2021 ANNUAL REPORT
Axalta is a global coatings company focused on providing
innovative, colorful, and sustainable solutions.
PERFORMANCE COATINGS
INDUSTRIAL
REFINISH
• General Industrial
• Oil and Gas
• Multi-Shop Operators
• Electrical Insulation
Systems (EIS)
• Coil
• Wood
• Architectural
• Transportation
• Agricultural, Construction
and Earthmoving (ACE)
• Independent Body Shops
• Light Vehicle Car Dealerships
• Commercial Vehicle Aftermarket
MOBILITY COATINGS
LIGHT VEHICLE
• Original Equipment
Manufacturers
• Automotive Plastic
Suppliers
COMMERCIAL VEHICLE
• Heavy-Duty Trucks
• Aviation
• Recreational Vehicles
• Marine
• Body Builders & Trailers
• Rail
• Personal Sports Vehicles
• Buses
FINANCIAL SNAPSHOT
Refinish 40%
Net Sales
$4.4B
$518M
Adjusted EBIT*
$455M
$1.14
23%
Free Cash Flow*
Compared to $442 Million in 2020
Light
Vehicle
Diluted EPS
7%
Versus $0.52 in 2020
Commercial
Vehicle
NET SALES
30%
Industrial
Refinish 40%
EMEA 37%
23%
Light
Vehicle
BY END-MARKET
BY GEOGRAPHY
7%
Commercial
Vehicle
30%
Industrial
39%
North America
15%
Asia Pacific
9%
Latin America
EMEA 37%
#1
#1
Global Supplier to
15%
the Refinish Market
Asia Pacific
Global Supplier to the
Heavy-Duty Truck and
Bus Segments
Global Commercial
Vehicle Coatings
Company of the Year
Frost & Sullivan
9%
2021 GM Supplier
of the Year
Latin America
Paint Category
Science
Three 2021 Bronze
Edison Awards
• Innovative Services
• Sustainability
• Engineering & Materials
COMMERCIAL VEHICLE
North America
39%
#2
North America
Industrial Wood
Coatings Supplier
#2
#2
Global Industrial
E-coat Supplier
Global Supplier to
Light Vehicle OEMs
America’s Most
Responsible Companies
Newsweek
*AdjustedEBITandFreeCashFlowarenon-GAAPfigures.PleaseseeAppendixAtoourdefinitiveProxyStatement
filedwiththeSecuritiesandExchangeCommissiononApril22,2022forreconciliationstotheclosestGAAPfigures.
AXALTA ANNUAL REPORT
1
DEAR FELLOW SHAREHOLDERS,
As I reflect on 2021, I am impressed by what our talented
able to partially offset this through substantial
team of nearly 12,000 employees accomplished. Together,
incremental price actions in 2021 and are continuing to
we faced another year of a global pandemic and global
execute on pricing to fully offset the increased costs our
supply chain disruptions that continue to have far-reaching
business is experiencing. We also delivered over $50
impacts for our business, our customers, our communities,
million in cost savings for the full year that helped offset
and our people. Despite these challenges, we had several
persistently high fixed cost inflation during 2021.
noteworthy achievements as we stayed focused on growth,
innovation, operational excellence, and execution.
Business Highlights
In 2021, we remained disciplined on executing our growth
strategy — a strategy founded in our deep-rooted belief
that partnering with customers to solve their problems and
deliver innovative, sustainable solutions creates value for
customers, shareholders, and communities.
Despite unparalleled challenges, including continued
global supply chain constraints and persistent inflation
pressure across our business, Axalta’s year-over-year
net sales grew 18% with income from operations and
diluted net income per share increasing 51% and 119%,
We completed two acquisitions for a combined investment
of $649 million. To strengthen our product offerings and
business in the Refinish Coatings end-market, we acquired
U-POL Holdings Limited — a leading global supplier
of repair and refinish products for the automotive
aftermarket, as well as protective coatings. We also
acquired Anhui Shengran Insulating Materials Co., a
leading Chinese producer of high-quality wire enamels
used in a wide range of consumer electronics, electric
vehicle, and industrial applications. To further our
ambitious growth strategy in Asia, we also broke
ground on construction of a state-of-the-art coatings
facility in northern China that will support growing
demand for light vehicles, commercial vehicles, and
respectively, while we also delivered another strong free
automotive plastic components.
cash flow result of $455 million. Our strong free cash
flow allows us to invest in our business through both
organic initiatives and targeted acquisitions that can
further our growth and deliver significant value over time.
We also continued with share repurchases, totaling $244
million in 2021, which we believe is an attractive use of
our free cash flow as we look to drive shareholder value.
We spent approximately 4% of net sales on R&D and
technical services to sustain our leading market
positions as well as to grow into new markets, particularly
within Industrial Coatings. This year, we faced increased
raw material inflation costs of over $200 million, which
represented a 15% year-over-year increase. We were
Ensuring a strong senior leadership bench is a key aspect
of my role. In 2021, Axalta welcomed three new leaders
to our management team — Shelley Bausch, SVP, Global
Industrial Coatings, Jeremy Rohen, SVP, Strategy and
Business Development, and Jacqueline Scanlan, SVP
and Chief Human Resources Officer. In early 2022, we
also added Dr. Keith Silverman to our management team
as SVP and Chief Operations and Supply Chain Officer.
In addition, Tyrone Michael Jordan (TJ) joined our Board
of Directors in June 2021. As an accomplished leader in
the global mobility and aerospace industries, TJ brings
a strong international and innovation background that
2
AXALTA ANNUAL REPORT
complements the diverse skills and expertise of our
business. In 2021, we conducted a comprehensive
Board. In August 2021, Bill Cook succeeded Mark Garrett
environmental, social, and governance materiality
as Board Chair. Bill brings to the role deep experience as
assessment with internal and external stakeholders.
a Board Chair as well as a successful career as a CEO in
Based on the assessment, we created our new 2030
the industrial sector.
Creating Sustainable Solutions for Our Planet,
Our Business, and Our People
Axalta embraces our responsibility to deliver solutions
that help create a more sustainable environment and
Sustainability Goals. These goals reflect what is at the
heart of Axalta’s operations and success — meaningful
environmental progress, inclusive social values, and
strong corporate governance. At the core of our commitment
to environmental sustainability is a goal to reduce Scope
1 and 2 greenhouse gas emissions by 50% by 2030, on
Axalta Global Innovation Center | Philadelphia, PA
AXALTA ANNUAL REPORT
3
Axalta embraces our responsibility
to deliver solutions that help create
a more sustainable environment
and business.
our way to our aim of achieving carbon neutrality in our
operations by 2040. We also help our customers with
Generating Momentum for 2022 and Beyond
Looking ahead, we have confidence in our team, our
their own sustainability efforts through our product
products, and our innovative solutions. We are focused
innovation. In March 2021, we launched our Spies
Hecker® Waterborne Full System in China. This new auto
refinish coating system brings world-class technology to the
Chinese refinishing industry by providing a sustainable
collision repair system including a waterborne primer,
basecoat, and clearcoat solution.
Our full 2030 Sustainability Goals are available on Axalta.
com/sustainability, and we plan to release our next
Sustainability Report later this year.
Fostering Learning — Inside and Outside
of Our Walls
Axalta is committed to fostering an inclusive environment
where our people can thrive — where they can learn,
develop, and achieve their career aspirations. Based on
feedback from our 2021 Employee Engagement Survey,
on accelerating our growth strategy by:
n Fast-tracking our innovation efforts aligned with
customer and end-market trends, including
sustainability and electrification
n Pursuing opportunities to enter new industrial coatings
markets through both organic and inorganic means
n Continuing to enhance operational excellence across
all areas of our business to improve customers’
experience while advancing our commitment to safety,
quality, and reliability
n Investing in our workplace culture and the development
of our people so we continue to attract and retain the
talent needed to meet today’s demands while innovating
for the future
we launched Aspire, our new digital learning platform for
On behalf of the Board and our global team, thank you
all employees to access learning and development
resources.
In September 2021, we announced the winners of
Axalta’s first-annual Bright Futures Scholarship Program
for your continued interest and investment in Axalta.
We are excited for what lies ahead and look forward to
accelerating growth and delivering value for our people,
customers, shareholders, and other stakeholders.
designed to support the next generation of industry
Sincerely,
innovators. The program provides financial assistance to
students in STEM or vocational programs at eligible
schools located near Axalta facilities. The program also
provides opportunities for the students to interact and
network with Axalta technology and business leaders.
Robert W. Bryant
4
AXALTA ANNUAL REPORT
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, 2021
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)
50 Applied Bank Blvd
Suite 300
Glen Mills, Pennsylvania 19342
(855) 547-1461
98-1073028
(I.R.S. Employer
Identification No.)
(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)
AXTA
(Trading symbol)
New York Stock Exchange
(Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to
submit such files). Yes ☒ No ☐
Indicate by check mark whether the 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 ☒ Non-accelerated filer ☐ Accelerated filer ☐ Small reporting
company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☒
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2021, 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 $7,049.9 million (based on the closing sale price of the common stock on
that date on the New York Stock Exchange).
As of February 10, 2022, there were 224,532,960 shares of the registrant’s common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the registrant’s Proxy Statement for the 2022 Annual General Meeting of Members. 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, 2021.
3
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27
27
28
28
31
32
33
50
52
102
102
102
102
103
103
103
103
103
104
110
111
PART I
PART II
PART III
PART IV
Table of Contents
Business
ITEM 1.
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2.
ITEM 3.
ITEM 4. Mine Safety Disclosures
Properties
Legal Proceedings
ITEM 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
Reserved
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 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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
PART I
ITEM 1. BUSINESS
Axalta Coating Systems Ltd. ("Axalta," the "Company," "we," "our" and "us"), a Bermuda exempted holding company
incorporated in 2012, 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.
Our diverse global footprint allows us to meet the needs of our customer base through an extensive sales force and technical
support organization, as well as 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 Mobility Coatings, serving
four end-markets globally as highlighted below. See the discussion and reconciliation of segment Adjusted EBIT to income
before income taxes in Note 20 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, 2021. Adjusted EBIT Margin is calculated as Adjusted
EBIT divided by net sales.
3
Net sales for our four end-markets and four regions for the year ended December 31, 2021 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 both large
regional and global original equipment manufacturers ("OEMs") and 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.
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 reduce 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.
4
Net Sales by End-MarketCommercial Vehicle7%Light Vehicle23%Industrial30%Refinish40%Net Sales by GeographyNorth America39%EMEA37%Asia Pacific15%Latin America9%2021 Performance Coatings Net Sales by End-MarketRefinish57%Industrial43%2021 Performance Coatings Net Sales byGeographyNorth America38%EMEA41%Asia Pacific15%Latin America6% During 2021, we acquired U-POL Holdings Limited ("U-POL") a leading manufacturer of repair and refinish products used
primarily for automotive refinish and aftermarket protective applications. The business produces a wide range of high-quality
automotive refinishing products including fillers, aerosols, and adhesives as well as industry leading protective coatings. U-
POL sells its products in over 100 countries and is widely known for its leading brands, including Raptor®, Dolphin®, and
Gold™, among others. Axalta expects to accelerate the growth of U-POL's products by expanding market access through our
existing sales and distribution channels while leveraging U-POL's distribution channels to extend the reach of its Refinish
Coatings portfolio to new customers. U-POL's expertise in refinish accessories and protective coatings is highly
complementary to Axalta's business and expands our addressable market into the important and growing mainstream and
economy-based refinish segment as well as the consumer do-it-yourself aftermarket.
Industrial
The industrial end-market is comprised of liquid and powder coatings used in a broad array of end-business applications.
Within the industrial end-market, we focus on the following:
•
•
•
•
•
•
•
General Industrial: coatings for a wide and diverse array of applications, including racking and shelving, metal
furniture, pipe and tube, metal enclosures and fencing, industrial components, and power storage and electrical
boxes.
Energy Solutions: liquid solutions 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 devices to
provide increased motor and power efficiency, critical for today's automotive applications and focused on support
for wind energy and new electric vehicles. Powder solutions provide motor and battery protection and insulation to
enable engineering design.
Architectural: powder and liquid coatings for applications such as window frames, curtain walls, and claddings,
typically used in residential, industrial, commercial, and monumental buildings. Architects and designers can benefit
from the advice of color experts and the latest trend collections available in our dedicated color experience rooms
and online tools.
Transportation: liquid and powder coatings for vehicle components, chassis, and wheels to protect against corrosion,
provide increased durability and impart appropriate aesthetics. Total solutions to support agriculture, construction
and earth moving market for protection and appearance requirements.
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.
Building Products: coatings utilized in OEM and aftermarket industrial construction and building markets, including
external building materials, 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, as well as automotive and industrial production. There has also been an increase in demand for
products that enhance environmental sustainability, corrosion resistance, productivity, and color aesthetics, which we provide
through a combination of e-coat, waterborne, solventborne and powder technologies. Customers select industrial coatings
based on protection, durability and appearance, with a drive for improved product and application sustainability.
With the increased global demand for electric vehicles skyrocketing, electric vehicle ("EV") manufacturers are designing and
searching for solutions to power their vehicles, with innovation to extend performance and improve safety. Electric motors,
batteries and EV powertrain components require protective coatings to maintain optimal temperatures, reduce the risk of fire
and corrosion damage as well as to prevent electromagnetic interference. By leveraging Axalta's deep expertise in energy
solutions coupled with our deep knowledge of the automotive industry and the eMobility market, Axalta has developed
coating solutions tailored to the unique needs of the evolving EV industry.
Performance Coatings Products and Brands
We offer a comprehensive range of specially-formulated waterborne and solventborne products and systems used by the
global automotive refinish industry to repair damaged vehicles. Our refinish products and systems comprise a range of
coatings layers, including fillers, aerosols and adhesives acquired with the 2021 U-POL acquisition, required to match the
vehicle's color and appearance, producing a repair surface indistinguishable from the adjacent surface.
5
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 and dispersion technology
that are utilized in our tints, one of the most technologically advanced parts of the refinish coatings system, which makes up
most of our products in a body shop. We have a large color library and several well-known, long-standing premium brands,
including Cromax®, Standox®, Spies Hecker®, Syrox™, and Raptor®, 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 reads the vehicle 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 body shop
technician the precise mix of tints and colors needed to recreate that specific color 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 fan decks.
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. Through an acquisition completed in 2017, we
have also become a leading manufacturer and supplier of coatings sold into the building materials, cabinet, wood and luxury
vinyl flooring and furniture markets in North America. Our liquid systems are used to provide insulation and thermo-
mechanical protection for electrical conductors and devices, protect automotive parts and serve as primers, basecoats, and
clearcoats for alloy and steel wheels, and provide weatherability and corrosion protection for metal building and
infrastructure projects. Powder coatings, both thermoset and thermoplastic, products are 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, pressures, and
harsh chemicals.
Our major industrial brands include Imron® Industrial, Tufcote™ Industrial, Corlar™ Industrial, Strenex™ Industrial,
PercoTop®, Voltatex®, AquaEC™, Durapon®, Hydropon™, UNRIVALED™, and Ceranamel® for liquid coatings and
Alesta®, Teodur®, Nap-Gard®, Abcite® and Plascoat® for powder coatings.
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. Most 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 body-shop 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 48 customer training centers established globally, which helps to deepen our customer relationships.
6
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.
Our large direct sales team in industrial serves the end customers, driving demand which is then primarily filled directly or
through channels of distribution and e-commerce. We leverage this dedicated sales force and technical service team to
provide regional support and focus global innovation projects to meet the evolving market needs. 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 140 countries. Our top ten customers
accounted for approximately 18% of our Performance Coatings net sales during the year ended December 31, 2021.
In our industrial and refinish end-markets we serve both large OEMs and a broad, fragmented customer base. Our industrial
end-market is comprised of a wide variety of industrial manufacturers, while our refinish end-market is primarily 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.
• Multi-Shop Operators ("MSOs"): Body shops with more than five locations 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 AkzoNobel, BASF and PPG, but we also compete against local
and regional players in local markets. Similarly, in the industrial end-market, we compete against multi-national suppliers,
such as AkzoNobel, PPG and Sherwin-Williams, as well as 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, total technology solutions, color
design capability and the product performance necessary to deliver exceptional value to our customers.
Mobility Coatings
Through our Mobility Coatings segment, we provide coatings technologies while focusing on supporting the accelerating
demand for e-mobility and the evolving coatings needs of established and emerging light and commercial vehicle OEMs,
fleet owners and shared mobility providers. These global customers are faced with evolving megatrends in sustainability,
personalization and autonomous driving that require a high level of technical support coupled with productive,
environmentally responsible coatings systems that can be applied with a high degree of precision, consistency and speed.
7
2021 Mobility Coatings Net Sales by End-MarketLight Vehicle77%CommercialVehicle23%2021 Mobility Coatings Net Sales byGeographyNorth America41%EMEA27%Asia Pacific17%Latin America15% Our solutions portfolio brings together the best of Axalta's experience and innovation into three categories: Core Mobility
Solutions, Advanced Mobility Solutions and Axalta Advantage.
•
•
•
Core Mobility Solutions comprises Axalta's best-in-class basecoats and clearcoats for color and beautification along
with primers, electrocoats and powder applications for surface protection.
Advanced Mobility Solutions encompasses products and applications for mass customization, two-tone and digital
paint. It includes coatings with enhanced functionality that improve LiDAR and radar performance and exterior
protection for electric vehicle platforms and components.
Axalta Advantage features expert services and consulting to improve productivity in and outside the paint shop,
including application design, process improvement, cost and CO2 modeling, and troubleshooting.
Mobility 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 core and advanced technological solutions that improve
exterior appearance and durability and provide long-term corrosion protection. These customers also look for suppliers that
offer sustainable solutions that aid in the customer portfolio transformation and can enhance process efficiency to improve
productivity and provide superior technical service 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, people
expertise, innovative technology platforms, and customer focus, 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, automotive plastics supplies, 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 (i.e., 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 for sustainability.
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 significant 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.
Mobility Coatings Products and Brands
We develop and supply a complete coatings product line for light vehicle OEMs. Our 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, speed
and productivity. 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.
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In today's existing transportation ecosystem, coatings provide essential beauty and color to vehicle bodies while adding
corrosion and impact protection. As the industry evolves, each dimension of mobility – electric vehicles, shared
transportation and autonomous driving – requires coatings with advanced functionality that, in addition to aesthetics and
protection, contributes to the efficiency of electrification, vehicle design, navigation and passenger safety, among other areas.
The evolution of mobility creates tremendous opportunities for OEMs but requires them to undertake significant shifts in how
they design and produce vehicles. 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, LiDAR and
Radar sensory, 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 vehicle applications including
HDT, bus and rail. 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 bake
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 Elite®, Centari®, Rival®, Corlar® epoxy undercoats and AquaEC™.
Mobility Coatings Sales, Marketing and Distribution
We have full-time technical representatives stationed at certain 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 OEMs 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 11 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 to optimize the painting
process and by providing responsive customer support.
Mobility Coatings Customers
We provide our products and services to light and commercial vehicle customers at over 200 assembly plants worldwide,
including all 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 67% of our Mobility Coatings net sales during the
year ended December 31, 2021.
Mobility 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 and EMEA. 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 OEM 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 40% and 50% of
our cost of sales, even during 2021 despite significant raw material inflation experienced throughout the year. We purchase
raw materials from a diverse group of suppliers, with our top ten suppliers representing approximately 33% of our 2021
spending on raw materials.
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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 certain
limited circumstances, contractual raw material recovery mechanisms. Since 2001, our variable cost of sales has remained
stable between 35% and 45% of net sales, even during 2021 despite significant raw material inflation experienced throughout
the year.
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, research and development as well as technical support and
manufacturing. In total, as of December 31, 2021, we have approximately 1,300 people 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 approximately 28 regional laboratories which provide local connection to our
global customer base. This includes our 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, 2021, we had a global portfolio of approximately 740 issued patents and more than 480 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, 2021, approximately 230 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.
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 EliteTM, Imron ExcelProTM, LutophenTM, Nap-Gard®,
Nason®, Raptor®, Rival®, Spies Hecker®, Standox®, StollaquidTM, SyntopalTM, SyroxTM, U-POLTM, 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
At December 31, 2021 we were party to eight joint ventures, of which three were focused in the industrial end-market, three
were focused in the light vehicle end-market and two were focused in the refinish end-market. At December 31, 2021 we
were the majority shareholder, and/or exercise control, in six joint ventures, which we consolidated. Our fully consolidated
joint venture-related net sales were $80.7 million, $76.3 million, and $254.7 million for the years ended December 31, 2021,
2020 and 2019, 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".
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE
During January 2022, we announced a new environmental, social and governance ("ESG") framework, which is structured
under three key pillars and the related goals:
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Planet Solutions: Focused on ensuring a more sustainable future for the planet, this first pillar includes a series of
goals aimed at improving the Company's environmental performance and reducing the impact of its global
operations, including our goals to achieve an absolute reduction of 50 percent of Scope 1 and 2 greenhouse gas
(GHG) emissions by 2030, as well as a goal to become carbon neutral in our operations by 2040 – one decade ahead
of the deadline set by the Paris Agreement on Climate Change. In addition to these reduction targets, Axalta is
taking steps towards our goal of a 10 percent reduction of VOC emissions, process waste, and water use from
operations by 2030.
Business Solutions: This second pillar concentrates on how Axalta's products, services, and technology can help
customers design and manufacture their finished products to help accelerate their own sustainability initiatives and
achievements. Axalta is committing to deliver sustainability benefits from 80 percent of its new technology and
innovation developments by 2030 and increasing, by at least 20 percent, the total percentage of net sales derived
from products, services, and tools that offer sustainability benefits.
People Solutions: Building on Axalta's corporate culture, which is rooted in inclusivity, integrity, safety, and
engagement, this third pillar will ensure that the Company continues operating and fostering an environment where
all of our people can thrive. The Company is committing to creating a more diverse and inclusive environment that
results in increasing the representation of women in management positions globally to at least 30 percent by 2030.
Axalta will continue to support its local communities via its Bright Futures Program, which includes STEM and
vocational scholarships.
HUMAN CAPITAL RESOURCES
Our success is realized through the engagement and commitment of our people. As of December 31, 2021, we had
approximately 13,000 team members, including 12,000 employees and 1,000 contractors, with 25% of our team members
based in the U.S. and 75% based in international locations. Our workforce is distributed globally, with approximately 44% in
the Americas, 39% in EMEA and 17% in Asia Pacific.
Axalta's ability to attract, develop and retain highly skilled talent requires us to focus on the growth and well-being of each
team member. As a global coatings manufacturer, we have a wide range of employees, including but not limited to
management professionals, scientists, technicians, engineers, sales, technical, manufacturing operations, supply chain,
administrative and customer service personnel. We drive to create a performance-driven culture where employees feel
included and find a sense of belonging. It is also important that we provide an environment that fosters inclusivity and
embraces diversity where everyone feels they have a voice and their contributions are valued. In support of this, our first all
employee engagement survey took place in 2021. Capturing the voice of our employees through this survey provided
actionable insights into the specific tools, processes, and other factors that enable our employees to perform at their best.
