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ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Bermuda
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2851
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98-1073028
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification No.)
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Common Shares, $1.00 par value
|
|
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New York Stock Exchange
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(title of class)
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(Exchange on which registered)
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|||
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|||
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|||
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|
|||
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|||
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|||
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|||
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|||
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|||
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|||
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Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||
Net sales
|
$
|
1,088.5
|
|
$
|
1,063.6
|
|
$
|
2,096.3
|
|
$
|
2,020.8
|
|
Other revenue
|
6.1
|
|
7.0
|
|
12.0
|
|
13.0
|
|
||||
Total revenue
|
1,094.6
|
|
1,070.6
|
|
2,108.3
|
|
2,033.8
|
|
||||
Cost of goods sold
|
690.0
|
|
649.0
|
|
1,331.1
|
|
1,255.4
|
|
||||
Selling, general and administrative expenses
|
246.1
|
|
237.7
|
|
471.4
|
|
456.8
|
|
||||
Venezuela deconsolidation charge
|
70.9
|
|
—
|
|
70.9
|
|
—
|
|
||||
Research and development expenses
|
16.4
|
|
14.1
|
|
32.0
|
|
26.7
|
|
||||
Amortization of acquired intangibles
|
23.8
|
|
20.3
|
|
45.5
|
|
40.5
|
|
||||
Income from operations
|
47.4
|
|
149.5
|
|
157.4
|
|
254.4
|
|
||||
Interest expense, net
|
35.6
|
|
47.8
|
|
71.4
|
|
97.9
|
|
||||
Other expense, net
|
21.2
|
|
32.8
|
|
19.6
|
|
40.8
|
|
||||
Income (loss) before income taxes
|
(9.4
|
)
|
68.9
|
|
66.4
|
|
115.7
|
|
||||
Provision for income taxes
|
9.5
|
|
16.6
|
|
19.4
|
|
30.6
|
|
||||
Net income (loss)
|
(18.9
|
)
|
52.3
|
|
47.0
|
|
85.1
|
|
||||
Less: Net income attributable to noncontrolling interests
|
1.9
|
|
1.6
|
|
3.7
|
|
2.5
|
|
||||
Net income (loss) attributable to controlling interests
|
$
|
(20.8
|
)
|
$
|
50.7
|
|
$
|
43.3
|
|
$
|
82.6
|
|
Basic net income (loss) per share
|
$
|
(0.09
|
)
|
$
|
0.21
|
|
$
|
0.18
|
|
$
|
0.35
|
|
Diluted net income (loss) per share
|
$
|
(0.09
|
)
|
$
|
0.21
|
|
$
|
0.18
|
|
$
|
0.34
|
|
Basic weighted average shares outstanding
|
240.9
|
|
237.7
|
|
240.4
|
|
237.4
|
|
||||
Diluted weighted average shares outstanding
|
240.9
|
|
244.3
|
|
246.5
|
|
243.8
|
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||
Net income (loss)
|
$
|
(18.9
|
)
|
$
|
52.3
|
|
$
|
47.0
|
|
$
|
85.1
|
|
Other comprehensive income (loss), before tax:
|
|
|
|
|
||||||||
Foreign currency translation adjustments
|
27.2
|
|
(13.6
|
)
|
67.8
|
|
2.1
|
|
||||
Unrealized gain (loss) on securities
|
(0.3
|
)
|
0.1
|
|
(0.3
|
)
|
(0.3
|
)
|
||||
Unrealized gain (loss) on derivatives
|
(1.9
|
)
|
0.5
|
|
(1.3
|
)
|
(1.7
|
)
|
||||
Unrealized gain on pension plan obligations
|
8.8
|
|
0.2
|
|
9.3
|
|
0.1
|
|
||||
Other comprehensive income (loss), before tax
|
33.8
|
|
(12.8
|
)
|
75.5
|
|
0.2
|
|
||||
Income tax (benefit) related to items of other comprehensive income (loss)
|
(2.4
|
)
|
(0.8
|
)
|
(2.6
|
)
|
—
|
|
||||
Other comprehensive income (loss), net of tax
|
31.4
|
|
(13.6
|
)
|
72.9
|
|
0.2
|
|
||||
Comprehensive income
|
12.5
|
|
38.7
|
|
119.9
|
|
85.3
|
|
||||
Less: Comprehensive income attributable to noncontrolling interests
|
2.0
|
|
1.4
|
|
4.7
|
|
2.3
|
|
||||
Comprehensive income attributable to controlling interests
|
$
|
10.5
|
|
$
|
37.3
|
|
$
|
115.2
|
|
$
|
83.0
|
|
|
June 30, 2017
|
December 31, 2016
|
||||
Assets
|
|
|
||||
Current assets:
|
|
|
||||
Cash and cash equivalents
|
$
|
482.1
|
|
$
|
535.4
|
|
Restricted cash
|
2.9
|
|
2.7
|
|
||
Accounts and notes receivable, net
|
961.4
|
|
801.9
|
|
||
Inventories
|
580.1
|
|
529.7
|
|
||
Prepaid expenses and other
|
68.5
|
|
50.3
|
|
||
Total current assets
|
2,095.0
|
|
1,920.0
|
|
||
Property, plant and equipment, net
|
1,370.7
|
|
1,315.7
|
|
||
Goodwill
|
1,219.3
|
|
964.1
|
|
||
Identifiable intangibles, net
|
1,436.5
|
|
1,130.3
|
|
||
Other assets
|
535.6
|
|
536.1
|
|
||
Total assets
|
$
|
6,657.1
|
|
$
|
5,866.2
|
|
Liabilities, Shareholders’ Equity
|
|
|
||||
Current liabilities:
|
|
|
||||
Accounts payable
|
$
|
489.9
|
|
$
|
474.2
|
|
Current portion of borrowings
|
35.5
|
|
27.9
|
|
||
Other accrued liabilities
|
456.2
|
|
440.0
|
|
||
Total current liabilities
|
981.6
|
|
942.1
|
|
||
Long-term borrowings
|
3,823.4
|
|
3,236.0
|
|
||
Accrued pensions
|
262.9
|
|
249.1
|
|
||
Deferred income taxes
|
164.5
|
|
160.2
|
|
||
Other liabilities
|
33.2
|
|
32.2
|
|
||
Total liabilities
|
5,265.6
|
|
4,619.6
|
|
||
Commitments and contingencies (Note 6)
|
|
|
||||
