where established corporate bond markets do not exist, we utilize other index movement and duration analysis to
determine discount rates. The long-term rate of return on plan assets assumptions reflect economic assumptions applicable to
each country and assumptions related to the preliminary assessments regarding the type of investments to be held by the
respective plans.
Estimated future benefit payments
The following reflects the total benefit payments expected to be paid for defined benefits:
Year ended December 31,
2019
2020
2021
2022
2023
2024—2028
Plan Assets
Benefits
28.5
31.2
29.8
30.8
30.7
184.4
$
$
$
$
$
$
The defined benefit pension plans for our subsidiaries represent single-employer plans and the related plan assets are invested
within separate trusts. Each of the single-employer plans is managed in accordance with the requirements of local laws and
regulations governing defined benefit pension plans for the exclusive purpose of providing pension benefits to participants
and their beneficiaries. Pension plan assets are typically held in a trust by financial institutions. Our asset allocation targets
established are intended to achieve the plan’s investment strategies.
Equity securities include varying market capitalization levels. U.S. equity securities are primarily large-cap companies. Fixed
income investments include corporate issued, government issued, and asset backed securities. Corporate debt securities
include a range of credit risk and industry diversification. Other investments include real estate and private market securities
such as insurance contracts, interests in private equity, and venture capital partnerships. Pension trust liabilities relate to an
over funding by DuPont into a pension trust managed by Axalta in conjunction with the Acquisition. The assets continue to
be invested and managed by Axalta until required regulatory approvals are received, at which time the over-funded assets will
be transferred back to the trust managed by DuPont. Assets measured using NAV as a practical expedient include debt asset
backed securities and hedge funds. Debt asset backed securities primarily consist of collateralized debt obligations. The
market values for these assets are based on the net asset values multiplied by the number of shares owned.
Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although
we believe the valuation methods are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value
measurement at the reporting date.
The Company’s investment strategy in pension plan assets is to generate earnings over an extended time to help fund the cost
of benefits while maintaining an adequate level of diversification for a prudent level of risk. The table below summarizes the
weighted average actual and target pension plan asset allocations at December 31st for all funded Axalta defined benefit
plans.
Asset Category
Equity securities
Debt securities
Real estate
Other
2018
15-20%
25-30%
0-5%
45-50%
2017
25-30%
20-25%
0-5%
45-50%
Target
Allocation
15-20%
25-30%
0-5%
45-50%
83 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
The table below presents the fair values of the defined benefit pension plan assets by level within the fair value hierarchy, as
described in Note 1, at December 31, 2018 and 2017, respectively.
Asset Category:
Cash and cash equivalents
U.S. equity securities
Non-U.S. equity securities
Debt securities—government issued
Debt securities—corporate issued
Private market securities and other
Real estate investments
Total
Debt asset backed securities at NAV
Hedge funds at NAV
Pension trust liability
Asset Category:
Cash and cash equivalents
U.S. equity securities
Non-U.S. equity securities
Debt—government issued
Debt—corporate issued
Private market securities and other
Real estate investments
Total
Debt asset backed securities at NAV
Hedge funds at NAV
Fair value measurements at
12/31/2018
Total
Level 1
Level 2
Level 3
4.4
23.4
39.9
41.1
19.7
1.2
—
129.7
$
$
0.1
—
1.0
23.3
7.0
1.5
—
32.9
$
$
—
0.3
2.0
6.5
2.4
126.9
13.6
151.7
$
$
4.5
23.7
42.9
70.9
29.1
129.6
13.6
314.3
11.0
8.5
(1.5)
332.3
Fair value measurements at
12/31/2017
Total
Level 1
Level 2
Level 3
3.7
33.0
73.4
33.1
17.2
2.7
—
163.1
$
$
— $
—
1.2
7.3
13.1
2.8
—
24.4
$
—
0.3
1.8
4.2
2.5
135.7
13.5
158.0
$
$
3.7
33.3
76.4
44.6
32.8
141.2
13.5
345.5
10.9
8.6
365.0
$
$
$
$
$
$
84
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Level 3 assets are primarily insurance contracts pledged on behalf of employees with benefits in certain countries, ownership
interests in investment partnerships, trusts that own private market securities, real estate investments, and other debt and
equity investments. The fair values of our insurance contracts are determined based on the cash surrender value or the present
value of the expected future benefits to be paid under the contract, discounted at a rate consistent with the related benefit
obligation. Our real estate investments are primarily comprised of investments in commercial property funds externally
valued using third party pricing methodologies, which are not actively traded on public exchanges. Debt and equity securities
consist primarily of small investments in other investments that are valued at different frequencies based on the value of the
underlying investments. The table below presents a roll forward of activity for these assets for the years ended December 31,
2018 and 2017.
Ending balance at December 31, 2016
Realized (loss)
Change in unrealized gain
Purchases, sales, issues and settlements
Transfers in/(out) of Level 3
Ending balance at December 31, 2017
Realized (loss)
Change in unrealized gain
Purchases, sales, issues and settlements
Transfers in/(out) of Level 3
Ending balance at December 31, 2018
Assumptions and Sensitivities
Level 3 assets
Private
market
securities
Debt and
equity
Total
$
$
$
77.5
—
9.9
70.6
—
158.0
—
(4.2)
(2.1)
—
151.7
$
$
$
64.1
—
8.3
63.3
—
135.7
—
(4.4)
(4.4)
—
126.9
$
$
$
2.2
—
0.4
6.2
—
8.8
—
(0.2)
2.6
—
11.2
Real
estate
investments
11.2
$
—
1.2
1.1
—
13.5
—
0.4
(0.3)
—
13.6
$
$
The discount rate is determined as of each measurement date, based on a review of yield rates associated with long-term,
high-quality corporate bonds. The calculation separately discounts benefit payments using the spot rates from a long-term,
high-quality corporate bond yield curve.
The long-term rate of return assumption represents the expected average rate of earnings on the funds invested to provide for
the benefits included in the benefit obligations. The long-term rate of return assumption is determined based on a number of
factors, including historical market index returns, the anticipated long-term asset allocation of the plans, historical plan return
data, plan expenses and the potential to outperform market index returns. For 2019, the expected long-term rate of return
is 4.21%.
Anticipated Contributions to Defined Benefit Plan
For funded pension plans, our funding policy is to fund amounts for pension plans sufficient to meet minimum requirements
set forth in applicable benefit laws and local tax laws. Based on the same assumptions used to measure our benefit
obligations at December 31, 2018, we expect to contribute $6.7 million to our defined benefit plans during 2019. No plan
assets are expected to be returned to the Company in 2019.
Defined Contribution Plans
The Company sponsors defined contribution plans in both its U.S. and non-U.S. subsidiaries, under which salaried and
certain hourly employees may defer a portion of their compensation. Eligible participants may contribute to the plan up to the
allowable amount as determined by the plan of their regular compensation before taxes. All contributions and Company
matches are invested at the direction of the employee. Company matching contributions vest immediately and aggregated to
$43.8 million, $45.1 million and $43.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.
85
(8) STOCK-BASED COMPENSATION
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
During the years ended December 31, 2018, 2017 and 2016, we recognized $37.3 million, $38.5 million and $41.1 million,
respectively, in stock-based compensation expense, which was allocated between costs of goods sold and selling, general and
administrative expenses on the consolidated statements of operations. We recognized tax benefits on stock-based
compensation of $6.7 million, $12.1 million and $14.0 million for the years ended December 31, 2018, 2017 and 2016,
respectively.
Description of Equity Incentive Plan
In 2013, Axalta’s Board of Directors approved the Axalta Coating Systems Ltd. 2013 Incentive Award Plan (the "2013 Plan")
which reserved shares of common stock of the Company for issuance to employees, directors and consultants. The 2013 Plan
provided for the issuance of stock options, restricted stock or other stock-based awards. No further awards may be granted
pursuant to the 2013 Plan.
In 2014, Axalta's Board of Directors approved the Axalta Coating Systems Ltd. 2014 Incentive Award Plan, as amended and
restated (the "2014 Plan"), which reserved additional shares of common stock of the Company for issuance to employees,
directors and consultants. The 2014 Plan provides for the issuance of stock options, restricted stock or other stock-based
awards. All awards granted pursuant to the 2014 Plan must be authorized by the Board of Directors of Axalta or a designated
committee thereof. Our Board of Directors has generally delegated responsibility for administering the 2014 Plan to our
Compensation Committee.
The terms of the stock options may vary with each grant and are determined by the Compensation Committee within the
guidelines of the 2013 and 2014 Plans. Option life cannot exceed ten years and the Company may settle option exercises by
issuing new shares, treasury shares or shares purchased on the open market.
Stock Options
The Black-Scholes option pricing model was used to estimate fair values of the options as of the date of the grant. The
weighted average fair values of options granted in 2018, 2017 and 2016 were $6.78, $7.69 and $5.69 per share, respectively.
Options granted have a 3-year vesting period. Principal weighted average assumptions used in applying the Black-Scholes
model were as follows:
Expected Term
Volatility
Dividend Yield
Discount Rate
2018 Grants
2017 Grants
2016 Grants
6.0 years
6.0 years
6.0 years
20.27%
—
2.66%
21.75%
—
2.03%
21.63%
—
1.45%
The expected term assumptions used for the grants mentioned in the above table were determined using the simplified
method. We do not anticipate paying cash dividends in the foreseeable future and, therefore, use an expected dividend yield
of zero. Volatility for outstanding grants was based upon our industry peer group since we have a limited history as a public
company. The discount rate was derived from the U.S. Treasury yield curve.
A summary of stock option award activity as of and for the year ended December 31, 2018 is presented below:
Awards
(in millions)
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
(in millions)
Weighted
Average
Remaining
Contractual
Life (years)
Outstanding at December 31, 2017
Granted
Exercised
Forfeited
Outstanding at December 31, 2018
Vested and expected to vest at
December 31, 2018
Exercisable at December 31, 2018
8.1
1.1
$
$
(1.7) $
(0.3) $
7.2
7.2
5.6
$
$
$
16.54
29.74
10.52
29.59
19.32
19.32
16.80
$
$
48.0
48.0
5.76
5.08
86
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Cash received by the Company upon exercise of options in 2018 was $17.4 million. Tax benefits on these exercises were $6.6
million. For the years ended December 31, 2018, 2017 and 2016, the intrinsic value of options exercised was $33.6 million,
$42.2 million and $42.5 million, respectively.
The fair value of shares vested during 2018, 2017 and 2016 was $6.8 million, $5.2 million and $3.4 million, respectively.
At December 31, 2018, there was $3.6 million of unrecognized compensation cost relating to outstanding unvested stock
options expected to be recognized over the weighted average period of 1.4 years.
Restricted Stock Awards and Restricted Stock Units
During the year ended December 31, 2018, we issued 1.1 million shares of restricted stock awards and restricted stock units.
A majority of these awards vests ratably over three years. The other awards granted cliff vest over one, two, three or four year
periods.
A summary of restricted stock and restricted stock unit award activity as of December 31, 2018 is presented below:
Outstanding at December 31, 2017
Granted
Vested
Forfeited
Outstanding at December 31, 2018
Awards
(in millions)
Weighted-Average
Fair Value
1.9
$
$
1.1
(1.2) $
(0.2) $
$
1.6
29.32
29.61
29.84
29.33
29.12
At December 31, 2018, there was $19.3 million of unamortized expense relating to unvested restricted stock awards and
restricted stock units that is expected to be amortized over a weighted average period of 1.6 years.
The intrinsic value of awards vested during 2018, 2017 and 2016 was $36.2 million, $30.1 million and $5.5 million,
respectively. The total fair value of awards vested during 2018, 2017 and 2016 was $35.3 million, $29.4 million and $6.2
million, respectively.
Performance Stock Awards and Performance Share Units
During the year ended December 31, 2018, the Company granted performance stock awards and performance share units
(collectively referred to as "PSAs") to certain employees of the Company as part of their annual equity compensation award.
PSAs are tied to the Company’s total shareholder return ("TSR") relative to the TSR of a selected industry peer group or S&P
500. Each award vests over a period of three years and covers a performance cycle of three years starting at the beginning of
the fiscal year in which the shares were granted. Awards will cliff vest upon meeting the applicable TSR thresholds and the
service requirement of three years. The actual number of shares awarded is adjusted to between zero and 200% of the target
award amount based upon achievement of pre-determined objectives. TSR relative to peers is considered a market condition
under applicable authoritative guidance.
A summary of PSA activity as of December 31, 2018 is presented below:
Outstanding at December 31, 2017
Granted
Vested
Forfeited
Outstanding at December 31, 2018
Awards
(in millions)
Weighted-Average
Fair Value
0.6
0.3
$
$
— $
(0.1) $
$
0.8
31.17
33.81
—
33.65
31.82
At December 31, 2018, there was $10.5 million of unamortized expense relating to unvested PSAs that is expected to be
amortized over a weighted average period of 1.7 years.
87 (9) OTHER EXPENSE, NET
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Foreign exchange losses, net
Impairments
Debt extinguishment and refinancing related costs
Other miscellaneous (income) expense, net
Total
Year Ended December 31,
2018
2017
2016
$
$
9.2
—
9.5
(3.7)
15.0
$
$
7.4
7.6
13.4
(1.3)
27.1
$
$
30.6
10.5
97.6
5.5
144.2
Prior to deconsolidation, during the years ended December 31, 2017 and 2016, our Venezuelan subsidiary, which is a U.S.
dollar functional entity, contributed $1.8 million and $23.5 million to the foreign exchange losses, respectively.
During the years ended December 31, 2017 and 2016, we recorded non-operational impairment losses of $7.6 million and
$10.5 million, respectively. These impairment losses related to actions to reduce operational costs through activities to
rationalize our manufacturing footprint resulting in write-downs of manufacturing facilities identified for closure, as well as a
write-down of the carrying value of a real estate investment, which were based on market price estimates.
Debt extinguishment and refinancing related costs include third-party fees incurred and the loss on extinguishment associated
with the write-off of unamortized deferred financing costs and original issue discounts in conjunction with the restructuring
and refinancing of the Term Loans and Senior Notes during the years ended December 31, 2018 and 2017, as discussed
further in Note 17.
(10) INCOME TAXES
On December 22, 2017, the U.S. TCJA legislation, as defined herein, was enacted into law, which significantly revised the
Internal Revenue Code of 1986, as amended. The U.S. TCJA included, among other items, (1) permanent reduction of the
corporate tax rate from a top marginal rate of 35% to a flat rate of 21%; (2) limitations on the tax deduction for net interest
expense to 30% of adjusted earnings; (3) a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries;
(4) a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along
with certain rules designed to prevent erosion of the U.S. income tax base); and (5) modifying or repealing many other
business deductions and credits (including modifications to annual foreign tax credit limitations).
For the year-ended December 31, 2017 we recorded a provisional non-cash net tax charge of $107.8 million related to the
impacts of the U.S. TCJA. This provisional tax charge included a one-time $81.1 million remeasurement of the net U.S.
deferred tax assets to the lower enacted U.S. corporate tax rate of 21%, the establishment of a valuation allowance of $26.1
million on certain interest and foreign tax credit carryforwards and $0.6 million of withholding tax on unremitted earnings.