We strive to provide a wide variety of opportunities for growth for our employees, including online trainings, on-the-job
experience, education tuition assistance and financial counseling. We also aim to provide competitive compensation and
benefits across all of our global locations.
In addition, the health and well-being of our employees is foundational to Axalta's success. In 2020, we launched "Flex Your
Work", a program that is intended to support the work-life balance of our office-based employees by allowing them to work
from home up to two days a week. We are also committed to providing a workplace that enables team members to operate
safely, including safety protocols to ensure the health and safety of our employees during the COVID-19 pandemic. Safety is
ingrained in the way we do business and 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 2021, Axalta's injury and illness
performance resulted in a 0.24 OSHA Recordable Incident Rate ("TRIR"), compared to the 1.6 OSHA Recordable Incident
Rate for the Paint and Coating Manufacturing Industry (according to the US Bureau of Labor Statistics 2020 data). An
internal review revealed that, for 2017-2020, we had miscalculated our TRIR. Our TRIR for each of 2017, 2018, 2019 and
2020, as recalculated, was 0.40, 0.46, 0.30 and 0.16, respectively.
The Compensation Committee of our Board of Directors has oversight of the Company's human capital management efforts.
The Environment, Health, Safety and Sustainability Committee of our Board of Directors has oversight of the Company's
policies to protect the health and safety of our employees and contractors, and this committee regularly reviews data on our
safety metrics and performance.
We encourage you to visit the sustainability section, and other sections, of our website for more detailed information
regarding our human capital resources, programs, and initiatives. Nothing on our website shall be deemed incorporated by
reference into this Annual Report on Form 10-K.
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REGULATORY COMPLIANCE
Our business is subject to significant regulations in all of the markets that we operate and we are committed to operating our
business in compliance with all applicable laws and regulations.
Environmental
We are subject to applicable federal, state, local and foreign laws and regulations relating to environmental protection and
workers' safety, including those required by the U.S. Environmental Protection Agency. 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 the oversight of 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. Investigation,
remediation, operation and maintenance costs associated with environmental compliance and management of sites are a
normal recurring part of our operations. We do not expect outstanding remediation obligations to have a material impact on
our financial position; however, the ultimate cost of remediation is subject to a number of variables and is 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.
Non-U.S. Sales
Our non-U.S. sales are subject to both U.S. and non-U.S. governmental regulations and procurement policies and practices,
including regulations relating to import-export control, tariffs, investment, exchange controls, anti-corruption and repatriation
of earnings. Non-U.S. sales are also subject to varying currency, political and economic risks.
Privacy Regulations
We are also subject to and comply with increasingly complex privacy and data protection laws and regulations in the United
States and other jurisdictions. This includes the European Union's General Data Protection Regulation ("GDPR"), which
enforces rules relating to the protection of processing and movement of personal data. The interpretation and enforcement of
such regulations are continuously evolving and there may be uncertainty with respect to how to comply with them.
Noncompliance with GDPR and other data protection laws could result in damage to our reputation and payment of
significant monetary penalties.
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.
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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 materially and adversely. 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, including those in other documents we file from time to time with the Securities and
Exchange Commission, may materially and adversely affect our businesses, results of operations, financial condition and
cash flows.
Risks Related to our Business
Risks Related to Execution of our Strategic and Operating Plans
Our business, results of operations, financial condition, cash flows and stock price has been, and may in the future be,
adversely affected by the COVID-19 pandemic.
Axalta continues to monitor closely the impact of COVID-19 on all aspects of our business and geographies, including
effects on customers, employees, suppliers, vendors and distribution channels, as well as macroeconomic consequences.
COVID-19 has had and may continue to have an adverse impact on demand for our products and, thus, our income from
operations. Although we have continued to operate our facilities to date, consistent with applicable governmental orders, the
effects of COVID-19 may have a material adverse effect on our operations, supply chain, customers, labor availability and
logistics networks, including business shutdowns, employee vaccination requirements or similar mandates and other
disruptions. The extent to which COVID-19 may adversely impact our business depends on future developments, which are
highly uncertain and unpredictable, the severity and duration of the virus, including novel variants, and the effectiveness of
actions taken globally to contain or mitigate its effects, including any ongoing actions in response to changing health
conditions over time. Any resulting financial impact cannot be estimated reasonably at this time, but may materially
adversely affect our business, results of operations, financial condition and cash flows. Even after the COVID-19 pandemic
has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or
depression, as well as other resulting macroeconomic conditions. Additionally, concerns over the economic impact of
COVID-19 have caused extreme volatility in financial and other capital markets which has and may continue to adversely
impact our stock price and our ability to access to debt financing and capital markets.
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, including as a result of depressed demand for our customers' products or
services, and materially adversely affecting our business, financial condition and results of operations and cash flows. For
example, weak economic and other macroeconomic conditions, such as the semiconductor chip shortage during 2021, has in
the past and could in the future depress new car sales and/or production, reducing demand for our light vehicle OEM coatings
and limit the growth of the car parc. This 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 vehicle 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 U.S., Europe or other
economies, or weakening of emerging markets, such as 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.
Improved safety features on vehicles, commercialization of autonomous 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, results of operations and cash
flows.
Vehicle manufacturers continue to develop new safety features such as collision avoidance technology and self-driving
vehicles that may reduce the rate and amount of vehicle collisions, potentially negatively impacting demand for our refinish
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coatings. Insurance companies may influence vehicle owners to use body shops that do not use our products, which could
also 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, results of operations and cash
flows.
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, results of operations and cash flows.
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 5% of our 2021 net sales and our largest
distributor accounted for approximately 3% of our 2021 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, results of operations and cash flows.
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,
our products may not be delivered in a timely fashion. In addition, if our key 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, results of operations and cash flows could be adversely affected.
Price increases, business and supply chain interruptions, declines in the supply of raw materials or disruptions to our
major tolling arrangements 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 change based
on fluctuations in worldwide supply and demand as well as other factors beyond our control, including inflationary pressures
like those seen during 2021. We use a significant amount of raw materials derived from crude oil and natural gas. As a result,
volatile oil and gas prices, as well as other unrelated factors, 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. Additionally, we obtain certain of our raw materials from selected key suppliers. If any sole source
supplier of raw materials ceases supplying raw materials to us, or if any of our key suppliers is unable to meet its obligations
in a timely fashion or at an acceptable price, or at all, we may be forced to incur higher costs to obtain the necessary raw
materials elsewhere or, in limited instances, we may not be able to obtain the necessary raw materials. Additionally, in certain
instances, we rely on third parties to toll manufacture certain of our intermediates and products. If any of our key tolling
partners cease to provide toll manufacturing services to us, either permanently or temporarily, we would be required to
procure alternative manufacturing arrangements, which we may not be able to arrange on a timely basis or at all.
In addition to the risks associated with raw materials prices, supplier capacity constraints, supplier production disruptions,
including supply disruptions from our sole source or other key suppliers, supply chain and logistics congestion and
disruptions, increasing costs for energy, the unavailability of certain raw materials or disruptions to our key tolling
arrangements could result in harm to our manufacturing capabilities or supply imbalances that may have a material adverse
effect on our business, financial condition, results of operations and cash flows.
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, results of operations and cash flows.
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. 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 could have a material adverse effect on our
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business, financial condition, results of operations and cash flows. 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 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 as well as the products and services offered and developed by our current and future
competitors. A failure to develop commercially successful products or to develop additional uses for existing products could
materially adversely affect our business, financial results, results of operations or cash flows. Further, sales of our new
products could replace sales of some of our current products, offsetting the benefit of even a successful product introduction.
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 64% of our 2021 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, 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 or trade practices, 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, as well as other retaliatory actions.
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 which may be significant. 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 may, from time to time, 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
U.S., which may bring our personnel into contact with foreign officials responsible for issuing or renewing permits, licenses
or approvals or for enforcing or overseeing 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
provide training on these matters, 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.
Evolving environmental, safety or other regulations and laws could have a material adverse effect on our business and
consolidated financial condition.
Our manufacturing activities and products, both in and outside of the U.S., are subject to regulation by various federal, state,
provincial and local laws, regulations and government agencies, including the U.S. Environmental Protection Agency, as well
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as other authorities both inside and outside of the U.S. In addition, legal and regulatory systems in emerging and developing
markets may be less developed, and less certain. Laws and regulations, and the interpretation and enforcement thereof, may
change as a result of a variety of factors, including political, economic, regulatory or social events. The specific impact of
changing laws and regulations, or the interpretation or enforcement of current or future laws and regulations, on our business
may vary depending on a number of factors. As a result of changing laws and regulations, or the interpretation or
enforcement of current or future laws and regulations, we may be required to make expenditures to modify operations,
relocate operations, perform site cleanups or other environmental remediation, or curtail or cease operations, which could
have a material adverse effect on our business, financial condition, results of operations and cash flows.
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 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"), 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. 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, financial condition or cash
flows. Moreover, we cannot predict how legal, regulatory and social responses to concerns about global climate change will
impact our business.
We handle and 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 and claims.
We face risks arising from various litigation matters and other claims 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, including claims arising from the matters
described in Note 6 to our consolidated financial statements included elsewhere in the Annual Report on Form 10-K. 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, results of operations and cash flows. 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.
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Risks Related to Human Resources
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 U.S. 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 changes in asset allocations and 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, results of operations and cash flows 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, 2021, substantially all of our U.S. workforce was not unionized and approximately half of our workforce
outside the U.S. 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,
limit our ability to restructure or manage our operations, 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 worsened operating results. Further, we may be
impacted by work stoppages at our suppliers or customers that are beyond our control.
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 management and skilled employees in our industry is intense. Our ability to
meet our performance and growth goals depends upon the personal efforts and abilities of our management and skilled
employees. We cannot assure you that we will retain or successfully recruit senior management, or that their services will
remain available to us. We also cannot assure you that we will successfully respond to changing employee preferences
spurred by the COVID-19 pandemic. Failures in these areas could adversely affect our business, financial condition, results
of operations and cash flows.
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 U.S. 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 intellectual property rights, our intellectual property rights may not receive the same degree of
protection in foreign countries as they would in the U.S. 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, results of
operations and cash flows.
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
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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.
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 the applicable 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 certain of our trademarks for use by third parties. 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 claims of intellectual property rights infringement 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, including synergies and cost savings, 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, results of operations and cash flows.
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Acquisitions and divestitures may also require us to devote significant internal resources and could divert management's
attention away from operating our business.
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, and may in the future enter into additional, joint venture arrangements.
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.
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
certain 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 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 and our flexibility in managing our business, 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, 2021, we had approximately $3.8 billion of indebtedness on a consolidated basis. As of December 31,
2021, we were in compliance with all of the covenants under our outstanding debt instruments. We are more leveraged than
some of our competitors, which could adversely affect our business plans.
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;
limit our ability to repurchase our common shares or pay dividends;
hinder our ability to adjust rapidly to changing market conditions;
limit our flexibility in managing our business through our obligation to comply with customary financial and other
covenants in the indentures governing our Senior Notes and the credit agreement governing our Senior Secured
Credit Facilities, which covenants are described in further detail in Note 18 to our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K;
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.
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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.
As described below in "Risks Related to Ownership of our Common Shares," our ability to generate cash is dependent on the
earnings and receipt of funds from our subsidiaries and joint ventures, which businesses are subject to prevailing economic
and competitive conditions and to financial, business, legislative, regulatory and other factors beyond our control. 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 the principal, premium, if any, and interest on 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 and
investments. 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, and we may not be able to obtain waivers of such defaults from our lenders. In the event of such un-waived
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.
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 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.
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.
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If we are unable to obtain capital on commercially reasonable terms, it could:
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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 significant volatility in the capital, credit and commodities markets, low
levels of business and consumer confidence and high levels of unemployment in certain parts of the world, could have a
material adverse effect on our financial position, results of operations and cash flows. The difficult conditions in these
markets and the overall economy affect our business in a number of ways. For example:
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as a result of the volatility in commodity prices, we may encounter difficulty in achieving sustained market
acceptance of past or future price increases;
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 the applicability of various provisions
in the credit agreement governing our Senior Secured Credit Facilities or the indentures governing the 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 counter-parties 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. 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, results of operations and
cash flows 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.
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.
A substantial portion of our indebtedness bears interest at variable rates, including LIBOR, which is the subject of recent
proposals for reform. After years of preparation and signaling, on March 5, 2021, the ICE Benchmark Administrator ("IBA"),
LIBOR's administrator, announced that it would permanently cease to publish some LIBOR settings after December 31, 2021
and cease to publish all other LIBOR settings after June 30, 2023. Uncertainty remains as to whether the United Kingdom's
Financial Conduct Authority ("FCA"), LIBOR's regulator, will use its legal powers to require IBA to continue to publish
certain USD LIBOR settings after June 30, 2023. Financial regulators across the globe have begun to advise against the use
by regulated financial institutions of LIBOR in new contracts, subject to certain exceptions. For example, the five federal
financial institution regulatory agencies in the United States have issued supervisory guidance that, among other things,
strongly discourages regulated institutions from entering into new LIBOR-based contracts after December 31, 2021. While
certain replacement rates for LIBOR have gained market traction in certain jurisdictions, for example, the Secured Overnight
Financing Rate ("SOFR") in the United States and the Sterling Overnight Interbank Average Rate ("SONIA") in the United
Kingdom, uncertainty remains as to future interest rate benchmarks in global markets, and, as such, the potential effect of the
LIBOR transition on our cost of debt cannot yet be determined.
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
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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 joint ventures 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. Any payment of distributions, loans or advances to and from our subsidiaries and joint ventures 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.
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 the realization of any risks described under this "Risk Factors" section.
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 litigation. If such a suit
were to arise, it could have a substantial cost and divert our resources regardless of the outcome.
We do not expect 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.
At this time, we currently do not declare and pay dividends on our common shares. Therefore, 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 relevant considerations. The credit agreement governing our Senior Secured Credit Facilities
and the indentures governing the 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 10, 2022, we had 1,000,000,000 common shares authorized and
224,532,960 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 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."
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
U.S. As a result, it may be difficult for investors to effect service of process on those persons in the U.S. or to enforce in the
U.S. judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities
22
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 U.S. 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 limiting 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 U.S., 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 U.S.
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, including that directors may only be removed for cause and our Board of Directors can 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.
General Risk Factors
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,
including productivity enhancements and cost reduction. 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, including growth and cost savings. 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. From time to
time, we may commence operations at new manufacturing facilities and cease operations at existing manufacturing facilities,
including through relocating, eliminating or utilizing alternative sources for such operations. We may not be able to
successfully commence such new operations or cease such existing operations and our failure to successfully do so could
have a material adverse impact on our business results.
23
Increased competition may adversely affect our business, financial condition, results of operations and cash flows.
As described in greater detail in the "Performance Coatings Competition" section on page 7 and the "Mobility Coatings
Competition" section on page 9, 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. Our inability to
compete successfully could have a material adverse effect on our business, financial condition, results of operations and cash
flows.
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 such incentives. 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, results of operations and cash flows. Our level of credit risk
exposure from our customers has remained stable in recent years.
Currency risk may adversely affect our financial condition, results of operations 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 Renminbi, the British Pound, the Australian Dollar and the Russian Ruble. 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, results of
operations and cash flows.
Terrorist acts, conflicts, wars, natural disasters, pandemics and other health crises, among other events beyond our
control, may materially adversely affect our business, financial condition, results of operations and cash flows.
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 acts, conflicts, wars, adverse weather
conditions, natural disasters, power outages, pandemics or other public health crises and environmental incidents, the national
and international responses to such events or perceived threats or potential conflicts relating to or arising out of such events
may create economic and political uncertainties and challenges for us, our customers, suppliers and logistic partners that
could have a materially adverse effect our business, financial condition, results of operations and cash flows. A 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, pandemic or other public health crises, 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, results of operations
and cash flows.
Interruption, interference with, or failure of our information technology and communications systems could hurt our
ability to effectively provide our products and services, which could harm our reputation, financial condition, operating
results and cash flows.
The availability of our products and services and fulfillment of our customer obligations depend on the continuing operation
of our information technology and communications systems. Our systems are vulnerable to damage, interference, or
interruption from modifications or upgrades, terrorist attacks, natural disasters or pandemics (including COVID-19), power
loss, telecommunications failures, user errors, computer viruses, ransomware attacks, computer denial of service attacks,
phishing schemes, or other attempts to harm or access our systems. Some of our systems are not fully redundant, and disaster
recovery planning cannot account for all eventualities. 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, including those that may disrupt production at our
24
manufacturing facilities, reputational damage and third-party claims, any of which could have a material adverse effect on
our business, financial condition, results of operations or cash flows.
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. As these threats continue to evolve, particularly around cybersecurity, we may be required to
expend significant resources to enhance our control environment, processes, practices, and other countermeasures. 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
occurred against our systems from time to time, with no material adverse impacts to date. We expect these attacks to continue
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.
In addition, we rely extensively on information systems and technology to manage our business and summarize operating
results. We are in the process of a multi-year implementation of a new enterprise resource planning ("ERP") system, which
will replace much of our existing core financial systems. The ERP system is designed to accurately maintain our financial
records, enhance the flow of financial information, improve data management, and provide timely information to our
management team. We may not be able to successfully implement the ERP system without experiencing delays, increased
costs, and other difficulties. Failure to successfully design and implement the new ERP system as planned could harm our
business, financial condition, operating results and cash flows. Additionally, if we do not effectively implement the ERP
system as planned or the ERP system does not operate as intended, the effectiveness of our internal control over financial
reporting could be negatively 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, results of operations and cash flows.
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 loss. 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.
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, tax laws and other non-tax legislation, such as economic substance regulations, in various
jurisdictions may be subject to significant change. Our 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 and other non-tax laws or their interpretation, such as interpretations
as to the legality of tax advantages granted under the European Union ("EU") state aid rules and the impacts of the EU's Anti-
Tax Avoidance Directive. In 2021, more than 140 countries tentatively signed on to a framework that imposes a minimum tax
rate of 15% among other provisions. As this framework is subject to further negotiation and implementation by each member
country, the timing and ultimate impact of any such changes on our tax obligations are uncertain. 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
25
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.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect
to our environmental, social and governance practices may impose additional costs on us or expose us to new or
additional risks.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their
environmental, social and governance ("ESG") practices and disclosure. Investor advocacy groups, investment funds, and
influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and
safety, diversity, labor conditions, and human rights. Increased ESG-related compliance costs could result in increases to our
overall operational costs. Failure to adapt to or comply with regulatory requirements or investor, employee, customer, or
other stakeholder expectations and standards, including any perceived failure, could negatively impact our reputation, ability
to do business with certain partners, and our stock price. New government regulations could also result in new or more
stringent forms of ESG oversight, including increased greenhouse gas limitations, and the expansion of mandatory and
voluntary reporting, diligence, and disclosure.
In January 2022, we announced a number of 2030 ESG targets, including our aim for a 50% absolute reduction of our Scope
1 and Scope 2 greenhouse gas emissions by 2030 and our goal to have carbon neutral operations by 2040. Achievement of
these targets depends on our execution of various operational strategies relating to each discrete target. Execution of these
strategies and achievements of our 2030 targets are subject to risk and uncertainties, many of which are outside of our
control. There are no assurances that we will be able to successfully execute our strategies and achieve our 2030 targets, and
the failure to achieve any target could damage our reputation, customer and investor relationships, or our access to, and the
terms of, financing. Further, given investors' increased focus related to ESG matters, such a failure could cause stockholders
to reduce their ownership holdings, all of which, in turn could adversely affect our business, financial condition, results of
operations and cash flows, and reduce our stock price.
26
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters is located in Glen Mills, PA. Our extensive geographic footprint is comprised of 47
manufacturing facilities (including five manufacturing sites operated by our joint ventures), four major technology centers
and 48 customer training centers supporting our global operations. The table below presents summary information regarding
our facilities as of December 31, 2021.
Type of Facility/Country
Location
Segment
Manufacturing Facilities
North America
Canada
United States of America
Latin America
Brazil
Guatemala
Mexico
EMEA
Austria
France
Germany
Netherlands
Sweden
Switzerland
Turkey
United Kingdom
United Arab Emirates
Asia Pacific
China
Ajax (1)
Cornwall
Fridley, MN
Front Royal, VA
Ft. Madison, IA
High Point, NC
Hilliard, OH
Houston, TX
Jacksonville, TX
Madison, AL
Mt. Clemens, MI
Orrville, OH
Riverside, CA
Sacramento, CA
Guarulhos
Amatitlan
Apodaca
Ocoyoacac
Tlalnepantla
Guntramsdorf
Montbrison
Landshut
Wuppertal
Zuidland
Västervik
Bulle
Gebze
Çerkezköy
Tewkesbury
Darlington
Farnham
Huthwaite
Wellingborough
Ras Al Khaimah
Changchun (1)
Jiading
Qingpu
Ma'anshan
27
Mobility
Performance
Performance
Performance; Mobility
Performance; Mobility
Performance
Performance; Mobility
Performance
Performance
Performance
Performance; Mobility
Performance
Performance
Performance
Performance; Mobility
Performance
Performance
Performance
Performance; Mobility
Performance; Mobility
Performance
Performance
Performance; Mobility
Performance
Performance
Performance
Performance; Mobility
Performance
Performance
Performance
Performance
Performance
Performance
Performance
Performance; Mobility
Performance; Mobility
Performance
Performance
Type of Facility/Country
India
Malaysia
Thailand
Joint Venture Manufacturing
Facilities
Colombia
Indonesia
Taiwan
Joint Venture Partner Manufacturing
Facilities
South Africa
Russia
Technology Centers
China
Germany
United States of America
Customer Training Centers
Location
Savli
Shah Alam
Shah Alam
Bangplee
Cartagena de Indias
Cikarang
Taipei
Port Elizabeth
Moscow
Shanghai
Wuppertal
Mt. Clemens, MI
Philadelphia, PA
Location by Region
North America
Latin America
EMEA
Asia Pacific
Segment
Performance; Mobility
Performance
Performance
Performance; Mobility
Performance
Performance
Mobility
Mobility
Mobility
Performance; Mobility
Performance; Mobility
Performance; Mobility
Performance; Mobility
Number of Facilities
12
2
14
20
(1) Manufacturing and distribution operations at these facilities are in process of being relocated to other Axalta facilities.
We own 31 of our manufacturing facilities, 2 of our technology centers, and 10 of our customer training centers, while the
rest of the facilities and centers are leased. We believe that our properties as currently constituted are suitable, adequate and
provide sufficient productive capacity for our current operations.
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 adverse effect on us as discussed in Note 6 to the consolidated financial statements included
elsewhere in this Annual Report on Form 10-K.
The Securities and Exchange Commission regulations require disclosure of certain environmental matters when a
governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that the
Company reasonably believes will exceed a specified threshold. Pursuant to recent Securities and Exchange Commission
amendments to this requirement, the Company will be using a threshold of $1 million for such proceedings. At this time, the
Company is not aware of any matters that exceed this threshold and that meet the other conditions for disclosure except for
the following matter summarized below.