Shareholders’ equity
|
|
|
||||
Common shares, $1.00 par, 1,000.0 shares authorized, 243.0 and 240.5 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively
|
241.5
|
|
239.3
|
|
||
Capital in excess of par
|
1,326.3
|
|
1,294.3
|
|
||
Accumulated deficit
|
(14.8
|
)
|
(58.1
|
)
|
||
Treasury shares, at cost
|
(8.3
|
)
|
—
|
|
||
Accumulated other comprehensive loss
|
(278.5
|
)
|
(350.4
|
)
|
||
Total Axalta shareholders’ equity
|
1,266.2
|
|
1,125.1
|
|
||
Noncontrolling interests
|
125.3
|
|
121.5
|
|
||
Total shareholders’ equity
|
1,391.5
|
|
1,246.6
|
|
||
Total liabilities and shareholders’ equity
|
$
|
6,657.1
|
|
$
|
5,866.2
|
|
|
Six Months Ended June 30,
|
|||||
|
2017
|
2016
|
||||
Operating activities:
|
|
|
||||
Net income
|
$
|
47.0
|
|
$
|
85.1
|
|
Adjustment to reconcile net income to cash used for operating activities:
|
|
|
||||
Depreciation and amortization
|
167.3
|
|
154.6
|
|
||
Amortization of deferred financing costs and original issue discount
|
4.2
|
|
10.1
|
|
||
Debt extinguishment and refinancing related costs
|
12.4
|
|
2.3
|
|
||
Deferred income taxes
|
(12.9
|
)
|
(7.2
|
)
|
||
Realized and unrealized foreign exchange (gains) losses, net
|
(2.4
|
)
|
26.0
|
|
||
Stock-based compensation
|
21.3
|
|
21.6
|
|
||
Asset impairments
|
3.2
|
|
10.5
|
|
||
Loss on deconsolidation of Venezuela
|
70.9
|
|
—
|
|
||
Other non-cash, net
|
2.8
|
|
(2.9
|
)
|
||
Changes in operating assets and liabilities:
|
|
|
||||
Trade accounts and notes receivable
|
(128.9
|
)
|
(89.7
|
)
|
||
Inventories
|
(5.1
|
)
|
13.4
|
|
||
Prepaid expenses and other
|
(60.9
|
)
|
(20.2
|
)
|
||
Accounts payable
|
(6.3
|
)
|
4.0
|
|
||
Other accrued liabilities
|
(13.4
|
)
|
(15.2
|
)
|
||
Other liabilities
|
(5.1
|
)
|
(6.4
|
)
|
||
Cash provided by operating activities
|
94.1
|
|
186.0
|
|
||
Investing activities:
|
|
|
||||
Business acquisitions
|
(533.3
|
)
|
—
|
|
||
Purchase of property, plant and equipment
|
(57.4
|
)
|
(64.8
|
)
|
||
Reduction of cash due to Venezuela deconsolidation
|
(4.3
|
)
|
—
|
|
||
Other investing activities
|
(0.3
|
)
|
(2.4
|
)
|
||
Cash used for investing activities
|
(595.3
|
)
|
(67.2
|
)
|
||
Financing activities:
|
|
|
|
|
||
Proceeds from long term borrowings
|
456.4
|
|
—
|
|
||
Payments on short-term borrowings
|
(4.4
|
)
|
(5.5
|
)
|
||
Payments on long-term borrowings
|
(6.1
|
)
|
(113.7
|
)
|
||
Financing-related costs
|
(8.9
|
)
|
—
|
|
||
Dividends paid to noncontrolling interests
|
(0.9
|
)
|
(1.5
|
)
|
||
Purchase of treasury stock
|
(8.3
|
)
|
—
|
|
||
Proceeds from option exercises
|
12.9
|
|
5.9
|
|
||
Deferred acquisition-related consideration
|
(3.4
|
)
|
—
|
|
||
Other financing activities
|
—
|
|
(0.2
|
)
|
||
Cash provided by (used for) financing activities
|
437.3
|
|
(115.0
|
)
|
||
Increase (decrease) in cash
|
(63.9
|
)
|
3.8
|
|
||
Effect of exchange rate changes on cash
|
10.8
|
|
(8.3
|
)
|
||
Cash at beginning of period
|
538.1
|
|
487.7
|
|
||
Cash at end of period
|
$
|
485.0
|
|
$
|
483.2
|
|
|
|
|
|
|
||
Cash at end of period reconciliation:
|
|
|
|
|
||
Cash and cash equivalents
|
$
|
482.1
|
|
$
|
480.1
|
|
Restricted cash
|
$
|
2.9
|
|
$
|
3.1
|
|
Cash at end of period
|
$
|
485.0
|
|
$
|
483.2
|
|
|
June 1, 2017
|
||
Accounts and notes receivable—trade
|
$
|
23.3
|
|
Inventories
|
24.9
|
|
|
Prepaid expenses and other
|
0.2
|
|
|
Property, plant and equipment
|
23.0
|
|
|
Identifiable intangibles
|
254.2
|
|
|
Accounts payable
|
(22.4
|
)
|
|
Other accrued liabilities
|
(5.1
|
)
|
|
Net assets acquired before goodwill on acquisition
|
298.1
|
|
|
Goodwill on acquisition
|
132.6
|
|
|
Net assets acquired
|
$
|
430.7
|
|
|
For the six months ended
|
|||||
(in millions, except per share data)
|
June 30, 2017
|
June 30, 2016
|
||||
Net sales
|
$
|
2,197.6
|
|
$
|
2,127.5
|
|
Net income
|
$
|
53.8
|
|
$
|
82.1
|
|
Net income attributable to controlling interests
|
$
|
50.1
|
|
$
|
79.6
|
|
Net income per share (Basic)
|
$
|
0.21
|
|
$
|
0.34
|
|
Net income per share (Diluted)
|
$
|
0.20
|
|
$
|
0.33
|
|
|
Performance
Coatings
|
Transportation
Coatings
|
Total
|
||||||
December 31, 2016
|
$
|
889.4
|
|
$
|
74.7
|
|
$
|
964.1
|
|
Goodwill from acquisitions
|
182.1
|
|
—
|
|
182.1
|
|
|||
Foreign currency translation
|
68.3
|
|
4.8
|
|
73.1
|
|
|||
June 30, 2017
|
$
|
1,139.8
|
|
$
|
79.5
|
|
$
|
1,219.3
|
|
June 30, 2017
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Net Book
Value
|
Weighted average
amortization periods (years)
|
||||||
Technology
|
$
|
479.3
|
|
$
|
(184.5
|
)
|
$
|
294.8
|
|
10.4
|
Trademarks - indefinite-lived
|
291.1
|
|
—
|
|
291.1
|
|
Indefinite
|
|||
Trademarks - definite-lived
|
76.3
|
|
(14.2
|
)
|
62.1
|
|
14.4
|
|||
Customer relationships
|
929.9
|
|
(149.6
|
)
|
780.3
|
|
19.1
|
|||
Other
|
9.2
|
|
(1.0
|
)
|
8.2
|
|
4.7
|
|||
Total
|
$
|
1,785.8
|
|
$
|
(349.3
|
)
|
$
|
1,436.5
|
|
|
December 31, 2016
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Net Book
Value
|
Weighted average
amortization periods (years)
|
||||||
Technology
|
$
|
417.1
|
|
$
|
(153.6
|
)
|
$
|
263.5
|
|
10.2
|
Trademarks—indefinite-lived
|
273.2
|
|
—
|
|
273.2
|
|
Indefinite
|
|||
Trademarks—definite-lived
|
55.0