December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, the Company has
completed the analysis based on legislative updates relating to the U.S. TCJA currently available and recorded an additional
tax benefit of $12.5 million for the year ended December 31, 2018. While we have completed our accounting of the income
tax effects of the U.S. TCJA under SAB 118, the related tax impacts may differ, possibly materially, due to changes in
interpretations and assumptions that we have made, additional guidance that may be issued by regulatory bodies, and actions
and related accounting policy decisions we may take as a result of the new legislation.
Domestic and Foreign Components of Income Before Income Taxes
Domestic
Foreign
Total
Year Ended December 31,
2018
2017
2016
$
$
194.8
72.7
267.5
$
$
41.8
147.8
189.6
$
$
27.9
54.8
82.7
88
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Provision (Benefit) for Income Taxes
U.S. federal
U.S. state and local
Foreign
Total
Year Ended December 31, 2018
Year Ended December 31, 2017
Year Ended December 31, 2016
Current
7.2
$
2.7
38.2
48.1
$
Deferred
6.8
$
12.8
(13.5)
6.1
$
Total
14.0
15.5
24.7
54.2
$
$
Current
4.6
$
1.7
43.9
50.2
$
Deferred
$ 102.8
0.4
(11.5)
91.7
$
Total
$ 107.4
2.1
32.4
$ 141.9
Current
0.9
$
3.7
49.4
54.0
$
Deferred
$
(1.3) $
8.2
(22.8)
$ (15.9) $
Total
(0.4)
11.9
26.6
38.1
Reconciliation to U.S. Statutory Rate
Year Ended December 31,
2018
2017
2016
$
56.2
21.0% $
66.4
35.0% $
29.0
35.0%
Statutory U.S. federal income tax rate (1)
Foreign income taxed at rates other than U.S. statutory rate
Changes in valuation allowances
Foreign exchange gain (loss), net
Unrecognized tax benefits
Foreign taxes
Non-deductible interest
Non-deductible expenses
Tax credits
Excess tax benefits relating to stock-based compensation
U.S. tax reform (2)
Venezuela deconsolidation and impairment
U.S. state and local taxes, net
Other - net (3)
Total income tax provision / effective tax rate
(24.8)
(37.5)
(9.3)
(14.0)
24.7
18.9
6.7
4.8
3.8
(6.6)
(6.6)
(12.5)
—
1.8
25.3
54.2
$
9.2
7.1
2.5
1.8
1.4
(2.4)
(2.4)
(4.7)
—
0.7
9.4
(56.2)
45.3
(17.7)
3.1
4.1
9.8
4.6
(4.2)
(13.1)
107.8
(2.0)
1.3
(7.3)
(29.6)
23.9
(9.3)
1.6
2.2
5.2
2.4
(2.2)
(6.9)
56.8
(1.0)
0.7
(4.0)
(45.6)
9.6
3.1
7.1
4.5
6.7
4.7
(6.7)
(13.4)
—
23.8
7.8
7.5
(55.1)
11.6
3.7
8.6
5.4
8.1
5.7
(8.1)
(16.2)
—
28.8
9.4
9.2
(1) The U.S. statutory rate has been used as management believes it is more meaningful to the Company.
(2) Tax effect of the U.S. TCJA recorded under SAB 118.
(3) In 2018, the Company recorded a tax charge of $17.6 million related to the remeasurement of net deferred tax assets in Netherlands
due to the corporate tax rate reduction enacted into law, which is fully offset by a tax benefit of $17.6 million for the decrease to the
valuation allowance.
20.3% $
141.9
74.8% $
38.1
46.1%
89
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Deferred Tax Balances
Deferred tax asset
Tax loss, credit and interest carryforwards
Compensation and employee benefits
Accruals and other reserves
Research and development capitalization
Equity investment and other securities
Other
Total deferred tax assets
Less: valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities
Goodwill and intangibles
Property, plant and equipment
Unremitted earnings
Long-term debt
Total deferred tax liabilities
Net deferred tax asset
Non-current assets
Non-current liability
Net deferred tax asset
Tax loss, tax credit and interest carryforwards
Tax loss carryforwards (tax effected) (1)
Expire within 10 years
Expire after 10 years or indefinite carryforward
Tax credit carryforwards
Expire within 10 years
Expire after 10 years or indefinite carryforward
Interest carryforwards
Expire within 10 years
Expire after 10 years or indefinite carryforward
Total tax loss, tax credit and interest carryforwards
(1) Net of unrecognized tax benefits
Year Ended December 31,
2018
2017
$
238.5
80.1
25.5
7.7
20.1
3.0
374.9
(159.0) $
$
215.9
(17.4)
(144.7)
(7.4)
(2.4)
(171.9) $
$
44.0
184.8
(140.8)
44.0
$
265.3
86.0
33.9
8.9
26.4
10.9
431.4
(214.2)
217.2
(15.2)
(146.9)
(7.4)
(2.2)
(171.7)
45.5
198.4
(152.9)
45.5
Year Ended December 31,
2018
2017
$
53.3
121.6
17.3
20.9
2.2
23.2
238.5
92.3
124.0
20.5
16.1
—
12.4
265.3
$
$
$
$
$
$
$
$
Utilization of our tax loss, tax credit and interest carryforwards may be subject to annual limitations due to the ownership
change limitations provided by the Internal Revenue Code and similar state and foreign provisions. Such annual limitations
could result in the expiration of the tax loss, tax credit and interest carryforwards before their utilization.
90 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Valuation allowance
Non-U.S.
U.S.
Total valuation allowance
Year Ended December 31,
2018
2017
133.8
25.2
159.0
188.1
26.1
214.2
Valuation allowances relate primarily to the tax loss and tax credit carryforwards, as well as equity investment in foreign
jurisdictions, where the Company does not believe the associated net deferred tax assets will be realized, due to expiration,
limitation or insufficient future taxable income. The non-U.S. valuation allowance primarily relates to tax loss carryforwards
from operations in Luxembourg and Netherlands, of $113.6 million and $155.7 million at December 31, 2018 and 2017,
respectively. The U.S. valuation allowance relates to certain U.S. foreign tax credit carryforwards that were impacted by the
enactment of the U.S. TCJA and other state net deferred tax assets.
91 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Total Gross Unrecognized Tax Benefits
Total gross unrecognized tax benefits at January 1
Increases related to positions taken on items from prior years
Decreases related to positions taken on items from prior years
Increases related to positions taken in the current year (1)
Total gross unrecognized tax benefits at December 31
Total accrual for interest and penalties associated with unrecognized tax benefits (2)
Total gross unrecognized tax benefits at December 31, including interest and penalties
Year Ended December 31,
2018
$17.2
3.4
(1.8)
18.2
$37.0
3.1
$40.1
2017
$12.3
1.9
—
3.0
$17.2
1.2
$18.4
2016
$4.7
—
(0.2)
7.8
$12.3
1.1
$13.4
Total unrecognized tax benefits that, if recognized, would impact the effective tax rate
Interest and penalties included as components of the "Provision (benefit) for income taxes"
25.2
1.9
9.7
0.1
8.5
0.3
(1) Of the $18.2 million 2018 increase related to positions taken in the current year, $10.6 million is the unrecognized tax benefit related
to the announced closure of our manufacturing facility at our Mechelen, Belgium site.
Accrued interest and penalties are included within the related tax liability line in the balance sheet.
(2)
The Company is subject to income tax in approximately 45 jurisdictions outside the U.S. The Company’s significant
operations outside the U.S. are located in Belgium, China, Germany, Mexico and Switzerland. The statute of limitations
varies by jurisdiction with 2008 being the oldest tax year still open in the material jurisdictions. Certain of our German
subsidiaries are under tax examination for calendar years 2010 to 2013. The Company is also under audit in other
jurisdictions outside of Germany for tax years under responsibility of the predecessor, as well as tax periods under the
Company's ownership. Pursuant to the acquisition agreement, all tax liabilities related to tax years prior to 2013 will be
indemnified by DuPont. The result of all open examinations may lead to ordinary course adjustments or proposed
adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods
that could be material.
Due to the high degree of uncertainty regarding future timing of cash flows associated with these liabilities, we are unable to
estimate the years in which settlement will occur with the respective taxing authorities.
(11) 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 shares and performance shares. A reconciliation of our basic and diluted net income per common share is as
follows:
(In millions, except per share data)
Net income to common shareholders
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
Net income per common share:
Basic net income per share
Diluted net income per share
Year Ended December 31,
2018
2017
2016
$
$
$
207.1
$
36.7
$
239.0
242.9
240.4
246.1
0.87
0.85
$
$
0.15
0.15
$
$
38.8
238.1
244.4
0.16
0.16
The number of anti-dilutive shares that have been excluded in the computation of diluted net income per share for the years
ended December 31, 2018, 2017 and 2016 were 2.6 million, 1.8 million and 1.3 million, respectively.
92
(12) ACCOUNTS AND NOTES RECEIVABLE, NET
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Accounts receivable—trade, net (1)
Notes receivable
Other
Total
Year Ended December 31,
2018
2017
$
$
739.9
$
36.1
84.8
860.8
$
748.2
29.4
92.6
870.2
(1) Allowance for doubtful accounts was $15.4 million and $15.9 million at December 31, 2018 and 2017, respectively.
Bad debt expense of $2.3 million, $3.5 million and $3.4 million was included within selling, general and administrative
expenses for the years ended December 31, 2018, 2017 and 2016, respectively.
(13) INVENTORIES
Finished products
Semi-finished products
Raw materials
Stores and supplies
Total
(14) PROPERTY, PLANT AND EQUIPMENT, NET
Land
Buildings and improvements
Machinery and equipment
Software
Other
Construction in progress
Total
Accumulated depreciation
Property, plant and equipment, net
Year Ended December 31,
2018
2017
334.0
$
108.0
149.9
21.1
613.0
$
347.5
95.5
144.8
20.8
608.6
Year Ended December 31,
2018
2017
85.7
522.4
1,333.2
159.5
45.7
72.3
2,218.8
(920.6)
1,298.2
$
$
$
87.6
516.3
1,244.0
155.3
41.7
148.7
2,193.6
(805.0)
1,388.6
$
$
$
$
$
Useful Lives
(years)
5
3
5
3
-
-
-
-
25
25
7
20
Depreciation expense was $183.4 million, $176.6 million and $176.8 million for the years ended December 31, 2018, 2017
and 2016, respectively.
We capitalized interest of $4.0 million, $3.7 million and $4.3 million for the years ended December 31, 2018, 2017 and 2016,
respectively.
93
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(15) OTHER ASSETS
Available for sale securities
Deferred income taxes—non-current
Business incentive plan assets
Other assets (1)
Total
Year Ended December 31,
2018
2017
$
$
1.7
184.8
190.8
111.8
489.1
$
$
5.2
198.4
173.0
52.0
428.6
(1) Include other upfront incentives made in conjunction with long-term customer commitments of $49.8 million and zero at
December 31, 2018 and 2017, respectively, which will be repaid in future periods.
(16) ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES
Accounts Payable
Trade payables
Non-income taxes
Other
Total
Other Accrued Liabilities
Compensation and other employee-related costs
Restructuring
Discounts, rebates, and warranties
Income taxes payable
Other
Total
(17) BORROWINGS
Borrowings are summarized as follows:
2024 Dollar Term Loans
2023 Euro Term Loans
2024 Dollar Senior Notes
2024 Euro Senior Notes
2025 Euro Senior Notes
Short-term and other borrowings
Unamortized original issue discount
Unamortized deferred financing costs
Less:
Short-term borrowings
Current portion of long-term borrowings
Long-term debt
Year Ended December 31,
2018
2017
477.8
21.4
23.6
522.8
163.2
60.3
157.8
15.2
79.1
475.6
$
$
$
$
510.7
27.0
17.2
554.9
153.3
71.5
138.8
22.2
103.8
489.6
Year Ended December 31,
2018
2,411.8
—
500.0
383.3
514.9
103.8
(12.6)
(37.2)
3,864.0
17.9
24.3
3,821.8
$
$
$
$
2017
1,960.0
472.5
500.0
399.7
536.9
94.8
(9.1)
(39.2)
3,915.6
12.9
24.8
3,877.9
$
$
$
$
$
$
$
$
94
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Senior Secured Credit Facilities, as amended
On December 15, 2016 (the "Fourth Amendment Effective Date"), Axalta Coating Systems Dutch Holdings B B.V. ("Dutch B
B.V.") and its indirect 100% owned subsidiary, Axalta Coating Systems U.S. Holdings, Inc. ("Axalta US Holdings") executed
the fourth amendment (the "Fourth Amendment") to the credit agreement (the “Credit Agreement”) governing our Senior
Secured Credit Facilities. The Fourth Amendment (i) converted all of the outstanding U.S. Dollar term loans ($1,775.3
million) (the “2020 Dollar Term Loans”) into a new tranche of term loans issued at par with principal of $1,545.0 million (the
"2023 Dollar Term Loans"), (ii) converted all of the outstanding Euro term loans (€199.0 million) (the “2020 Euro Term
Loans” and, together with the 2020 Dollar Term Loans, the “2020 Term Loans”) into a new tranche of term loans issued at
par with principal of €400.0 million (the "2023 Euro Term Loans" and, together with the 2023 Dollar Term Loans, the "2023
Term Loans").
On June 1, 2017 (the "Fifth Amendment Effective Date"), Dutch B B.V. and Axalta US Holdings executed the fifth
amendment to the Credit Agreement (the "Fifth Amendment"). The Fifth Amendment converted all of the outstanding 2023
Dollar Term Loans ($1,541.1 million) into a new tranche of term loans with principal of $2,000.0 million (the "2024 Dollar
Term Loans"). The 2024 Dollar Term Loans were issued at 99.875% of par, or a $2.5 million discount.
On April 11, 2018 (the "Sixth Amendment Effective Date"), Dutch B B.V. and Axalta US Holdings executed the sixth
amendment to the Credit Agreement (the "Sixth Amendment"). The Sixth Amendment repriced the 2024 Dollar Term Loans
and increased the aggregate principal balance by $475.0 million to $2,430.0 million. The increased principal balance of the
2024 Dollar Term Loans under the Sixth Amendment was issued at 99.75% of par or a $6.0 million discount. Proceeds from
the Sixth Amendment, along with cash on the balance sheet, were used to extinguish the existing 2023 Euro Term Loans. The
2024 Dollar Term Loans together with the Revolving Credit Facility, as defined herein, are referred to as the "Senior Secured
Credit Facilities."