In January 2022, the Company entered into a settlement agreement with the California South Coast Air Quality Management
District (the "District") in order to settle claims by the District alleging that certain of the Company's products failed to
comply with applicable volatile organic compound limits imposed under California law. Pursuant to the terms of the
settlement agreement, the Company agreed to pay the District $1,377,328 in full settlement of the claims and without
admitting any liability or wrongdoing.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
28
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
Age*
Position
Robert W. Bryant
Sean M. Lannon
Brian A. Berube
Troy D. Weaver
Hadi H. Awada
Shelley J. Bausch
Jeremy Rohen
Jacqueline Scanlan
*As of February 18, 2022
Robert W. Bryant
53
43
59
50
43
56
46
49
Chief Executive Officer and President
Senior Vice President and Chief Financial Officer
Senior Vice President, General Counsel and Corporate Secretary
Senior Vice President, Global Refinish
Senior Vice President, Global Mobility Coatings
Senior Vice President, Global Industrial Coatings
Senior Vice President, Strategy and Business Development
Senior Vice President and Chief Human Resources 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.
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.
Brian A. Berube
Mr. Berube has served as our Senior Vice President, General Counsel and Corporate Secretary since June 2019. Previously,
Mr. Berube was Senior Vice President and General Counsel of Cabot Corporation, a position he held from March 2003 until
June 2019. Prior to this appointment, Mr. Berube held various roles at Cabot, which he joined in 1994. Prior to joining Cabot,
Mr. Berube was a corporate attorney at Choate, Hall & Stewart, a Boston law firm, and a law clerk with the New Hampshire
Supreme Court. He earned his B.A. in Political Science from the College of the Holy Cross and a J.D. from Boston College
Law School.
Troy D. Weaver
Mr. Weaver has served as our Senior Vice President, Global Refinish since October 2020. Prior to that, Mr. Weaver served
as our Vice President, Global Refinish from August 2019 until October 2020 and, as our Vice President, North America
Refinish from January 2017 until August 2019 where he was responsible for Axalta's high performing Refinish business in
the USA and Canada. Mr. Weaver also led Axalta's initiative to secure and grow market share with multiple location collision
shop operators, mega-dealers, and nationally recognized collision shop networks. Mr. Weaver began his career at DuPont
Performance Coatings in 1992 where he held various Sales and Marketing leadership roles. He is also a two-time recipient of
DuPont's Prestigious Marketing Excellence Award, first in 2007 and again in 2010. Mr. Weaver is active in the industry and
has served as Chairman of the Board of CIECA (Collision Industry Electronic Commerce Association).
29
Hadi H. Awada
Mr. Awada has served as our Senior Vice President, Global Mobility Coatings since October 2020. Previously, Mr. Awada
was President, Faurecia Clean Mobility – North America, where he also served as a member of Faurecia's North American
Board of Management and President, Faurecia Clean Mobility – Asia Pacific, serving on multiple boards with joint venture
partners. In those roles, Mr. Awada ran a multibillion-dollar business and led efforts to develop and deploy an operational
turnaround and transform the product line to focus on new technologies for customers seeking sustainability and innovation.
Previously at Faurecia, he worked in Europe where he led sales and programs for many international customers. He also
spent four years in Asia as the Vice President for light vehicle customer business units, product line, marketing and
communications. Mr. Awada was employed by Faurecia from 2004 to 2010 and again from 2013 to 2020. Mr. Awada started
his career after earning his B.A. from the University of Toledo, serving the Ford Motor Company in various roles within the
Ford customer service division.
Shelley J. Bausch
Ms. Bausch has served as our Senior Vice President, Global Industrial Coatings since January 2021. Previously, Ms. Bausch
led the Asia Pacific region and the Fluid Technologies business unit for the Carlisle Companies Inc., a manufacturer of
engineered products used in roofing, architectural metal, aerospace, medical technologies, industrial, transportation, refinish,
and agriculture, mining and construction equipment markets. Before Carlisle, she led the Industrial Coatings business for
PPG from 2014 to 2017 and, before that, spent 25 years at Dow Corning Corporation in a variety of senior management and
commercial roles. Ms. Bausch serves on the board of directors of the Kraton Corporation. She earned a B.S. in Business
Administration, summa cum laude, from Alma College and a M.B.A. from the University of Michigan – Flint.
Jeremy Rohen
Mr. Rohen has served as our Senior Vice President, Strategy and Business Development since January 2021. Previously, Mr.
Rohen led corporate development, M&A and investor relations at W.R. Grace & Co., a global specialty chemical company,
where he spent over ten years. Before W.R. Grace, he managed acquisitions, divestitures, mergers, joint ventures and growth
strategy projects at Seale & Associates, an investment bank, where he spent ten years. He started his career at
PricewaterhouseCoopers after earning both a bachelor's degree in Finance and a master's degree in Taxation from The George
Washington University School of Business.
Jacqueline Scanlan
Ms. Scanlan has served as our Senior Vice President and Chief Human Resources Officer since June 2021. From 2017 to
2021, Ms. Scanlan served as Senior Vice President, Human Resources at Haemonetics Corporation, a global medical
technology company. Before Haemonetics, from 2014 to 2016, she served as Corporate Vice President, Human Resources,
North America at Novo Nordisk, a global healthcare company. Prior to Novo Nordisk, she held leadership positions at
Campbell Soup Company, Bristol-Myers Squibb, DuPont Pharmaceuticals Company and Accenture. She received a B.A. in
Political Science from St. Joseph's University and a M.S. in Organizational Dynamics from the University of Pennsylvania.
30
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Share Information
Our common shares are traded on the New York Stock Exchange under the symbol "AXTA."
As of February 10, 2022, there were five registered holders of record of Axalta's common shares as shown on the records of
the Company's transfer agent. A substantially greater number of holders of Axalta common shares 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.
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, 2021:
(in millions, except per share data)
Month
October 2021
November 2021
December 2021
Total
Total Number of
Shares Purchased(1)
Average Price Paid
per Share(1)
— $
0.5
0.5
1.0 $
—
31.28
30.61
30.94
Total Number of
Shares Purchased as
Part of Publicly
Announced
Programs(1)
Approximate Dollar
Value of Shares That
May Yet Be Purchased
Under Our Share
Repurchase Program(1)
647.4
632.4
617.4
617.4
— $
0.5
0.5
1.0 $
(1) All shares were repurchased through the share repurchase program announced in March 2017 (the "Program"). In April 2021, our Board of Directors
authorized an increase in the Program by $625.0 million, bringing the total size of the Program to $1.3 billion, of which we have already purchased
$682.6 million. Under the Program, we repurchased $30.0 million of our common shares during the three months ended December 31, 2021. At
December 31, 2021, the Company had remaining authorization to repurchase $617.4 million of shares. There is no expiration date on the Program.
31
Stock Performance
The line graph illustrated below compares the cumulative total shareholder value return of our common shares 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 December 31, 2016.
In the Annual Report on Form 10-K for the year ended December 31, 2020, the comparison of cumulative total shareholder
value return compared the return on Axalta's common shares to the S&P 500 and the S&P 500 Chemicals. For 2021, we have
replaced the S&P 500 Chemicals with the Standard & Poor's 400 Materials Index ("S&P 400 Materials") as one of our
comparative indices. The S&P 400 Materials is used as a benchmark for certain of our compensation plans, and we believe
that the companies in this index are more comparable to the Company and, therefore, the index serves as a better comparison
to the return on Axalta's common shares. A comparison of the S&P 500 Chemicals appears in this Annual Report on Form
10-K but will not appear in subsequent Annual Reports.
ITEM 6. RESERVED
32
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.
This discussion and analysis deals with comparisons of material changes in the consolidated financial statements for 2021
and 2020. For the comparison of 2020 and 2019, see Management's Discussion and Analysis of Financial Condition and
Results of Operations in Part II, Item 7 of our 2020 Annual Report on Form 10-K, filed with the Securities and Exchange
Commission on February 18, 2021.
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 concerning 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," "believe," "intend," "estimates," "targets," "projected," "projections," "can," "committing,"
"should," "could," "would," "may," "will," "forecasts" and the negative of these words or other comparable or similar
terminology. 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 "Forward-Looking Statements," as well as
"Risk Factors" in this Annual Report on Form 10-K and in other document we have filed with, or furnished to, the SEC, 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, including, but not limited to, those described in "Risk 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.
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 and products. 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. Our diverse global footprint of 47
manufacturing facilities, four technology centers, 48 customer training centers and approximately 13,000 people allows us to
meet the needs of customers in over 140 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.
We operate our business in two operating segments, Performance Coatings and Mobility Coatings. Previously named
Transportation Coatings, our Mobility Coatings segment was renamed in 2021 with no changes to the underlying business or
segment structure. 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 Mobility 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 18.2% for the year ended December 31, 2021 compared with the year ended December 31, 2020. The
increased sales were driven by higher volumes of 10.5% as a result of demand recovery from the impacts of COVID-19,
higher average selling price and product mix of 4.0%, contributions from acquisitions of 1.9% and a 1.8% benefit from
foreign currency translation partially offset by significant impacts of the semiconductor chip and other supply chain shortages
that affected our customers. The following trends have impacted our segment and end-market net sales performance:
•
Performance Coatings: Net sales increased 23.0% compared to 2020. The increased sales were primarily driven
by higher volumes of 13.1% as a result of demand recovery from the impacts of COVID-19, higher average
selling prices and product mix of 5.0%, and contributions from acquisitions of 2.8%. Net sales also benefited
2.1% from foreign currency translation driven primarily by fluctuations of the Euro, Chinese Renminbi, and
British Pound compared to the U.S. Dollar.
• Mobility Coatings: Net sales increased 8.1% compared to 2020. The increased sales were primarily driven by
higher volumes of 5.0% as a result of demand recovery from the impacts of COVID-19 as well as higher
average selling prices and product mix of 1.8%, partially offset by significant impacts of semiconductor chip and
other supply chain shortages. Net sales also benefited 1.3% from foreign currency translation driven primarily
by fluctuations of the Chinese Renminbi and Euro partially offset by fluctuations in the Brazilian Real and
Turkish Lira compared to the U.S. Dollar.
Our business serves four end-markets globally with net sales for the years ended December 31, 2021 and 2020 as follows:
(In millions)
Performance Coatings
Refinish
Industrial
Total Net sales Performance Coatings
Mobility Coatings
Light Vehicle
Commercial Vehicle
Total Net sales Mobility Coatings
Total Net sales
Year Ended December 31,
2021 vs 2020
2021
2020
% change
$ 1,776.4 $ 1,449.0
1,319.9
3,096.3
1,067.4
2,516.4
1,013.1
306.8
1,319.9
960.5
260.7
1,221.2
$ 4,416.2 $ 3,737.6
22.6 %
23.7 %
23.0 %
5.5 %
17.7 %
8.1 %
18.2 %
Semiconductor chip shortages, supply chain constraints and raw material inflation
During the year ended December 31, 2021, we were impacted globally by semiconductor chip shortages, primarily affecting
our Light Vehicle end-market, supply chain shortages as a result of severe weather in the U.S., inflation of raw material costs
and logistics constraints. We anticipate the semiconductor chip and supply chain constraints, including the tightness of raw
materials and freight and logistic challenges, will continue to impact our results through 2022 and raw material inflation to
continue to impact our results into 2022 with potential abatement as the year progresses. We will continue to monitor these
conditions and take appropriate actions that we believe will help mitigate costs and other operational impacts.
Coronavirus ("COVID-19") Pandemic
During the year ended December 31, 2021, our business continued to recover from the significant adverse impact on the
demand for our products and, thus, our income from operations, caused by the COVID-19 pandemic, which began in early
2020. While we have seen a return to more stable quarter-over-quarter demand for our products and services, we remain
cognizant of future COVID-19 developments, such as impacts from new variants, including employee absenteeism,
shutdowns or other restrictions, that could impact our future results of operations, financial condition and cash flows. The
risks and uncertainties related to the COVID-19 pandemic are discussed in further detail within Note 1 to the consolidated
financial statements included elsewhere in this Annual Report on Form 10-K.
Acquisitions Highlights
During the year ended December 31, 2021, we successfully completed two strategic acquisitions within our Performance
Coatings segment, including the acquisition of U-POL, which are discussed in further detail within Note 3 to the consolidated
financial statements included elsewhere in this Annual Report on Form 10-K.
34
Capital and Liquidity Highlights
During the year ended December 31, 2021, we repurchased 8.2 million shares for total consideration of $243.7 million as we
continue to execute against our previously approved share repurchase program. In April 2021, our Board of Directors
authorized an increase in our common share repurchase program of $625.0 million, bringing the size of the program, initially
announced in March 2017, to a total of $1.3 billion, of which we have repurchased $682.6 million through December 31,
2021.
During the year ended December 31, 2021, in connection with the Tenth Amendment to the Credit Agreement (the "Tenth
Amendment") discussed within Note 18 to the consolidated financial statements included elsewhere in this Annual Report on
Form 10-K, we increased the borrowing capacity under our revolving credit facility from $400.0 million to $550.0 million
and extended the maturity of the revolving credit facility from 2024 to 2026, provided that such date will be accelerated in
certain circumstances as set forth in the Tenth Amendment.
See Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional
information.
Environmental, Social and Governance Framework
In January 2022, we announced a new ESG framework that details longer-term ESG goals and strategies. See Part I, Item 1,
"Business—Environmental, Social and Governance" included elsewhere in this Annual Report on Form 10-K for additional
information.
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 and services 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, quality 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."
Cost of goods sold ("cost of sales")
Our cost of sales consists principally of the following:
•
•
Production materials costs. These include costs of the materials needed to manufacture products for distribution.
These costs generally increase on an aggregate basis as production volumes increase, but product prices are also
influenced by changes in market dynamics. A significant amount of the materials used in production are purchased
on a global lowest-cost basis.
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.
35
•
•
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, cost of poor
quality, including product claims and other general manufacturing expenses, such as expenses for utilities and
energy consumption.
The main factors that influence our cost of sales as a percentage of net sales include:
•
•
•
•
•
•
changes in the price of raw materials;
changes in the costs of labor, logistics and energy;
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;
fluctuations in foreign exchange rates; and
changes in sales volumes, average selling prices and product mix.
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 the costs of labor;
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.
Other operating charges
Our other operating charges include termination benefits and other employee related costs, strategic review and retention
costs, acquisition and divestiture-related costs, impairment charges, an operational matter, which is discussed further in Note
6 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, and gains of sales of
facilities details of which are included in our reconciliations of segment operating performance to income before income
taxes.
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.
36
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,
Senior Notes and other indebtedness.
Other (income) expense, net
Other (income) expense, net represents costs incurred, 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.
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.
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
Net sales
Volume effect
Impact of portfolio changes
Price/Mix effect
Exchange rate effect
Years Ended December 31,
2021 vs 2020
2021
2020
$ Change
% Change
$
4,416.2 $
3,737.6 $
678.6
18.2 %
10.5 %
1.9 %
4.0 %
1.8 %
Net sales increased primarily due to the following:
n Higher sales volumes across both segments as a result of demand recovery from the impacts of COVID-19 on 2020
results, partially muted by customer production limitations resulting from significant impacts of semiconductor and other
supply-chain constraints
n Higher average selling price driven in both segments as a result of pricing actions taken to offset input price inflation
n Increased sales through the acquisitions discussed within Note 3 to the consolidated financial statements included
elsewhere in this Annual Report on Form 10-K
n Favorable impacts of currency translation, due primarily to the fluctuations of the Euro, Chinese Renminbi and British
Pound compared to the U.S. dollar
37
Cost of sales
Cost of sales
% of net sales
Years Ended December 31,
2021 vs 2020
2021
2020
$ Change
% Change
$
2,987.3
$
2,457.9
$
529.4
21.5 %
67.6 %
65.8 %
Cost of sales increased primarily due to the following:
n Higher sales volumes across both segments as a result of demand recovery from the impacts of COVID-19 on 2020
results
n Higher variable input costs due to raw material inflation and supply chain impacts
n Increased compensation-related expenses because of the lapse of temporary COVID-19 related cost reduction actions in
the prior year
n Increased costs associated with the acquisitions discussed within Note 3 to the consolidated financial statements
included elsewhere in this Annual Report on Form 10-K
n Unfavorable impacts of currency translation, due primarily to the fluctuations of the Euro and Chinese Renminbi
compared to the U.S. dollar
Cost of sales as a percentage of net sales increased primarily due to the following:
n Higher variable input costs due to raw material inflation and supply chain impacts
n Increased compensation-related expenses because of the lapse of temporary COVID-19 related cost reduction actions in
the prior year
Partially offset by:
n Higher sales volume covering fixed costs
Selling, general and administrative expenses
Years Ended December 31,
2021 vs 2020
2021
2020
$ Change
% Change
Selling, general and administrative expenses
$
738.7
$
695.0
$
43.7
6.3 %
Selling, general and administrative expenses increased primarily due to the following:
n Unfavorable impacts of currency translation, due primarily to the fluctuations of the Euro and Chinese Renminbi
compared to the U.S. dollar
n Increased expenses as a result of acquisitions discussed within Note 3 to the consolidated financial statements included
elsewhere in this Annual Report on Form 10-K
n Higher operating costs including compensation-related costs, due to the lapse of temporary COVID-19 related cost
reductions in the prior year, partially offset by the reduction in costs resulting from operational efficiencies associated
with our structural cost savings initiatives
n Increase in commissions and sales incentive compensation driven by increased sales
Partially offset by:
n Lower bad debt expenses in 2021 compared to 2020 of $10.0 million associated with trade receivables
38
Other operating charges
Other operating charges
Years Ended December 31,
2021 vs 2020
2021
2020
$ Change
% Change
$
44.0 $
110.8 $
(66.8)
(60.3) %
Other operating charges changed primarily due to the following:
n Decrease of $38.0 million in termination benefits and other employee related costs associated with our cost saving
initiatives from $74.9 million in the prior year to $36.9 million in the current year
n Decrease of $21.0 million associated with retention awards and the review of strategic alternatives that was concluded in
March 2020, from $30.7 million in the prior year to $9.7 million in the current year
n Gains of $18.7 million in the current year related to the sales of manufacturing facilities
n Decrease of $5.1 million in impairment charges primarily related to impairments and associated write-downs in the prior
year resulting from our decision to exit the Performance Coatings segment business in Argentina, which did not re-occur
in the current year
n Impacts of currency translation were immaterial when compared with 2020
Partially offset by:
n Increase of $11.8 million in expenses for acquisition-related costs during the current year primarily associated with costs
associated with the U-POL acquisition
Research and development expenses
Years Ended December 31,
2021 vs 2020
2021
2020
$ Change
% Change
Research and development expenses
$
62.4 $
55.2 $
7.2
13.0 %
Research and development expenses increased primarily due to the following:
n Increase in compensation-related expenses and other spending due to the absence of temporary cost savings initiatives
that were in place during 2020
n Impacts of currency translation were immaterial when compared with 2020
Amortization of acquired intangibles
Years Ended December 31,
2021 vs 2020
2021
2020
$ Change
% Change
Amortization of acquired intangibles
$
121.4 $
113.2 $
8.2
7.2 %
Amortization of acquired intangibles increased primarily due to the following:
n Amortization related to intangible assets acquired in our acquisitions discussed within Note 3 to the consolidated
financial statements included elsewhere in this Annual Report on Form 10-K
n Unfavorable impacts of foreign currency translation, primarily related to fluctuations of the Euro compared to the U.S.
dollar
Interest expense, net
Interest expense, net
Years Ended December 31,
2021 vs 2020
2021
2020
$ Change
% Change
$
134.2 $
149.9 $
(15.7)
(10.5) %
Interest expense, net decreased primarily due to the following:
n Decrease in variable interest rates due to LIBOR decreases on our variable rate debt over the comparable period and
benefits on our fixed rate debt issued with our debt refinancing activity in November 2020
n Impacts of currency translation were immaterial when compared with 2020
Partially offset by:
n Unfavorable impacts of increased average principal over the comparable period resulting from our 2020 debt refinancing
activities
n Unfavorable impacts of our derivative instruments used to hedge the variable interest rate exposure on certain debt
arrangements
39
Other (income) expense, net
Other (income) expense, net
$
(12.3) $
33.4 $
(45.7)
(136.8) %
Years Ended December 31,
2021 vs 2020
2021
2020
$ Change
% Change
Other (income) expense, net changed primarily due to the following:
n Reduction in debt extinguishment and refinancing related costs of $34.2 million
n Income of $8.3 million recorded in 2021 related to a tax law change with respect to certain Brazilian indirect taxes
n Favorable impact of foreign exchange losses of $4.9 million when compared with the prior-year period driven by the
Euro and Swiss Franc
Partially offset by:
n A net benefit of $0.8 million during the prior period as a result of changes in pension curtailment, settlements, and
special termination benefits activity within accumulated other comprehensive loss
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, net
Stock-based compensation excess tax shortfalls (benefits)
Non-deductible expenses and interest
Change in unrecognized tax benefits (2)
Intra-entity asset transfer (3)
Foreign taxes
Other - net (4)
Years Ended December 31,
2021
2020
$
340.5
$
122.2
76.1
21.0 %
22.4 %
1.4 %
0.2
21.0 %
0.2 %
(20.8) %
(Favorable) Unfavorable Impact
2021
2020
$
(16.9) $
18.1
2.2
0.4
5.7
(4.9)
—
8.7
(7.0)
(13.9)
10.0
8.2
(0.3)
4.6
54.9
(50.8)
7.0
(42.7)
(1) Primarily related to earnings in Bermuda, Germany, Luxembourg, and Switzerland.
(2) In 2020, we recorded charges of $14.3 million in connection with the income tax audit in Germany and $27.3 million in the Netherlands related to
realized exchange gain. The Netherlands item is fully offset by a tax benefit of $27.3 million recorded in 2020 to adjust to the prior year tax filing
position.
(3) In 2020, the Company recorded a tax benefit related to the step-up of tax-deductible basis upon transfer of certain intellectual property rights to our
Swiss subsidiary.
(4) In 2021, the Company recorded a tax benefit of $2.9 million in the Netherlands, which is fully offset by a tax expense of $2.9 million for an increase to
the valuation allowance. In 2020, the Company recorded a tax benefit of $41.8 million in the Netherlands, of which $27.3 million is related to realized
exchange gain and $14.5 million related to rate change on deferred taxes, which are both fully offset by a tax expense of $27.3 million for the increase to
unrecognized tax benefits and $14.5 million for an increase to the valuation allowance, respectively.
40
SEGMENT RESULTS
The Company's products and operations are managed and reported in two operating segments: Performance Coatings and
Mobility Coatings. See Note 20 to the consolidated financial statements included elsewhere in this Annual Report on Form
10-K for additional information.