|
|
(11.4
|
)
|
43.6
|
|
14.8
|
|||
Customer relationships
|
672.6
|
|
(123.3
|
)
|
549.3
|
|
18.7
|
|||
Other
|
2.4
|
|
(1.7
|
)
|
0.7
|
|
4.6
|
|||
Total
|
$
|
1,420.3
|
|
$
|
(290.0
|
)
|
$
|
1,130.3
|
|
|
Remainder of 2017
|
$
|
56.1
|
|
2018
|
$
|
104.0
|
|
2019
|
$
|
104.0
|
|
2020
|
$
|
103.6
|
|
2021
|
$
|
102.5
|
|
2022
|
$
|
84.0
|
|
|
2017 Activity
|
||
Balance at December 31, 2016
|
$
|
66.1
|
|
Expense recorded
|
1.4
|
|
|
Payments made
|
(14.6
|
)
|
|
Foreign currency impacts
|
4.8
|
|
|
Venezuela deconsolidation impact
|
(1.5
|
)
|
|
Balance at June 30, 2017
|
$
|
56.2
|
|
(6)
|
COMMITMENTS AND CONTINGENCIES
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||
Components of net periodic benefit cost:
|
|
|
|
|
||||||||
Net periodic benefit cost:
|
|
|
|
|
||||||||
Service cost
|
$
|
2.1
|
|
$
|
2.6
|
|
$
|
4.2
|
|
$
|
5.1
|
|
Interest cost
|
3.3
|
|
3.9
|
|
6.7
|
|
7.8
|
|
||||
Expected return on plan assets
|
(3.5
|
)
|
(3.4
|
)
|
(7.0
|
)
|
(6.6
|
)
|
||||
Amortization of actuarial loss, net
|
0.3
|
|
0.2
|
|
0.8
|
|
0.1
|
|
||||
Net periodic benefit cost
|
$
|
2.2
|
|
$
|
3.3
|
|
$
|
4.7
|
|
$
|
6.4
|
|
Stock Options
|
Awards/Units (in millions)
|
Weighted-
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
(in millions)
|
Weighted
Average
Remaining
Contractual
Life (years)
|
|||||
Outstanding at January 1, 2017
|
9.6
|
|
$
|
14.40
|
|
|
|
||
Granted
|
0.9
|
|
$
|
29.52
|
|
|
|
||
Exercised
|
(1.2
|
)
|
$
|
10.54
|
|
|
|
||
Forfeited
|
(0.1
|
)
|
$
|
28.10
|
|
|
|
||
Outstanding at June 30, 2017
|
9.2
|
|
$
|
16.23
|
|
|
|
||
Vested and expected to vest at June 30, 2017
|
9.2
|
|
$
|
16.23
|
|
$
|
145.1
|
|
6.91
|
Exercisable at June 30, 2017
|
7.2
|
|
$
|
13.15
|
|
$
|
136.5
|
|
6.37
|
Restricted Stock Awards and Restricted Stock Units
|
Awards
(millions)
|
Weighted-Average
Fair Value
|
|||
Outstanding at January 1, 2017
|
2.3
|
|
$
|
29.18
|
|
Granted
|
0.7
|
|
$
|
30.17
|
|
Vested
|
(0.9
|
)
|
$
|
30.05
|
|
Forfeited
|
(0.1
|
)
|
$
|
26.26
|
|
Outstanding at June 30, 2017
|
2.0
|
|
$
|
29.14
|
|
Performance Stock Awards and Performance Share Units
|
Awards
(millions)
|
Weighted-Average
Fair Value
|
|||
Outstanding at January 1, 2017
|
0.3
|
|
$
|
27.74
|
|
Granted
|
0.3
|
|
$
|
38.11
|
|
Vested
|
—
|
|
$
|
—
|
|
Forfeited
|
—
|
|
$
|
—
|
|
Outstanding at June 30, 2017
|
0.6
|
|
$
|
31.11
|
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||
Foreign exchange losses, net
|
$
|
6.0
|
|
$
|
18.0
|
|
$
|
4.8
|
|
$
|
25.5
|
|
Impairments of property
|
3.2
|
|
10.5
|
|
3.2
|
|
10.5
|
|
||||
Debt extinguishment and refinancing related costs
|
12.4
|
|
2.3
|
|
12.4
|
|
2.3
|
|
||||
Other miscellaneous (income) expense, net
|
(0.4
|
)
|
2.0
|
|
(0.8
|
)
|
2.5
|
|
||||
Total
|
$
|
21.2
|
|
$
|
32.8
|
|
$
|
19.6
|
|
$
|
40.8
|
|
|
Six Months Ended June 30,
|
|||
|
2017
|
2016
|
||
Effective Tax Rate
|
29.2
|
%
|
26.4
|
%
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||
(In millions, except per share data)
|
2017
|
2016
(1)
|
2017
|
2016
(1)
|
||||||||
Net income (loss) to common shareholders
|
$
|
(20.8
|
)
|
$
|
50.7
|
|
$
|
43.3
|
|
$
|
82.6
|
|
Basic weighted average shares outstanding
|
240.9
|
|
237.7
|
|
240.4
|
|
237.4
|
|
||||
Diluted weighted average shares outstanding
|
240.9
|
|
244.3
|
|
246.5
|
|
243.8
|
|
||||
Net income (loss) per common share:
|
|
|
|
|
||||||||
Basic net income (loss) per share
|
$
|
(0.09
|
)
|
$
|
0.21
|
|
$
|
0.18
|
|
$
|
0.35
|
|
Diluted net income (loss) per share
|
$
|
(0.09
|
)
|
$
|
0.21
|
|
$
|
0.18
|
|
$
|
0.34
|
|
|
June 30, 2017
|
December 31, 2016
|
||||
Accounts receivable - trade, net
|
$
|
840.6
|
|
$
|
640.4
|
|
Notes receivable
|
30.7
|
|
68.7
|
|
||
Other
|
90.1
|
|
92.8
|
|
||
Total
|
$
|
961.4
|
|
$
|
801.9
|
|
|
June 30, 2017
|
December 31, 2016
|
||||
Finished products
|
$
|
332.3
|
|
$
|
315.2
|
|
Semi-finished products
|
93.1
|
|
87.5
|
|
||
Raw materials and supplies
|
154.7
|
|
127.0
|
|
||
Total
|
$
|
580.1
|
|
$
|
529.7
|
|
|
June 30, 2017
|
December 31, 2016
|
||||
Property, plant and equipment
|
$
|
2,098.3
|
|
$
|
1,933.0
|
|
Accumulated depreciation
|
(727.6
|
)
|
(617.3
|
)
|
||
Property, plant, and equipment, net
|
$
|
1,370.7
|
|
$
|
1,315.7
|
|
|
June 30, 2017
|
December 31, 2016
|
||||
2024 Dollar Term Loans
|
$
|
2,000.0
|
|
$
|
—
|
|
2023 Dollar Term Loans
|
—
|
|
1,545.0
|
|
||
2023 Euro Term Loans
|
454.7
|
|
417.6
|
|
||
2024 Dollar Senior Notes
|
500.0
|
|
500.0
|
|
||
2024 Euro Senior Notes
|
382.7
|
|
349.7
|
|
||
2025 Euro Senior Notes
|
514.1
|
|
469.8
|
|
||
Short-term and other borrowings
|
59.1
|
|
39.8
|
|
||
Unamortized original issue discount
|
(9.9
|
)
|
(10.0
|
)
|
||
Unamortized deferred financing costs
|
(41.8
|
)
|
(48.0
|
)
|
||
|
$
|
3,858.9
|
|
$
|
3,263.9
|
|
Less:
|
|
|
||||
Short term borrowings
|
$
|
10.9
|
|
$
|
8.3
|
|
Current portion of long-term borrowings
|
24.6
|
|
19.6
|
|
||
Long-term debt
|
$
|
3,823.4
|
|
$
|
3,236.0
|
|
Period
|
2024 Dollar Senior Notes Percentage
|
|
2019
|
103.656
|
%
|
2020
|
102.438
|
%
|
2021
|
101.219
|
%
|
2022 and thereafter
|
100.000
|
%
|
Period
|
2024 Euro Senior Notes Percentage
|
|
2019
|
103.188
|
%
|
2020
|
102.125