On October 31, 2018 (the "Seventh Amendment Effective Date"), Dutch B B.V. and Axalta US Holdings, the Company, and
certain other subsidiaries of the Company as guarantors entered into the seventh amendment to the Credit Agreement (the
"Seventh Amendment"). The Seventh Amendment amended the Credit Agreement to, among other things, (i) allow for the
Company and certain wholly owned subsidiaries of the Company to be added as guarantors under the Credit Agreement, (ii)
provide that (A) the covenants in the Credit Agreement generally apply to the Company and its restricted subsidiaries and (B)
upon election at any time thereafter, a successor holdings guarantor may be designated and, upon the effectiveness of the
guarantee of such successor parent guarantor, the covenants in the Credit Agreement will generally apply to such successor
holdings guarantor and its restricted subsidiaries, (iii) otherwise amend the Credit Agreement in order to effect certain
corporate transactions as part of a potential internal reorganization of certain of the Company's subsidiaries (the "Proposed
Restructuring") and certain potential future reorganizations involving the Company and (iv) update guarantee limitations for
certain of the guarantors.
Interest was and is payable quarterly on the 2023 Term Loans and the 2024 Dollar Term Loans.
The 2024 Dollar Term Loans are subject to a floor of zero plus an applicable rate of 1.75% per annum for Eurocurrency Rate
Loans as defined in the Credit Agreement and 0.75% per annum for Base Rate Loans as defined in the Credit Agreement.
Prior to the Sixth Amendment, interest on the 2024 Dollar Term Loans was subject to a floor of zero, plus an applicable rate.
The applicable rate for such 2024 Dollar Term Loans was 2.00% per annum for Eurocurrency Rate Loans as defined in the
Credit Agreement and 1.00% per annum for Base Rate Loans as defined in the Credit Agreement.
Prior to the Fifth Amendment, interest on the 2023 Dollar Term Loans was subject to a floor of 0.75%, plus an applicable rate
after the Fourth Amendment Effective Date. The applicable rate for such 2023 Dollar Term Loans was 2.50% per annum for
Eurocurrency Rate Loans as defined in the Credit Agreement and 1.50% per annum for Base Rate Loans as defined in the
Credit Agreement. The 2023 Euro Term Loans were also subject to a floor of 0.75%, plus an applicable rate after the Fourth
Amendment Effective Date of 2.25% per annum for Eurocurrency Rate Loans. The 2023 Euro Term Loans may not have
been Base Rate Loans.
95 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Prior to the Fourth Amendment, interest on the 2020 Dollar Term Loans was subject to a floor of 1.00%, plus an applicable
rate after February 3, 2014 (the effective date of the second amendment to the Credit Agreement). The applicable rate for
such 2020 Dollar Term Loans was 3.00% per annum for Eurocurrency Rate Loans and 2.00% per annum for Base Rate
Loans. The 2020 Euro Term Loans were also subject to a floor of 1.00%, plus an applicable rate. The applicable rate for such
2020 Euro Term Loans was 3.25% per annum for Eurocurrency Rate Loans. The 2020 Euro Term Loans were not to be Base
Rate Loans. The applicable rate for both Eurocurrency Rate Loans as well as Base Rate Loans was subject to a further 25
basis point reduction if the Total Net Leverage Ratio as defined in the Credit Agreement governing the Senior Secured Credit
Facilities was less than or equal to 4.50:1.00. During the third quarter of 2014, our Total Net Leverage Ratio was less than
4.50:1.00. Consequently, the applicable rates were changed to 2.75% for the 2020 Dollar Term Loans and 3.00% for the 2020
Euro Term Loans through the Fourth Amendment Effective Date.
Any indebtedness under the Senior Secured Credit Facilities may be voluntarily prepaid in whole or in part, in minimum
amounts, subject to the provisions set forth in the Credit Agreement. Such indebtedness is subject to mandatory prepayments
amounting to the proceeds of asset sales over $75.0 million annually, proceeds from certain debt issuances not otherwise
permitted under the Credit Agreement and 50% (subject to a step-down to 25.0% or 0% if the First Lien Leverage Ratio falls
below 4.25:1.00 or 3.50:1.00, respectively) of Excess Cash Flow.
The Senior Secured Credit Facilities are secured by substantially all assets of the Company and the other guarantors. The
2024 Dollar Term Loans mature on June 1, 2024. Principal is paid quarterly based on 1% per annum of the original principal
amount outstanding on the most recent amendment date with the unpaid balance due at maturity.
We are subject to customary negative covenants in addition to the First Lien Leverage Ratio financial covenant for purposes
of determining any Excess Cash Flow mandatory payment. Further, the Senior Secured Credit Facilities, among other things,
include customary restrictions (subject to certain exceptions) on the Company's ability to incur certain indebtedness, grant
certain liens, make certain investments, declare or pay certain dividends, or repurchase shares of the Company's common
stock. As of December 31, 2018, the Company is in compliance with all covenants under the Senior Secured Credit Facilities.
Revolving Credit Facility
On August 1, 2016 (the "Third Amendment Effective Date"), Dutch B B.V. and Axalta US Holdings executed the third
amendment to the Credit Agreement (the "Third Amendment"). The Third Amendment impacted the revolving credit facility
under the Senior Secured Credit Facilities (the "Revolving Credit Facility") by (i) extending the maturity of the Revolving
Credit Facility to five years from the Third Amendment Effective Date, or August 1, 2021, provided that such date will be
accelerated to the date that is 91 days prior to the maturity of the term loans borrowed under the Credit Agreement if the
maturity of such term loans precedes the maturity of the Revolving Credit Facility, (ii) decreasing the applicable interest
margins, and (iii) amending the financial covenant applicable to the Revolving Credit Facility to be applicable only when
greater than 30% (previously 25%) of the Revolving Credit Facility (including letters of credit not cash collateralized to at
least 103%) is outstanding at the end of the fiscal quarter. If such conditions are met, the First Lien Net Leverage Ratio (as
defined by the Credit Agreement) at the end of the quarter is required to be greater than 5.50:1.00. At December 31, 2018, the
financial covenant is not applicable as there were no borrowings.
Under the Third Amendment, interest on any outstanding borrowings under the Revolving Credit Facility is subject to a floor
of zero for Adjusted Eurocurrency Rate Loans (as defined in the Credit Agreement) plus an applicable rate of 2.75%
(previously 3.50%) subject to an additional step-down to 2.50% or 2.25%, if the First Lien Net Leverage Ratio falls
below 3.00:1.00 or 2.50:1.00, respectively. For Base Rate Loans, the interest is subject to a floor of the greater of the federal
funds rate plus 0.50%, the Prime Lending Rate or an Adjusted Eurocurrency Rate plus 1%, plus an applicable rate of 1.75%
(previously 2.50%), subject to an additional step-down to 1.50% or 1.25%, if the First Lien Net Leverage Ratio falls
below 3.00:1.00 and 2.50:1.00, respectively.
Under circumstances described in the Credit Agreement, we may increase available revolving or term facility borrowings by
up to $400.0 million plus an additional amount subject to the Company not exceeding a maximum first lien leverage ratio
described in the Credit Agreement.
There have been no borrowings outstanding on the Revolving Credit Facility since the issuance of the Senior Secured Credit
Facilities. At December 31, 2018 and December 31, 2017, letters of credit issued under the Revolving Credit Facility totaled
$44.8 million and $35.5 million, respectively, which reduced the availability under the Revolving Credit Facility. Availability
under the Revolving Credit Facility was $355.2 million and $364.5 million at December 31, 2018 and December 31, 2017,
respectively.
96 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Significant Transactions
During the year ended December 31, 2018, in connection with the Sixth Amendment discussed above, we recorded a loss on
extinguishment and other financing-related costs of $8.4 million, of which $2.9 million related to the 2023 Euro Term Loan
and $5.5 million related to the 2024 Dollar Term Loans. The loss was comprised of the write off of unamortized deferred
financing costs and original issue discounts of $3.1 million and $0.7 million, respectively, and other fees directly associated
with the Sixth Amendment of $4.6 million. In addition, in connection with the Seventh Amendment discussed above, we
recorded a loss of $0.7 million.
During the year ended December 31, 2017, in connection with the Fifth Amendment discussed above, we recorded a loss on
extinguishment of $13.0 million. In addition, we voluntarily prepaid $30.0 million in principal of the outstanding 2024 Dollar
Term Loans, resulting in a loss of $0.4 million, consisting of the write-off of unamortized deferred financing costs and
original issue discounts.
During the year ended December 31, 2016, in connection with the Third Amendment discussed above, we recorded a loss on
extinguishment of $2.3 million. In addition, in connection with the Fourth Amendment discussed above, we recorded a $10.4
million loss on extinguishment and other financing-related costs for the year ended December 31, 2016. The loss was
comprised of the write-off of unamortized deferred financing costs and original issue discounts attributable to the 2020 Term
Loans of $4.7 million and $1.5 million, respectively, and other fees directly associated with the Fourth Amendment of $4.2
million.
Prior to the Fourth Amendment, in April and October of 2016, we voluntarily prepaid $100.0 million and $150.0 million in
principal of the outstanding 2020 Dollar Term Loans, respectively, and €200.0 million in principal of the outstanding 2020
Euro Term Loans. As a result, we recorded losses on extinguishment for the year ended December 31, 2016 of $9.6 million,
consisting of the write-off of $9.1 million and $0.5 million of unamortized deferred financing costs and original issue
discounts, respectively.
Significant Terms of the 2021 Senior Notes
On February 1, 2013, Dutch B B.V, as the “Dutch Issuer”, an indirect, wholly owned subsidiary of the Company, and Axalta
US Holdings, as the “U.S. Issuer” (collectively the "Issuers") issued $750.0 million aggregate principal amount of 7.375%
senior unsecured notes due 2021 (the "2021 Dollar Senior Notes") and related guarantees thereof. Additionally, the Issuers
issued €250.0 million aggregate principal amount of 5.750% senior secured notes due 2021 (the "2021 Euro Senior Notes"
and, together with the Dollar Senior Notes, the "2021 Senior Notes") and related guarantees thereof. The 2021 Senior Notes
were unconditionally guaranteed on a senior basis by Dutch A B.V. and certain of the Issuers’ subsidiaries.
Issuance of New Senior Notes and Redemption of 2021 Senior Notes
On August 16, 2016, Axalta Coating Systems, LLC ("U.S. Issuer"), issued $500.0 million in aggregate principal amount of
4.875% senior unsecured notes (the “2024 Dollar Senior Notes”) and €335.0 million in aggregate principal amount of
4.250% senior unsecured notes (the “2024 Euro Senior Notes”), each due August 2024 (collectively, the “2024 Senior Notes”
and with the 2025 Euro Senior Notes, as defined herein, “New Senior Notes”, each of which is described in detail below), for
the primary purpose of redeeming the 2021 Dollar Senior Notes (the “August 2016 Refinancing”). Consistent with the terms
of the 2021 Dollar Senior Notes, we extinguished the principal at a redemption price equal to 105.531%.
In connection with the August 2016 Refinancing, we recorded a $56.9 million loss on extinguishment and other financing-
related costs for the year ended December 31, 2016. The loss was comprised of the redemption premium of $41.5 million,
write-off of unamortized deferred financing costs attributable to the 2021 Dollar Senior Notes of $13.0 million and other fees
directly associated with the transaction of $2.4 million.
On September 27, 2016, the Dutch Issuer issued €450.0 million in aggregate principal amount of 3.750% Euro senior
unsecured notes due January 2025 (the “2025 Euro Senior Notes”) for the primary purpose of redeeming the 2021 Euro
Senior Notes and the partial prepayment of the 2020 Euro Term Loans (the “September 2016 Refinancing”). Consistent with
the original terms of the 2021 Euro Senior Notes, we extinguished the principal at a redemption price equal to 104.313%.
In connection with the September 2016 Refinancing, we recorded an $18.4 million loss on extinguishment and other
financing-related costs for the year ended December 31, 2016. The loss was comprised of the redemption premium of $12.1
million, write-off of unamortized deferred financing costs attributable to the 2021 Euro Senior Notes of $5.6 million and
other fees directly associated with the transaction of $0.7 million.
97 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
The indentures governing the New Senior Notes contain covenants that restrict the ability of the Issuers and their subsidiaries
to, among other things, incur additional debt, make certain payments including payment of dividends or repurchase equity
interest of the Issuers, make loans or acquisitions or capital contributions and certain investments, incur certain liens, sell
assets, merge or consolidate or liquidate other entities, and enter into transactions with affiliates.
On October 26, 2018, the U.S. Issuer and the party thereto entered into a seventh supplemental indenture (the “2024 Seventh
Supplemental Indenture”) to the 2024 Senior Notes. In addition, on October 26, 2018, the Dutch Issuer and the new
guarantors party thereto entered into a seventh supplemental indenture (the “2025 Seventh Supplemental Indenture” and,
together with the 2024 Seventh Supplemental Indenture, the “October 2018 Supplemental Indentures”) to the 2025 Euro
Senior Notes. The October 2018 Supplemental Indentures permit the Company and its subsidiaries to effect certain corporate
transactions as part of a potential internal reorganization of certain of the Company's subsidiaries (the "Proposed
Restructuring") and certain potential future reorganizations involving the Company. Each of the October 2018 Supplemental
Indentures amended the applicable indenture in order to, among other things, (i) add the Company and certain wholly owned
subsidiaries of the Company as guarantors of the applicable New Senior Notes, (ii) provide that (A) the covenants of the
applicable Indenture generally apply to the Company and its restricted subsidiaries and (B) upon an election by the relevant
Issuer at any time thereafter, a successor parent guarantor may be designated and, upon the effectiveness of the guarantee of
such successor parent guarantor, the covenants of the applicable Indenture will generally apply to such successor parent
guarantor and its restricted subsidiaries, (iii) otherwise amend the applicable Indenture in order to effect the Proposed
Restructuring (as defined below) and (iv) update guarantee limitations for certain of the guarantors.
In connection with the October 2018 Supplemental Indentures above, the Company became the parent guarantor of the New
Senior Notes. Additionally, we recorded a loss of $0.4 million compromised of fees directly associated with the indentures.
No deferred financing costs or original issue discounts were written off as a result of the October 2018 Supplemental
Indentures.
i) 2024 Dollar Senior Notes
The 2024 Dollar Senior Notes were issued at 99.951% of par, or $2.0 million discount, and are due August 15, 2024. The
2024 Dollar Senior Notes bear interest at 4.875% and are payable semi-annually on February 15th and August 15th. We have
the option to redeem all or part of the 2024 Dollar Senior Notes at the following redemption prices (expressed as percentages
of principal amount) on or after August 15th of the years indicated:
Period
2019
2020
2021
2022 and thereafter
2024 Dollar Notes
Percentage
103.656%
102.438%
101.219%
100.000%
Notwithstanding the foregoing, at any time and from time to time prior to August 15, 2019, we may at our option redeem in
the aggregate up to 40% of the original aggregate principal amount of the 2024 Dollar Senior Notes with the net cash
proceeds of one or more Equity Offerings (as defined in the indenture governing the 2024 Dollar Senior Notes) at a
redemption price of 104.875% plus accrued and unpaid interest, if any, to the redemption date. At least 50% of the original
aggregate principal of the notes must remain outstanding after each such redemption.
Upon the occurrence of certain events constituting a change of control, holders of the 2024 Dollar Senior Notes have the right
to require us to repurchase all or any part of the 2024 Dollar Senior Notes at a purchase price equal to 101% of the principal
amount plus accrued and unpaid interest, if any, to the repurchase date.