Performance Coatings Segment
Net sales
Volume effect
Impact of portfolio changes
Price/Mix effect
Exchange rate effect
Adjusted EBIT
Adjusted EBIT Margin
Years Ended December 31,
2021 vs 2020
2021
3,096.3
2020
2,516.4
$
$
$ Change
% Change
$
579.9
23.0 %
13.1 %
2.8 %
5.0 %
2.1 %
$
479.4
$
344.3
$
135.1
39.2 %
15.5 %
13.7 %
Net sales increased primarily due to the following:
n Higher sales volumes across both end-markets and all regions as a result of demand recovery from the impacts of
COVID-19
n Higher average selling prices and product mix across both end-markets, driven by price actions within both end-markets
and improved product mix in Refinish North America
n Favorable impact from portfolio changes as a result of acquisitions closed during 2021
n Favorable impacts of currency translation, due primarily to the fluctuations of the Euro, Chinese Renminbi and British
Pound compared to the U.S. dollar
Adjusted EBIT increased primarily due to the following:
n Higher sales volumes across both end-markets as a result of demand recovery from the impacts of COVID-19
n Higher average selling prices and product mix across both end-markets and most regions
n Favorable impacts of currency translation, due primarily to the fluctuations of the Canadian Dollar, Chinese Renminbi
and British Pound compared to the U.S. dollar
Partially offset by:
n Higher variable input costs across both end-markets and all regions primarily due to inflation of raw materials and
logistics costs
n Higher operating costs due to the lapse of temporary cost savings in the prior year, partially offset by the reduction in
costs resulting from operational efficiencies associated with our structural cost savings initiatives
Adjusted EBIT margins increased primarily due to the following:
n Higher sales volumes across both end-markets as a result of demand recovery from the impacts of COVID-19
n Higher average selling prices and product mix across both end-markets and most regions
n Favorable impacts of currency translation, due primarily to the fluctuations of the Canadian Dollar, Chinese Renminbi
and British Pound compared to the U.S. dollar
Partially offset by:
n Higher variable input costs across both end-markets and all regions primarily due to inflation of raw materials and
logistics costs
n Higher operating costs due to the lapse of temporary cost savings in the prior year, partially offset by the reduction in
costs resulting from operational efficiencies associated with our structural cost savings initiatives
41
Mobility Coatings Segment
Net sales
Volume effect
Price/Mix effect
Exchange rate effect
Adjusted EBIT
Adjusted EBIT Margin
Years Ended December 31,
2021 vs 2020
2021
1,319.9
$
2020
1,221.2
$
$ Change
% Change
$
98.7
8.1 %
5.0 %
1.8 %
1.3 %
$
38.7
$
82.9
$
(44.2)
(53.3) %
2.9 %
6.8 %
Net sales increased primarily due to the following:
n Higher sales volumes across both end-markets as a result of demand recovery from the impacts of COVID-19, partially
offset by customer production limitations due to significant impacts of semiconductor chip and other supply chain
constraints
n Higher average selling prices and product mix driven by Light Vehicle price actions within most regions
n Favorable impacts of currency translation, due primarily to the fluctuations of the Chinese Renminbi and Euro compared
to the U.S. dollar, partially offset by fluctuations of the Brazilian Real and Turkish Lira compared to the U.S. dollar
Adjusted EBIT decreased primarily due to the following:
n Higher variable input costs across all regions and both end-markets due to raw material inflation
Partially offset by:
n Higher average selling price and product mix driven by price actions to offset inflation
n Lower operating expenses
n Higher sales volumes across both end-markets
Adjusted EBIT margins decreased due to the following:
n Higher variable input costs across all regions due to raw material inflation
Partially offset by:
n Higher average selling price and product mix driven by price actions to offset inflation
n Lower operating expenses
n Higher sales volumes 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, 2021, availability under the Revolving Credit Facility was $527.9 million, net of $22.1 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 Senior Notes. At December 31, 2021, we had $24.0 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 $22.2 million.
We, or our affiliates, at any time and from time to time, may purchase shares of our common stock or the Senior Notes, and
may prepay our Term Loans or other indebtedness. Any such purchases of our common stock or Senior Notes 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.
We have various supplier finance programs in place around the world. We partner with large banking institutions and utilize
these programs to enhance our liquidity profile. Depending on the program, the liabilities under the program are classified
either as accounts payable or current portion of borrowings on our consolidated balance sheets. Our facility in China is more
fully described in Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
42
Cash Flows
Years ended December 31, 2021 and 2020
(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, net
Stock-based compensation
Gain on sales of facilities
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, 2021
Net Cash Provided by Operating Activities
Years Ended December 31,
2021
2020
$
264.4 $
316.5
8.9
0.2
15.0
10.1
14.9
(19.7)
(18.0)
11.7
604.0
(45.4)
558.6
(716.0)
(334.5)
(20.9)
$
(512.8) $
122.0
320.3
9.0
34.4
(55.4)
3.9
15.1
—
(14.5)
16.2
451.0
58.3
509.3
(61.5)
(130.9)
26.6
343.5
Net cash provided by operating activities for the year ended December 31, 2021 was $558.6 million. Net income before
deducting non-cash items (depreciation, amortization and other non-cash items) generated cash of $604.0 million. This was
offset by net uses of working capital of $45.4 million, for which the most significant drivers were increases in inventory,
accounts and notes receivable and prepaid expenses and other assets of $111.6 million, $80.5 million and $45.3 million,
respectively. These outflows were primarily driven by inflation of raw material costs, increased accounts receivable
associated with net sales growth, insurance receivables related to an operational matter within the Mobility Coatings segment,
which is discussed further in Note 6 to the consolidated financial statements included elsewhere in this Annual Report on
Form 10-K, and timing of business incentive payments. The outflows were partially offset by increases in accounts payable
of $140.1 million due to inflation of raw material costs and management of accounts payable and other accruals of $66.2
million primarily related to an operational matter within the Mobility Coatings segment which is discussed further in Note 6
to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Net Cash Used for Investing Activities
Net cash used for investing activities for the year ended December 31, 2021 was $716.0 million. The primary uses were
$649.0 million for business acquisitions, which are discussed further in Note 3 of the consolidated financial statements
included elsewhere in this Annual Report on Form 10-K, and purchases of property, plant and equipment of $121.6 million.
The outflows were partially offset by proceeds received from sales of assets of $37.8 million, driven primarily by the sales of
facilities discussed further in Note 5 to the consolidated financial statements included elsewhere in this Annual Report on
Form 10-K, and $18.0 million of interest proceeds on swaps designated as net investment hedges, which are discussed further
in Note 19 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Net Cash Used for Financing Activities
Net cash used for financing activities for the year ended December 31, 2021 was $334.5 million. The primary uses were for
the purchase of common stock totaling $243.8 million and payments of $100.9 million on borrowings.
43
Other Impacts on Cash
Currency exchange impact on cash for the year ended December 31, 2021 were unfavorable by $20.9 million, which was
driven primarily by fluctuations in the Euro compared to the U.S. Dollar partially offset by fluctuations in the Chinese
Renminbi compared to the U.S. Dollar.
Year Ended December 31, 2020
Net Cash Provided by Operating Activities
Net cash provided by operating activities for the year ended December 31, 2020 was $509.3 million. Net income before
deducting non-cash items (depreciation, amortization and other non-cash items) generated cash of $451.0 million. This was
aided by inflows from working capital of $58.3 million, for which the most significant drivers were inflows from accounts
payable, inventory and other liabilities $103.0 million, $39.6 million and $31.7 million, respectively. These inflows were
driven by management of accounts payable and other liabilities and sell through of inventory. The inflows were partially
offset by outflows for other accrued liabilities of $70.1 million, primarily associated with accruals for employee termination
expenses, accounts receivable of $26.0 million due to timing of collections and prepaid expenses and other assets of $19.9
million, primarily due to business incentive payments.
Net Cash Used for Investing Activities
Net cash used for investing activities for the year ended December 31, 2020 was $61.5 million, driven primarily by purchases
of property, plant and equipment of $82.1 million, partially offset by interest proceeds on swaps designated as net investment
hedges of $14.5 million.
Net Cash Used for Financing Activities
Net cash used for financing activities for the year ended December 31, 2020 was $130.9 million. This was driven by cash
proceeds of $500.0 million and $700.0 million for the issuance of our 2027 Dollar Senior Notes and 2029 Dollar Senior
Notes, respectively, partially offset by the voluntary prepayment of $300.0 million on the outstanding principal on the 2024
Dollar Term Loan, and redemptions of $500.0 million and $396.3 million of the 2024 Dollar Senior Notes and 2024 Euro
Senior Notes, respectively. Also contributing to the net outflows were routine repayments on short-term and long-term
borrowings of $65.8 million, payments for redemption fees and refinancing-related costs of $39.9 million and repurchases of
our common shares of $26.0 million.
Other Impacts on Cash
Currency exchange impacts on cash for the year ended December 31, 2020 were favorable by $26.6 million, which was
driven primarily by the strengthening of the Euro, Chinese Renminbi and British Pound compared to the U.S. Dollar.
Financial Condition
We had cash and cash equivalents at December 31, 2021 and 2020 of $840.6 million and $1,360.9 million, respectively. Of
these balances, $471.9 million and $761.7 million were maintained in non-U.S. jurisdictions as of December 31, 2021 and
2020, respectively. We believe at this time 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, selling 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, including the effects of COVID-19.
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.
44
The following table details our borrowings outstanding at the periods indicated:
(In millions)
2024 Dollar Term Loans
2025 Euro Senior Notes
2027 Dollar Senior Notes
2029 Dollar Senior Notes
Short-term and other borrowings
Unamortized original issue discount
Unamortized deferred financing costs
Total borrowings, net
Less:
Short-term borrowings
Current portion of long-term borrowings
Long-term debt
$
December 31,
2021
2,038.9 $
508.8
500.0
700.0
113.8
(4.6)
(27.3)
3,829.6
2020
2,063.2
552.1
500.0
700.0
118.0
(6.3)
(34.3)
3,892.7
55.4
24.3
3,749.9 $
29.9
24.3
3,838.5
$
Our indebtedness, including the Senior Secured Credit Facilities, Senior Notes and short-term borrowings, is more fully
described in Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We believe that we continue to maintain sufficient liquidity to meet our requirements, including our leverage and associated
interest payments as well as our working capital needs. During the year ended December 31, 2021,we entered into the Tenth
Amendment to the Credit Agreement in order to, among other things, increase the commitments available pursuant to the
Revolving Credit Facility from $400.0 million to $550.0 million and extend the maturity from 2024 to 2026, provided that
such date will be accelerated in certain circumstances as set forth in the Tenth Amendment. As a result, availability under the
Revolving Credit Facility was $527.9 million and $366.0 million at December 31, 2021 and December 31, 2020,
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 Senior Notes.
The following table details our borrowings outstanding, average effective interest rates and the associated interest expense.
Interest expense is inclusive of the amortization of debt issuance costs, debt discounts and the impact of derivative
instruments for the years ended December 31, 2021 and 2020, respectively:
(In millions)
Term Loans
Revolving Credit Facility
Senior Notes
Short-term and other borrowings
Total
Principal
$ 2,038.9
—
1,708.8
113.8
$ 3,861.5
2021
Average Effective
Interest Rate
2.2%
N/A
4.1%
Various
Years Ended December 31,
Interest
Expense
Principal
$
$
62.2 $ 2,063.2
—
1.5
1,752.1
65.9
118.0
4.6
134.2 $ 3,933.3
2020
Average Effective
Interest Rate
3.0%
N/A
4.5%
Various
Interest
Expense
$
$
68.0
1.4
75.2
5.3
149.9
After giving effect to our cross-currency and interest rate hedges, our borrowings denominated in U.S. Dollar as of
December 31, 2021 and 2020 were $2,481.4 million and $2,509.9 million, respectively, with weighted average interest rates
of 3.4% and 3.6%. After giving effect to our cross-currency and interest rate hedges, borrowings denominated in Euro as of
December 31, 2021 and 2020 were $1,380.1 million and $1,423.4 million, respectively, with weighted average interest rates
of 2.5% and 2.5%.
Contractual Obligations
See Note 7 and Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for
disclosure of our material contractual obligations.
Off Balance Sheet Arrangements
See Note 6 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.
45
Recent Accounting Guidance
See Note 1 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a summary of
recent accounting guidance.
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
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 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 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 include discount rates, expected terms, volatility rates and operating results as
applicable based on the targets identified in the respective acquisition agreements.
At December 31, 2021, we have not finalized the purchase accounting related to $680.2 million of net assets acquired during
the year in connection with the acquisitions described in Note 3 to the consolidated financial statements included elsewhere in
this Annual Report on Form 10-K. The estimates used to determine the allocation of the purchase price may be modified up
to one year from the date of the acquisition as more information is obtained about the fair value of assets acquired and
liabilities assumed. Based on historical acquisitions, we do not expect any material adjustments to the current estimates at this
time.
See Notes 1 and 3 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for
additional information.
46
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.
Goodwill and indefinite-lived intangible assets
The Company tests indefinite-lived intangible assets and goodwill for impairment annually by either performing a qualitative
evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely
than not that the fair values of a reporting unit or indefinite-lived intangible asset is less than its carrying amount. Fair values
used under the quantitative impairment assessment 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.
In 2021, we performed a qualitative evaluation for impairment over our reporting units and indefinite-lived intangible assets
and concluded that it was not more likely than not that the fair values are less than the respective carrying amounts.
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. Based on the results of our 2021 qualitative evaluation, we do not believe the meaningful estimates and
assumptions supporting the goodwill and indefinite-lived intangible assets balances have changed materially from our most
recent quantitative evaluation in 2019, which rendered cushions in excess of 77% for all reporting units. 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.
See Note 1 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional
information.
Long-Lived Assets
Long-lived assets, which includes property, plant and equipment, and definite-lived intangible assets, such as technology,
trademarks, customer relationships and non-compete agreements, are continually 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.
Such impairment assessments involve comparing the carrying amount of the asset group, determined at the lowest level for
which identifiable cash flows are largely independent of the cash flows of other groups of assets, 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.
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 which are determined to have a
market condition is determined at the grant-date of the awards using a valuation methodology (Monte Carlo simulation
model) to account for the market conditions linked to these awards and are 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 9 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail
on stock-based compensation.
47
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 8 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.
The estimated impact of either a 100 basis point increase or decrease of the discount rate to the net periodic benefit cost for
2022 would result in an increase of approximately $1.0 million or a decrease of approximately $0.3 million, respectively. The
estimated impact of a 100 basis point increase or decrease of the expected return on assets assumption on the net periodic
benefit cost for 2022 would result in a decrease or increase of approximately $2.3 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.
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 $373.1 million of
taxable income to fully realize its consolidated net deferred tax assets as of December 31, 2021.
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. Our net deferred tax asset balance as of December 31, 2021 is $6.8 million, net of
valuation allowances of $210.9 million. 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 debt extinguishment, refinancing and certain global restructuring 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.
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 and cannot be repatriated in a
tax-free manner. At December 31, 2021 and 2020, deferred income taxes of approximately $10.6 million and $7.1 million,
respectively, have been provided on such subsidiary earnings, respectively. At December 31, 2021, and 2020, we have not
recorded a deferred tax liability related to withholding taxes of approximately $177.5 million and $96.1 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, 2021 and 2020, the Company had gross unrecognized tax benefits, excluding
interest and penalties, for both domestic and foreign operations of $91.4 million and $99.6 million, respectively.
See Note 11 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further
detail on our accounting for income taxes.
48
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 that materially change the amount of revenue under the contract.
See Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail
on our revenue.
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, operational matters, pending
or threatened litigation against the Company and the resolution of matters related to open tax years.
Costs related to the operational matter described in Note 6 to the consolidated financial statements included elsewhere in this
Annual Report on Form 10-K are accrued when it is probable that a liability has been incurred and the amount can be
reasonably estimated. Estimates of probable liabilities for the operational matter require assumptions pertaining to costs
incurred by our customers to repair the impacted products. Assumptions include the ultimate number of impacted products
that are repaired, re-use of damaged materials, labor rates and efficiency of individuals performing the repairs. A 10%
decrease in the total number of products repaired would result in an approximately $5.5 million reduction in the estimated
liability. Insurance recoveries related to the operational matter are recorded when probable to the extent they cover incurred
or probable liabilities, while recoveries in excess of incurred or probable liabilities are recorded when collection is realizable.
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 is received and as remediation progresses. The amounts historically accrued for environmental
remediation costs are not material to our financial statements.
We are subject to legal proceedings, claims and potential 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 matter. 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 11 to the consolidated financial statements included elsewhere in
this Annual Report on Form 10-K.
49
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 flows 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 counter-
parties 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 $0.9 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.
For further detail on our use of derivative instruments, see Note 19 to the consolidated financial statements included
elsewhere in this Annual Report on Form 10-K.
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, 2021, 2020 and 2019 were
from operations outside the United States. At December 31, 2021 and 2020, the accumulated other comprehensive
loss account on the consolidated balance sheets included a cumulative translation loss of $331.3 million and $282.0 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 $244.3 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.
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 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
2025 Euro Senior Notes, which are denominated in Euros.
50
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 40% and 50% of our cost of sales is represented by raw materials, even during 2021 despite significant
raw material inflation experienced throughout the year. 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.
51
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
Report of Independent Registered Public Accounting Firm (PCAOB ID: 238)
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
53
55
56
57
58
59
60
52
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, 2021 and 2020, and the related consolidated statements of operations, of comprehensive
income, of changes in shareholders' equity, and of cash flows for each of the three years in the period ended December 31,
2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period
ended December 31, 2021 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of
the three years in the period December 31, 2021 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, 2021, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Change in Accounting Principle
As discussed in Note 7 to the consolidated financial statements, the Company changed the manner in which it accounts for
leases in 2019.
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.
As described in Management's Report on Internal Control over Financial Reporting, management has excluded U-POL
Holdings Limited (U-POL) from its assessment of internal control over financial reporting as of December 31, 2021 because
it was acquired by the Company in a purchase business combination during 2021. We have also excluded U-POL from our
audit of internal control over financial reporting. U-POL is a wholly-owned subsidiary whose total assets and total revenues
excluded from management's assessment and our audit of internal control over financial reporting represent 1.4% and 0.9%,
respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.
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
53
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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective,
or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Measurement of Unrecognized Tax Benefits
As described in Notes 1 and 11 to the consolidated financial statements, management has recorded unrecognized tax benefits
of $100.1 million as of December 31, 2021. As disclosed by management, the breadth of operations and the global
complexity of tax regulations require assessments of uncertainties and judgments in estimating taxes. 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."
The principal considerations for our determination that performing procedures relating to the measurement of unrecognized
tax benefits is a critical audit matter are the significant judgment by management when applying the more-likely-than-not
recognition criteria to the Company's tax positions, which in turn led to a high degree of auditor judgment, subjectivity, and
effort in performing procedures and evaluating audit evidence obtained related to the measurement of unrecognized tax
benefits. Additionally, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
the identification and recognition of the liability for unrecognized tax benefits, including controls addressing completeness of
the unrecognized tax benefits and controls over measurement of the liability. These procedures also included, among others,
evaluating the significant judgment used by management in applying the more-likely-than-not recognition criteria and in
measuring the Company's unrecognized tax benefits. Professionals with specialized skill and knowledge were used to assist
in evaluating the reasonableness of assumptions made by management, the technical merits of positions taken based upon
application of the tax law and new information, and the measurement of unrecognized tax benefits.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 18, 2022
We have served as the Company's auditor since 2011.
54
AXALTA COATING SYSTEMS LTD.
Consolidated Statements of Operations
(In millions, except per share data)
Net sales
Cost of goods sold
Selling, general and administrative expenses
Other operating charges
Research and development expenses
Amortization of acquired intangibles
Income from operations
Interest expense, net
Other (income) expense, net
Income before income taxes
Provision for income taxes
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to controlling interests
Basic net income per share
Diluted net income per share
Year Ended December 31,
2021
2020
2019
$
4,416.2 $
3,737.6 $
4,482.2
2,457.9
695.0
2,917.9
822.1
2,987.3
738.7
44.0
62.4
121.4
462.4
134.2
(12.3)
340.5
76.1
264.4
0.5
110.8
55.2
113.2
305.5
149.9
33.4
122.2
0.2
122.0
0.4
$
$
$
263.9 $
121.6 $
1.14 $
1.14 $
0.52 $
0.52 $
70.7
70.2
113.1
488.2
162.6
(4.4)
330.0
77.4
252.6
3.6
249.0
1.06
1.06
The accompanying notes are an integral part of these consolidated financial statements.
55
AXALTA COATING SYSTEMS LTD.
Consolidated Statements of Comprehensive Income
(In millions)
Net income
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments
Unrealized gain (loss) on derivatives
Unrealized gain (loss) on pension and other benefit plan obligations
Other comprehensive income (loss), before tax
Income tax expense (benefit) related to items of other comprehensive
income
Other comprehensive income (loss), net of tax
Comprehensive income
Year Ended December 31,
2021
2020
2019
$
264.4 $
122.0 $
252.6
(50.1)
36.6
37.0
23.5
13.9
9.6
274.0
13.8
(30.0)
(25.3)
(41.5)
(11.0)
(30.5)
91.5
5.4
(33.1)
(46.1)
(73.8)
(17.4)
(56.4)
196.2
6.6
189.6
Less: Comprehensive (loss) income attributable to noncontrolling
interests
Comprehensive income attributable to controlling interests
(0.3)
$
274.3 $
(0.8)
92.3 $
The accompanying notes are an integral part of these consolidated financial statements.
56
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, 251.8 and 250.9 shares issued at
December 31, 2021 and 2020, respectively
Capital in excess of par
Retained earnings
Treasury shares, at cost, 24.4 and 16.1 shares at December 31, 2021 and 2020,
respectively
Accumulated other comprehensive loss
Total Axalta shareholders' equity
Noncontrolling interests
Total shareholders' equity
Total liabilities and shareholders' equity
December 31,
2021
2020
$
840.6 $
1,360.9
10.6
937.5
669.7
117.2
2,575.6
1,186.2
1,592.7
1,278.2
584.5
3.1
869.8
559.9
132.2
2,925.9
1,194.5
1,294.9
1,148.8
593.1
$
7,217.2 $
7,157.2
$
657.4 $
79.7
597.8
1,334.9
3,749.9
269.3
174.7
149.7
564.4
54.2
562.3
1,180.9
3,838.5
309.9
114.0
234.1
5,678.5
5,677.4
251.8
1,515.5
827.2
(687.2)
(414.4)
1,492.9
45.8
1,538.7
7,217.2 $
250.9
1,487.1
563.3
(443.5)
(424.8)
1,433.0
46.8
1,479.8
7,157.2
$
The accompanying notes are an integral part of these consolidated financial statements.
57
AXALTA COATING SYSTEMS LTD.