|
%
|
2021
|
101.063
|
%
|
2022 and thereafter
|
100.000
|
%
|
Period
|
2025 Euro Senior Notes Percentage
|
|
2019
|
102.813
|
%
|
2020
|
101.875
|
%
|
2021
|
100.938
|
%
|
2022 and thereafter
|
100.000
|
%
|
Remainder of 2017
|
$
|
23.4
|
|
2018
|
26.2
|
|
|
2019
|
25.4
|
|
|
2020
|
25.3
|
|
|
2021
|
25.2
|
|
|
Thereafter
|
3,750.8
|
|
|
|
$
|
3,876.3
|
|
|
June 30, 2017
|
December 31, 2016
|
||||
Prepaid and other assets:
|
|
|
||||
Interest rate swaps
|
$
|
0.5
|
|
$
|
0.1
|
|
Total assets
|
$
|
0.5
|
|
$
|
0.1
|
|
Other accrued liabilities:
|
|
|
||||
Interest rate swaps
|
$
|
0.1
|
|
$
|
0.8
|
|
Interest rate caps
|
$
|
2.5
|
|
$
|
—
|
|
Other liabilities
|
|
|
||||
Interest rate caps
|
$
|
1.7
|
|
$
|
—
|
|
Total liabilities
|
$
|
4.3
|
|
$
|
0.8
|
|
|
Amount of
(Gain) Loss Recognized in OCI on Derivatives (Effective Portion) |
Location of (Gain) Loss Reclassified from
Accumulated OCI into Income (Effective Portion) |
Amount of
(Gain) Loss Reclassified from Accumulated
OCI to Income
(Effective Portion)
|
Location of
(Gains) Losses Recognized in Income on Derivatives (Ineffective Portion) |
Amount of
(Gain) Loss Recognized
in Income on Derivatives
(Ineffective Portion) |
|||||||||||||||
Derivatives in Cash Flow Hedging
Relationships
|
Three Months Ended June 30, 2017
|
Three Months Ended June 30, 2016
|
Three Months Ended June 30, 2017
|
Three Months Ended June 30, 2016
|
Three Months Ended June 30, 2017
|
Three Months Ended June 30, 2016
|
||||||||||||||
Interest rate contracts
|
$
|
2.2
|
|
$
|
(0.5
|
)
|
Interest expense, net
|
$
|
0.2
|
|
$
|
1.6
|
|
Interest expense, net
|
$
|
0.4
|
|
$
|
0.9
|
|
|
Amount of
(Gain) Loss Recognized in OCI on Derivatives (Effective Portion) |
Location of (Gain) Loss Reclassified from
Accumulated OCI into Income (Effective Portion) |
Amount of
(Gain) Loss Reclassified from Accumulated OCI to Income (Effective Portion) |
Location of
(Gains) Losses Recognized in Income on Derivatives (Ineffective Portion) |
Amount of
(Gain) Loss Recognized in Income on Derivatives (Ineffective Portion) |
|||||||||||||||
Derivatives in Cash Flow Hedging
Relationships
|
Six Months Ended June 30, 2017
|
Six Months Ended June 30, 2016
|
Six Months Ended June 30, 2017
|
Six Months Ended June 30, 2016
|
Six Months Ended June 30, 2017
|
Six Months Ended June 30, 2016
|
||||||||||||||
Interest rate contracts
|
$
|
3.7
|
|
$
|
1.7
|
|
Interest expense, net
|
$
|
0.7
|
|
$
|
3.2
|
|
Interest expense, net
|
$
|
2.0
|
|
$
|
3.3
|
|
|
June 30, 2017
|
December 31, 2016
|
||||
Prepaid and other assets:
|
|
|
||||
Foreign currency contracts
|
$
|
—
|
|
$
|
0.1
|
|
Other assets
|
|
|
||||
Interest rate caps
|
$
|
0.1
|
|
$
|
—
|
|
Total assets
|
$
|
0.1
|
|
$
|
0.1
|
|
Other accrued liabilities:
|
|
|
||||
Foreign currency contracts
|
$
|
2.0
|
|
$
|
0.5
|
|
Total liabilities
|
$
|
2.0
|
|
$
|
0.5
|
|
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||
Derivatives Not Designated as Hedging
Instruments under ASC 815
|
Location of (Gain) Loss Recognized in
Income on Derivatives
|
2017
|
2016
|
2017
|
2016
|
||||||||
Interest rate caps
|
Interest expense
|
$
|
0.1
|
|
$
|
—
|
|
$
|
0.4
|
|
$
|
—
|
|
Foreign currency forward contracts
|
Other expense, net
|
$
|
4.8
|
|
$
|
1.6
|
|
$
|
7.2
|
|
$
|
4.0
|
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||
Performance Coatings
|
|
|
|
|
||||||||
Refinish
|
$
|
421.2
|
|
$
|
447.3
|
|
$
|
809.8
|
|
$
|
827.6
|
|
Industrial
|
241.7
|
|
183.3
|
|
439.5
|
|
347.6
|
|
||||
Total Net sales Performance Coatings
|
662.9
|
|
630.6
|
|
1,249.3
|
|
1,175.2
|
|
||||
Transportation Coatings
|
|
|
|
|
||||||||
Light Vehicle
|
334.3
|
|
344.4
|
|
674.3
|
|
673.8
|
|
||||
Commercial Vehicle
|
91.3
|
|
88.6
|
|
172.7
|
|
171.8
|
|
||||
Total Net sales Transportation Coatings
|
425.6
|
|
433.0
|
|
847.0
|
|
845.6
|
|
||||
Total Net sales
|
$
|
1,088.5
|
|
$
|
1,063.6
|
|
$
|
2,096.3
|
|
$
|
2,020.8
|
|
|
Three Months Ended June 30,
|
|||||||||||||||||
|
2017
|
2016
|
||||||||||||||||
|
Performance
Coatings
|
Transportation
Coatings
|
Total
|
Performance
Coatings
|
Transportation
Coatings
|
Total
|
||||||||||||
Net sales
(1)
|
$
|
662.9
|
|
$
|
425.6
|
|
$
|
1,088.5
|
|
$
|
630.6
|
|
$
|
433.0
|
|
$
|
1,063.6
|
|
Equity in earnings in unconsolidated affiliates
|
0.1
|
|
0.1
|
|
0.2
|
|
0.1
|
|
—
|
|
0.1
|
|
||||||
Adjusted EBITDA
(2)
|
146.8
|
|
80.4
|
|
227.2
|
|
155.8
|
|
95.3
|
|
251.1
|
|
||||||
Investment in unconsolidated affiliates
|
3.0
|
|
11.8
|
|
14.8
|
|
3.9
|
|
11.2
|
|
15.1
|
|
|
Six Months Ended June 30,
|
|||||||||||||||||
|
2017
|
2016
|
||||||||||||||||
|
Performance
Coatings |
Transportation
Coatings |
Total
|
Performance
Coatings |
Transportation
Coatings |
Total
|
||||||||||||
Net sales
(1)
|
$
|
1,249.3
|
|
$
|
847.0
|
|
$
|
2,096.3
|
|
$
|
1,175.2
|
|
$
|
845.6
|
|
$
|
2,020.8
|
|
Equity in earnings in unconsolidated affiliates
|
0.2
|
|
0.2
|
|
0.4
|
|
0.2
|
|
0.1
|
|
0.3
|
|
||||||
Adjusted EBITDA
(2)
|
263.7
|
|
166.6
|
|
430.3
|
|
267.5
|
|
180.0
|
|
447.5
|
|
||||||
Investment in unconsolidated affiliates
|
3.0
|
|
11.8
|
|
14.8
|
|
3.9
|
|
11.2
|
|
15.1
|
|
(1)
|
The Company has
no
intercompany sales between segments.