The 2024 Dollar Senior Notes, subject to local law limitations, are jointly and severally guaranteed on a senior unsecured
basis by each of the Company’s existing and future direct and indirect subsidiaries that is a borrower under or that guarantees
the Senior Secured Credit Facilities. Under certain circumstances, the guarantors may be released from their guarantees
without the consent of the holders of the applicable series of notes.
The indebtedness issued through the 2024 Dollar Senior Notes is senior unsecured indebtedness of the U.S. Issuer, is senior
in right of payment to all future subordinated indebtedness of the U.S. Issuer and guarantors and is equal in right of payment
to all existing and future senior indebtedness of the U.S. Issuer and guarantors. The 2024 Dollar Senior Notes are effectively
subordinated to any secured indebtedness of the U.S. Issuer and guarantors (including indebtedness outstanding under the
Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness.
98 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(ii) 2024 Euro Senior Notes
The 2024 Euro Senior Notes were issued at par and are due August 15, 2024. The 2024 Euro Senior Notes bear interest at
4.250% and are payable semi-annually on February 15th and August 15th. We have the option to redeem all or part of the 2024
Euro Senior Notes at the following redemption prices (expressed as percentages of principal amount) on or after August 15th
of the years indicated:
Period
2019
2020
2021
2022 and thereafter
2024 Euro Notes
Percentage
103.188%
102.125%
101.063%
100.000%
Notwithstanding the foregoing, at any time and from time to time prior to August 15, 2019, we may at our option redeem in
the aggregate up to 40% of the original aggregate principal amount of the 2024 Euro Senior Notes with the net cash proceeds
of one or more Equity Offerings (as defined in the indenture governing the 2024 Euro Senior Notes) at a redemption price of
104.250% plus accrued and unpaid interest, if any, to the redemption date. At least 50% of the original aggregate principal of
the notes must remain outstanding after each such redemption.
Upon the occurrence of certain events constituting a change of control, holders of the 2024 Euro Senior Notes have the right
to require us to repurchase all or any part of the 2024 Euro Senior Notes at a purchase price equal to 101% of the principal
amount plus accrued and unpaid interest, if any, to the repurchase date.
The 2024 Euro Senior Notes, subject to local law limitations, will initially be jointly and severally guaranteed on a senior
unsecured basis by each of the Company’s existing and future direct and indirect subsidiaries that is a borrower under or that
guarantees the Senior Secured Credit Facilities. Under certain circumstances, the guarantors may be released from their
guarantees without the consent of the holders of the applicable series of notes.
The indebtedness issued through the 2024 Euro Senior Notes is senior unsecured indebtedness of the U.S. Issuer, is senior in
right of payment to all future subordinated indebtedness of the U.S. Issuer and guarantors and is equal in right of payment to
all existing and future senior indebtedness of the U.S. Issuer and guarantors. The 2024 Euro Senior Notes are effectively
subordinated to any secured indebtedness of the U.S. Issuer and guarantors (including indebtedness outstanding under the
Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness.
(iii) 2025 Euro Senior Notes
The 2025 Euro Senior Notes were issued at par and are due January 15, 2025. The 2025 Euro Senior Notes bear interest at
3.750% and are payable semi-annually on January 15th and July 15th. We have the option to redeem all or part of the 2025
Euro Senior Notes at the following redemption prices (expressed as percentages of principal amount) on or after January 15th
of the years indicated:
Period
2019
2020
2021
2022 and thereafter
2025 Euro Notes
Percentage
102.813%
101.875%
100.938%
100.000%
Notwithstanding the foregoing, at any time and from time to time prior to January 15, 2020, we may at our option redeem in
the aggregate up to 40% of the original aggregate principal amount of the 2025 Euro Senior Notes with the net cash proceeds
of one or more Equity Offerings (as defined in the indenture governing the 2025 Euro Senior Notes) at a redemption price of
103.750% plus accrued and unpaid interest, if any, to the redemption date. At least 50% of the original aggregate principal of
the notes must remain outstanding after each such redemption.
Upon the occurrence of certain events constituting a change of control, holders of the 2025 Euro Senior Notes have the right
to require us to repurchase all or any part of the 2025 Euro Senior Notes at a purchase price equal to 101% of the principal
amount plus accrued and unpaid interest, if any, to the repurchase date.
99 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
The 2025 Euro Senior Notes, subject to local law limitations, are jointly and severally guaranteed on a senior unsecured basis
by the Company and each of its subsidiaries that is a borrower under or that guarantees the Senior Secured Credit Facilities
(other than the Dutch Issuer). Under certain circumstances, the guarantors may be released from their guarantees without the
consent of the holders of the applicable series of notes.
The indebtedness issued through the 2025 Euro Senior Notes is senior unsecured indebtedness of the Dutch Issuer, is senior
in right of payment to all future subordinated indebtedness of the Dutch Issuer and guarantors and is equal in right of
payment to all existing and future senior indebtedness of the Dutch Issuer and guarantors. The 2025 Euro Senior Notes are
effectively subordinated to any secured indebtedness of the Dutch Issuer and guarantors (including indebtedness outstanding
under the Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness.
Future repayments
Below is a schedule of required future repayments of all borrowings outstanding at December 31, 2018.
2019
2020
2021
2022
2023
Thereafter
$
$
42.2
26.0
25.3
52.7
25.4
3,722.2
3,893.8
The table above excludes $20.0 million of debt associated with our sale-leaseback financings that will not be settled with
cash.
(18) 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 available for sale securities are based upon
Level 1 inputs when the securities are actively traded with quoted market prices.
Long-term borrowings - The estimated fair values of these notes 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 caps, interest rate swaps and cross-currency swaps are valued using
broker quotations, or market transactions in either the listed or over-the-counter markets. As such, these derivative
instruments are considered to be Level 2 inputs.
Fair value of contingent consideration
The fair value of contingent consideration associated with acquisitions completed in current and prior years are valued at
each balance sheet date, until amounts become payable, with adjustments recorded within selling, general and administrative
expenses on the consolidated statement of operations. During the year ended December 31, 2017, the Company recorded
gains of $3.0 million associated with the changes to fair value. The Company paid the remaining $8.9 million contingent
consideration in the year ended December 31, 2018. Due to the significant unobservable inputs used in the valuations, these
liabilities are categorized within Level 3 of the fair value hierarchy.
100 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
The table below presents the fair values of our financial instruments measured on a recurring basis by level within the fair
value hierarchy at December 31, 2018 and December 31, 2017.
Assets:
Prepaid expenses and other current assets:
Interest rate caps (1)
Cross-currency swaps (2)
Foreign currency forward contracts(3)
Other assets:
Interest rate caps (1)
Interest rate swaps (1)
Cross-currency swaps (2)
Investment in equity securities
Liabilities:
Other accrued liabilities:
Interest rate caps (1)
Foreign currency forward contracts(3)
Other liabilities:
Interest rate swaps (1)
Cross-currency swaps (2)
Contingent consideration
Long-term borrowings: (4)
2024 Dollar Senior Notes
2024 Euro Senior Notes
2025 Euro Senior Notes
2024 Dollar Term Loans
2023 Euro Term Loans
December 31, 2018
December 31, 2017
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$ — $
4.5
$ — $
4.5
$ — $ — $ — $ —
—
—
—
—
—
0.7
—
—
—
—
—
—
—
—
14.1
—
1.4
—
—
—
—
—
2.9
8.8
—
474.9
381.1
497.5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
14.1
—
1.4
—
—
0.7
—
—
2.9
8.8
—
474.9
381.1
497.5
—
—
—
—
—
4.3
—
—
—
—
—
—
—
—
—
—
1.2
—
—
—
2.6
0.7
—
—
—
524.4
427.7
571.8
—
—
—
—
—
—
—
—
—
—
8.9
—
—
—
—
—
1.2
—
—
4.3
2.6
0.7
—
—
8.9
524.4
427.7
571.8
— 2,276.1
—
—
— 2,276.1
—
—
— 1,967.4
—
475.5
— 1,967.4
—
475.5
(1) Cash flow hedge
(2) Net investment hedge
(3) Derivatives not designated as hedging instruments
(4) Amounts not reflected on the Consolidated Balance Sheet
We selectively use derivative instruments to reduce market risk associated with changes in foreign currency exchange rates
and interest rates. The use of derivatives is intended for hedging purposes only, and we do not enter into derivative
instruments for speculative purposes. A description of each type of derivative used to manage risk is included in the following
paragraphs.
Derivative Instruments Qualifying and Designated as Cash Flow and Net Investment Hedges
Interest Rate Caps Designated as Cash Flow Hedges
During the year ended December 31, 2017, we entered into four 1.5% interest rate caps with aggregate notional amounts
totaling $850.0 million to hedge the variable interest rate exposures on our 2024 Dollar Term Loans. Three of these interest rate
caps, comprising $600.0 million of the notional value, expire December 31, 2019 and had a deferred premium of $8.6 million at
inception. The fourth interest rate cap, comprising the remaining $250.0 million of the notional value, expires December 31,
2021 and had a deferred premium of $8.1 million at inception. All deferred premiums are paid quarterly over the term of the
respective interest rate caps. These interest rate caps are marked to market at each reporting date and any unrealized gains or
losses are included in AOCI and reclassified to interest expense in the same period or periods during which the hedged transactions
affect earnings.
101 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Interest Rate Swaps Designated as Cash Flow Hedges
During the three months ended June 30, 2018, we entered into three interest rate swaps with aggregate notional amounts totaling
$475.0 million to hedge interest rate exposures related to variable rate borrowings under the Senior Secured Credit Facilities.
Under the terms of the interest rate swap agreements, the Company is required to pay the counter-parties a stream of fixed interest
payments at a rate of 2.72% and in turn, receives variable interest payments based on 3-month LIBOR from the counter-parties.
The interest rate swaps are designated as cash flow hedges and expire on March 31, 2023. These interest rate swaps are marked
to market at each reporting date and any unrealized gains or losses are included in AOCI and reclassified to interest expense in
the same period or periods during which the hedged transactions affect earnings.
Cross-Currency Swaps Designated as Net Investment Hedges
During the three months ended June 30, 2018, we entered into three fixed-for-fixed cross-currency swaps with aggregate notional
amounts totaling $475.0 million to hedge the variability of exchange rate impacts between the U.S. Dollar and Euro. Under the
terms of the cross-currency swap agreements, we notionally exchanged $475.0 million at a weighted average interest rate of
4.47% for €387.2 million at a weighted average interest rate of 1.95%. The cross-currency swaps were designated as net investment
hedges and were set to expire on March 31, 2023. These cross-currency swaps were marked to market at each reporting date
and any unrealized gains or losses are included in unrealized currency translation adjustments, within AOCI.
During the three months ended December 31, 2018, we settled three fixed-for-fixed cross-currency swaps previously executed
in 2018 resulting in cash proceeds of $22.5 million. Concurrently, we notionally exchanged $475.0 million at a weighted average
interest rate of 4.47% for €416.6 million at a weighted average interest rate of 1.44%. The cross-currency swaps are designated
as net investment hedges and expire on March 31, 2023. These cross-currency swaps are marked to market at each reporting
date and any unrealized gains or losses are included in unrealized currency translation adjustments, within AOCI.
The following table presents the location and fair values using Level 2 inputs of derivative instruments that qualify and have
been designated as cash flow and net investment hedges included in accumulated other comprehensive (loss) income:
Accumulated other comprehensive (loss) income:
Interest rate caps (cash flow hedges)
Interest rate swaps (cash flow hedges)
Cross-currency swaps (net investment hedges)
Total accumulated other comprehensive (loss) income
Year Ended December 31,
2018
2017
$
$
(3.4) $
3.0
(27.7)
(28.1) $
2.0
—
—
2.0
Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are
recognized over the life of the hedge on a systematic and rational basis.
The following tables set forth the locations and amounts recognized during the year ended December 31, 2018, 2017 and
2016 for these cash flow and net investment hedges.
For the Year Ended December 31,
2018
2017
2016
Derivatives in Cash Flow
and Net Investment
Hedges
Interest rate caps
Location of (Gain) Loss
Recognized in Income
on Derivatives
Interest expense, net
Interest rate swaps
Interest expense, net
Cross-currency
swaps
Interest expense, net
Net Amount
of
(Gain) Loss
Recognized
in OCI on
Derivatives
$
Amount of
(Gain) Loss
Recognized
in Income
(7.3) $
4.3
(37.1)
(1.9) $
1.3
(9.4)
Net Amount
of
(Gain) Loss
Recognized
in OCI on
Derivatives
1.8
—
—
Amount of
(Gain) Loss
Recognized
in Income
$
Net Amount
of
(Gain) Loss
Recognized
in OCI on
Derivatives
2.0
—
—
(2.7) $
—
—
Amount of
(Gain) Loss
Recognized
in Income
7.1
$
—
—
Over the next 12 months, we expect gains of $0.1 million pertaining to cash flow hedges to be reclassified from accumulated
other comprehensive income into earnings, related to our interest rate caps and interest rate swaps.
102
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Derivative Instruments Not Designated as Cash Flow Hedges
We periodically enter into foreign currency forward and option contracts to reduce market risk and hedge our balance sheet
exposures and cash flows for subsidiaries with exposures denominated in currencies different from the functional currency of
the relevant subsidiary. These contracts have not been designated as hedges and all gains and losses are marked to market
through other (income) expense, net in the consolidated statement of operations.
During the year ended December 31, 2013, we purchased a €300.0 million 1.5% interest rate cap on our Euro Term Loans for
a premium of $3.1 million. The interest rate cap was not designated as a hedge and the changes in the fair value of the
derivative instrument were recorded in current period earnings in interest expense. The hedge matured on September 29,
2017.
During the year ended December 31, 2017, we purchased a 1.25% interest rate cap with a notional amount of €388.0
million to hedge the variable interest rate exposures on our 2023 Euro Term Loans. We paid a premium equal to $0.6 million
for the interest rate cap which is effective beginning September 30, 2017 through December 31, 2019. Changes in the fair
value of the derivative instrument are recorded in current period earnings and are included in interest expense.
Fair value gains and losses of derivative contracts, as determined using Level 2 inputs, that have not been designated for
hedge accounting treatment are recorded in earnings as follows:
Derivatives Not Designated as
Hedging Instruments under
ASC 815
Foreign currency forward contracts
Interest rate cap
Location of (Gain) Loss
Recognized in Income on
Derivatives
Other expense, net
Interest expense, net
Year Ended December 31,
2018
2017
2016
$
$
(7.9) $
—
(7.9) $
11.2
0.6
11.8
$
$
4.3
—
4.3
(19) SEGMENTS
The Company identifies an operating segment as a component: (i) that engages in business activities from which it may earn
revenues and incur expenses; (ii) whose operating results are regularly reviewed by the Chief Operating Decision Maker
("CODM") to make decisions about resources to be allocated to the segment and assess its performance; and (iii) that has
available discrete financial information.
We have two operating segments, which are also our reportable segments: Performance Coatings and Transportation
Coatings. The CODM reviews financial information at the operating segment level to allocate resources and to assess the
operating results and financial performance for each operating segment. Our CODM is identified as the Chief Executive
Officer because he has final authority over performance assessment and resource allocation decisions. Our segments are
based on the type and concentration of customers served, service requirements, methods of distribution and major product
lines.