Consolidated Statements of Changes in Shareholders' Equity
(In millions)
Balance December 31, 2018
Comprehensive income (loss):
Net income
Net realized and unrealized gain on
derivatives, net of tax benefit of
$4.8 million
Long-term employee benefit plans, net of tax
benefit of $12.6 million
Foreign currency translation, net of tax of
$0.0 million
Total comprehensive income (loss)
Cumulative effect of an accounting change
Correction to previous cumulative effect upon
adoption of ASU 2014-09
Recognition of stock-based compensation
Shares issued under compensation plans
Changes in ownership of noncontrolling
interests
Common stock purchases
Common Stock
Number
of
Shares
Par/
Stated
Value
Capital In
Excess Of
Par
Retained
Earnings
Treasury
Shares,
at cost
Accumulated
Other
Comprehensive
Loss
Non-
controlling
Interests
Total
235.6
$ 245.3
$ 1,409.5
$
198.6
$ (312.2) $
(336.1) $
105.4
$ 1,310.5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3.4
—
(4.1)
4.6
—
—
—
—
—
—
—
—
—
15.7
44.9
4.0
—
249.0
—
—
—
249.0
(0.7)
—
—
—
—
—
—
(3.7)
—
—
—
—
—
—
—
—
(105.3)
—
3.6
252.6
(28.3)
(33.5)
2.4
(59.4)
—
—
—
—
—
—
—
—
3.0
6.6
—
—
—
—
(28.3)
(33.5)
5.4
196.2
(0.7)
(3.7)
15.7
49.5
(55.1)
—
(51.1)
(105.3)
Dividends declared to noncontrolling interests
Balance December 31, 2019
—
234.9
—
$ 249.9
—
$ 1,474.1
$
—
443.2
—
$ (417.5) $
—
(395.5) $
(1.5)
55.4
(1.5)
$ 1,409.6
Comprehensive income (loss):
Net income
Net realized and unrealized loss on
derivatives, net of tax benefit of
$4.5 million
Long-term employee benefit plans, net of tax
benefit of $6.5 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
Changes in ownership of noncontrolling
interests
Common stock purchases
Dividends declared to noncontrolling interests
Balance December 31, 2020
Comprehensive income (loss):
Net income
Net realized and unrealized gain on
derivatives, net of tax of $5.2 million
Long-term employee benefit plans, net of tax
of $8.7 million
Foreign currency translation, net of tax of
$0.0 million
Total comprehensive income (loss)
Recognition of stock-based compensation
Shares issued under compensation plans
Common stock purchases
Dividends declared to noncontrolling interests
—
—
—
—
—
—
—
0.8
—
(0.9)
—
—
—
—
—
—
—
1.0
—
—
—
—
—
—
—
—
—
15.1
3.2
(5.3)
—
—
121.6
—
—
—
121.6
(1.5)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(26.0)
—
—
0.4
122.0
(25.5)
(18.8)
15.0
(29.3)
—
—
—
—
—
—
—
—
(1.2)
(0.8)
—
—
—
(6.9)
—
(0.9)
(25.5)
(18.8)
13.8
91.5
(1.5)
15.1
4.2
(12.2)
(26.0)
(0.9)
234.8
$ 250.9
$ 1,487.1
$
563.3
$ (443.5) $
(424.8) $
46.8
$ 1,479.8
—
—
—
—
—
—
0.8
(8.2)
—
—
—
—
—
—
—
0.9
—
—
—
—
—
—
—
14.9
13.5
—
—
263.9
—
—
—
263.9
—
—
—
—
—
—
—
—
—
—
—
(243.7)
—
—
31.4
28.3
(49.3)
10.4
—
—
—
—
0.5
264.4
—
—
(0.8)
(0.3)
—
—
—
(0.7)
31.4
28.3
(50.1)
274.0
14.9
14.4
(243.7)
(0.7)
Balance December 31, 2021
227.4
$ 251.8
$ 1,515.5
$
827.2
$ (687.2) $
(414.4) $
45.8
$ 1,538.7
The accompanying notes are an integral part of these consolidated financial statements.
58
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, net
Stock-based compensation
Gain on sales of facilities
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
Purchase of property, plant and equipment
Proceeds from sales of assets
Interest proceeds on 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
Net cash flows associated with stock-based awards
Purchase of noncontrolling interests
Purchases of common stock
Other financing activities
Cash used for 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,
2020
2019
2021
$
264.4 $
122.0 $
252.6
316.5
8.9
0.2
15.0
10.1
14.9
(19.7)
(18.0)
11.7
(80.5)
(111.6)
(45.3)
140.1
66.2
(14.3)
558.6
(649.0)
(121.6)
37.8
18.0
(1.2)
(716.0)
—
(74.0)
(26.9)
(3.0)
14.4
—
(243.8)
(1.2)
(334.5)
(491.9)
(20.9)
1,364.0
851.2 $
320.3
9.0
34.4
(55.4)
3.9
15.1
—
(14.5)
16.2
(26.0)
39.6
(19.9)
103.0
(70.1)
31.7
509.3
(1.0)
(82.1)
0.2
14.5
6.9
(61.5)
1,200.0
(38.8)
(1,223.3)
(39.9)
4.3
(5.8)
(26.0)
(1.4)
(130.9)
316.9
26.6
1,020.5
1,364.0 $
353.0
8.8
0.2
15.7
5.9
15.7
—
(14.7)
21.0
(10.1)
10.8
(118.9)
18.2
5.3
9.6
573.1
(3.3)
(112.5)
—
14.7
7.2
(93.9)
—
(39.5)
(27.6)
(1.5)
50.3
(31.1)
(105.3)
(3.7)
(158.4)
320.8
3.3
696.4
1,020.5
840.6 $
10.6
851.2 $
1,360.9 $
3.1
1,364.0 $
1,017.5
3.0
1,020.5
118.1 $
151.7 $
57.9
25.9
156.9
42.2
35.1 $
35.1 $
16.6
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
59
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Index
Note
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(2) REVENUE
(3) ACQUISITIONS
(4) GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
(5) RESTRUCTURING
(6) COMMITMENTS AND CONTINGENCIES
(7) LEASES
(8) LONG-TERM EMPLOYEE BENEFITS
(9) STOCK-BASED COMPENSATION
(10) OTHER (INCOME) EXPENSE, NET
(11) INCOME TAXES
(12) NET INCOME PER COMMON SHARE
(13) ACCOUNTS AND NOTES RECEIVABLE, NET
(14) INVENTORIES
(15) PROPERTY, PLANT AND EQUIPMENT, NET
(16) OTHER ASSETS
(17) ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES
(18) BORROWINGS
(19) FINANCIAL INSTRUMENTS, HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENTS
(20) SEGMENTS
(21) ACCUMULATED OTHER COMPREHENSIVE LOSS
Page
61
65
68
69
69
70
71
73
79
82
82
86
86
86
87
87
88
88
93
97
100
60
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, 2021 and 2020 and the related consolidated statements of operations, consolidated statements of
comprehensive income, consolidated statements of cash flows and consolidated statements of changes in shareholders' equity
for the years ended December 31, 2021, 2020 and 2019 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.
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 does not maintain
control, but 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 sheets. 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, contingencies, 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 (i.e., projected revenues or EBITDA). Subsequent to the
acquisition date, the fair value of the contingent 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 include the results of operations from the acquisition date in the financial statements for all businesses acquired.
Revenue Recognition
See Note 2 for disclosure of our revenue recognition accounting policy.
61
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Cash, Cash Equivalents and Restricted Cash
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 represents cash held in escrow for pending contingent liabilities related to
an acquisition made during the year ended December 31, 2021 and cash used to secure 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 (i.e., 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 accumulated other comprehensive loss ("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 or 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 presented 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 reflects the current estimate of credit losses expected to be incurred
over the life of the financial asset, based on historical experience, current conditions and reasonable forecasts of future
economic conditions. Accounts receivable are written down or off when a portion or all of such account receivable is
determined to be uncollectible.
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.
62
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
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. Property, plant and equipment purchases are
recorded at cost and are depreciated over the estimated useful life using the straight-line method starting on the date they are
placed in service. See Note 15 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.
Leases
See Note 7 for disclosure of our accounting policy over leases.
Goodwill and Other Identifiable Intangible Assets
Goodwill represents the excess of the purchase price over the fair values of the 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 utilizes multiple valuation methodologies and assumptions, including prices of similar
assets, where applicable, or 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.
Under the quantitative impairment test, the evaluation of impairment involves comparing the current fair value of each
reporting unit, with respect to goodwill, and indefinite-lived intangible asset to its carrying value. If the fair value of the
reporting unit or indefinite-lived intangible asset is less than the carrying value, the difference is recorded as an impairment
loss not to exceed the amount of recorded goodwill or carrying value of the respective indefinite-lived intangible asset.
In 2021, we performed a qualitative evaluation for impairment over our reporting units and indefinite-lived intangible assets
and concluded that it was not more likely than not that the fair values are less than the respective carrying amounts.
Definite-lived intangible assets, such as technology, trademarks, customer relationships, favorable contractual agreements
and non-compete agreements are amortized over their estimated useful lives, generally for periods ranging from 3 to 25 years.
We evaluate these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of
these assets might not be recoverable. The reasonableness of the useful lives of definite and indefinite-lived assets are
regularly evaluated.
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 after all applicable attributes in the guidance are met 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.
63
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
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. Once amortization commences, these assets are tested for impairment consistent with long-lived assets as
discussed above.
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.
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.
Contingencies and Litigation
We accrue for liabilities related to contingencies including the operational matter discussed in Note 6 and 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.
Foreign Currency Translation
Our 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 functional currencies are included in the
consolidated statements of operations in other (income) expense, net.
64
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
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 within each respective plan. See Note 8 for further information.
Stock-Based Compensation
We provide directors and certain employees stock-based compensation comprised of stock options, restricted stock awards,
restricted stock units, performance stock awards and performance share units. The instruments 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 all outstanding stock options, restricted stock awards, restricted stock units,
performance stock awards and performance share units.
Recently Adopted Accounting Guidance
In March 2020, we adopted ASU 2020-04, "Reference Rate Reform," which provides optional expedients exercisable through
December 31, 2022 to ease the potential burden in accounting for the effects of reference rate reform on financial reporting.
In January 2021, the FASB issued ASU No. 2021-01, "Reference Rate Reform (Topic 848): Scope," which clarified the
scope and application of the original guidance. As of December 31, 2021, the expedients provided in this standard do not
impact the Company. We will continue to monitor for potential impacts on our financial statements. See Notes 18 and 19 for
further information.
In December 2020, we adopted ASU 2019-12, "Simplifying the Accounting for Income Taxes," which simplifies the
accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and updating provisions
related to accounting for franchise (or similar) tax partially based on income and interim recognition of enactment of tax law
changes. The adoption of this standard did not have a material impact on our financial statements.
Risks and Uncertainties
In March 2020, the World Health Organization characterized the coronavirus ("COVID-19") as a pandemic, and the
COVID-19 outbreak was declared a national emergency in the United States. The rapid spread of the pandemic and the
continuously evolving responses to combat it have had a negative impact on the global economy. The Company's results of
operations, financial condition and cash flows were significantly impacted during 2020 as a result of the pandemic and we
continue to see impacts to our business given the continued significant presence, and actual or potential spread, of the virus
globally, as well as preventative measures enacted in certain regions of the world. We are currently unable to fully determine
the future impact of COVID-19 on our business, though we believe the pandemic will continue to have a negative effect on
our business during 2022, and potentially longer. We are monitoring the progression of the pandemic and its ongoing and
potential effect on our financial position, results of operations, and cash flows, which effects could be materially adverse in a
particular quarterly reporting period as well as on an annual basis.
(2)
REVENUE
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.
65
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 shipped to our distribution customers. Variable consideration in the form of
price, less discounts and rebates, are estimated and recorded upon the shipment 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 that materially change the amount of revenue under the contract.
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 Payments ("BIPs"), which are 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, 2021 and 2020, the total carrying value of BIPs
were $151.2 million and $165.4 million, respectively, and are presented within other assets on the consolidated balance
sheets. For the years ended December 31, 2021, 2020 and 2019, $62.1 million, $64.1 million and $66.9 million, respectively,
was amortized and reflected as reductions of net sales in the consolidated statements of operations. The total carrying value of
BIPs excludes other upfront incentives made in conjunction with long-term customer commitments of $72.7 million and
$79.8 million at December 31, 2021 and 2020, 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, 2021 and 2020 were $36.1 million and $37.2 million, respectively.
Revenue Streams
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.
66
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
•
•
•
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, energy solutions, HVAC, appliances, industrial wood, coil, and oil & gas pipelines.
Light Vehicle - Light vehicle original equipment manufacturers ("OEMs") select coatings providers on the basis of
their global ability to deliver core and advanced technological solutions that improve exterior appearance and
durability and provide long-term corrosion protection. Customers also look for suppliers that offer sustainable
solutions that aid to the customer portfolio transformation and can enhance process efficiency to improve
productivity and provide superior technical service support.
Commercial Vehicle - Sales in the commercial vehicle end-market are generated from a variety of applications
including non-automotive transportation (i.e., heavy-duty truck, 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 for
sustainability. 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 from royalties and services, primarily within our light vehicle and refinish end-markets.
See Note 20 for disaggregated net sales by end-market.
67
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(3)
ACQUISITIONS
The pro-forma impacts on our results of operations, including the pro-forma effect of events that are directly attributable to
the following acquisitions, were not significant.
Acquisition of U-POL Holdings Limited
On September 15, 2021, we completed the acquisition of U-POL Holdings Limited ("U-POL") for an aggregate cash
purchase price of $619.8 million. The acquisition of U-POL, a leading supplier of paint, protective coatings and accessories
primarily for the automotive aftermarket, strengthens Axalta's global refinish leadership position and supports its broader
growth strategy. The results of the business are reported within our Performance Coatings segment. The U-POL acquisition
was recorded as a business combination under ASC 805, "Business Combinations," with identifiable assets acquired and
liabilities assumed recorded at their estimated fair values as of the acquisition date.
At December 31, 2021, we have not finalized the purchase accounting related to the U-POL acquisition and these amounts
represent preliminary values. The allocation of the purchase price may be modified up to one year from the closing date of
the acquisition as more information is obtained about the fair value of assets acquired and liabilities assumed. The purchase
price was allocated as follows:
Cash
Accounts and notes receivable, net
Inventories
Prepaid expenses and other current assets, net
Property, plant and equipment, net
Identifiable intangible assets
Other assets
Accounts payable
Other accrued liabilities
Other liabilities
Deferred income taxes
Net assets before goodwill from acquisition
Goodwill from acquisition
Net assets acquired
September 15, 2021
(As initially
reported)
Measurement
Period Adjustments
September 15, 2021
(Adjusted)
$
$
23.7 $
22.5
23.3
3.2
16.5
273.0
2.0
(20.9)
(3.9)
(0.9)
(68.4)
270.1
349.7
619.8 $
— $
—
—
—
(0.1)
1.0
—
—
(0.2)
—
(0.5)
0.2
(0.2)
— $
23.7
22.5
23.3
3.2
16.4
274.0
2.0
(20.9)
(4.1)
(0.9)
(68.9)
270.3
349.5
619.8
Goodwill was recognized as the excess of the purchase price over the net identifiable assets recognized. The goodwill is
primarily attributed to the assembled workforce and the anticipated future economic benefits and is allocated to our refinish
reporting unit. The goodwill recognized at December 31, 2021 is not deductible for income tax purposes.
We incurred and expensed acquisition-related transaction costs for the U-POL acquisition of $8.8 million, which is included
within other operating charges on the consolidated statements of operations for the year ended December 31, 2021.
The fair value associated with definite-lived intangible assets was $274.0 million, comprised of $29.0 million in developed
technology, $35.0 million in trademarks and $210.0 million in customer relationships. The definite-lived intangible assets
will be amortized over an average term of 17.4 years. The measurement period adjustment impacting identified intangible
assets related to a change in the royalty rate assumption used for the valuation of the developed technology intangible asset.
Other Acquisitions
During April 2021, we acquired a producer of wire enamels used in a range of consumer electronics, electric vehicle and
industrial applications, based in China. The acquisition was accounted for as a business combination within our industrial
end-market and Performance Coatings segment. The overall impacts to our consolidated financial statements were not
considered material as of and for the year ended December 31, 2021. As of December 31, 2021, we have not yet finalized the
purchase accounting related to the acquisition and the amounts recorded represent preliminary values. We expect to finalize
our purchase accounting during the measurement period which will be no later than one year following the acquisition date.
68
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(4)
GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
Goodwill
The following table shows changes in the carrying amount of goodwill from December 31, 2019 to December 31, 2021 by
reportable segment:
December 31, 2019
Foreign currency translation
December 31, 2020
Goodwill from acquisitions
Purchase accounting adjustments
Foreign currency translation
December 31, 2021
Identifiable Intangible Assets
Performance
Coatings
Mobility
Coatings
Total
$
$
$
1,130.9 $
80.4
1,211.3 $
372.8
(0.4)
(70.3)
1,513.4 $
78.0 $
5.6
83.6 $
—
—
(4.3)
79.3 $
1,208.9
86.0
1,294.9
372.8
(0.4)
(74.6)
1,592.7
The following table summarizes the gross carrying amounts and accumulated amortization of identifiable intangible assets by
major class:
December 31, 2021
Technology
Trademarks—indefinite-lived
Trademarks—definite-lived
Customer relationships
Other
Total
December 31, 2020
Technology
Trademarks—indefinite-lived
Trademarks—definite-lived
Customer relationships
Other
Total
Gross Carrying
Amount
Accumulated
Amortization
Net Book
Value
Weighted average
amortization periods
(years)
575.3 $
266.7
134.5
1,131.8
14.5
2,122.8 $
(420.9) $
—
(43.8)
(366.6)
(13.3)
(844.6) $
154.4
266.7
90.7
765.2
1.2
1,278.2
10.2
Indefinite
14.4
19.2
5.0
Gross Carrying
Amount
Accumulated
Amortization
Net Book
Value
Weighted average
amortization periods
(years)
564.8 $
282.9
103.6
943.6
15.3
1,910.2 $
(383.6) $
—
(37.5)
(329.3)
(11.0)
(761.4) $
181.2
282.9
66.1
614.3
4.3
1,148.8
10.4
Indefinite
16.0
19.0
5.0
$
$
$
$
The estimated amortization expense related to the fair value of acquired intangible assets for each of the succeeding five years
is:
2022
2023
2024
2025
2026
$
$
$
$
$
129.9
90.0
85.3
84.6
84.1
(5)
RESTRUCTURING
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.
69
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
During the years ended December 31, 2021, 2020 and 2019, we incurred costs for termination benefits of $38.7 million,
$71.9 million, and $34.4 million, respectively. Pretax charges during the year ended December 31, 2021 primarily relate to
additional employee severance charges within Europe that were not included in the previously announced global restructuring
made in July 2020 as the required works council consultations and other local legal requirements were completed during
2021. The majority of our termination benefits are recorded within other operating charges in the consolidated statements of
operations. The remaining payments associated with these actions are expected to be substantially completed within 24
months.
The following table summarizes the activity related to the termination benefit reserves and expenses for the years ended
December 31, 2021, 2020 and 2019:
Balance at January 1, 2019
Expense recorded
Payments made
Foreign currency translation
Balance at December 31, 2019
Expense recorded
Payments made
Foreign currency translation
Balance at December 31, 2020
Expense recorded
Payments made
Foreign currency translation
Balance at December 31, 2021
$
$
$
$
102.7
34.4
(57.3)
(1.8)
78.0
71.9
(99.8)
5.7
55.8
38.7
(33.3)
(3.7)
57.5
During September 2021, we completed the sale of our manufacturing facility in Mechelen, Belgium, which stopped operating
during 2020 as a result of actions taken to reduce operational costs via a manufacturing footprint rationalization announced in
2018. The sale resulted in a gain of $8.9 million during the year ended December 31, 2021, of which $1.0 million is included
in cost of goods sold and $7.9 million is included in other operating charges in the consolidated statements of operations.
During December 2021, we completed the sale of two other sites resulting in proceeds of $16.9 million and net gains of
$10.0 million, which is included in other operating charges in the consolidated statements of operations.
During 2021, we received proceeds in exchange for land use rights of $8.5 million, resulting in a gain of $1.8 million, which
is included in other operating charges in the consolidated statements of operations.
(6)
COMMITMENTS AND CONTINGENCIES
Guarantees
We guarantee certain of our customers' obligations to third parties, whereby any default by our customers on their obligations
could force us to make payments to the applicable creditors. At December 31, 2021 and 2020, we had outstanding bank
guarantees of $5.7 million and $8.5 million, respectively. A portion of our bank guarantees expire between 2022 and 2036,
while others do not have specified expiration dates. We monitor the customer obligations and bank guarantees to evaluate
whether we have a liability at the balance sheet date. During the year ended December 31, 2020, we incurred and paid
$1.0 million related to our outstanding bank guarantees. We did not have any liabilities related to our outstanding bank
guarantees recorded at December 31, 2021 and 2020.
Operational Matter
In January 2021, we became aware of an operational matter affecting certain North America Mobility Coatings customer
manufacturing sites. The matter involves the use and application of certain of our products in combination with and
incorporated within third-party products. The matter occurred over a discrete period during the fourth quarter of 2020.
When we filed, and as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, we estimated
that it was reasonably possible that losses associated with the matter could have been up to $250 million. Subsequent to the
filing of our Annual Report on Form 10-K and through the filing of our Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2021, June 30, 2021, and September 30, 2021, there were further developments which led us to conclude
that losses from this matter were probable and that a majority of losses would be covered under our insurance policies,
subject to deductible and policy limits as defined in our policies.
70
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
For the year ended December 31, 2021, we recorded expense of $4.4 million within other operating charges in the
consolidated statements of operations. At December 31, 2021, we have $52.7 million recorded for estimated insurance
receivables within accounts and notes receivable, net in the consolidated balance sheets. Liabilities of $49.7 million are
recorded as other accrued liabilities in the consolidated balance sheets at December 31, 2021. The recorded probable losses
remain an estimate, and actual costs arising from this matter could be materially lower or higher depending on the actual
costs incurred to repair the impacted products as well as the availability of additional insurance coverage.
Other
We are subject to various pending lawsuits, legal proceedings and other claims in the ordinary course of business, including
civil, regulatory and environmental matters. These matters may involve third-party indemnification obligations and/or
insurance covering all or part of any potential damage incurred by us. All of these matters are subject to many uncertainties
and, accordingly, we cannot determine the ultimate outcome of the proceedings and other claims at this time. The potential
effects, if any, on our consolidated financial statements will be recorded in the period in which these matters are probable and
estimable. Except as set forth in the "Operational Matter" section above, we believe that any sum we may be required to pay
in connection with proceedings or claims in excess of the amounts recorded would likely not have a material adverse effect
upon our results of operations, financial conditions or cash flows on a consolidated annual basis but could have a material
adverse impact in a particular quarterly reporting period.
We are involved in environmental remediation and ongoing compliance activities at several sites. The timing and duration of
remediation and ongoing compliance activities are determined on a site by site basis depending on local regulations. The
liabilities recorded represent our estimable future remediation costs and other anticipated environmental liabilities. We have
not recorded liabilities at sites where a liability is probable, but that a range of loss is not reasonably estimable. We believe
that any sum we may be required to pay in connection with environmental remediation matters in excess of the amounts
recorded would likely occur over a period of time and would likely not have a material adverse effect upon our results of
operations, financial condition or cash flows on a consolidated annual basis but could have a material adverse impact in a
particular quarterly reporting period.
(7)
LEASES
In January 1, 2019, we adopted Accounting Standards Update ("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
recognized, 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. 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 used the adoption date as our
date of initial application. As a result, historical financial information was not updated, and the disclosures required under the
new standard are not provided as of and for periods before January 1, 2019. Adoption of ASU 2016-02 at January 1, 2019
resulted in a one-time loss to retained earnings of $0.7 million on our consolidated balance sheet 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 historically accounted for as sale-leaseback financings, for which the ASU requires accounting for
as a lease at the date of initial application.