|
(2)
|
The primary measure of segment operating performance is Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation and amortization and select other items impacting operating results. These other items impacting operating results are items that management has concluded are (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 the Company believes are not reasonably likely to recur within the next two years. Adjusted EBITDA is a key metric that is used by management to evaluate business performance in comparison to budgets, forecasts and prior year financial results, providing a measure that management believes reflects the Company’s core operating performance, which represents EBITDA adjusted for the select items referred to above. Reconciliation of Adjusted EBITDA to income before income taxes follows:
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||
Income (loss) before income taxes
|
$
|
(9.4
|
)
|
$
|
68.9
|
|
$
|
66.4
|
|
$
|
115.7
|
|
Interest expense, net
|
35.6
|
|
47.8
|
|
71.4
|
|
97.9
|
|
||||
Depreciation and amortization
|
84.9
|
|
78.6
|
|
167.3
|
|
154.6
|
|
||||
EBITDA
|
111.1
|
|
195.3
|
|
305.1
|
|
368.2
|
|
||||
Debt extinguishment and refinancing related costs (a)
|
12.4
|
|
2.3
|
|
12.4
|
|
2.3
|
|
||||
Foreign exchange remeasurement losses (b)
|
6.0
|
|
18.0
|
|
4.8
|
|
25.5
|
|
||||
Long-term employee benefit plan adjustments (c)
|
0.1
|
|
0.7
|
|
0.5
|
|
1.3
|
|
||||
Termination benefits and other employee related costs (d)
|
—
|
|
7.0
|
|
0.8
|
|
8.9
|
|
||||
Consulting and advisory fees (e)
|
—
|
|
2.6
|
|
(0.1
|
)
|
5.6
|
|
||||
Transition-related costs (f)
|
3.9
|
|
—
|
|
3.9
|
|
—
|
|
||||
Offering and transactional costs (g)
|
6.6
|
|
1.4
|
|
5.6
|
|
1.4
|
|
||||
Stock-based compensation (h)
|
10.9
|
|
11.4
|
|
21.3
|
|
21.6
|
|
||||
Other adjustments (i)
|
2.6
|
|
1.9
|
|
2.8
|
|
3.7
|
|
||||
Dividends in respect of noncontrolling interest (j)
|
(0.5
|
)
|
—
|
|
(0.9
|
)
|
(1.5
|
)
|
||||
Deconsolidation impacts and impairments (k)
|
74.1
|
|
10.5
|
|
74.1
|
|
10.5
|
|
||||
Adjusted EBITDA
|
$
|
227.2
|
|
$
|
251.1
|
|
$
|
430.3
|
|
$
|
447.5
|
|
(a)
|
In April 2016, we prepaid
$100.0 million
of the outstanding principal on the 2020 Dollar Term Loans and recorded a non-cash loss on extinguishment of
$2.3 million
for the three and six months ended June 30, 2016. In connection with the refinancing of our Dollar Term Loans during the three and six months ended June 30, 2017, we recorded losses of
$12.4 million
. We do not consider these to be indicative of our ongoing operating performance.
|
(b)
|
Eliminates foreign exchange gains and losses resulting from the remeasurement of assets and liabilities denominated in foreign currencies, net of impacts associated with our foreign currency instruments used to hedge our balance sheet exposures. Exchange effects attributable to the remeasurement of our Venezuelan subsidiary represented losses of
$0.3 million
and
$1.8 million
for the three and six months ended June 30, 2017, respectively, and losses of
$15.6 million
and
$22.7 million
for the three and six months ended June 30, 2016, respectively.
|
(c)
|
Eliminates the non-cash, non-service cost components of long-term employee benefit costs.
|
(d)
|
Represents expenses primarily related to employee termination benefits and other employee-related costs associated with our Axalta Way initiatives, which are not considered indicative of our ongoing operating performance.
|
(e)
|
Represents fees paid to consultants for professional services primarily related to our Axalta Way initiatives, which are not considered indicative of our ongoing operating performance.
|
(f)
|
Represents integration costs related to the acquisition of the Industrial Wood business that was a carve-out business from Valspar. These amounts are not considered indicative of our ongoing operating performance.
|
(g)
|
Represents acquisition-related expenses, including changes in the fair value of contingent consideration, as well as costs associated with the 2016 secondary offerings of our common shares by Carlyle, both of which are not considered indicative of our ongoing operating performance.
|
(h)
|
Represents non-cash costs associated with stock-based compensation.
|
(i)
|
Represents costs for certain non-operational or non-cash (gains) and losses unrelated to our core business and which we do not consider indicative of ongoing operations, including equity investee dividends, indemnity losses (gains) associated with the Acquisition, losses (gains) on sale and disposal of property, plant and equipment, losses (gains) on the remaining foreign currency derivative instruments and non-cash fair value inventory adjustments associated with our business combinations.
|
(j)
|
Represents the payment of dividends to our joint venture partners by our consolidated entities that are not 100% owned, which are reflected to show the cash operating performance of the entities on Axalta's financial statements.
|
(k)
|
In conjunction with the deconsolidation of our Venezuelan subsidiary during the three and six months ended June 30, 2017, we recorded a loss on deconsolidation of
$70.9 million
. During the three and six months ended June 30, 2017 and 2016, we recorded non-cash impairment charges related to a manufacturing facility previously announced for closure of
$3.2 million
and to a real estate investment of
$10.5 million
, respectively. We do not consider these to be indicative of our ongoing operating performance.