Through our Performance Coatings segment, we provide high-quality liquid and powder coatings solutions to a fragmented
and local customer base. We are one of only a few suppliers with the technology to provide precise color matching and highly
durable coatings systems. The end-markets within this segment are refinish and industrial.
Through our Transportation Coatings segment, we provide advanced coating technologies to OEMs of light and commercial
vehicles. These increasingly global customers require a high level of technical support coupled with cost-effective,
environmentally responsible coatings systems that can be applied with a high degree of precision, consistency and speed. The
end-markets within this segment are light vehicle and commercial vehicle.
103 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Our business serves four end-markets globally as follows:
Performance Coatings
Refinish
Industrial
Total Net sales Performance Coatings
Transportation Coatings
Light Vehicle
Commercial Vehicle
Total Net sales Transportation Coatings
Total Net sales
Year Ended December 31,
2018
2017
2016
$
$
$
$
$
1,754.2
1,271.5
3,025.7
1,290.2
353.8
1,644.0
4,669.7
$
$
$
$
$
1,645.2
1,029.9
2,675.1
1,322.8
355.0
1,677.8
4,352.9
$
$
$
$
$
1,679.7
718.8
2,398.5
1,337.7
332.6
1,670.3
4,068.8
Asset information is not reviewed or included with our internal management reporting. Therefore, the Company has not
disclosed asset information for each reportable segment.
For the Year ended December 31, 2018
Net sales (1)
Equity in earnings in unconsolidated affiliates
Adjusted EBITDA (2)
Investment in unconsolidated affiliates
For the Year ended December 31, 2017
Net sales (1)
Equity in earnings (losses) in unconsolidated affiliates
Adjusted EBITDA (2)
Investment in unconsolidated affiliates
For the Year ended December 31, 2016
Net sales (1)
Equity in earnings in unconsolidated affiliates
Adjusted EBITDA (2)
Investment in unconsolidated affiliates
Performance
Coatings
Transportation
Coatings
Total
$
3,025.7
$
0.4
668.3
2.7
1,644.0
(0.1)
268.9
12.7
$
4,669.7
0.3
937.2
15.4
Performance
Coatings
Transportation
Coatings
Total
$
2,675.1
$
1,677.8
$
4,352.9
0.3
564.2
2.9
0.7
321.0
12.6
1.0
885.2
15.5
Performance
Coatings
Transportation
Coatings
Total
$
2,398.5
(0.2)
549.7
2.5
$
1,670.3
$
4,068.8
0.4
352.7
11.1
0.2
902.4
13.6
(1) The Company has no intercompany sales between segments.
(2) The primary measure of segment operating performance is Adjusted EBITDA, which is defined as net income before interest,
taxes, depreciation and amortization and select other items impacting operating results. These other items impacting operating
results are items that management has concluded are (i) non-cash items included within net income, (ii) items the Company does
not believe are indicative of ongoing operating performance or (iii) nonrecurring, unusual or infrequent items that have not
occurred within the last two years or we believe are not reasonably likely to recur within the next two years. Adjusted EBITDA is a
key metric that is used by management to evaluate business performance in comparison to budgets, forecasts and prior year
financial results, providing a measure that management believes reflects the Company’s core operating performance, which
represents EBITDA adjusted for the select items referred to above. Reconciliation of Adjusted EBITDA to income before income
taxes follows:
104
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Income before income taxes
Interest expense, net
Depreciation and amortization
EBITDA
Debt extinguishment and refinancing related costs (a)
Foreign exchange remeasurement losses (b)
Long-term employee benefit plan adjustments (c)
Termination benefits and other employee related costs (d)
Consulting and advisory fees (e)
Transition-related costs (f)
Offering and transactional costs (g)
Stock-based compensation (h)
Other adjustments (i)
Dividends in respect of noncontrolling interest (j)
Deconsolidation and site closure related impacts (k)
Adjusted EBITDA
Year Ended December 31,
2018
2017
2016
$
$
$
$
267.5
159.6
369.1
796.2
9.5
$
$
189.6
147.0
347.5
684.1
13.4
9.2
(1.9)
81.7
—
(0.2)
1.2
37.3
5.2
(1.0)
—
7.4
1.4
35.3
(0.1)
7.7
18.4
38.5
3.6
(3.0)
78.5
82.7
178.2
322.1
583.0
97.6
30.6
1.5
61.8
10.4
—
6.0
41.1
5.0
(3.0)
68.4
$
937.2
$
885.2
$
902.4
(a) During the years ended December 31, 2018, 2017 and 2016 we refinanced and restructured our term loans and senior notes, which
resulted in losses of $9.5 million, $13.0 million and $88.0 million, respectively. In addition, during the years ended December 31, 2017
and 2016 we prepaid outstanding principal on our term loans, resulting in non-cash losses on extinguishment of $0.4 million and $9.6
million, respectively. We do not consider these items to be indicative of our ongoing operating performance.
(b) Eliminates foreign exchange gains and losses resulting from the remeasurement of assets and liabilities denominated in foreign currencies,
net of the impacts of our foreign currency instruments used to hedge our balance sheet exposures. Exchange effects attributable to the
remeasurement of our Venezuelan subsidiary represented losses of $1.8 million and $23.5 million for the years ended December 31,
2017 and 2016, respectively.
(c) Eliminates the non-cash, non-service components of long-term employee benefit plans.
(d) Represents expenses and associated changes to estimates related to employee termination benefits and other employee-related costs,
which includes Axalta CEO recruitment fees. Employee termination benefits are associated with Axalta Way initiatives. These amounts
are not considered indicative of our ongoing operating performance.
(e) Represents fees paid to consultants, and associated true-ups to estimates, for professional services primarily related to our Axalta Way
initiatives, which are not considered indicative of our ongoing operating performance.
(f) Represents integration costs and associated changes to estimates related to the 2017 acquisition of the Industrial Wood business that
was a carve-out business from Valspar. We do not consider these items to be indicative of our ongoing operating performance.
(g) Represents acquisition-related expenses, including changes in the fair value of contingent consideration, as well as $10.0 million of
costs associated with contemplated merger activities during the three months ended December 31, 2017 and costs associated with the
2016 secondary offerings of our common shares by Carlyle, all of which are not considered indicative of our ongoing operating
performance.
(h) Represents non-cash costs associated with stock-based compensation.
(i) Represents certain non-operational or non-cash gains and losses unrelated to our core business and which we do not consider indicative
of ongoing operations, including indemnity losses associated with the Acquisition, gains and losses from the sale and disposal of property,
plant and equipment, gains and losses from the remaining foreign currency derivative instruments and from non-cash fair value inventory
adjustments associated with our business combinations.
(j) Represents the payment of dividends to our joint venture partners by our consolidated entities that are not 100% owned, which are
reflected to show the cash operating performance of these entities on Axalta's financial statements.
(k) During the year ended December 31, 2017, we recorded a loss in conjunction with the deconsolidation of our Venezuelan subsidiary
of $70.9 million. During the year ended December 31, 2016 we recorded non-cash impairments at our Venezuelan subsidiary of $68.4
million associated with our operational long-lived assets and a real estate investment (See Note 21). Additionally, during the year ended
December 31, 2017, we recorded non-cash impairment charges related to certain manufacturing facilities previously announced for
closure of $7.6 million. We do not consider these to be indicative of our ongoing operating performance.
105
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Geographic Area Information:
The information within the following tables provides disaggregated information related to our net sales and long-lived assets.
Net sales by region were as follows:
Year Ended December 31,
North America
EMEA
Asia Pacific
Latin America (a)
Total (b)
Net long-lived assets by region were as follows:
North America
EMEA
Asia Pacific
Latin America (a)
Total (c)
(a)
Includes Mexico
2018
1,783.6
1,658.1
758.2
469.8
4,669.7
$
$
$
$
$
2017
1,607.7
1,538.3
748.1
458.8
4,352.9
$
$
2016
1,426.7
1,455.3
723.9
462.9
4,068.8
Year Ended December 31,
2018
2017
$
477.4
439.1
246.1
135.6
457.9
507.4
258.9
164.4
$
1,298.2
$
1,388.6
(b) Net Sales are attributed to countries based on location of the customer. Sales to external customers in China represented
approximately 11%, 12% and 13% of the total for the years ended December 31, 2018, 2017 and 2016, respectively. Sales to
external customers in Germany represented approximately 8%, 8% and 9% of the total for the years ended December 31, 2018,
2017 and 2016, respectively. Mexico represented 6% of the total for the years ended December 31, 2018, 2017 and 2016. Canada,
which is included in the North America region, represents approximately 4% of total net sales for the years ended December 31,
2018, 2017 and 2016, respectively.
(c) Long-lived assets consist of property, plant and equipment, net. Germany long-lived assets amounted to approximately $243.6
million and $279.0 million in the years ended December 31, 2018 and 2017, respectively. China long-lived assets amounted to
$203.8 million and $217.2 million in the years ended December 31, 2018 and 2017, respectively. Brazil long-lived assets
amounted to approximately $58.0 million and $78.6 million in the years ended December 31, 2018 and 2017, respectively. Canada
long-lived assets, which are included in the North America region, amounted to approximately $25.1 million and 25.8 million in
the years ended December 31, 2018 and 2017, respectively.
(20) ACCUMULATED OTHER COMPREHENSIVE LOSS
Unrealized
Currency
Translation
Adjustments
Pension Plan
Adjustments
Unrealized
Gain on
Securities
Unrealized
Gain (Loss) on
Derivatives
Accumulated
Other
Comprehensive
Loss
Balance, December 31, 2017
Cumulative effect of an accounting change
Balance at January 1, 2018
Current year deferrals to AOCI
Reclassifications from AOCI to Net income
Net Change
Balance, December 31, 2018
$
$
$
$
(208.8) $
—
(208.8) $
(90.6)
—
(90.6) $
(299.4) $
(31.4) $
—
(31.4) $
(5.8)
0.8
(5.0) $
(36.4) $
$
0.8
(0.8)
— $
—
—
— $
— $
(1.6) $
—
(1.6) $
1.7
(0.4)
1.3
$
(0.3) $
(241.0)
(0.8)
(241.8)
(94.7)
0.4
(94.3)
(336.1)
The cumulative income tax benefit related to the adjustments for pension benefits at December 31, 2018 was $14.4 million.
The cumulative income tax expense related to the adjustments for unrealized gain on derivatives at December 31, 2018 was
$0.5 million.
106 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Unrealized
Currency
Translation
Adjustments
Pension Plan
Adjustments
Unrealized
Gain on
Securities
Unrealized
Gain (Loss) on
Derivatives
Accumulated
Other
Comprehensive
Loss
Balance, December 31, 2016
Current year deferrals to AOCI
Reclassifications from AOCI to Net income
Net Change
Balance, December 31, 2017
$
$
$
(292.2) $
83.4
—
83.4
$
(208.8) $
(56.6) $
17.1
8.1
25.2
$
(31.4) $
0.4
0.4
—
0.4
0.8
$
$
$
(2.0) $
(1.6)
2.0
0.4
$
(1.6) $
(350.4)
99.3
10.1
109.4
(241.0)
Included in the reclassification from AOCI to net income was a pension plan adjustment related to the deconsolidation of our
Venezuelan subsidiary and the corresponding write-off of the accumulated actuarial loss on our Venezuela pension plan. This
resulted in a decrease of $5.9 million in AOCI, inclusive of $2.6 million of tax benefits, and is discussed further in Note 21.
The cumulative income tax benefit related to the adjustments for pension benefits at December 31, 2017 was $13.0 million.
The cumulative income tax benefit related to the adjustments for unrealized gain on derivatives at December 31, 2017 was
$0.6 million.
Unrealized
Currency
Translation
Adjustments
Pension Plan
Adjustments
Unrealized
Gain on
Securities
Unrealized
Gain (Loss) on
Derivatives
Accumulated
Other
Comprehensive
Loss
Balance, December 31, 2015
Current year deferrals to AOCI
Reclassifications from AOCI to Net income
Net Change
Balance, December 31, 2016
$
$
$
(232.8) $
(59.4)
—
(59.4) $
(292.2) $
(33.4) $
(22.3)
(0.9)
(23.2) $
(56.6) $
0.1
0.3
—
0.3
0.4
$
$
$
(3.2) $
(2.5)
3.7
$
1.2
(2.0) $
(269.3)
(83.9)
2.8
(81.1)
(350.4)
The cumulative income tax benefit related to pension plan adjustments at December 31, 2016 was $19.1 million. The
cumulative income tax benefit related to the adjustments for unrealized gain on derivatives at December 31, 2016 were $1.1
million.
(21) VENEZUELA
Due to the challenging economic conditions and political unrest in Venezuela, which have resulted in increasingly restrictive
foreign exchange control regulations and reduced access to U.S. dollars through official currency exchange markets, during
the year ended December 31, 2017, we concluded there was an other-than-temporary lack of exchangeability between the
Venezuelan bolivar and the U.S. dollar. This lack of exchangeability restricted our Venezuelan subsidiary's ability to pay
dividends or settle intercompany obligations, which severely limited our ability to realize the benefits from earnings of our
Venezuelan operations and access the resulting liquidity provided by those earnings.
Based on this lack of exchangeability, the continued political unrest, the recent drop in demand for our business and the
losses incurred, we concluded that we no longer met the accounting criteria of control in order to continue consolidating our
Venezuelan operations and accounted for our investments in our Venezuelan subsidiary under the cost method of accounting.
As a result of this change, we recorded a loss of $70.9 million on our consolidated statement of operations during the year
ended December 31, 2017. This loss was comprised of the subsidiary's net assets for $30.0 million, counterparty
intercompany receivables with our Venezuela subsidiary for $35.0 million and unrealized actuarial losses associated with
pension plans in accumulated other comprehensive income of $5.9 million. The value of the cost investment and all previous
intercompany balances were recorded at zero as of December 31, 2017 and remain as such as of December 31, 2018. Further,
our consolidated balance sheet and statement of operations excludes the results of our Venezuelan operations. We will
recognize income only to the extent that we are paid for inventory we sell or receive cash dividends from our Venezuelan
legal entity.
Prior to deconsolidation, for the years ended December 31, 2017 and 2016, our Venezuelan subsidiary's net sales represented
$2.5 million and $50.8 million of our consolidated net sales, respectively. For the years ended December 31, 2017 and 2016,
our Venezuelan subsidiary represented a loss of $2.8 million and $36.5 million of our consolidated income from operations,
respectively. For the years ended December 31, 2017 and 2016 our Venezuelan subsidiary represented net losses of $5.8
million and $68.5 million of our consolidated net income, respectively.
107 Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
During the year ended December 31, 2016, the Company recorded an impairment charge on operating assets of $57.9
million, comprised of a $49.3 million write-down to customer relationship intangibles and an $8.6 million write-down to the
net book value of our property, plant and equipment. The impairment charge was recorded within income from operations on
the consolidated statement of operations, with $30.6 million and $27.3 million allocated to our Performance Coatings and
Transportation Coatings operating segments, respectively.