We have operating and finance leases for certain of our technology centers, warehouses, office spaces, land, and equipment.
Right-of-use ("ROU") assets represent the Company's right to use an underlying asset for the lease term and lease liabilities
represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and operating
lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at
commencement date. The lease term is determined to be the non-cancelable period including any lessee renewal options that
are considered to be reasonably certain of exercise. The interest rate implicit in lease contracts is typically not readily
determinable. As such, the Company used judgment to determine an appropriate incremental borrowing rate, which is the rate
incurred to borrow on a collateralized basis over a similar term in a similar economic environment. Lease expense for fixed
lease payments on operating leases is recognized over the expected term on a straight-line basis, while lease expense for fixed
lease payments on finance leases is recognized using the effective interest method.
Certain of our lease agreements include rental payments based on an index or adjusted periodically for inflation. The changes
to the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was
incurred. In addition, variable lease expense also includes elements of a contract that is based on usage during the term. Our
lease agreements do not contain any material residual value guarantees or material restrictive covenants.
71
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Supplemental balance sheet information related to leases is summarized as follows:
Assets
Operating lease assets, net
Finance lease assets, net
Total leased assets
Liabilities
Current
Classification
Other assets (1)
Property, plant and equipment, net (2)
Operating lease liabilities
Finance lease liabilities
Other accrued liabilities
Current portion of borrowings
Noncurrent
Operating lease liabilities
Finance lease liabilities
Total lease liabilities
Other liabilities
Long-term borrowings
December 31,
2021
2020
$
$
$
$
104.2 $
60.5
164.7 $
27.2 $
4.1
79.3
58.4
169.0 $
101.3
63.7
165.0
28.8
3.2
75.6
60.8
168.4
(1) Operating lease assets are recorded net of accumulated amortization of $50.3 million and $35.4 million for the years ended
(2)
December 31, 2021 and 2020, respectively.
Finance lease assets are recorded net of accumulated amortization of $13.3 million and $8.9 million for the years ended
December 31, 2021 and 2020, respectively.
Components of lease expense are summarized as follows:
Finance lease cost
Amortization of right-of-use assets
Interest on lease liabilities
Operating lease cost
Variable lease cost
Short-term lease cost
Net lease cost
Supplemental cash flow information related to leases is summarized as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
Operating cash flows for finance leases
Financing cash flows for finance leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Year Ended December 31,
2021
2020
2019
$
4.4 $
4.2 $
3.3
35.6
3.3
0.5
3.4
35.7
3.2
0.4
$
47.1 $
46.9 $
Year Ended December 31,
2021
2020
2019
$
$
$
$
$
36.4 $
3.3 $
2.6 $
30.1 $
0.7 $
36.0 $
3.4 $
2.2 $
21.0 $
0.3 $
4.1
3.5
36.5
2.9
1.2
48.2
36.8
3.5
1.9
23.3
0.5
72
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Lease term and discount rate information are summarized as follows:
Weighted-average remaining lease term (years)
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
Maturities of lease liabilities as of December 31, 2021 are as follows:
Year
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: imputed interest
Present value of lease liabilities
(8)
LONG-TERM EMPLOYEE BENEFITS
Defined Benefit Pensions
Year Ended December 31,
2021
2020
6.2
15.5
3.7 %
5.2 %
5.2
15.8
4.1 %
5.2 %
Operating Leases
Finance Leases
$
$
30.5 $
24.4
17.3
12.8
9.3
25.5
119.8
13.3
106.5 $
7.3
4.9
6.0
6.0
6.1
72.0
102.3
39.8
62.5
Axalta has defined benefit plans that cover certain employees worldwide, with over 85% of the projected benefit obligation
within the European region at December 31, 2021.
73
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Obligations and Funded Status
The measurement date used to determine defined benefit obligations is December 31st each year. The following table sets
forth the changes to the projected benefit obligations ("PBO") and plan assets for the years ended December 31, 2021 and
2020 and the funded status and amounts recognized in the accompanying consolidated balance sheets at December 31, 2021
and 2020 for our defined benefit pension plans:
Change in benefit obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Participant contributions
Actuarial (gain) loss, 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,
2021
2020
704.0 $
7.6
7.7
1.1
(27.5)
(11.0)
(23.9)
(0.2)
(30.7)
627.1
386.7
17.7
18.4
1.1
(23.9)
(11.3)
(0.1)
(7.7)
380.9
(246.2) $
34.9 $
(11.8)
(269.3)
(246.2) $
640.7
7.6
9.7
1.3
41.9
(15.4)
(22.8)
1.5
39.5
704.0
356.9
26.8
24.1
1.3
(22.8)
(16.7)
0.6
16.5
386.7
(317.3)
5.5
(12.9)
(309.9)
(317.3)
$
$
$
$
Net actuarial (gains) losses for 2021 and 2020 were primarily fluctuations in the discount rates between years across the plans
relative to the rates used in the preceding year to determine benefit obligations (see assumptions table below), which were
caused by market volatility during the periods.
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.
74
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
The following table reflects the ABO for all defined benefit pension plans at December 31, 2021 and 2020. 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,
2021
2020
604.5 $
675.1
388.9 $
366.6 $
107.8 $
387.8 $
365.9 $
106.8 $
493.8
464.9
171.0
488.8
460.7
166.4
$
$
$
$
$
$
$
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,
2021
2020
$
$
(86.7) $
1.5
(85.2) $
(123.8)
1.6
(122.2)
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 credits are 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.
75
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, 2021, 2020 and 2019.
Components of net periodic benefit cost and amounts recognized in
comprehensive income:
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 loss
Special termination benefit loss
Net periodic benefit cost
Changes in plan assets and benefit obligations recognized in other
comprehensive income:
Net actuarial (gain) loss, net
Amortization of actuarial loss, net
Prior service credit
Amortization of prior service credit
Curtailment gain
Settlement loss
Other adjustments
Total (gain) loss recognized in other comprehensive income
Total recognized in net periodic benefit cost and comprehensive
income
Year Ended December 31,
2021
2020
2019
$
7.6 $
7.6 $
7.7
(13.6)
4.9
(0.1)
—
—
0.4
6.9
(32.1)
(4.9)
—
0.1
—
—
(0.1)
(37.0)
9.7
(12.8)
3.4
—
(4.2)
2.3
1.5
7.5
28.4
(3.4)
(0.3)
—
4.2
(2.3)
(1.3)
25.3
7.2
13.1
(13.9)
1.9
(0.1)
(2.3)
1.1
0.3
7.3
46.7
(1.9)
—
0.1
2.3
(1.1)
—
46.1
$
(30.1) $
32.8 $
53.4
76
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
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
Cash balance interest credit rate to determine benefit obligation
Cash balance interest credit rate to determine net cost
2021
2020
2019
1.65 %
1.12 %
2.84 %
2.71 %
3.55 %
0.44 %
0.40 %
1.12 %
1.58 %
2.71 %
2.73 %
3.71 %
0.40 %
0.49 %
1.58 %
2.27 %
2.73 %
2.68 %
4.21 %
0.49 %
1.13 %
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,
2022
2023
2024
2025
2026
2027 - 2031
Plan Assets
Benefits
28.7
29.3
34.5
35.8
35.5
195.7
$
$
$
$
$
$
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 established asset
allocation targets 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. Assets measured using the net asset
value ("NAV") per share practical expedient include debt asset backed securities, hedge funds, and real estate funds. Debt
asset backed securities primarily consist of collateralized debt obligations. The market values for these assets are based on the
NAV 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.
77
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
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
2021
2020
15-20%
30-35%
0-5%
40-45%
20-25%
30-35%
0-5%
40-45%
Target
Allocation
15-20%
30-35%
0-5%
40-45%
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, 2021 and 2020, respectively. Defined benefit pension plan assets measured using NAV
have not been categorized in the fair value hierarchy.
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
Total carried at fair value
Investments measured at NAV
Total
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
Total carried at fair value
Investments measured at NAV
Total
Fair value measurements at
December 31, 2021
Total
Level 1
Level 2
Level 3
11.1 $
29.6
36.0
53.1
44.9
0.1
174.8 $
— $
—
0.4
22.2
8.2
0.2
31.0 $
—
0.2
3.2
4.3
2.2
120.5
130.4
11.1 $
29.8
39.6
79.6
55.3
120.8
336.2 $
44.7
380.9
Fair value measurements at
December 31, 2020
Total
Level 1
Level 2
Level 3
5.8 $
37.9
45.2
54.0
28.5
0.2
171.6 $
— $
—
0.4
20.2
10.3
1.7
32.6 $
—
0.2
2.8
3.7
2.7
134.1
143.5
5.8 $
38.1
48.4
77.9
41.5
136.0
347.7 $
39.0
386.7
$
$
$
$
$
$
78
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 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. 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, 2021 and 2020.
Ending balance at December 31, 2019
Change in unrealized gain
Purchases, sales, issues and settlements
Transfers into Level 3
Ending balance at December 31, 2020
Change in unrealized gain
Purchases, sales, issues and settlements
Ending balance at December 31, 2021
Assumptions and Sensitivities
Level 3 assets
Total
Private
market
securities
Debt and
equity
Real
estate
investments
$
$
$
134.1 $
12.5
(3.8)
0.7
143.5 $
(9.7)
(3.4)
130.4 $
123.8 $
11.5
(2.2)
0.7
133.8 $
(10.1)
(3.5)
120.2 $
10.0 $
0.9
(1.5)
—
9.4 $
0.4
0.1
9.9 $
0.3
0.1
(0.1)
—
0.3
—
—
0.3
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 2022, the expected long-term rate of return
is 3.44%.
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, 2021, we expect to contribute $5.8 million to our defined benefit plans during 2022.
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
$50.4 million, $42.2 million and $48.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.
(9)
STOCK-BASED COMPENSATION
During the years ended December 31, 2021, 2020 and 2019, we recognized $14.9 million, $15.1 million and $15.7 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 $1.5 million, $2.4 million and $0.3 million for the years ended December 31, 2021, 2020 and 2019,
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.
79
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
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.
During 2021, we granted restricted stock units and performance share units to certain employees and directors. All awards
were granted under the 2014 Plan. The performance share units are subject to certain performance and market conditions, in
addition to the service-based vesting conditions. During 2021, the Company withheld shares and used cash to settle certain
employees' tax obligation resulting from the vesting of awards in the amount of $1.5 million.
Stock Options
The Black-Scholes option pricing model was used to estimate fair values of the options as of the date of the grant. There were
no options granted during 2020 or 2021. The weighted average fair value of options granted in 2019 was $6.98 per share. A
majority of these awards vest ratably over three years. Principal weighted average assumptions used in applying the Black-
Scholes model were as follows:
Expected Term
Volatility
Dividend Yield
Discount Rate
2019 Grants
6.0 years
20.25 %
—
2.47 %
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, 2021 is presented below:
Stock Options
Outstanding at January 1, 2021
Granted
Exercised
Forfeited
Outstanding at December 31, 2021
Vested and expected to vest at
December 31, 2021
Exercisable at December 31, 2021
Awards
(in millions)
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
(in millions)
Weighted
Average
Remaining
Contractual
Life (years)
2.5 $
— $
(0.6) $
(0.5) $
1.4 $
1.4 $
1.2 $
27.34
—
27.12
30.55
26.30
26.30 $
26.23 $
9.5
8.5
5.2
5.0
Cash received by the Company upon exercise of options in 2021 was $15.9 million. Tax shortfall expenses on these exercises
were $0.4 million. For the years ended December 31, 2021, 2020 and 2019, the intrinsic value of options exercised was $2.5
million, $4.3 million and $56.6 million, respectively.
The fair value of options vested during 2021, 2020 and 2019 was $1.9 million, $3.2 million and $5.4 million, respectively.
At December 31, 2021, there was $0.1 million of unrecognized expense relating to unvested stock options that is expected to
be amortized over the weighted average period of 0.3 years.
80
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Restricted Stock Awards and Restricted Stock Units
During the year ended December 31, 2021, we issued 0.7 million restricted stock units. A majority of these awards vest
ratably over three years.
A summary of restricted stock and restricted stock unit award activity as of and for the year ended December 31, 2021 is
presented below:
Restricted Stock Awards and Restricted Stock Units (1)
Outstanding at January 1, 2021
Granted
Vested
Forfeited
Outstanding at December 31, 2021
Awards/Units
(in millions)
Weighted-Average
Fair Value
1.0 $
0.7 $
(0.5) $
(0.1) $
1.1 $
28.84
28.95
28.99
28.58
28.85
(1) As of December 31, 2021, there are no restricted stock awards outstanding and only restricted stock units remain.
At December 31, 2021, there was $12.9 million of unamortized expense relating to unvested 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 2021, 2020 and 2019 was $13.5 million, $14.7 million and $19.7 million,
respectively. The total fair value of awards vested during 2021, 2020 and 2019 was $13.6 million, $15.8 million and $20.9
million, respectively. No excess tax benefits or shortfall expenses were recorded related to these exercises.
Performance Stock Awards and Performance Share Units
During the years ended December 31, 2021, 2020 and 2019, the Company granted performance share units ("PSUs") to
certain employees of the Company as part of their annual equity compensation award. During the years prior to December 31,
2019, the Company granted performance share awards and performance share units (collectively referred to as "PSAs").
PSUs granted in 2019, 2020 and 2021 are subject to the same service conditions, but also include performance conditions
related to internal profitability and return on invested capital metrics over a cumulative performance period of three years, as
well as three individual one-year performance periods. At the end of the three-year performance period, the number of PSUs
earned based on performance relative to the profitability and invested capital metrics are subject to a market condition in the
form of a positive or negative total shareholder return modifier relative to the S&P 500 for 2019 grants and the S&P 400
Materials Index for 2020 and 2021 grants, over the same three-year performance period. The actual number of shares
awarded will be between zero and 200% of the target award amount.
A summary of PSA and PSU activity as of and for the year ended December 31, 2021 is presented below:
Performance Stock Awards and Performance Share Units
(1)
Awards
(in millions)
Weighted-Average
Fair Value
Outstanding at January 1, 2021
Granted
Vested
Forfeited
Outstanding at December 31, 2021
0.5 $
0.4 $
— $
(0.1) $
0.8 $
31.07
29.53
—
31.79
30.10
(1) As of December 31, 2021, there are no performance stock awards outstanding and only performance share units remain.
Our performance stock awards and performance share units allow for participants to vest in more or less than the targeted
number of shares granted. All of our performance awards are currently performing below the applicable targets. We currently
expect a total of 0.2 million shares with a weighted average fair value per share of $29.61 to vest at the respective vesting
dates for such awards. At December 31, 2021, there was $4.1 million of unamortized expense relating to unvested
performance share units that is expected to be amortized over a weighted average period of 2.1 years. The forfeitures include
performance share units that vested below threshold payout.
81
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(10)
OTHER (INCOME) EXPENSE, NET
Foreign exchange losses, net
Debt extinguishment and refinancing related costs (1)
Other miscellaneous income, net (2)
Total
Year Ended December 31,
2021
2020
2019
$
$
2.9 $
0.2
(15.4)
(12.3) $
7.2 $
34.4
(8.2)
33.4 $
8.3
0.2
(12.9)
(4.4)
(1) Debt extinguishment and refinancing related costs include third-party fees incurred, redemption premiums 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 our long-term borrowings, as discussed further in Note 18.
(2) Activity during the year ended December 31, 2021 includes income of $8.3 million related to a law change with respect to certain Brazilian
indirect taxes.
(11)
INCOME TAXES
On January 1, 2020, we completed an intra-entity transfer of certain intellectual property rights (the "IP") to our Swiss
subsidiary, where our EMEA regional headquarters is located. The transfer of the IP did not result in a taxable gain; however,
it did result in step-up of the Swiss tax-deductible basis in the transferred assets, and accordingly, created a temporary
difference between the book basis and the tax basis of the IP, which was transferred at fair value. We applied significant
judgment when determining the fair value of the IP, which serves as the tax basis of the deferred tax asset. Consequently, this
transaction resulted in the recognition of a deferred tax asset at the applicable Swiss tax rate, resulting in a one-time tax
benefit of $50.5 million. The Company expects to be able to realize the deferred tax assets resulting from these intra-entity
asset transfers.
The Company's operations in Switzerland are subject to reduced tax rates through December 31, 2026, as long as certain
conditions are met. The tax benefit and the tax effect on diluted net income per common share attributable to this tax holiday
was $2.1 million and $0.01, respectively, for the year ended December 31, 2021. Due to a pre-tax loss and the step-up of tax-
deductible IP noted above in our Swiss subsidiary, the reduced tax rate holiday in Switzerland had an unfavorable impact in
2020 and 2019. The tax expense attributable to this tax holiday was $13.2 million and $0.7 million for the years ended
December 31, 2020 and 2019, respectively. The tax effect of the tax holiday on diluted net income per common share was
$0.06 and $0.01 for the years ended December 31, 2020 and 2019, respectively.
Domestic and Foreign Components of Income Before Income Taxes
Domestic
Foreign
Total
Provision (Benefit) for Income Taxes
Year Ended December 31,
2021
2020
2019
$
$
173.3 $
85.4 $
167.2
36.8
340.5 $
122.2 $
223.4
106.6
330.0
Year Ended December 31, 2021
Year Ended December 31, 2020
Year Ended December 31, 2019
U.S. federal
U.S. state and local
Foreign
Total
Total
Current
Deferred
Current
$ 14.6 $ 18.1 $ 32.7 $
1.4
(4.5)
5.7
37.7
$ 61.1 $ 15.0 $ 76.1 $ 55.6 $ (55.4) $
1.8 $
6.0
47.8
Total
9.9 $ 11.7 $
(1.9)
(63.4)
4.1
(15.6)
4.3
42.2
Deferred
8.3 $ 27.1 $ 35.4
(3.9)
(9.2)
5.3
45.9
(2.2)
48.1
0.2 $ 61.7 $ 15.7 $ 77.4
Deferred
Total
Current
82
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Reconciliation to U.S. Statutory Rate
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 (2)
Foreign taxes
Non-deductible expenses
Tax credits
Excess tax (benefits)/shortfalls relating to stock-based
compensation
Base erosion and anti-tax abuse tax
U.S. state and local taxes, net
Intra-entity IP transfer step-up (3)
Other - net (4)
Total income tax provision / effective tax rate
Year Ended December 31,
2021
2020
2019
$
71.5
21.0 % $
25.7
21.0 % $
69.3
21.0 %
(16.9)
(5.0)
(13.9)
(11.3)
18.1
2.2
5.3
0.6
(4.9)
(1.4)
8.7
5.7
2.5
1.7
10.0
8.2
54.9
7.0
4.6
8.2
6.7
44.9
5.7
3.7
(16.3)
18.8
(2.8)
11.2
21.4
4.1
(4.9)
5.7
(0.8)
3.4
6.5
1.3
(6.7)
(2.0)
(5.3)
(4.3)
(3.9)
(1.2)
0.4
—
5.0
—
0.1
—
1.5
—
(0.3)
(0.2)
(11.4)
—
2.8
(50.8)
—
2.3
(41.6)
4.3
6.6
—
(3.5)
1.3
2.0
—
(7.0)
(1.9)
(42.7)
(34.9)
(23.9)
(7.3)
$
76.1
22.4 % $
0.2
0.2 % $
77.4
23.5 %
(1) The U.S. statutory rate has been used as management believes it is more meaningful to the Company.
(2)
In 2020, we recorded charges of $14.3 million in connection with the income tax audit in Germany and $27.3 million in the
Netherlands related to realized exchange gain. The Netherlands item is fully offset by a tax benefit of $27.3 million recorded in 2020
to adjust to the prior year tax filing position.
(3) Related to the step-up of tax deductible basis upon transfer of certain intellectual property rights to our Swiss subsidiary.
In 2021, the Company recorded a tax benefit of $2.9 million in the Netherlands, which is fully offset by a tax expense of
(4)
$2.9 million for an increase to the valuation allowance. In 2020, the Company recorded a tax benefit of $41.8 million in the
Netherlands, of which $27.3 million is related to realized exchange gain and $14.5 million related to rate change on deferred taxes,
which are both fully offset by a tax expense of $27.3 million for the increase to unrecognized tax benefits and $14.5 million for an
increase to the valuation allowance, respectively. In 2019, the Company recorded a tax benefit of $24.9 million in Luxembourg
related to a local statutory impairment, which is fully offset by a tax expense of $24.9 million for the increase to the valuation
allowance.
83
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Deferred Tax Balances
Deferred tax asset
Tax loss, credit and interest carryforwards
Goodwill and intangibles
Compensation and employee benefits
Accruals and other reserves
Research and development capitalization
Equity investment and other securities
Leases
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
Accounts Receivable & Other Assets
Total deferred tax liabilities
Net deferred tax asset
Non-current assets
Non-current liability
Net deferred tax asset
Year Ended December 31,
2021
2020
$
$
$
$
256.4 $
—
65.0
42.2
16.4
29.6
42.9
1.8
454.3
(210.9)
243.4
(70.1)
(148.5)
(10.6)
(7.4)
(236.6)
6.8 $
181.5 $
(174.7)
6.8 $
259.2
12.0
90.4
18.0
19.4
33.4
42.5
5.9
480.8
(208.1)
272.7
—
(156.0)
(7.1)
—
(163.1)
109.6
223.6
(114.0)
109.6
The December 31, 2020 balances for Leases and Property, plant and equipment in the table above were each increased by
$22.5 million compared to the previously disclosed amounts to appropriately reflect the gross deferred tax balances related to
our operating and finance leases.
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,
2021
2020
$
23.0 $
172.1
0.6
9.2
2.0
49.5
$
256.4 $
78.7
115.8
1.6
17.3
2.9
42.9
259.2
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.
84
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Valuation allowance
Non-U.S.
U.S.
Total valuation allowance
Year Ended December 31,
2021
2020
$
$
207.4 $
3.5
210.9 $
205.0
3.1
208.1
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 $173.6 million and $176.2 million at December 31, 2021 and 2020,
respectively. The U.S. valuation allowance relates to state net deferred tax assets.
Total Gross Unrecognized Tax Benefits
Year Ended December 31,
2021
2020
2019
Total gross unrecognized tax benefits at January 1
Increases related to acquisitions
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
Settlement of uncertain tax positions with tax authorities
Decrease due to expiration of statues of limitations
Total gross unrecognized tax benefits at December 31
Total accrual for interest and penalties associated with unrecognized tax benefits (1)
Total gross unrecognized tax benefits at December 31, including interest and penalties
$ 99.6 $ 45.3 $ 37.0
—
1.8
—
2.3
50.9
(16.5)
3.9
0.4
—
3.7
—
(0.1)
(0.3)
91.4
8.7
99.6
10.9
3.9
(1.0)
5.5
(0.1)
—
45.3
5.0
$ 100.1 $ 110.5 $ 50.3
Total unrecognized tax benefits that, if recognized, would impact the effective tax rate
Interest and penalties included as components of the Provision for income taxes
$ 44.5 $ 57.6 $ 31.7
$
(3.4) $
5.9 $
1.9
(1) Accrued interest and penalties are included within the related tax liability line in the balance sheet.