|
|
Total Axalta
|
Noncontrolling
Interests |
Total
|
||||||
Balance at December 31, 2016
|
$
|
1,125.1
|
|
$
|
121.5
|
|
$
|
1,246.6
|
|
Net income
|
43.3
|
|
3.7
|
|
47.0
|
|
|||
Other comprehensive income, net of tax
|
71.9
|
|
1.0
|
|
72.9
|
|
|||
Recognition of stock-based compensation
|
21.3
|
|
—
|
|
21.3
|
|
|||
Exercise of stock options
|
12.9
|
|
—
|
|
12.9
|
|
|||
Treasury share repurchase
|
(8.3
|
)
|
—
|
|
(8.3
|
)
|
|||
Dividends paid to noncontrolling interests
|
—
|
|
(0.9
|
)
|
(0.9
|
)
|
|||
Balance June 30, 2017
|
$
|
1,266.2
|
|
$
|
125.3
|
|
$
|
1,391.5
|
|
|
Total Axalta
|
Noncontrolling
Interests
|
Total
|
||||||
Balance at December 31, 2015
|
$
|
1,065.7
|
|
$
|
67.5
|
|
$
|
1,133.2
|
|
Cumulative effect of an accounting change
(1)
|
43.9
|
|
—
|
|
43.9
|
|
|||
Balance at January 1, 2016
|
1,109.6
|
|
67.5
|
|
1,177.1
|
|
|||
Net income
|
82.6
|
|
2.5
|
|
85.1
|
|
|||
Other comprehensive income, net of tax
|
0.4
|
|
(0.2
|
)
|
0.2
|
|
|||
Recognition of stock-based compensation
|
21.6
|
|
—
|
|
21.6
|
|
|||
Exercise of stock options
|
5.9
|
|
—
|
|
5.9
|
|
|||
Dividends paid to noncontrolling interests
|
—
|
|
(1.5
|
)
|
(1.5
|
)
|
|||
Balance June 30, 2016
|
$
|
1,220.1
|
|
$
|
68.3
|
|
$
|
1,288.4
|
|
|
Unrealized
Currency
Translation
Adjustments
|
Pension
Adjustments
|
Unrealized
Gain (Loss) on
Securities
|
Unrealized
Gain (Losses) on
Derivatives
|
Accumulated
Other
Comprehensive
Income (Loss)
|
||||||||||
December 31, 2016
|
$
|
(292.2
|
)
|
$
|
(56.6
|
)
|
$
|
0.4
|
|
$
|
(2.0
|
)
|
$
|
(350.4
|
)
|
Current year deferrals to AOCI
|
66.8
|
|
—
|
|
(0.3
|
)
|
(2.4
|
)
|
64.1
|
|
|||||
Reclassifications from AOCI to Net income (loss)
|
—
|
|
6.2
|
|
—
|
|
1.6
|
|
7.8
|
|
|||||
Net Change
|
66.8
|
|
6.2
|
|
(0.3
|
)
|
(0.8
|
)
|
71.9
|
|
|||||
June 30, 2017
|
$
|
(225.4
|
)
|
$
|
(50.4
|
)
|
$
|
0.1
|
|
$
|
(2.8
|
)
|
$
|
(278.5
|
)
|
|
Unrealized
Currency
Translation
Adjustments
|
Pension
Adjustments
|
Unrealized
Gain (Loss) on Securities |
Unrealized
Gain (Loss) on
Derivatives
|
Accumulated
Other Comprehensive Income (Loss) |
||||||||||
December 31, 2015
|
$
|
(232.8
|
)
|
$
|
(33.4
|
)
|
$
|
0.1
|
|
$
|
(3.2
|
)
|
$
|
(269.3
|
)
|
Current year deferrals to AOCI
|
2.3
|
|
—
|
|
(0.3
|
)
|
(2.1
|
)
|
(0.1
|
)
|
|||||
Reclassifications from AOCI to Net income
|
—
|
|
(0.5
|
)
|
—
|
|
1.0
|
|
0.5
|
|
|||||
Net Change
|
2.3
|
|
(0.5
|
)
|
(0.3
|
)
|
(1.1
|
)
|
0.4
|
|
|||||
June 30, 2016
|
$
|
(230.5
|
)
|
$
|
(33.9
|
)
|
$
|
(0.2
|
)
|
$
|
(4.3
|
)
|
$
|
(268.9
|
)
|
•
|
adverse developments in economic conditions and, particularly, in conditions in the automotive and transportation industries;
|
•
|
volatility in the capital, credit and commodities markets;
|
•
|
our inability to successfully execute on our growth strategy;
|
•
|
increased competition;
|
•
|
weather conditions that may temporarily reduce the demand for some of our products;
|
•
|
reduced demand for some of our products as a result of improved safety features on vehicles and insurance company influence;
|
•
|
risks of the loss of any of our significant customers or the consolidation of MSOs, distributors and/or body shops;
|
•
|
our reliance on our distributor network and third-party delivery services for the distribution and export of certain of our products;
|
•
|
price increases or interruptions in our supply of raw materials;
|
•
|
failure to develop and market new products and manage product life cycles;
|
•
|
business disruptions, security threats and security breaches, including cyber security risks;
|
•
|
risks associated with our non-U.S. operations;
|
•
|
currency-related risks;
|
•
|
terrorist acts, conflicts, wars and natural disasters that may materially adversely affect our business, financial condition and results of operations;
|
•
|
failure to comply with the anti-corruption laws of the United States and various international jurisdictions;
|
•
|
failure to comply with anti-terrorism laws and regulations and applicable trade embargoes;
|
•
|
significant environmental liabilities and costs as a result of our current and past operations or products, including operations or products related to our business prior to the Acquisition;
|
•
|
transporting certain materials that are inherently hazardous due to their toxic nature;
|
•
|
litigation and other commitments and contingencies;
|
•
|
our ability to recruit and retain the experienced and skilled personnel we need to compete;
|
•
|
unexpected liabilities under any pension plans applicable to our employees;
|
•
|
work stoppages, union negotiations, labor disputes and other matters associated with our labor force;
|
•
|
our ability to protect and enforce intellectual property rights;
|
•
|
intellectual property infringement suits against us by third parties;
|
•
|
our ability to realize the anticipated benefits of any acquisitions and divestitures;
|
•
|
our joint ventures’ ability to operate according to our business strategy should our joint venture partners fail to fulfill their obligations;
|
•
|
risk that the insurance we maintain may not fully cover all potential exposures;
|
•
|
the risk of impairment charges related to goodwill, identifiable intangible assets and fixed assets;
|
•
|
our substantial indebtedness;
|
•
|
our ability to obtain additional capital on commercially reasonable terms may be limited;
|
•
|
the amount of the costs, fees, expenses and charges related to being a public company;
|
•
|
any statements of belief and any statements of assumptions underlying any of the foregoing;
|
•
|
other factors disclosed in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2016 and our other filings with the Securities and Exchange Commission; and
|
•
|
other factors beyond our control.
|
•
|
Performance Coatings:
Net sales excluding currency translation increased approximately 8.7% driven primarily by stronger volumes in our industrial end-market, including the impacts of acquisitions combined with organic volume growth in North America and Asia.
|
•
|
Transportation Coatings:
Net sales excluding currency translation increased approximately 1.2% driven by stronger volumes in both our light vehicle and commercial vehicle end-markets. These volume increases were offset by lower average selling prices primarily in North America and Asia with select original equipment manufacturers within the light vehicle end market.