In addition, during the year ended December 31, 2016, we recorded non-operational impairment losses of $10.5 million, at
our Venezuelan subsidiary to write down the carrying value of a real estate investment to its fair value. The method used to
determine fair values for the assets included using Level 2 inputs in the form of a sale and purchase agreement for the certain
manufacturing assets and observable market quotes from local real estate broker service firms for the Venezuela real estate
investment.
(22) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the quarterly results of operations for the years ended December 31, 2018 and 2017,
respectively (in millions, except per share data):
2018
Total revenue
Cost of goods sold
Income from operations
Net income (loss)
Net income (loss) attributable to controlling
interests
Basic net income (loss) per share
Diluted net income (loss) per share
2017
Total revenue
Cost of goods sold
Income from operations
Net income (loss)
Net income (loss) attributable to controlling
interests
Basic net income (loss) per share
Diluted net income (loss) per share
$
$
$
$
$
$
March 31
June 30
$
1,172.0
776.0
120.0
71.0
1,212.2
793.8
146.5
77.1
69.9
0.29
0.28
$
$
74.9
0.31
0.31
$
$
September 30(1)
1,146.0
$
759.1
December 31
1,165.8
$
777.4
47.8
(11.6)
(13.1)
(0.05) $
(0.05) $
127.8
76.8
75.4
0.32
0.32
March 31
June 30(2)
1,013.7
$
1,094.6
September 30
1,096.3
$
December 31(3)
1,172.4
$
641.4
110.4
65.9
690.0
47.5
(18.9)
702.5
103.9
56.3
746.6
101.9
(55.6)
$
$
$
$
Full Year
4,696.0
3,106.3
442.1
213.3
207.1
0.87
0.85
Full Year
4,377.0
2,780.5
363.7
47.7
64.1
0.27
0.26
$
$
(20.8)
(0.09) $
(0.09) $
54.9
0.23
0.22
$
$
(61.5)
(0.26) $
(0.26) $
36.7
0.15
0.15
(1) During the three months ended September 30, 2018, the Company announced the closure of the Mechelen, Belgium manufacturing facility and recorded
severance costs of $70.6 million. See further discussion in Note 5.
(2) During the three months ended June 30, 2017, the Company recorded a loss in conjunction with the deconsolidation of its Venezuelan subsidiary of
$70.9 million, based on its evaluation of the carrying value associated with our real estate investment in Venezuela. See further discussion in Note 21.
(3) During the three months ended December 31, 2017, the Company recorded a provisional net tax charge of $107.8 million ($112.5 million of net loss
attributable to controlling interests) associated with the U.S. Tax Cuts and Jobs Act legislation, resulting primarily from the write-down of net deferred
tax assets to the lower enacted U.S. corporate tax rate of 21.0%. The provisionally estimated net tax charge reflects Axalta's estimate of the new
legislation’s impact, which may differ with further regulatory guidance and changes in our interpretations and assumptions.
108 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
As required by Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934 (the "Exchange Act"), the Company
carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) or 15d-15(e) under Exchange Act) as of the end of the period covered by this
Annual Report on Form 10-K. There are inherent limitations to the effectiveness of any system of disclosure controls and
procedures. No matter how well designed and operated, disclosure controls and procedures can provide only reasonable,
rather than absolute, assurance of achieving the desired control objectives. Based on the foregoing, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were
effective at a reasonable assurance level as of December 31, 2018.
Management's report on internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
Management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—
Integrated Framework (2013). Based on this assessment, management concluded that, as of December 31, 2018, the
Company's internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in its report which is included herein.
Changes in internal control over financial reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended
December 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
109 PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information about the Company’s directors required by Item 10 and not otherwise set forth below is contained under the
caption "Proposal No. 1: Election of Directors" in Axalta’s definitive Proxy Statement for the 2019 Annual General Meeting
of Members (the "Proxy Statement") which the Company anticipates filing with the Securities and Exchange Commission,
pursuant to Regulation 14A, not later than 120 days after the end of the Company’s fiscal year, and is incorporated herein by
reference.
Information regarding the Company’s Audit Committee, code of ethics, and compliance with Section 16(a) of the Exchange
Act is included in the Proxy Statement under the captions "Corporate Governance Matters and Committees of the Board of
Directors", and "Section 16(a) Beneficial Ownership Reporting Compliance", respectively and is incorporated herein by
reference.
The executive officers of the Company are appointed by the Board of Directors. The information required by this item is set
forth below.
The following table provides information regarding our executive officers:
Name
Robert W. Bryant
Steven R. Markevich
Joseph F. McDougall
Michael A. Cash
Sean M. Lannon
Age*
50
59
48
57
40
*As of February 26, 2019
Robert W. Bryant
Position
Chief Executive Officer and President
Executive Vice President and President, Transportation Coatings and Greater China
Executive Vice President and President, Global Refinish and EMEA
Senior Vice President and President, Industrial Coatings
Senior Vice President and Chief Financial Officer
Mr. Bryant has served as our Chief Executive Officer and President since October 7, 2018. Prior to that Mr. Bryant served as
our Executive Vice President and Chief Financial Officer from February 2013 until October 2018. Previously, Mr. Bryant served
as the Senior Vice President and Chief Financial Officer of Roll Global LLC. Before joining Roll Global in 2007, he was the
Executive Vice President of Strategy, New Business Development, and Information Technology at Grupo Industrial Saltillo,
S.A.B. de C.V. Prior to joining Grupo Industrial Saltillo in 2004, Mr. Bryant was President of Bryant & Company, which he
founded in 2001. Prior positions included serving as Managing Principal with Texas Pacific Group’s Newbridge Latin America,
L.P., a Senior Associate with Booz Allen & Hamilton Inc. and an Assistant Investment Officer with the International Finance
Corporation (IFC). Mr. Bryant began his career at Credit Suisse First Boston in the Mergers & Acquisitions Group. Mr. Bryant
graduated summa cum laude and Phi Beta Kappa with a B.A. in Economics from the University of Florida and received his
M.B.A. from the Harvard Business School.
Steven R. Markevich
Mr. Markevich has served as our Executive Vice President and President, Transportation Coatings and Greater China since
September 30, 2015. Prior to that Mr. Markevich served as our Senior Vice President and President, Transportation from July
2015 until September 30, 2015, and Senior Vice President and President, OEM from June 2013 until July 2015. Previously, Mr.
Markevich was Chief Executive Officer of GKN Driveline from October 2012 to June 2013. Prior to that role, from July 2010
to October 2012, he was President, GKN Sinter Metals, responsible for global operations. From October 2007 to July 2010, Mr.
Markevich was President, North American Operations for GKN Sinter Metals, and began his tenure with GKN in 2007 as Vice
President, Sales & Marketing. At Siegel-Robert Automotive, he led the company’s commercial strategy, sales, account and
program management initiatives. While at Guardian Automotive, Mr. Markevich served in numerous leadership roles and was
responsible for all senior level customer relationships. His career began at Deloitte & Touche consulting and the National Steel
Corporation. Mr. Markevich holds a finance degree from the University of Michigan’s Ross School of Business and is a Certified
Public Accountant as well as being certified in Production & Inventory Management (CPIM). He has completed the Global
Senior Leadership Program at UCLA and holds memberships in the Society of Automotive Engineers (SAE), Original Equipment
Suppliers Association (OESA) and American Powder Metallurgy Institute International (APMI).
110 Joseph F. McDougall
Mr. McDougall has served as our Executive Vice President and President, Global Refinish and EMEA since January 2018. Mr.
McDougall assumed responsibility for our EMEA region in January 2018, our global Refinish business in October 2017, and
Global Branding in 2016. Prior to his current role he served as our Senior Vice President and Chief Human Resources Officer
since joining Axalta in May 2013 through October 2017, and also had responsibility for Corporate Affairs from 2014-2018.
From 2008 through May 2013, Mr. McDougall was Vice President, Human Resources, Communications and Six Sigma for
Honeywell Performance Materials and Technologies. He served in a number of positions at Honeywell prior to this most recent
position including Vice President, Human Resources for its Air Transport Division from 2007-2008, Director of Human Resources
for Honeywell Corporate from 2004-2007, and Director of Compensation, Benefits and HRIS for Honeywell’s Specialty Materials
Group from 2003-2004. Prior to joining Honeywell, Mr. McDougall served in human resources leadership roles at the Goodson
Newspaper Group and Robert Wood Johnson University Hospital at Hamilton. He started his career as a human resources and
benefits consultant. Mr. McDougall holds a B.A. from Rider University and graduated Beta Gamma Sigma with an M.B.A. from
The Pennsylvania State University.
Michael A. Cash
Mr. Cash has served as our Senior Vice President and President, Industrial Coatings since August 2013. Prior to joining Axalta,
Mr. Cash was Managing Director, Powder Coatings - Asia Pacific Region at AkzoNobel Coatings from 2011 to 2013. He
previously led AkzoNobel’s powder business throughout the Americas from 2005 to 2011. Mr. Cash also held a number of
positions at The Sherwin-Williams Company including Vice President, Automotive International, Vice President of Automotive
Marketing and Vice President and Chief Financial Officer of its joint venture with Herberts GmbH, which was then a Hoechst
company. Earlier in his career, Mr. Cash was Vice President and Chief Financial Officer of Carstar Automotive, a U.S. autobody
repair franchise. Mr. Cash received his B.A. in Business Administration from Miami University (Ohio).
Sean M. Lannon
Mr. Lannon has served as our Senior Vice President and Chief Financial Officer since October 12, 2018. Prior to that Mr.
Lannon served as Vice President, Corporate Finance and Global Controller of Axalta since 2016, and was Vice President and
Global Controller from 2013 until that promotion. Previously, Mr. Lannon served as the Vice President, Global Controller of
Trinseo. Prior to joining Trinseo in 2011, he was the Senior Manager, Financial Reporting at Endo Pharmaceuticals. Mr.
Lannon began his career at PricewaterhouseCoopers where he spent more than nine years within the organization’s Assurance
Practice. Mr. Lannon graduated summa cum laude with a B.A. in Accounting from Philadelphia University.
Information regarding the Company’s Audit Committee, code of ethics, and compliance with Section 16(a) of the Exchange
Act is included in the Proxy Statement under the captions "Corporate Governance Matters and Committees of the Board of
Directors", and "Section 16(a) Beneficial Ownership Reporting Compliance", respectively and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is contained in the Proxy Statement under the captions "Compensation Discussion and
Analysis", "Executive Compensation" and "Compensation Committee Report" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
The information required by Item 12 is contained in the Proxy Statement under the captions "Security Ownership of Certain
Beneficial Owners and Management" and "Equity Compensation Plan Information" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by Item 13 is contained in the Proxy Statement under the captions "Director Independence" and
"Certain Relationships and Related Transactions" and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is contained in the Proxy Statement under the caption "Proposal No. 2: Appointment of
PricewaterhouseCoopers LLP as the Company's Independent Registered Public Accounting Firm and Auditor" and is
incorporated herein by reference.
111 PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) The Company's 2018 Consolidated Financial Statements and Reports of Independent Registered Public Accounting
Firm are included in Part II, Item 8 of this Annual Report on Form 10-K.
(a)(2) The following Consolidated Financial Statement Schedule for the years ended December 31, 2018, 2017 and 2016
should be read in conjunction with the previously referenced financial statements:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts for the years ended December 31:
(in millions)
2018
2017
2016
Balance at Beginning
of Year
Additions
Deductions (1)
Balance at End of
Year
$
$
$
15.9
13.7
10.7
2.3
3.5
3.4
(2.8) $
(1.3) $
(0.4) $
15.4
15.9
13.7
(1) Deductions include uncollectible accounts written off and foreign currency translation impact.
Deferred tax asset valuation allowances for the years ended December 31:
(in millions)
2018
2017
2016
Balance at Beginning
of Year
Additions (1)
Deductions (1)
Balance at End of
Year
$
$
$
214.2
135.4
127.8
11.9
78.8
9.6
(67.1) $
— $
(2.0) $
159.0
214.2
135.4
(1) Additions and deductions include charges to goodwill and foreign currency translation impact.
(a)(3) The following exhibits are filed as a part of, or incorporated by reference into, this Form 10-K.
EXHIBIT NO.
DESCRIPTION OF EXHIBITS
2.1*
2.2*
3.1*
3.2*
3.3*
4.1*
Purchase Agreement, dated as of August 30, 2012, by and between E. I. du Pont de Nemours and Company
and Flash Bermuda Co. Ltd. (n/k/a Axalta Coating Systems Ltd.) (incorporated by reference to Exhibit 2.1
to the Registrant's Registration Statement on Form S-1 (File No. 333-198271) originally filed with the SEC
on August 20, 2014)
Amendment to Purchase Agreement, dated as of January 31, 2013, by and between E. I. du Pont de
Nemours and Company and Flash Bermuda Co. Ltd. (n/k/a Axalta Coating Systems Ltd.) (incorporated by
reference to Exhibit 2.2 to the Registrant's Registration Statement on Form S-1 (File No. 333-198271),
originally filed with the SEC on August 20, 2014)
Amended Memorandum of Association of Axalta Coating Systems Ltd. (incorporated by reference to
Exhibit 3.1 of Amendment No. 2 to the Registrant's Registration Statement on Form S-1 (File No.
333-198271), filed with the SEC on October 14, 2014)
Amended and Restated Bye-laws of Axalta Coating Systems Ltd. (incorporated by reference to Exhibit 3.1
to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733), filed with the SEC on November
11, 2014)
Second Amended and Restated Bye-laws of Axalta Coating Systems Ltd. (incorporated by reference to
Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36733), filed with the SEC on
May 3, 2018)
Specimen Common Share Certificate (incorporated by reference to Exhibit 4.21 to Amendment No. 3 to the
Registrant's Registration Statement on Form S-1 (File No. 333-198271), filed with the SEC on October 30,
2014)
112 4.2*
4.3*
4.4*
4.5*
10.1*
10.2*
10.3*
10.4*
10.5*
Indenture, dated as of August 16, 2016, by and among Axalta Coating Systems, LLC, as the issuer, the
guarantors named therein, Wilmington Trust, National Association, as trustee, Citigroup Global Markets
Deutschland AG, as euro notes registrar, and Citibank N.A., London Branch, as euro notes paying agent and
euro notes authenticating agent (including form of Dollar Note and form of Euro Note) (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733), filed with the
SEC on August 17, 2016)
Indenture, dated as of September 27, 2016, by and among Axalta Coating Systems Dutch Holding B B.V.,
as the issuer, the guarantors named therein, Wilmington Trust, National Association, as trustee, Citigroup
Global Markets Deutschland AG, as registrar, and Citibank N.A., London Branch, as paying agent and
authenticating agent (including form of Note) (incorporated by reference to Exhibit 4.1 to the Registrant's
Current Report on Form 8-K (File No. 001-36733), originally filed with the SEC on September 27, 2016)
Seventh Supplemental Indenture, dated as of October 26, 2018, by and among Axalta Coating Systems,
LLC, as issuer, the new guarantors party thereto and Wilmington Trust, National Association, as trustee, to
the Indenture, dated as of August 16, 2016, by and among the Axalta Coating Systems, LLC, as issuer, the
guarantors party thereto, Wilmington Trust National Association, as trustee, Citigroup Global Markets
Deutschland AG, as registrar, and Citibank N.A., London Branch, as paying agent and authenticating agent
(incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No.