The Company is subject to income tax in approximately 46 jurisdictions outside the U.S. The Company's significant
operations outside the U.S. are located in Brazil, China, Germany, Mexico and Switzerland. The statute of limitations varies
by jurisdiction with 2011 being the oldest tax year still open in the material jurisdictions. Certain of our German subsidiaries
are under tax examination for calendar years 2014 to 2017. The Company is also under audit in other jurisdictions outside of
Germany. 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.
In connection with the income tax audit in Germany for the tax period 2010-2013, the Germany Tax Authority ("GTA")
indicated that it believed that certain positions taken on the 2010-2013 corporate income tax returns were not in compliance
with German tax law. While the Company disagreed with the conclusions of the GTA based on the technical merits of our
positions, after extensive discussions with the GTA and to avoid a potentially long and costly litigation process, in March
2020 the Company expressed a willingness to settle with the GTA on certain matters. As a result of these changes, the
Company recorded a charge to income tax expense of $14.3 million in 2020. A final agreement with the GTA was signed in
2021 and the Company is awaiting final assessments. The Company is also currently under audit in Germany for tax years
2014-2017 and is prepared to vigorously defend itself on these matters.
The Company anticipates that it is reasonably possible it will settle up to $12.8 million, exclusive of interest and penalties, of
its current unrecognized tax benefits within 2022 mainly due to the conclusion of the 2010-2013 German income tax audit.
85
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(12)
NET INCOME PER COMMON SHARE
Basic net income per common share excludes the dilutive impact of potentially dilutive securities and is computed by
dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per
common share includes the effect of potential dilution from the hypothetical exercise of outstanding stock options and vesting
of restricted stock awards, restricted stock units, performance stock awards and performance share units. 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,
2021
2020
2019
$
263.9 $
121.6 $
231.0
231.9
235.2
236.0
$
$
1.14 $
1.14 $
0.52 $
0.52 $
249.0
233.9
235.8
1.06
1.06
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, 2021, 2020 and 2019 were 0.7 million, 2.7 million and 2.6 million, respectively.
(13)
ACCOUNTS AND NOTES RECEIVABLE, NET
Trade accounts receivable are stated at the amount we expect to collect. We maintain allowances for doubtful accounts for
estimated losses by applying historical loss percentages, combined with reasonable and supportable forecasts of future losses,
to respective aging categories. Management considers the following factors in developing its current estimate of expected
credit losses: customer credit-worthiness, past transaction history with the customer, current economic industry trends,
changes in market or regulatory matters, and changes in customer payment terms, including the impacts from COVID-19.
Accounts receivable—trade, net (1)
Notes receivable
Other (2)
Total
Year Ended December 31,
2021
2020
$
760.4 $
24.7
152.4
$
937.5 $
738.3
30.3
101.2
869.8
(1) Allowance for doubtful accounts was $22.0 million and $26.5 million at December 31, 2021 and 2020, respectively.
(2)
Includes $52.7 million at December 31, 2021 of insurance recoveries related to an operational matter discussed further in
Note 6.
Bad debt expense of $1.7 million, $11.7 million and $5.5 million was included within selling, general and administrative
expenses for the years ended December 31, 2021, 2020 and 2019, respectively.
(14)
INVENTORIES
Finished products
Semi-finished products
Raw materials
Stores and supplies
Total
Year Ended December 31,
2021
2020
$
$
355.9 $
109.7
180.8
23.3
669.7 $
319.3
92.2
127.2
21.2
559.9
Inventory reserves were $15.6 million and $17.0 million at December 31, 2021 and 2020, respectively.
86
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(15) 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
Useful Lives
(years)
5
3
5
3
-
-
-
-
25
25
15
20
Year Ended December 31,
2021
2020
$
$
77.6 $
515.0
1,341.8
185.3
73.8
105.9
2,299.4
(1,113.2)
1,186.2 $
81.5
545.1
1,376.6
119.9
72.6
122.2
2,317.9
(1,123.4)
1,194.5
Depreciation expense amounted to $127.7 million, $137.2 million and $169.9 million for the years ended December 31,
2021, 2020 and 2019, respectively.
We capitalized interest of $2.2 million, $2.0 million and $2.0 million for the years ended December 31, 2021, 2020 and 2019,
respectively.
During May 2021, approximately $55.0 million of capitalized project costs related to an enterprise resource planning system,
previously classified as construction in progress, were placed in service and depreciation was initiated. The majority of the
costs will be depreciated over a 15-year useful life and is classified as software in the table above.
(16)
OTHER ASSETS
Deferred income taxes—non-current
Business incentive payment assets
Operating lease ROU assets
Other assets (1)
Total
Year Ended December 31,
2021
2020
$
$
181.5 $
151.2
104.2
147.6
584.5 $
223.6
165.4
101.3
102.8
593.1
(1)
Includes other upfront incentives made in conjunction with long-term customer commitments of $60.1 million and $66.1 million at
December 31, 2021 and 2020, respectively, which will be repaid in future periods.
87
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(17)
ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES
Accounts Payable
Trade payables (1)
Non-income taxes
Other
Total
Other Accrued Liabilities
Compensation and other employee-related costs
Restructuring—current
Discounts, rebates, and warranties (2)
Operating lease liabilities
Income taxes payable
Other
Total
Year Ended December 31,
2021
2020
$
$
$
$
610.9 $
22.6
23.9
657.4 $
179.6 $
39.8
199.1
27.2
30.8
121.3
597.8 $
513.4
26.1
24.9
564.4
204.2
46.2
136.3
28.8
30.3
116.5
562.3
(1)
(2)
Includes $33.0 million and $29.9 million at December 31, 2021 and 2020, respectively, payable to banking institutions as part of
our supplier financing programs.
Includes $49.7 million at December 31, 2021 of liabilities related to an operational matter discussed further in
Note 6.
(18)
BORROWINGS
2024 Dollar Term Loans
2025 Euro Senior Notes
2027 Dollar Senior Notes
2029 Dollar Senior Notes
Short-term and other borrowings
Unamortized original issue discount
Unamortized deferred financing costs
Total borrowings, net
Less:
Short-term borrowings
Current portion of long-term borrowings
Long-term debt
Senior Secured Credit Facilities, as amended
Year Ended December 31,
2021
2020
$
2,038.9 $
508.8
500.0
700.0
113.8
(4.6)
(27.3)
3,829.6
2,063.2
552.1
500.0
700.0
118.0
(6.3)
(34.3)
3,892.7
55.4
24.3
3,749.9 $
29.9
24.3
3,838.5
$
The Senior Secured Credit Facilities consist of the 2024 Term Loan and a revolving credit facility (the "Revolving Credit
Facility") that is governed by a credit agreement (the "Credit Agreement"). The Credit Agreement has undergone several
amendments, the most recent of which are detailed within the discussion below. For additional detail regarding earlier
amendments, refer to the previous Annual Reports on Form 10-K filed under the SEC.
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 (as defined within the Credit Agreement).
88
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
The Senior Secured Credit Facilities are secured by substantially all assets of the Company and the other guarantors. 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, 2021, the Company is in compliance with all covenants under the Senior Secured Credit Facilities.
i) 2024 Dollar Term Loans
The 2024 Dollar Term Loans were issued at 99.875% of par, or a $2.5 million discount, and 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, and interest is payable quarterly.
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.
The 2024 Dollar Term Loans bear interest at variable rates, including LIBOR, which is the subject of recent reform and will
cease being published in June 2023. We intend to amend or refinance the 2024 Dollar Term Loans ahead of June 2023, and
expect LIBOR language to be replaced by the Federal Reserve's Secured Overnight Financing Rate ("SOFR") along with a
subsequent credit spread adjustment which will be defined with the amended or refinanced terms. If we are unable to
refinance the 2024 Dollar Term Loans ahead of June 2023, the balance will be subject to the Base Rate Loans interest.
ii) Revolving Credit Facility
The Revolving Credit Facility matures on the earlier of March 2, 2024, the date of termination in whole of the Revolving
Credit Facility, or the date that is 91 days prior to the maturity of the Term Loans borrowed under the Credit Agreement.
Under circumstances described in the Credit Agreement, we may increase available revolving or term facility borrowings by
up to $700.0 million plus an additional amount subject to the Company not exceeding a maximum first lien leverage ratio
described in the Credit Agreement. The financial covenant applicable to the Revolving Credit Facility is only applicable
when greater than 30% 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.
Interest on any outstanding borrowings under the Revolving Credit Facility is subject to an interest margin of 1.50% for loans
based on the Adjusted Eurocurrency Rate and 0.50% for loans based on the Base Rate with, in each case, a 0.25% increase
when its First Lien Net Leverage Ratio is greater than or equal to 1.25:1.00 but less than or equal to 2.25:1.00 and another
0.25% increase when its First Lien Net Leverage Ratio is greater than 2.25:1.00.
There have been no borrowings on the Revolving Credit Facility since the issuance of the Senior Secured Credit Facilities. At
December 31, 2021 and December 31, 2020, letters of credit issued under the Revolving Credit Facility totaled $22.1 million
and $34.0 million, respectively, which reduced the availability under the Revolving Credit Facility. Availability under the
Revolving Credit Facility was $527.9 million and $366.0 million at December 31, 2021 and December 31, 2020,
respectively. At December 31, 2021, the financial covenant is not applicable as there were no borrowings.
2021 Activities
During May 2021, we entered into the Tenth Amendment to the Credit Agreement (the "Tenth Amendment") to, among other
things, increase commitments available pursuant to the Revolving Credit Facility from $400.0 million to $550.0 million and
extend the maturity of the Revolving Credit Facility from 2024 to 2026, provided that such date will be accelerated in certain
circumstances as set forth in the Tenth Amendment. As a result, we recorded $1.4 million of incremental deferred financing
costs.
2020 Activities
During November 2020, the Company entered into the Ninth Amendment to the Credit Facility Agreement (the "Ninth
Amendment"). The Ninth Amendment amended the Credit Agreement to, among other things, permit any entity that is a
successor by merger, conversion, legal continuation, continuation to a foreign jurisdiction or otherwise to the Parent
Borrower (as defined in the Credit Agreement), to assume the obligations of Parent Borrower under the Credit Agreement
and certain related agreements under the Senior Secured Credit Facilities, subject to the terms and conditions of the Ninth
Amendment as well as the Credit Agreement. In connection with the Ninth Amendment we incurred $1.5 million in fees, of
which $1.1 million was capitalized as deferred financing costs and $0.4 million was expensed.
During January 2020, we voluntarily prepaid $300.0 million of the outstanding principal on the 2024 Dollar Term Loans. As
a result of the prepayment, we recorded a loss on extinguishment of debt of $2.7 million consisting of the write off of
unamortized deferred financing costs and original issue discounts of $1.5 million and $1.2 million, respectively.
89
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
2019 Activities
During June 2019, Dutch B B.V. and Axalta US Holdings executed the eighth amendment to the Credit Agreement (the
"Eighth Amendment") which impacted the Revolving Credit Facility by (i) extending the maturity date to the earlier of
March 2, 2024, the date of termination in whole of the Revolving Credit Facility, or the date that is 91 days prior to the
maturity of the term loans borrowed under the Credit Agreement, and (ii) reducing the applicable interest margins on any
outstanding borrowings. In connection with the Eighth Amendment, we recorded $1.8 million of incremental deferred
financing costs directly associated with the modification of the Revolving Credit Facility.
Senior Notes, as amended
The Senior Notes presently consist of the 2025 Euro Senior Notes, 2027 Dollar Senior Notes and 2029 Dollar Senior Notes
each of which are governed by indentures (collectively, the "Indentures"). Since inception, we have held various senior notes
that have been subject to several supplemental Indentures, the most recent of which are detailed within the discussion below.
For additional detail regarding earlier activities and terms, refer to the previous Annual Reports on the Form 10-K filed under
the SEC.
i) 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% which is 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
2021
2022
2023 and thereafter
2025 Euro Senior
Notes Percentage
101.875 %
100.938 %
100.000 %
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.
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 existing and future direct and indirect subsidiaries that is a borrower under or that guarantees
the Senior Secured Credit Facilities, other than Axalta Coating Systems Dutch Holdings B.B.V. (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.
90
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
ii) 2027 Dollar Senior Notes
The 2027 Dollar Senior Notes were issued at par and are due June 15, 2027. We deferred debt issuance costs of $8.3 million,
which are recorded as reductions to long-term borrowings in the consolidated balance sheets and amortized over the life of
the issuance. The 2027 Dollar Senior Notes bear interest at 4.750% which is payable semi-annually on June 15th and
December 15th. We have the option to redeem all or part of the 2027 Dollar Senior Notes at the following redemption prices
(expressed as percentages of principal amount), plus accrued and unpaid interest, if any, on or after June 15th of the years
indicated:
Period
2023
2024
2025 and thereafter
2027
Dollar Senior
Notes Percentage
102.375 %
101.188 %
100.000 %
Notwithstanding the foregoing, at any time and from time to time prior to June 15, 2023, we may at our option redeem in the
aggregate up to 40% of the original aggregate principal amount of the 2027 Dollar Senior Notes with the net cash proceeds of
one or more Equity Offerings (as defined in the indenture governing the 2027 Dollar Senior Notes) at a redemption price of
104.75% 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 2027 Dollar Senior Notes have the right
to require us to repurchase all or any part of the 2027 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 indebtedness through the 2027 Dollar Senior Notes is senior unsecured indebtedness of the Axalta Coatings Systems,
LLC (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 2027 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.
The 2027 Dollar Senior Notes are fully and unconditionally guaranteed by the Company and each of the Company's existing
restricted subsidiaries, subject to certain exceptions.
The indenture governing the 2027 Dollar Senior Notes contains covenants that limit the Company's (and its subsidiaries')
ability to, among other things: (i) incur additional debt or issue certain preferred stock; (ii) pay dividends, redeem stock or
make other distributions; (iii) make other restricted payments or investments; (iv) create liens on assets; (v) transfer or sell
assets; (vi) create restrictions on payment of dividends or other amounts by the Company to the Company's restricted
subsidiaries; (vii) engage in mergers or consolidations; (viii) engage in certain transactions with affiliates; and (ix) designate
the Company's subsidiaries as unrestricted subsidiaries.
iii) 2029 Dollar Senior Notes
The 2029 Dollar Senior Notes were issued at par and are due February 15, 2029. The 2029 Dollar Senior Notes bear interest
at 3.375% which is payable semi-annually on February 15th and August 15th. We have the option to redeem all or part of the
2029 Dollar Senior Notes at the following redemption prices (expressed as percentages of principal amount) on or after
February 15th of the years indicated:
Period
2024
2025
2026 and thereafter
2029
Dollar Senior
Notes Percentage
101.688 %
100.844 %
100.000 %
Notwithstanding the foregoing, at any time prior to February 15, 2024, we may at our option redeem in the aggregate up to
40% of the original aggregate principal amount of the 2029 Dollar Senior Notes with the net cash proceeds of one or more
Equity Offerings (as defined in the indenture governing the 2029 Dollar Senior Notes) at a redemption price of 103.375%
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.
91
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Upon the occurrence of certain events constituting a change of control, holders of the 2029 Dollar Senior Notes have the right
to require us to repurchase all or any part of the 2029 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 2029 Dollar Senior Notes, subject to local law limitations, are jointly and severally guaranteed on a senior unsecured
basis by the Company and each of its 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 through the 2029 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 2029 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.
2021 Activities
None.
2020 Activities
During June 2020, the Issuers issued $500.0 million in aggregate principal amount of 4.750% Senior Notes due 2027.
In November 2020, the Company issued $700.0 million in aggregate principal amount of 3.375% Senior Notes due 2029. The
net proceeds from the 2029 Dollar Senior Notes, together with cash on hand were used to redeem the $500.0 million
aggregate principal amount of the 4.875% 2024 Dollar Senior Notes and the €335.0 million aggregate principal amount of the
4.25% 2024 Euro Senior Notes and pay related transaction costs and expenses ("November 2020 Restructuring").
In connection with the November 2020 Restructuring, we recorded a $31.4 million loss on extinguishment and other
financing-related costs for the year ended December 31, 2020. The loss was comprised of the redemption premium of
$20.6 million, write off of unamortized deferred financing costs attributable to the 2024 Senior Notes of $9.8 million and
other fees directly associated with the transaction of $1.0 million.
2019 Activities
None.
92
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Supplier financing arrangements
We have a financing program in China which is utilized to finance the purchases of goods and services from our suppliers
through local banking institutions. The payment terms under the financing program vary, but the program has a weighted
average maturity date that approximates 90 days. These financing arrangements are included in current portion of borrowings
within the consolidated balance sheets and at the time of issuance each transaction is treated as a non-cash financing activity
within the consolidated statements of cash flows. Upon settlement of the financing, the cash outflow is classified as a
financing activity within the consolidated statements of cash flows. Amounts outstanding under this program were
$24.0 million, $16.5 million and $10.9 million at December 31, 2021, 2020 and 2019, respectively, including $3.8 million,
$4.7 million and $1.3 million, respectively, related to purchases of property, plant and equipment. Cash outflows under this
program were $63.8 million, $33.2 million and $39.0 million for the years ended December 31, 2021, 2020 and 2019,
respectively.
Future repayments
Below is a schedule of required future repayments of all borrowings outstanding at December 31, 2021.
2022
2023
2024
2025
2026
Thereafter
Total borrowings
Unamortized original issue discount
Unamortized deferred financing costs
Total borrowings, net
$
$
$
79.7
26.1
1,993.4
512.1
3.6
1,246.6
3,861.5
(4.6)
(27.3)
3,829.6
(19)
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 (income) expense, net. The fair values of equity securities are based upon
quoted market prices, which are considered Level 1 inputs.
Long-term borrowings - The estimated fair values of these borrowings are based on recent trades, as reported by a third-party
pricing service. Due to the infrequency of trades, these inputs are considered to be Level 2 inputs.
Derivative instruments - The Company's interest rate 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 included in the Level 2 hierarchy.
Fair value of contingent consideration
The fair value of contingent consideration associated with an acquisition completed in the current year is valued at each
balance sheet date, until amounts become payable, with adjustments recorded in other (income) expense within other
operating charges in the consolidated statements of operations. During the year ended December 31, 2021, in conjunction
with the acquisition in China described in Note 3, we recorded fair value of contingent consideration of $7.8 million,
including $0.5 million of accretion for the passage of time and currency translation. The contingent consideration was valued
using a probability-weighted expected payment method. The analysis considered the timing of expected future cash flows and
the probability of whether key elements of the contingent event are completed. Due to the significant unobservable inputs
used in the valuations, these liabilities are categorized within Level 3 of the fair value hierarchy.
93
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, 2021 and December 31, 2020.
December 31, 2021
December 31, 2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Prepaid expenses and other current assets:
Cross-currency swaps (2)
Other assets:
Cross-currency swaps (2)
Investments in equity securities
Liabilities
Other accrued liabilities:
Interest rate caps (1)
Interest rate swaps (1)
Contingent consideration
Other liabilities:
Interest rate swaps (1)
Cross-currency swaps (2)
Long-term borrowings:
2024 Dollar Term Loans
2025 Euro Senior Notes
2027 Dollar Senior Notes
2029 Dollar Senior Notes
(1) Cash flow hedge
(2) Net investment hedge
$ — $ 17.7 $ — $ 17.7 $ — $ 16.7 $ — $ 16.7
—
0.7
8.3
—
—
—
—
—
—
—
—
—
—
—
24.3
—
1.9
—
2,038.5
513.7
522.9
679.5
—
—
—
—
7.8
—
—
—
—
—
—
8.3
0.7
—
0.8
—
—
—
24.3
7.8
1.9
—
2,038.5
513.7
522.9
679.5
—
—
—
—
—
—
—
—
—
2.0
28.9
—
31.1
52.0
2,043.0
564.3
533.1
704.6
—
—
—
—
—
—
—
—
—
—
—
—
0.8
2.0
28.9
—
31.1
52.0
2,043.0
564.3
533.1
704.6
The table below presents a roll forward of activity for the Level 3 liabilities for the year ended December 31, 2021.
Beginning balance January 1, 2021
Business acquisition
Change in fair value
Ending balance at December 31, 2021
Derivative Financial Instruments
Fair Value Using Significant
Unobservable Inputs
(Level 3)
$
$
—
7.3
0.5
7.8
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.
Certain derivative instruments in use are contingent upon changes in LIBOR, which is the subject of recent reform and will
cease being published in June 2023. The derivative instruments under LIBOR terms that we are currently party to will either
mature before June 2023 or the agreements contain transitional language to a different reference rate.
94
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
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. The final interest rate
cap entered into during 2017, comprising $250.0 million of notional value, expired December 31, 2021 and had a deferred
premium of $8.1 million at inception. All deferred premiums were paid quarterly over the term of the respective interest rate
caps. These interest rate caps were marked to market at each reporting date and any unrealized gains or losses were included
in AOCI and reclassified to interest expense in the same period or periods during which the hedged transactions affected
earnings.
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 2024 Dollar Term
Loans. 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.
During the three months ended March 31, 2019, we entered into two interest rate swaps with aggregate notional amounts
totaling $500.0 million, effective December 31, 2019, to hedge interest rate exposure associated with the 2024 Dollar Term
Loans. 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 2.59% 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 December 31, 2022. 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.
During the three months ended March 31, 2020, we entered into two interest rate swaps with aggregate notional amounts
totaling $400.0 million to hedge interest rate exposures associated with the 2024 Dollar Term Loans. 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 rates
of 1.61% and 1.18% on $200.0 million of notional value for each instrument, 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
December 31, 2022. 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 December 31, 2018, 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.
During the three months ended December 31, 2020, in connection with the issuance of the 2029 Dollar Senior Notes, we
entered into two fixed-for-fixed cross currency swaps with aggregate notional amounts totaling €335.0 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, the Company notionally exchanged $396.3 million at a weighted average interest rate of 3.375% for
€335.0 million at a weighted average interest rate of 2.15%. The cross-currency swaps are designated as net investment
hedges and expire on February 15, 2029. 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.
Foreign Currency Forward Contracts Designated as Cash Flow Hedges
During the year ended December 31, 2020, we designated foreign currency forward contracts with a notional value of
$8.3 million as cash flow hedges of the Company's exposure to variability in exchange rates on forecasted purchases of
inventory denominated in foreign currencies. These forward currency contracts were marked to market at each reporting date
and any unrealized gains or losses were included in AOCI and reclassified to cost of goods sold in the same period or periods
during which the hedged transactions affect earnings. These foreign currency forward contracts expired during the year ended
December 31, 2021.
95
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
The following table presents the fair values of derivative instruments that qualify and have been designated as cash flow and
net investment hedges included in AOCI:
AOCI:
Interest rate caps (cash flow hedges)
Interest rate swaps (cash flow hedges)
Foreign currency forward contracts (cash flow hedges)
Cross-currency swaps (net investment hedges)
Total AOCI
December 31,
2021
2020
$
— $
26.3
—
(26.0)
$
0.3 $
2.6
60.0
0.3
35.2
98.1
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, 2021, 2020 and
2019 for these cash flow and net investment hedges.