|
(In millions)
|
Three Months Ended June 30,
|
2017 vs 2016
|
Six Months Ended June 30,
|
2017 vs 2016
|
||||||||||||
|
2017
|
2016
|
% change
|
2017
|
2016
|
% change
|
||||||||||
Performance Coatings
|
|
|
|
|
|
|
||||||||||
Refinish
|
$
|
421.2
|
|
$
|
447.3
|
|
(5.8
|
)%
|
$
|
809.8
|
|
$
|
827.6
|
|
(2.2
|
)%
|
Industrial
|
241.7
|
|
183.3
|
|
31.9
|
%
|
439.5
|
|
347.6
|
|
26.4
|
%
|
||||
Total Net sales Performance Coatings
|
662.9
|
|
630.6
|
|
5.1
|
%
|
1,249.3
|
|
1,175.2
|
|
6.3
|
%
|
||||
Transportation Coatings
|
|
|
|
|
|
|
||||||||||
Light Vehicle
|
334.3
|
|
344.4
|
|
(2.9
|
)%
|
674.3
|
|
673.8
|
|
0.1
|
%
|
||||
Commercial Vehicle
|
91.3
|
|
88.6
|
|
3.0
|
%
|
172.7
|
|
171.8
|
|
0.5
|
%
|
||||
Total Net sales Transportation Coatings
|
425.6
|
|
433.0
|
|
(1.7
|
)%
|
847.0
|
|
845.6
|
|
0.2
|
%
|
||||
Total Net sales
|
$
|
1,088.5
|
|
$
|
1,063.6
|
|
2.3
|
%
|
$
|
2,096.3
|
|
$
|
2,020.8
|
|
3.7
|
%
|
•
|
EBITDA and Adjusted EBITDA:
|
•
|
do not reflect the significant interest expense on our debt, including the Senior Secured Credit Facilities and the New Senior Notes (as defined herein); and
|
•
|
eliminate the impact of income taxes on our results of operations;
|
•
|
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any expenditures for such replacements; and
|
•
|
other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||
|
2017
|
2016
|
2017
|
2016
|
||||||||
Net income (loss)
|
$
|
(18.9
|
)
|
$
|
52.3
|
|
$
|
47.0
|
|
$
|
85.1
|
|
Interest expense, net
|
35.6
|
|
47.8
|
|
71.4
|
|
97.9
|
|
||||
Provision for income taxes
|
9.5
|
|
16.6
|
|
19.4
|
|
30.6
|
|
||||
Depreciation and amortization
|
84.9
|
|
78.6
|
|
167.3
|
|
154.6
|
|
||||
EBITDA
|
111.1
|
|
195.3
|
|
305.1
|
|
368.2
|
|
||||
Debt extinguishment and refinancing related costs (a)
|
12.4
|
|
2.3
|
|
12.4
|
|
2.3
|
|
||||
Foreign exchange remeasurement losses (b)
|
6.0
|
|
18.0
|
|
4.8
|
|
25.5
|
|
||||
Long-term employee benefit plan adjustments (c)
|
0.1
|
|
0.7
|
|
0.5
|
|
1.3
|
|
||||
Termination benefits and other employee related costs (d)
|
—
|
|
7.0
|
|
0.8
|
|
8.9
|
|
||||
Consulting and advisory fees (e)
|
—
|
|
2.6
|
|
(0.1
|
)
|
5.6
|
|
||||
Transition-related costs (f)
|
3.9
|
|
—
|
|
3.9
|
|
—
|
|
||||
Offering and transactional costs (g)
|
6.6
|
|
1.4
|
|
5.6
|
|
1.4
|
|
||||
Stock-based compensation (h)
|
10.9
|
|
11.4
|
|
21.3
|
|
21.6
|
|
||||
Other adjustments (i)
|
2.6
|
|
1.9
|
|
2.8
|
|
3.7
|
|
||||
Dividends in respect of noncontrolling interest (j)
|
(0.5
|
)
|
—
|
|
(0.9
|
)
|
(1.5
|
)
|
||||
Deconsolidation impacts and impairments (k)
|
74.1
|
|
10.5
|
|
74.1
|
|
10.5
|
|
||||
Adjusted EBITDA
|
$
|
227.2
|
|
$
|
251.1
|
|
$
|
430.3
|
|
$
|
447.5
|
|
(a)
|
In April 2016, we prepaid
$100.0 million
of the outstanding principal on the 2020 Dollar Term Loans and recorded a non-cash loss on extinguishment of
$2.3 million
for the three and six months ended June 30, 2016. In connection with the refinancing of our Dollar Term Loans during the three and six months ended June 30, 2017, we recorded losses of
$12.4 million
. We do not consider these to be indicative of our ongoing operating performance.
|
(b)
|
Eliminates foreign exchange gains and losses resulting from the remeasurement of assets and liabilities denominated in foreign currencies, net of impacts associated with our foreign currency instruments used to hedge our balance sheet exposures. Exchange effects attributable to the remeasurement of our Venezuelan subsidiary represented losses of $0.3 million and $1.8 million for the three and six months ended June 30, 2017, respectively, and losses of $15.6 million and $22.7 million for the three and six months ended June 30, 2016, respectively.
|
(c)
|
Eliminates the non-cash, non-service cost components of long-term employee benefit costs.
|
(d)
|
Represents expenses primarily related to employee termination benefits and other employee-related costs associated with our Axalta Way initiatives, which are not considered indicative of our ongoing operating performance.
|
(e)
|
Represents fees paid to consultants for professional services primarily related to our Axalta Way initiatives, which are not considered indicative of our ongoing operating performance.
|
(f)
|
Represents integration costs related to the acquisition of the Industrial Wood business that was a carve-out business from Valspar. These amounts are not considered indicative of our ongoing operating performance.
|
(g)
|
Represents acquisition-related expenses, including changes in the fair value of contingent consideration, as well as costs associated with the 2016 secondary offerings of our common shares by Carlyle, both of which are not considered indicative of our ongoing operating performance.
|
(h)
|
Represents non-cash costs associated with stock-based compensation.
|
(i)
|
Represents costs for certain non-operational or non-cash (gains) and losses unrelated to our core business and which we do not consider indicative of ongoing operations, including equity investee dividends, indemnity losses (gains) associated with the Acquisition, losses (gains) on sale and disposal of property, plant and equipment, losses (gains) on the remaining foreign currency derivative instruments and non-cash fair value inventory adjustments associated with our business combinations.
|
(j)
|
Represents the payment of dividends to our joint venture partners by our consolidated entities that are not 100% owned, which are reflected to show the cash operating performance of the entities on Axalta's financial statements.
|
(k)
|
In conjunction with the deconsolidation of our Venezuelan subsidiary during the three and six months ended June 30, 2017, we recorded a loss on deconsolidation of
$70.9 million
. During the three and six months ended June 30, 2017 and 2016, we recorded non-cash impairment charges related to a manufacturing facility previously announced for closure of $3.2 million and to a real estate investment of
$10.5 million
, respectively. We do not consider these to be indicative of our ongoing operating performance.