001-36733), filed with the SEC on November 1, 2018)
Seventh Supplemental Indenture, dated as of October 26, 2018, by and among Axalta Coating Systems
Dutch Holding B B.V., as issuer, the new guarantors party thereto and Wilmington Trust, National
Association, as trustee, to the Indenture, dated as of September 27, 2016, by and among the Axalta Coating
Systems Dutch Holding B B.V., as issuer, the guarantors party thereto, Wilmington Trust National
Association, as trustee, Citigroup Global Markets Deutschland AG, as registrar, and Citibank N.A., London
Branch, as paying agent and authenticating agent (incorporated by reference to Exhibit 4.2 to the
Registrant’s Current Report on Form 8-K (File No. 001-36733), filed with the SEC on November 1, 2018)
Credit Agreement, dated as of February 1, 2013, among Flash Dutch 2 B.V. (n/k/a Axalta Coating Systems
Dutch Holding B B.V.) and U.S. Coatings Acquisition Inc. (n/k/a Axalta Coating Systems U.S. Holdings,
Inc.), as borrowers, Flash Dutch 1 B.V. (n/k/a Axalta Coating Systems Dutch Holding A B.V.), Coatings Co.
U.S. Inc. (n/k/a Axalta Coating Systems U.S., Inc.), Barclays Bank PLC, as administrative agent, collateral
agent, swing line lender and L/C issuer, and the other lenders party thereto (incorporated by reference to
Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 (File No. 333-198271), originally filed
with the SEC on August 20, 2014)
Amendment No. 1 Agreement to the Credit Agreement, dated as of May 24, 2013, among Flash Dutch 2
B.V. (n/k/a Axalta Coating Systems Dutch Holding B B.V.), as Dutch borrower, Axalta Coating Systems
U.S. Holdings, Inc., as U.S. borrower, and Barclays Bank PLC, as administrative agent (incorporated by
reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-1 (File No. 333-198271),
originally filed with the SEC on August 20, 2014)
Second Amendment to Credit Agreement, dated as of February 3, 2014, by and among Axalta Coating
Systems Dutch Holding B B.V. and Axalta Coating Systems U.S. Holdings, Inc., as borrowers, Axalta
Coating Systems U.S., Inc. (f/k/a Coatings Co. U.S. Inc.), Axalta Coating Systems Dutch Holding A B.V.,
and Barclays Bank PLC, as administrative agent, collateral agent and designated 2014 Specified
Refinancing Term Lender (incorporated by reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014)
Amendment No. 3 to the Credit Agreement, dated as of August 1, 2016, among Axalta Coating Systems
Dutch Holding B B.V. and Axalta Coating Systems U.S. Holdings, Inc., as borrowers, Axalta Coating
Systems U.S., Inc., Axalta Coating Systems Dutch Holding A B.V., the several banks and other financial
institutions or entities from time to time parties thereto as lenders, Barclays Bank PLC, as administrative
agent and collateral agent, and the other agents and arrangers party thereto (incorporated by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733), filed with the SEC on
August 2, 2016)
Amendment No. 4 to the Credit Agreement, dated as of December 15, 2016, among Axalta Coating
Systems Dutch Holding B B.V. and Axalta Coating Systems U.S. Holdings, Inc., as borrowers, Axalta
Coating Systems U.S., Inc., Axalta Coating Systems Dutch Holding A B.V., the several banks and other
financial institutions or entities from time to time parties thereto as lenders, Barclays Bank PLC, as
administrative agent and collateral agent, and the other agents and arrangers party thereto (incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733), filed with
the SEC on December 15, 2016)
113 10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
Amendment No. 5 to the Credit Agreement, dated as of June 1, 2017, among Axalta Coating Systems Dutch
Holding B B.V. and Axalta Coating Systems U.S. Holdings, Inc., as borrowers, Axalta Coating Systems
U.S., Inc., Axalta Coating Systems Dutch Holding A B.V., the several banks and other financial institutions
or entities from time to time parties thereto as lenders, Barclays Bank PLC, as administrative agent and
collateral agent, and the other agents and arrangers party thereto (incorporated by reference to Exhibit 10.1
to the Registrant’s Current Report on Form 8-K (File No. 001-36733), filed with the SEC on June 1, 2017)
Amendment No. 6 to the Credit Agreement, dated as of April 11, 2018, among Axalta Coating Systems
Dutch Holding B B.V. and Axalta Coating Systems U.S. Holdings, Inc., as borrowers, Axalta Coating
Systems U.S., Inc., Axalta Coating Systems Dutch Holding A B.V., the several banks and other financial
institutions or entities from time to time parties thereto as lenders, Barclays Bank PLC, as administrative
agent and collateral agent, and the other agents and arrangers party thereto (incorporated by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733), filed with the SEC on
April 11, 2018)
Amendment No. 7 to the Credit Agreement, dated as of October 31, 2018, among Axalta Coating Systems
Dutch Holding B B.V. and Axalta Coating Systems U.S. Holdings, Inc., as borrowers, Axalta Coating
Systems U.S., Inc., Axalta Coating Systems Dutch Holding A B.V., the several banks and other financial
institutions or entities from time to time parties thereto as lenders, Barclays Bank PLC, as administrative
agent and collateral agent, and the other agents and arrangers party thereto (incorporated by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733), filed with the SEC on
November 1, 2018)
Security Agreement, dated February 1, 2013, among the grantors referred to therein and Barclays Bank
PLC, as collateral agent (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration
Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014)
Intellectual Property Security Agreement, dated February 1, 2013, between U.S. Coatings IP Co. LLC (n/k/
a Axalta Coating Systems USA IP Co. LLC) and Barclays Bank PLC, as collateral agent (incorporated by
reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271),
originally filed with the SEC on August 20, 2014)
Subsidiary Guaranty, dated as of February 1, 2013, among the guarantors named therein, the additional
guarantors referred to therein and Barclays Bank PLC, as administrative agent (incorporated by reference to
Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally filed
with the SEC on August 20, 2014)
Holdings Guaranty, dated as of February 1, 2013, between Flash Dutch 1 B.V. (n/k/a Axalta Coating
Systems Dutch Holding A B.V.) and Barclays Bank PLC, as administrative agent (incorporated by reference
to Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally
filed with the SEC on August 20, 2014)
First Lien Intercreditor Agreement, dated as of February 1, 2013, among Barclays Bank PLC as bank
collateral agent under the Credit Agreement, and as notes foreign collateral agent under the Indenture,
Wilmington Trust, National Association, as notes collateral agent under the Indenture, each Grantor party
thereto and each Additional Agent from time to time party thereto (incorporated by reference to Exhibit
10.10 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally filed with
the SEC on August 20, 2014)
Share Pledge Agreement in respect of shares in DuPont Performance Coatings Belgium BVBA (n/k/a
Axalta Coating Systems Belgium BVBA), dated 1 February 2013, between Coatings Co (UK) Limited (n/k/
a Axalta Coating Systems UK Holding Limited), Teodur B.V. and Barclays Bank PLC, as collateral agent
(incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form S-1 (File
No. 333-198271), originally filed with the SEC on August 20, 2014)
Bank Accounts Pledge Agreement, entered into September 17, 2013, among Axalta Coating Systems Brasil
Ltda., Wilmington Trust, National Association, as Notes Collateral Agent, and Barclays Bank PLC, as
collateral agent (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on
Form S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014)
Quota Pledge Agreement, entered into September 17, 2013, among Brazil Coatings Co. Participações Ltda.,
Axalta Coating Systems Dutch Holding 2 B.V., Barclays Bank PLC, as collateral agent, and Wilmington
Trust, National Association, as notes collateral agent (incorporated by reference to Exhibit 10.14 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on
August 20, 2014)
114 10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
Security Agreement, dated as of May 10, 2013, between Axalta Coating Systems Canada Company (f/k/a
DuPont Performance Coatings Canada Company), Flash Lux Co S.à r.l. (n/k/a Axalta Coating Systems
Luxembourg Holding S.à r.l.), the additional grantors from time to time party thereto, and Barclays Bank
PLC, as collateral agent for the secured parties (incorporated by reference to Exhibit 10.15 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on
August 20, 2014)
Securities Account Pledge Agreement in relation to the shares issued by France Coatings Co. (n/k/a Axalta
Coating Systems France Holding SAS), dated 26 April 2013, between Flash Lux Co S.à r.l. (n/k/a Axalta
Coating Systems Luxembourg Holding S.à r.l.), Barclays Bank PLC, as notes foreign collateral agent, and
France Coatings Co. (n/k/a Axalta Coating Systems France Holding SAS) (incorporated by reference to
Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally
filed with the SEC on August 20, 2014)
Pledge of Receivables Agreement, dated 26 April 2013, between Lux FinCo Coatings S.à r.l. (n/k/a Axalta
Coating Systems Finance 1 S.à r.l.) and Barclays Bank PLC, as notes foreign collateral agent (incorporated
by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 (File No.
333-198271), originally filed with the SEC on August 20, 2014)
Securities Account Pledge Agreement in relation to the shares issued by DuPont Performance Coatings
France SAS (n/k/a Axalta Coating Systems France SAS), dated 26 April 2013, between France Coatings
Co. (n/k/a Axalta Coating Systems France Holding SAS), Barclays Bank PLC, as notes foreign collateral
agent, and DuPont Performance Coatings France SAS (n/k/a Axalta Coating Systems France SAS)
(incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form S-1 (File
No. 333-198271), originally filed with the SEC on August 20, 2014)
Account Pledge Agreement, made on 29 July 2013, between Axalta Coating Systems Verwaltungs GmbH
(f/k/a Flash German Co. GmbH), Axalta Coating Systems Deutschland Holding GmbH & Co. KG (f/k/a
Germany Coatings GmbH & Co. KG), Axalta Coating Systems Beteiligungs GmbH (f/k/a Germany
Coatings Co GmbH), Standox GmbH, Spies Hecker GmbH, Axalta Coating Systems Germany GmbH (f/k/a
DuPont Performance Coatings GmbH), Barclays Bank PLC, as collateral agent under the Credit
Agreement, and Wilmington Trust, National Association, as notes collateral agent under the EUR Notes
Indenture (incorporated by reference to Exhibit 10.20 to the Registrant’s Registration Statement on Form
S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014)
Global Assignment Agreement, made on 29 July 2013, between Axalta Coating Systems Deutschland
Holding GmbH & Co. KG (f/k/a Germany Coatings GmbH & Co. KG) and Barclays Bank PLC, as
collateral agent and collateral sub-agent (incorporated by reference to Exhibit 10.21 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20,
2014)
Global Assignment Agreement, made on 29 July 2013, between Axalta Coating Systems Germany GmbH
(f/k/a DuPont Performance Coatings GmbH) and Barclays Bank PLC, as collateral agent and collateral sub-
agent (incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1
(File No. 333-198271), originally filed with the SEC on August 20, 2014)
Global Assignment Agreement, made on 29 July 2013, between Spies Hecker GmbH and Barclays Bank
PLC, as collateral agent and collateral sub-agent (incorporated by reference to Exhibit 10.24 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on
August 20, 2014)
Global Assignment Agreement, made on 29 July 2013, between Standox GmbH and Barclays Bank PLC, as
collateral agent and collateral sub-agent (incorporated by reference to Exhibit 10.25 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20,
2014)
Partnership Interest Pledge Agreement, made on 29 July 2013, between Axalta Coating Systems
Luxembourg Holding 2 S.à r.l. (f/k/a Luxembourg Coatings S.à r.l.), Axalta Coating Systems Verwaltungs
GmbH (f/k/a Flash German Co. GmbH), Barclays Bank PLC, as collateral agent under the Credit
Agreement, and Wilmington Trust, National Association, as notes collateral agent under the EUR Notes
Indenture (incorporated by reference to Exhibit 10.26 to the Registrant’s Registration Statement on Form
S-1 (File No. 333-198271), originally filed with the SEC on August 20, 2014)
Security Purpose Agreement, made on 29 July 2013, between Axalta Coating Systems Germany GmbH (f/
k/a DuPont Performance Coatings GmbH) and Barclays Bank PLC, as collateral agent and collateral sub-
agent (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on Form S-1
(File No. 333-198271), originally filed with the SEC on August 20, 2014)
115 10.28*
10.29*
10.30*
10.31*
10.32*
10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
Security Transfer Agreement, made on 29 July 2013, between Axalta Coating Systems Germany GmbH (f/
k/a DuPont Performance Coatings GmbH) and Barclays Bank PLC, as collateral agent and collateral sub-
agent (incorporated by reference to Exhibit 10.29 to the Registrant’s Registration Statement on Form S-1
(File No. 333-198271), originally filed with the SEC on August 20, 2014)
Global Assignment Agreement, made on 1 July 2014, between Axalta Coating Systems Logistik Germany
GmbH & Co. KG and Barclays Bank PLC, as collateral agent and collateral sub-agent (incorporated by
reference to Exhibit 10.30 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271),
originally filed with the SEC on August 20, 2014)
Partnership Interest Pledge Agreement, made on 1 July 2014, between Axalta Coating Systems Germany
GmbH, Axalta Coating Systems Verwaltungs GmbH (f/k/a Flash German Co. GmbH), Barclays Bank PLC,
as collateral agent under the Credit Agreement, and Wilmington Trust, National Association as collateral
agent under the EUR Note Indenture (incorporated by reference to Exhibit 10.31 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20,
2014)
Account Pledge Agreement, made on 1 July 2014, between Axalta Coating Systems Logistik Germany
GmbH & Co. KG, Barclays Bank PLC, as collateral agent under the Credit Agreement, and Wilmington
Trust, National Association, as collateral agent under the EUR Notes Indenture (incorporated by reference
to Exhibit 10.32 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally
filed with the SEC on August 20, 2014)
Security Transfer Agreement, made on 1 July 2014, between Axalta Coating Systems Logistik Germany
GmbH & Co. KG and Barclays Bank PLC, as collateral agent and collateral sub-agent (incorporated by
reference to Exhibit 10.33 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271),
originally filed with the SEC on August 20, 2014)
Pledge Agreement without Transfer of Possession, dated September 18, 2013, between Axalta Coating
Systems México, S. de R.L. de C.V. (f/k/a/ DuPont Performance Coatings México, S. de R.L. de C.V.) and
Barclays Bank PLC, as collateral agent (incorporated by reference to Exhibit 10.34 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20,
2014)
Pledge Agreement without Transfer of Possession, dated September 18, 2013, between Axalta Coating
Systems Servicios México, S. de R.L. de C.V. (f/k/a/ DuPont Performance Coatings Servicios México, S. de
R.L. de C.V.) and Barclays Bank PLC, as collateral agent (incorporated by reference to Exhibit 10.35 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on
August 20, 2014)
Equity Interest Pledge Agreement, dated September 18, 2013, among Axalta Coating Systems LA Holding
II B.V. (f/k/a DuPont Performance Coatings LA Holding II B.V.), Axalta Coating Systems México, S. de
R.L. de C.V. (f/k/a/ DuPont Performance Coatings México, S. de R.L. de C.V.), Axalta Coating Systems
Servicios México, S. de R.L. de C.V. (f/k/a/ DuPont Performance Coatings Servicios México, S. de R.L. de
C.V.) and Barclays Bank PLC, as collateral agent (incorporated by reference to Exhibit 10.36 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on
August 20, 2014)
Equity Interest Pledge Agreement, dated September 18, 2013, among Axalta Coating Systems LA Holding
II B.V. (f/k/a DuPont Performance Coatings LA Holding II B.V.), Axalta Coating Systems Servicios
México, S. de R.L. de C.V. (f/k/a/ DuPont Performance Coatings Servicios México, S. de R.L. de C.V.),
Axalta Coating Systems México, S. de R.L. de C.V. (f/k/a/ DuPont Performance Coatings México, S. de
R.L. de C.V.) and Barclays Bank PLC, as collateral agent (incorporated by reference to Exhibit 10.37 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on
August 20, 2014)
Share Pledge Agreement, dated September 18, 2013, between Axalta Powder Coating Systems USA, Inc. (f/
k/a DuPont Powder Coatings USA, Inc.), Axalta Powder Coating Systems México, S.A. de C.V. (f/k/a
DuPont Powder Coatings de México, S.A. de C.V.) and Barclays Bank PLC, as collateral agent
(incorporated by reference to Exhibit 10.38 to the Registrant’s Registration Statement on Form S-1 (File
No. 333-198271), originally filed with the SEC on August 20, 2014)
Debenture, dated 1 February 2013, by Coatings Co (UK) Limited (n/k/a Axalta Coating Systems UK
Holding Limited), DuPont Performance Coatings (U.K.) Limited (n/k/a Axalta Coating Systems UK
Limited) and DuPont Powder Coatings UK Limited (n/k/a Axalta Powder Coating Systems UK Limited), in
favor of Barclays Bank PLC, as collateral agent appointed pursuant to the Credit Agreement (incorporated
by reference to Exhibit 10.40 to the Registrant’s Registration Statement on Form S-1 (File No.