Year Ended December 31,
2021
2020
2019
Location of Loss (Gain)
Recognized in Income
on Derivatives
Interest expense, net
Interest expense, net
Cost of goods sold
Net Amount
of Gain
Recognized
in OCI on
Derivatives
$
Amount of
Loss (Gain)
Recognized
in Income
Net Amount
of Loss
Recognized
in OCI on
Derivatives
Amount of
Loss (Gain)
Recognized
in Income
Net Amount
of Loss
(Gain)
Recognized
in OCI on
Derivatives
Amount of
(Gain) Loss
Recognized
in Income
— $
2.6 $
1.2 $
2.1 $
6.2 $
(0.7)
(4.4)
—
29.3
0.3
49.4
0.3
18.8
—
27.5
—
1.3
—
Interest expense, net
(80.7)
(19.5)
42.6
(15.0)
(31.9)
(14.7)
Derivatives in Cash Flow
and Net Investment
Hedges
Interest rate caps
Interest rate swaps
Foreign currency
forward contracts
Cross-currency
swaps
Over the next 12 months, we expect losses of $24.4 million pertaining to cash flow hedges to be reclassified from AOCI into
earnings, related to our interest rate swaps.
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 July 2021, we entered into two foreign currency forward contracts with a total notional value of £259.1 million to
hedge the variability in exchange rates between the execution date of the agreement to purchase U-POL and the closing of the
transaction. The contracts were settled in September 2021, and we realized a loss of $0.6 million within other (income)
expense, net in the consolidated statement of operations.
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
Location of (Gain) Loss
Recognized in Income on
Derivatives
Year Ended December 31,
2021
2020
2019
Foreign currency forward contracts
Other (income) expense, net
$
(7.3) $
3.3 $
2.8
96
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(20)
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 Mobility Coatings.
Previously named Transportation Coatings, our Mobility Coatings segment was renamed in 2021 with no changes to the
underlying business or segment structure. 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 Mobility Coatings segment, we provide coatings technologies while focusing on supporting the accelerating
demand for e-mobility and the evolving coatings needs of established and emerging light and commercial vehicle OEMs,
fleet owners and shared mobility providers. These global customers are faced with evolving megatrends in sustainability,
personalization and autonomous driving that require a high level of technical support coupled with productive,
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.
Adjusted EBIT is the primary measure to evaluate financial performance of the operating segments and allocate resources.
Asset information is not reviewed or included with our internal management reporting. Therefore, the Company has not
disclosed asset information for each reportable segment. The following table presents relevant information of our reportable
segments.
Net sales (1):
Refinish
Industrial
Total Net sales Performance Coatings
Light Vehicle
Commercial Vehicle
Total Net sales Mobility Coatings
Total Net sales
Depreciation and amortization expense (2):
Performance Coatings
Mobility Coatings
Total Depreciation and amortization expense
Investment in unconsolidated affiliates:
Performance Coatings
Mobility Coatings
Total
97
Year Ended December 31,
2021
2020
2019
$
1,776.4 $
1,449.0 $
1,760.4
1,319.9
3,096.3
1,013.1
306.8
1,319.9
1,067.4
2,516.4
960.5
260.7
1,221.2
1,163.0
2,923.4
1,208.4
350.4
1,558.8
4,416.2 $
3,737.6 $
4,482.2
228.6 $
228.7 $
87.9
91.6
316.5 $
320.3 $
250.3
102.7
353.0
$
$
$
December 31,
2021
December 31,
2020
December 31,
2019
$
$
2.1 $
7.8
9.9 $
2.0 $
8.7
10.7 $
2.4
12.7
15.1
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
(1) The Company has no intercompany sales between segments.
(2) Depreciation and amortization expenses relating to assets used within the operations of a specifically identifiable segment are
recorded to the appropriate segment, while depreciation and amortization expenses relating to assets shared in our integrated
supply chain are allocated to the appropriate segments on a consistent basis reflecting their use.
98
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
The following table reconciles our segment operating performance to income before income taxes for the periods presented:
Segment Adjusted EBIT (1):
Performance Coatings
Mobility Coatings
Total (2)
Interest expense, net
Debt extinguishment and refinancing related costs (a)
Termination benefits and other employee related costs (b)
Strategic review and retention costs (c)
Acquisition and divestiture-related costs (d)
Impairment charges (e)
Pension special events (f)
Accelerated depreciation (g)
Indemnity (income) loss (h)
Operational matter (i)
Brazil indirect tax (j)
Gains on sales of facilities (k)
Income before income taxes
Year Ended December 31,
2021
2020
2019
$
479.4 $
38.7
518.1
134.2
0.2
36.9
9.7
16.9
0.8
0.4
2.5
(0.4)
4.4
(8.3)
(19.7)
344.3 $
82.9
427.2
149.9
34.4
74.9
30.7
0.3
5.7
(0.4)
9.2
0.3
—
—
—
449.1
137.4
586.5
162.6
0.2
35.2
13.4
4.4
17.7
(0.9)
24.3
(0.4)
—
—
—
$
340.5 $
122.2 $
330.0
(1) The primary measure of segment operating performance is Adjusted EBIT, which is defined as net income before interest, taxes and select other
items impacting operating results. These other items impacting operating results are items that management has concluded are (1) non-cash items
included within net income, (2) items the Company does not believe are indicative of ongoing operating performance or (3) non-recurring, 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
EBIT 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 Adjusted EBIT adjusted
for the select items referred to above.
(2) Does not represent Adjusted EBIT referenced elsewhere by the Company as there are additional adjustments that are not allocated to the segments.
(a) Represents expenses and associated changes to estimates related to the prepayment, restructuring and refinancing of our indebtedness, which are not
considered indicative of our ongoing operating performance.
(b) Represents expenses and associated changes to estimates related to employee termination benefits and other employee-related costs. Employee
termination benefits are primarily associated with Axalta Way initiatives. These amounts are not considered indicative of our ongoing operating
performance.
(c) Represents costs for legal, tax and other advisory fees pertaining to our review of strategic alternatives that was concluded in March 2020, as well as
retention awards for certain employees, which were earned over a period of 18-24 months ending in September 2021. These amounts are not
considered indicative of our ongoing performance.
(d) Represents acquisition and divestiture-related expenses and non-cash fair value inventory adjustments associated with our business combinations, all
of which are not considered indicative of our ongoing operating performance. The amount for the year ended December 31, 2021 includes
$1.0 million of due diligence costs associated with an unconsummated M&A transaction.
(e) Represents impairment charges, which are not considered indicative of our ongoing performance. The amount for the year ended December 31, 2021
includes a recovered gain on a previously impaired asset.
(f) Represents certain defined benefit pension costs associated with special events, including pension curtailments, settlements and special termination
benefits, which we do not consider indicative of our ongoing operating performance.
(g) Represents incremental depreciation expense resulting from truncated useful lives of the assets impacted by our manufacturing footprint assessments,
which we do not consider indicative of our ongoing operating performance.
(h) Represents indemnity (income) loss associated with acquisitions, which we do not consider indicative of our ongoing operating performance.
(i) Represents expenses, changes in estimates and insurance recoveries for probable liabilities related to an operational matter in the Mobility Coatings
segment discussed further in Note 6, which is not indicative of our ongoing operating performance.
(j) Represents non-recurring income related to a law change with respect to certain Brazilian indirect taxes which was recorded within other (income)
expense, net.
(k) Represents non-recurring income related to the sales of previously closed manufacturing facilities and a customer training facility.
99
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:
North America
EMEA
Asia Pacific
Latin America (1)
Total (2)
Net long-lived assets by region were as follows:
North America
EMEA
Asia Pacific
Latin America (1)
Total (3)
(1)
Includes Mexico
Year Ended December 31,
2021
1,722.9 $
1,618.7
671.1
403.5
4,416.2 $
2020
1,480.5 $
1,375.7
546.3
335.1
3,737.6 $
2019
1,795.1
1,577.2
653.5
456.4
4,482.2
$
$
Year Ended December 31,
2021
2020
$
498.2 $
376.6
220.9
90.5
485.5
406.4
202.6
100.0
$
1,186.2 $
1,194.5
(2) Net Sales are attributed to countries based on the customer's location. Sales to external customers in China represented
approximately 10%, 9% and 9% of the total for the years ended December 31, 2021, 2020 and 2019, respectively. Sales to external
customers in Germany represented approximately 7%, 8%, and 8% of the total for the years ended December 31, 2021, 2020 and
2019, respectively. Mexico represented 5%, 5%, and 6% of the total for the years ended December 31, 2021, 2020 and 2019,
respectively. Canada, which is included in the North America region, represents approximately 3%, 4%, and 4% of total net sales
for the years ended December 31, 2021, 2020 and 2019, respectively.
(3) Long-lived assets consist of property, plant and equipment, net. Germany long-lived assets amounted to approximately $214.9
million and $243.3 million at December 31, 2021 and 2020, respectively. China long-lived assets amounted to $188.4 million and
$167.3 million at December 31, 2021 and 2020, respectively. Brazil long-lived assets amounted to approximately $30.7 million
and $36.2 million at December 31, 2021 and 2020, respectively. Canada long-lived assets, which are included in the North
America region, amounted to approximately $17.9 million and $21.7 million at December 31, 2021 and 2020, respectively.
(21)
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance, December 31, 2020
Current year deferrals to AOCI
Reclassifications from AOCI to Net income
Net Change
Balance, December 31, 2021
Unrealized
Currency
Translation
Adjustments
Pension Plan
Adjustments
Unrealized
Gain (Loss) on
Derivatives
Accumulated
Other
Comprehensive
Loss
$
$
(282.0) $
(29.8)
(19.5)
(49.3)
(331.3) $
(88.7) $
24.5
3.8
28.3
(60.4) $
(54.1) $
3.8
27.6
31.4
(22.7) $
(424.8)
(1.5)
11.9
10.4
(414.4)
The cumulative income tax benefit related to the adjustments for pension benefits at December 31, 2021 was $24.8 million.
The cumulative income tax benefit related to the adjustments for unrealized loss on derivatives at December 31, 2021 was
$3.6 million. See Note 19 for classification within the consolidated statements of operations of the gains and losses on
derivatives reclassified from AOCI.
100
Notes to Consolidated Financial Statements
(In millions, unless otherwise noted)
Balance, December 31, 2019
Current year deferrals to AOCI
Reclassifications from AOCI to Net income
Net Change
Balance, December 31, 2020
Unrealized
Currency
Translation
Adjustments
Pension Plan
Adjustments
Unrealized
Gain (Loss) on
Derivatives
Accumulated
Other
Comprehensive
Loss
$
$
(297.0) $
30.0
(15.0)
15.0
(282.0) $
(69.9) $
(20.5)
1.7
(18.8)
(88.7) $
(28.6) $
(43.4)
17.9
(25.5)
(54.1) $
(395.5)
(33.9)
4.6
(29.3)
(424.8)
The cumulative income tax benefit related to the adjustments for pension benefits at December 31, 2020 was $33.5 million.
The cumulative income tax benefit related to the adjustments for unrealized loss on derivatives at December 31, 2020 was
$8.8 million. See Note 19 for classification within the consolidated statements of operations of the gains and losses on
derivatives reclassified from AOCI.
Balance, December 31, 2018
Current year deferrals to AOCI
Reclassifications from AOCI to Net income
Net Change
Balance, December 31, 2019
Unrealized
Currency
Translation
Adjustments
Pension Plan
Adjustments
Unrealized
Gain (Loss) on
Derivatives
Accumulated
Other
Comprehensive
Loss
$
(299.4) $
(36.4) $
(0.3) $
(336.1)
14.5
(12.1)
2.4
(33.2)
(0.3)
(33.5)
(28.8)
0.5
(28.3)
(47.5)
(11.9)
(59.4)
$
(297.0) $
(69.9) $
(28.6) $
(395.5)
The cumulative income tax benefit related to the adjustments for pension benefits at December 31, 2019 was $27.0 million.
The cumulative income tax benefit related to the adjustments for unrealized loss on derivatives at December 31, 2019 was
$4.3 million.
101
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, 2021.
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, 2021, 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.
We excluded U-POL Holdings Limited ("U-POL") from our assessment of internal control over financial reporting as of
December 31, 2021 because it was acquired by us in a purchase business combination in 2021. U-POL is a wholly-owned
subsidiary whose total assets and total revenues represent 1.4% and 0.9%, respectively, of the related consolidated financial
amounts as of and for the year ended December 31, 2021.
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, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
102
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 2022 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.
The executive officers of the Company are elected by the Board of Directors. The information required by this item
concerning the Company's executive officers is incorporated by reference herein from Part I of this report under the caption
"Information About Our Executive Officers."
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 "Delinquent Section 16(a) Reports", 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 Person 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.
103
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) The Company's 2021 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, 2021, 2020 and 2019
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)
2021
2020
2019
Balance at Beginning
of Year
Additions
Deductions (1)
Balance at End of
Year
$
$
$
26.5
16.0
15.4
1.7
11.7
5.5
(6.2) $
(1.2) $
(4.9) $
22.0
26.5
16.0
(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)
2021
2020
2019
Balance at Beginning
of Year
Additions (1)
Deductions (1)
Balance at End of
Year
$
$
$
208.1
178.3
159.0
21.9
30.0
44.9
(19.1) $
(0.2) $
(25.6) $
210.9
208.1
178.3
(1) Additions and deductions include charges to 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*
2.3*
2.4*
3.1*
3.2*
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)
Sale and Purchase Agreement related to U-POL Holdings Limited, dated as of July 6, 2021, by and between
the Institutional and Management Sellers and Axalta Coating Systems UK Holding Limited and Axalta
Coating Systems Ltd. (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 October 25, 2021)
Minority Sale and Purchase Agreement related to U-POL Holdings Limited, dated as of July 6, 2021, by
and between the Minority Sellers and Axalta Coating Systems UK Holding Limited and Axalta Coating
Systems Ltd. (incorporated by reference to Exhibit 2.2 to the Registrant’s Quarterly Report on Form 10-Q
(File No. 001-36733) filed with the SEC on October 25, 2021)
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)
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)
104
4.2*
4.3*
4.5*
4.6*
4.7*
4.8*
10.1*
10.2*
10.3*
10.4*
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
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)
Description of the Axalta Coating Systems Ltd.'s Securities Registered Pursuant to Section 12 of the
Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.6 to the Registrant's Annual Report
on Form 10-K (File No. 001-36733), filed with the SEC on February 19, 2020)
Indenture, dated as of June 15, 2020, by and among Axalta Coating Systems, LLC and Axalta Coating
Systems Dutch Holding B.B.V., as issuers, the guarantors named therein and Wilmington Trust, National
Association, as trustee (including the form of Note) (incorporated by reference to exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-Q (File No. 001-36733), filed with the SEC on June 15, 2020)
Indenture, dated as of November 24, 2020, by and among Axalta Coating Systems, LLC, as issuer, the
guarantors named therein and Wilmington Trust, National Association, as trustee (including the form of
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 November 24, 2020)
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)
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. 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)
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)
105
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
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)
Tenth Amendment to Credit Agreement, dated as of May 11, 2021, among Axalta Coating Systems Ltd.,
Axalta Coating Systems Dutch Holding B B.V., Axalta Coating Systems U.S. Holdings, Inc., Axalta
Coating Systems U.S., Inc., certain lenders party thereto and Barclays Bank PLC, as administrative agent
and collateral agent (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 12, 2021) (the conformed Credit Agreement attached
as Exhibit B to the Tenth Amendment reflects the inclusion of the amendment provisions of all ten
amendments to the Credit Agreement)
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)
106
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
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)
107
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
10.33*
10.34*
10.35*
10.36*
10.37*
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)
108
10.38*
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 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)
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)
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)
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 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, filed with the SEC on May 3, 2018)
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)
109
10.55*
10.56*
10.57*
10.58*
10.59*
21.1
23.1
31.1
31.2
32.1†
32.2†
101
101
101
101
101
101
104
*
†
Form of Performance Share Unit Agreement for U.S. Employees (incorporated by reference to Exhibit
10.58 to the Registrant's Quarterly Report on Form 10Q (File No. 001-36733) filed with the SEC on April
25, 2019)
Form of Performance Share Unit Agreement for Non - U.S. Employees (incorporated by reference to
Exhibit 10.59 to the Registrant's Quarterly Report on Form 10Q (File No. 001-36733) filed with the SEC
on April 25, 2019)
Axalta Coating Systems Ltd. Restrictive Covenant and Severance Policy (incorporated by reference to
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733) filed with the SEC on
April 26, 2021)
Form of Performance Share Unit Award Agreement for U.S. Employees (incorporated by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733) filed with the SEC on
April 26, 2021)
Form of Restricted Stock Unit Award Agreement for U.S. Employees (incorporated by reference to Exhibit
10.3 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36733) filed with the SEC on April
26, 2021)
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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Cover Page Interactive Data File (embedded within the Inline XBRL document)
Previously filed.
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.
110
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 18, 2022.
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/ Anthony Massey
Anthony Massey
/s/ William M. Cook
William M. Cook
/s/ Steven M. Chapman
Steven M. Chapman
/s/ Tyrone M. Jordan
Tyrone M. Jordan
/s/ Deborah J. Kissire
Deborah J. Kissire
/s/ Elizabeth C. Lempres
Elizabeth C. Lempres
/s/ Robert M. McLaughlin
Robert M. McLaughlin
/s/ Rakesh Sachdev
Rakesh Sachdev
/s/ Samuel L. Smolik
Samuel L. Smolik
Title
Date
Chief Executive Officer and President
(Principal Executive Officer)
February 18, 2022
Senior Vice President and Chief Financial Officer
February 18, 2022
(Principal Financial Officer)
Vice President and Global Controller
(Principal Accounting Officer)
February 18, 2022
Chair of the Board and Director
February 18, 2022
February 18, 2022
February 18, 2022
February 18, 2022
February 18, 2022
February 18, 2022
February 18, 2022
February 18, 2022
Director
Director
Director
Director
Director
Director
Director
111
Subsidiaries of the Registrant
Exhibit 21.1
Axalta Coating Systems Belgium BVBA
Axalta Coating Systems Canada Company
Axalta Coating Systems Deutschland Holding GmbH & Co. KG
Axalta Coating Systems Dutch Holding A B.V.
Axalta Coating Systems Dutch Holding B B.V.
Axalta Coating Systems EMEA Holding B.V.
Axalta Coating Systems France Holding SAS
Axalta Coating Systems France SAS
Axalta Coating Systems Germany GmbH & Co. KG
Axalta Coating Systems GmbH
Axalta Coating Systems Italy Srl
Axalta Coating Systems LA Holding II B.V.
Axalta Coating Systems Luxembourg Holding 2 S.a.r.l.
Axalta Coating Systems Luxembourg Holding S.a.r.l.
Axalta Coating Systems Mexico, S. de R.L. de C.V.
Axalta Coating Systems U.K. Ltd.
Axalta Coating Systems U.S. Holdings, Inc.
Axalta Coating Systems U.S. Inc.
Axalta Coating Systems U.S.A.,LLC
Axalta Coating Systems UK Holding Ltd.
Axalta Coating Systems, LLC
Belgium
Canada
Germany
Netherlands
Netherlands
Netherlands
France
France
Germany
Switzerland
Italy
Netherlands
Luxembourg
Luxembourg
Mexico
United Kingdom
Delaware (USA)
Delaware (USA)
Delaware (USA)
United Kingdom
Delaware (USA)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-200229
and 333-224647) of Axalta Coating Systems Ltd. of our report dated February 18, 2022 relating to the financial
statements and financial statement schedule and the effectiveness of internal control over financial reporting, which
appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 18, 2022
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Robert W. Bryant, certify that:
Exhibit 31.1
I have reviewed this annual report on Form 10-K of Axalta Coating Systems Ltd.;
1.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 18, 2022
By:
Name:
Title:
/s/ Robert W. Bryant
Robert W. Bryant
Chief Executive Officer and President
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Sean M. Lannon, certify that:
Exhibit 31.2
I have reviewed this annual report on Form 10-K of Axalta Coating Systems Ltd.;
1.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 18, 2022
By:
Name:
Title:
/s/ Sean M. Lannon
Sean M. Lannon
Senior Vice President and Chief Financial Officer
Certification of CEO Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
I, Robert W. Bryant, Chief Executive Officer and President of Axalta Coating Systems Ltd. (the "Company"), certify, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2021 (the "Report")
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 18, 2022
By:
Name:
Title:
/s/ Robert W. Bryant
Robert W. Bryant
Chief Executive Officer and President
This certification accompanies this report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed
filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to
liability pursuant to that section. The certification shall not be deemed to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Certification of CFO Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
I, Sean M. Lannon, Senior Vice President and Chief Financial Officer of Axalta Coating Systems Ltd. (the "Company"), certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2021 (the "Report")
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 18, 2022
By:
Name:
Title:
/s/ Sean M. Lannon
Sean M. Lannon
Senior Vice President and Chief Financial Officer
This certification accompanies this report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed
filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to
liability pursuant to that section. The certification shall not be deemed to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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COMMON SHARES
The common shares of Axalta Coating
Systems Ltd. trade on the New York
Stock Exchange under the symbol AXTA.
COMMON SHARES
American Stock Transfer & Trust
Company, LLC
Operation Center
6201 15th Avenue
Brooklyn, NY 11219
800-937-5449
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
2001 Market Street
Suite 1800
Philadelphia, PA 19103
CORPORATE INFORMATION
BOARD OF DIRECTORS
MANAGEMENT GROUP
William Cook (Chair)
Former Executive Chairman
Donaldson Company, Inc.
Robert Bryant
Chief Executive Officer
Axalta Coating Systems Ltd.
Steven Chapman
Former Group Vice President,
China and Russia
Cummins Inc.
Tyrone Michael Jordan
Former President & Chief
Operating Officer
DURA Automotive Systems
Deborah Kissire
Former Vice Chair and Regional
Managing Partner
Ernst & Young LLP
Elizabeth Lempres
Former Senior Partner
McKinsey & Company
Robert M. McLaughlin
Former Senior Vice President and
Chief Financial Officer
Airgas, Inc.
Rakesh Sachdev
Former Chief Executive Officer
Platform Specialty Products Corporation
(n/k/a Element Solutions Inc)
Samuel Smolik
Former Senior Vice President
Americas Manufacturing
LyondellBasell Industries
Robert Bryant
Chief Executive Officer
Hadi Awada
Senior Vice President, Global
Mobility Coatings
Shelley Bausch
Senior Vice President, Global
Industrial Coatings
Brian Berube
Senior Vice President, General
Counsel and Corporate Secretary
Sean Lannon
Senior Vice President and Chief
Financial Officer
Jeremy Rohen
Senior Vice President, Strategy and
Business Development
Robert Roop
Senior Vice President and Chief
Technology Officer
Jacqueline Scanlan
Senior Vice President and Chief Human
Resources Officer
Keith Silverman
Senior Vice President and Chief
Operations and Supply Chain Officer
Troy Weaver
Senior Vice President, Global Refinish
AXALTA COATING SYSTEMS
50 Applied Bank Blvd.
Suite 300
Glen Mills, PA 19342