333-198271), originally filed with the SEC on August 20, 2014)
116 10.39*
10.40*
10.41*
10.42*
10.43*
10.44*
10.45*
10.46*
10.47*
10.48*
10.49*
10.50*
10.51*
10.52*
10.53*
10.54*
Security Over Shares Agreement, dated 1 February 2013, between Flash Lux Co S.à r.l. (n/k/a Axalta
Coating Systems Luxembourg Holding S.à r.l.) and Barclays Bank PLC, as collateral agent appointed
pursuant to the Credit Agreement (incorporated by reference to Exhibit 10.42 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-198271), originally filed with the SEC on August 20,
2014)
Debenture, dated 25 March 2014, by Axalta Coating Systems U.K. (2) Limited in favor of Barclays Bank
PLC, as collateral agent appointed pursuant to the Credit Agreement (incorporated by reference to Exhibit
10.44 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271), originally filed with
the SEC on August 20, 2014)
Security Over Shares Agreement, dated 25 March 2014, between Axalta Coating Systems Belgium BVBA
and Barclays Bank PLC, as collateral agent appointed pursuant to the Credit Agreement (incorporated by
reference to Exhibit 10.46 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271),
originally filed with the SEC on August 20, 2014)
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.48 to Amendment No. 3 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-198271), filed with the SEC on October 30,
2014)
Axalta Coating Systems Bermuda Co., Ltd. 2013 Equity Incentive Plan (incorporated by reference to
Exhibit 10.54 to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No.
333-198271), filed with the SEC on October 14, 2014)
Form of Stock Option Agreement under the Axalta Coating Systems Bermuda Co., Ltd. 2013 Equity
Incentive Plan (incorporated by reference to Exhibit 10.55 to Amendment No. 2 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-198271), filed with the SEC on October 14, 2014)
Axalta Coating Systems Ltd. 2014 Equity Incentive Plan (incorporated by reference to Exhibit 10.56 to
Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271), filed with
the SEC on October 30, 2014)
Form of Stock Option Agreement under the Axalta Coating Systems Ltd. 2014 Equity Incentive Plan
(incorporated by reference to Exhibit 10.57 to Amendment No. 3 to the Registrant’s Registration Statement
on Form S-1 (File No. 333-198271), filed with the SEC on October 30, 2014)
Form of Restricted Stock Agreement under the Axalta Coating Systems Ltd. 2014 Equity Incentive Plan
(incorporated by reference to Exhibit 10.58 to Amendment No. 3 to the Registrant’s Registration Statement
on Form S-1 (File No. 333-198271), filed with the SEC on October 30, 2014)
Form of Restricted Stock Unit Agreement under the Axalta Coating Systems Ltd. 2014 Equity Incentive
Plan (incorporated by reference to Exhibit 10.59 to Amendment No. 3 to the Registrant’s Registration
Statement on Form S-1 (File No. 333-198271), filed with the SEC on October 30, 2014)
Form of Stock Option Award Agreement under the Axalta Coating Systems Ltd. 2014 Equity Incentive Plan
(incorporated by reference to Exhibit 10.61 to the Registrant’s Quarterly Report on Form 10-Q (File No.
001-36733), filed with the SEC on April 28, 2016)
Form of Restricted Stock Award Agreement under the Axalta Coating Systems Ltd. 2014 Equity Incentive
Plan (incorporated by reference to Exhibit 10.62 to the Registrant’s Quarterly Report on Form 10-Q (File
No. 001-36733), filed with the SEC on April 28, 2016)
Form of Restricted Stock Unit Award Agreement under the Axalta Coating Systems Ltd. 2014 Equity
Incentive Plan (incorporated by reference to Exhibit 10.63 to the Registrant’s Quarterly Report on Form 10-
Q (File No. 001-36733), filed with the SEC on April 28, 2016)
Form of Performance Stock Award Agreement under the Axalta Coating Systems Ltd. 2014 Equity
Incentive Plan (incorporated by reference to Exhibit 10.64 to the Registrant’s Quarterly Report on Form 10-
Q (File No. 001-36733), filed with the SEC on April 28, 2016)
Form of Performance Share Unit Award Agreement under the Axalta Coating Systems Ltd. 2014 Equity
Incentive Plan (incorporated by reference to Exhibit 10.65 to the Registrant’s Quarterly Report on Form 10-
Q (File No. 001-36733), filed with the SEC on April 28, 2016)
Axalta Coating Systems LLC Retirement Savings Restoration Plan (incorporated by reference to Exhibit
10.60 to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-198271),
filed with the SEC on October 14, 2014)
117 10.55*
10.56*
10.57*
10.58*
10.59*
10.60*
10.61*
10.62*
10.63*
10.64*
10.65*
10.66*
10.67*
10.68*
10.69*
Axalta Coating Systems, LLC Nonqualified Deferred Compensation Plan (incorporated by reference to
Exhibit 10.61 to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No.
333-198271), filed with the SEC on October 14, 2014)
Registration Rights Agreement by and among Axalta Coating Systems Ltd. and Government Employees
Insurance Company (incorporated by reference to Exhibit 10.63 to the Registrant's Quarterly Report on
Form 10-Q (File No. 001-36733) filed with the SEC on May 6, 2015)
Asset Purchase Agreement by and between The Valspar Corporation, Axalta Coating Systems Ltd. and,
solely for purposes of Section 5.1(a), 5.1(b), 5.3, 5.8, 5.13 and 10.13, The Sherwin-Williams Company,
dated as of April 11, 2017 (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on
Form 8-K (File No. 001-36733) filed with the SEC on April 12, 2017)
Amendment to Asset Purchase Agreement, dated as of May 31, 2017, by and between The Valspar
Corporation, Axalta Coating Systems Ltd. and, solely for purposes of Section 5.1(a), 5.1(b), 5.3, 5.8, 5.13
and 10.13, The Sherwin-Williams Company (incorporated by reference to Exhibit 2.1 to the Registrant's
Quarterly Report on Form 10-Q (File No. 001-36733) filed with the SEC on August 3, 2017)
Form of Second Amended and Restated Executive Restrictive Covenant and Severance Agreement
(incorporated by reference to Exhibit 10.57 to the Registrant’s Annual Report on Form 10-K (File No.
001-36733), filed with the SEC on February 22, 2018)
Form of Stock Option Agreement for U.S. Employees (incorporated by reference to Exhibit 10.58 to the
Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733), filed with the SEC on April 25, 2018
Form of Restricted Stock Agreement for U.S. Employees (incorporated by reference to Exhibit 10.59 to the
Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733), filed with the SEC on April 25, 2018)
Form of Restricted Stock Unit Agreement for U.S. Employees (incorporated by reference to Exhibit 10.60
to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733), filed with the SEC on April 25,
2018)
Form of Performance Stock Agreement for U.S. Employees (incorporated by reference to Exhibit 10.61 to
the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733), filed with the SEC on April 25,
2018)
Form of Performance Share Agreement for U.S. Employees (incorporated by reference to Exhibit 10.62 to
the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733), filed with the SEC on April 25,
2018)
Form of Stock Option Agreement for non-U.S. Employees (incorporated by reference to Exhibit 10.63 to
the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733), filed with the SEC on April 25,
2018)
Form of Restricted Stock Unit Agreement for non-U.S. Employees (incorporated by reference to Exhibit
10.64 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733), filed with the SEC on April
25, 2018)
Form of Performance Share Agreement for non-U.S. Employees (incorporated by reference to Exhibit
10.65 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733), filed with the SEC on April
25, 2018)
Form of Restricted Stock Unit Agreement for Directors (incorporated by reference to Exhibit 10.66 to the
Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733), filed with the SEC on April 25, 2018)
Axalta Coating Systems Ltd. Amended and Restated 2014 Incentive Award Plan (incorporated by reference
to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-36733) filed with the SEC on
May 3, 2018)
118 10.70*
Form of Indemnification and Advancement Agreement (incorporated by reference to Exhibit 10.67 to the
Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733), filed with the SEC on July 26, 2018)
10.71*
10.72*
10.73
10.74
21.1
23.1
31.1
31.2
32.1††
32.2††
101†
101†
101†
101†
101†
101†
*
†
††
Amendment to Second Amended and Restated Executive Restrictive Covenant and Severance Agreement
among the Company, Axalta Coating Systems, LLC and Charles W. Shaver, dated as of July 25, 2018
(incorporated by reference to Exhibit 10.68 to the Registrant’s Quarterly Report on Form 10-Q (File No.
001-36733), filed with the SEC on October 25, 2018)
Offer Letter between the Company and Terrence S. Hahn, dated as of July 25, 2018 (incorporated by
reference to Exhibit 10.69 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733), filed
with the SEC on October 25, 2018)
Consulting Agreement between the Company and Michael F. Finn, dated as of November 15, 2018
Employment Separation Agreement and Mutual General Release between the Company and Terrence S.
Hahn, dated as of November 20, 2018
List of Subsidiaries
Consent of PricewaterhouseCoopers LLP
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
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Previously filed.
In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed
not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities
Act of 1933, is deemed not filed for purposes of section 18 of the Exchange Act of 1934, and otherwise is
not subject to liability under these sections.
In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986,
Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of
Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto
are deemed to accompany this Form 10-K and will not be deemed "filed" for purposes of section 18 of the
Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under
the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by
reference.
ITEM 16. FORM 10-K SUMMARY
None.
119 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized on February 26, 2019.
SIGNATURES
AXALTA COATING SYSTEMS LTD.
By:
/s/ Robert W. Bryant
Robert W. Bryant
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned duly authorized.
Signature
/s/ Robert W. Bryant
Robert W. Bryant
/s/ Sean M. Lannon
Sean M. Lannon
/s/ Charles W. Shaver
Charles W. Shaver
/s/ Mark Garrett
Mark Garrett
/s/ Deborah J. Kissire
Deborah J. Kissire
/s/ Andreas C. Kramvis
Andreas C. Kramvis
/s/ Elizabeth C. Lempres
Elizabeth C. Lempres
/s/ Robert M. McLaughlin
Robert M. McLaughlin
/s/ Lori J. Ryerkerk
Lori J. Ryerkerk
/s/ Samuel L. Smolik
Samuel L. Smolik
Title
Date
Chief Executive Officer and President
(Principal Executive Officer)
February 26, 2019
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
February 26, 2019
Chairman of the Board
February 26, 2019
Director
Director
Director
Director
Director
Director
Director
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
120 Sobers Sethi
Vice President and President,
Emerging Markets
Barry S. Snyder
Senior Vice President and Chief
Technology Officer
Lynne Sprinkle
Senior Vice President and Chief
Human Resources Officer
Willie Wu
Vice President and President,
Greater China
Corporate Information
Board of Directors
Management Group
Charles W. Shaver (Chairman)
Chairman and Chief Executive Officer
Nouryon
Robert W. Bryant
Chief Executive Officer and President
Axalta Coating Systems Ltd.
Mark Garrett (Presiding Director)
Chief Executive
Marquard & Bahls
Deborah J. Kissire
Vice Chair and Regional Managing Partner
(Retired)
Ernst & Young LLP
Andreas C. Kramvis
Operating Partner
AEA Investors
Elizabeth C. Lempres
Senior Partner (Retired)
McKinsey & Company
Robert M. McLaughlin
Senior Vice President and Chief Financial Officer
(Retired)
Airgas, Inc.
Lori J. Ryerkerk
Former Executive Vice President, Global
Manufacturing
Royal Dutch Shell (Shell)
Samuel L. Smolik
Senior Vice President
Americas Manufacturing (Retired)
LyondellBasell Industries
Robert W. Bryant
Chief Executive Officer and President
Michael Carr
Vice President and President, Americas
Michael A. Cash
Senior Vice President and
President, Industrial Coatings
M.
Lannon
Sean
Senior Vice President and Chief
Financial Officer
Steven R. Markevich
Executive Vice President and President,
Transportation Coatings and Greater China
Joseph F. McDougall
Executive Vice President and President,
Global Refinish and EMEA
Eduardo Nardinelli
Vice President and President,
Commercial Vehicle
Tabitha Oman
Vice President, Interim General Counsel
and Chief Compliance Officer
Rajeev S. Rao
Vice President, Global Powder and
Business Development/Strategy,
Industrial Coatings
Common Shares
Common Shares
Independent Auditors
The common shares of Axalta
Coating Systems Ltd., trade on the
New York Stock Exchange under
the symbol AXTA.
American Stock Transfer & Trust
Company, LLC
Operation Center
6201 15th Avenue
Brooklyn, New York 11219
866-307-3862
PricewaterhouseCoopers LLP
2001 Market Street
Suite 1800
Philadelphia, PA 19103
Axalta Coating Systems
2001 Market Street
Suite 3600
Philadelphia, PA 19103
USA
For more information about Axalta visit www.axalta.com
© 2018 Axalta Coating Systems, LLC and affiliates. All rights reserved.