|
|
Three Months Ended June 30,
|
|||||
(In millions)
|
2017
|
2016
|
||||
Net sales
|
$
|
1,088.5
|
|
$
|
1,063.6
|
|
Other revenue
|
6.1
|
|
7.0
|
|
||
Total revenue
|
1,094.6
|
|
1,070.6
|
|
||
Cost of goods sold
|
690.0
|
|
649.0
|
|
||
Selling, general and administrative expenses
|
246.1
|
|
237.7
|
|
||
Venezuela deconsolidation charge
|
70.9
|
|
—
|
|
||
Research and development expenses
|
16.4
|
|
14.1
|
|
||
Amortization of acquired intangibles
|
23.8
|
|
20.3
|
|
||
Income from operations
|
47.4
|
|
149.5
|
|
||
Interest expense, net
|
35.6
|
|
47.8
|
|
||
Other expense, net
|
21.2
|
|
32.8
|
|
||
Income (loss) before income taxes
|
(9.4
|
)
|
68.9
|
|
||
Provision for income taxes
|
9.5
|
|
16.6
|
|
||
Net income (loss)
|
(18.9
|
)
|
52.3
|
|
||
Less: Net income attributable to noncontrolling interests
|
1.9
|
|
1.6
|
|
||
Net income (loss) attributable to controlling interests
|
$
|
(20.8
|
)
|
$
|
50.7
|
|
|
Six Months Ended June 30,
|
|||||
(In millions)
|
2017
|
2016
|
||||
Net sales
|
$
|
2,096.3
|
|
$
|
2,020.8
|
|
Other revenue
|
12.0
|
|
13.0
|
|
||
Total revenue
|
2,108.3
|
|
2,033.8
|
|
||
Cost of goods sold
|
1,331.1
|
|
1,255.4
|
|
||
Selling, general and administrative expenses
|
471.4
|
|
456.8
|
|
||
Venezuela deconsolidation charge
|
70.9
|
|
—
|
|
||
Research and development expenses
|
32.0
|
|
26.7
|
|
||
Amortization of acquired intangibles
|
45.5
|
|
40.5
|
|
||
Income from operations
|
157.4
|
|
254.4
|
|
||
Interest expense, net
|
71.4
|
|
97.9
|
|
||
Other expense, net
|
19.6
|
|
40.8
|
|
||
Income before income taxes
|
66.4
|
|
115.7
|
|
||
Provision for income taxes
|
19.4
|
|
30.6
|
|
||
Net income
|
47.0
|
|
85.1
|
|
||
Less: Net income attributable to noncontrolling interests
|
3.7
|
|
2.5
|
|
||
Net income attributable to controlling interests
|
$
|
43.3
|
|
$
|
82.6
|
|
|
Three Months Ended June 30,
|
|||||
(In millions)
|
2017
|
2016
|
||||
Net Sales
|
|
|
||||
Performance Coatings
|
$
|
662.9
|
|
$
|
630.6
|
|
Transportation Coatings
|
425.6
|
|
433.0
|
|
||
Total
|
$
|
1,088.5
|
|
$
|
1,063.6
|
|
Segment Adjusted EBITDA
|
|
|
||||
Performance Coatings
|
$
|
146.8
|
|
$
|
155.8
|
|
Transportation Coatings
|
80.4
|
|
95.3
|
|
||
Total
|
$
|
227.2
|
|
$
|
251.1
|
|
|
Six Months Ended June 30,
|
|||||
(In millions)
|
2017
|
2016
|
||||
Net Sales
|
|
|
||||
Performance Coatings
|
$
|
1,249.3
|
|
$
|
1,175.2
|
|
Transportation Coatings
|
847.0
|
|
845.6
|
|
||
Total
|
$
|
2,096.3
|
|
$
|
2,020.8
|
|
Segment Adjusted EBITDA
|
|
|
||||
Performance Coatings
|
$
|
263.7
|
|
$
|
267.5
|
|
Transportation Coatings
|
166.6
|
|
180.0
|
|
||
Total
|
$
|
430.3
|
|
$
|
447.5
|
|
|
Six Months Ended June 30,
|
|||||
(In millions)
|
2017
|
2016
|
||||
Net cash provided by (used for):
|
|
|
||||
Operating activities:
|
|
|
||||
Net income
|
$
|
47.0
|
|
$
|
85.1
|
|
Depreciation and amortization
|
167.3
|
|
154.6
|
|
||
Amortization of deferred financing costs and original issue discount
|
4.2
|
|
10.1
|
|
||
Debt extinguishment
|
12.4
|
|
2.3
|
|
||
Deferred income taxes
|
(12.9
|
)
|
(7.2
|
)
|
||
Realized and unrealized foreign exchange (gains) losses, net
|
(2.4
|
)
|
26.0
|
|
||
Stock-based compensation
|
21.3
|
|
21.6
|
|
||
Asset impairment
|
3.2
|
|
10.5
|
|
||
Loss on deconsolidation of Venezuela
|
70.9
|
|
—
|
|
||
Other non-cash items
|
2.8
|
|
(2.9
|
)
|
||
Net income adjusted for non-cash items
|
313.8
|
|
300.1
|
|
||
Changes in operating assets and liabilities
|
(219.7
|
)
|
(114.1
|
)
|
||
Operating activities
|
94.1
|
|
186.0
|
|
||
Investing activities
|
(595.3
|
)
|
(67.2
|
)
|
||
Financing activities
|
437.3
|
|
(115.0
|
)
|
||
Effect of exchange rate changes on cash
|
10.8
|
|
(8.3
|
)
|
||
Net decrease in cash and cash equivalents
|
$
|
(53.1
|
)
|
$
|
(4.5
|
)
|
(In millions)
|
June 30, 2017
|
December 31, 2016
|
||||
2024 Dollar Term Loans
|
$
|
2,000.0
|
|
$
|
—
|
|
2023 Dollar Term Loans
|
—
|
|
1,545.0
|
|
||
2023 Euro Term Loans
|
454.7
|
|
417.6
|
|
||
2024 Dollar Senior Notes
|
500.0
|
|
500.0
|
|
||
2024 Euro Senior Notes
|
382.7
|
|
349.7
|
|
||
2025 Euro Senior Notes
|
514.1
|
|
469.8
|
|
||
Short-term and other borrowings
|
59.1
|
|
39.8
|
|
||
Unamortized original issue discount
|
(9.9
|
)
|
(10.0
|
)
|
||
Unamortized deferred financing costs
|
(41.8
|
)
|
(48.0
|
)
|
||
|
$
|
3,858.9
|
|
$
|
3,263.9
|
|
Less:
|
|
|
||||
Short term borrowings
|
$
|
10.9
|
|
$
|
8.3
|
|
Current portion of long-term borrowings
|
24.6
|
|
19.6
|
|
||
Long-term debt
|
$
|
3,823.4
|
|
$
|
3,236.0
|
|
|
Contractual Obligations Due In:
|
||||||||||||||
(In millions)
|
Total
|
Remainder of 2017
|
2018-2019
|
2020-2021
|
Thereafter
|
||||||||||
Debt, including current portion (1)
|
|
|
|
|
|
||||||||||
Senior Secured Credit Facilities, consisting of the following:
|
|
|
|
|
|
||||||||||
Term Loan Facilities:
|
|
|
|
|
|
||||||||||
2024 Dollar Term Loans
|
$
|
2,000.0
|
|
$
|
10.0
|
|
$
|
40.0
|
|
$
|
40.0
|
|
$
|
1,910.0
|
|
2023 Euro Term Loans
|
454.7
|
|
2.3
|
|
9.1
|
|
9.1
|
|
434.2
|
|
|||||
Senior Notes, consisting of the following:
|
|
|
|
|
|
||||||||||
2024 Dollar Senior Notes
|
500.0
|
|
—
|
|
—
|
|
—
|
|
500.0
|
|
|||||
2024 Euro Senior Notes
|
382.7
|
|
—
|
|
—
|
|
—
|
|
382.7
|
|
|||||
2025 Euro Senior Notes
|
514.1
|
|
—
|
|
—
|
|
—
|
|
514.1
|
|
|||||
Other borrowings (2)
|
13.3
|
|
11.1
|
|
1.5
|
|
0.5
|
|
0.2
|
|
|||||
Interest payments (3)
|
971.5
|
|
71.6
|
|
283.2
|
|
279.3
|
|
337.4
|
|
|||||
Sale-leaseback financing (4)
|
27.9
|
|
1.0
|
|
3.5
|
|
3.5
|
|
19.9
|
|
|||||
Operating leases
|
130.0
|
|
22.0
|
|
54.2
|
|
29.7
|
|
24.1
|
|
|||||
Pension contributions (5)
|
6.4
|
|
6.4
|
|
—
|
|
—
|
|
—
|
|
|||||
Purchase obligations (6)
|
194.8
|
|
36.9
|
|
137.4
|
|
7.7
|
|
12.8
|
|
|||||
Uncertain tax positions, including interest and penalties (7)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
Total
|
$
|
5,195.4
|
|
$
|
161.3
|
|
$
|
528.9
|
|
$
|
369.8
|
|
$
|
4,135.4
|
|
(1)
|
During the three and six months ended June 30, 2017 we refinanced our 2023 Dollar Term Loans with our 2024 Dollar Term Loans (see Note 15 to the interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). This resulted in a significant increase in our obligations for the years thereafter 2021. Amounts assume that the Senior Secured Credit Facilities and New Senior Notes are repaid upon maturity, and the Revolving Credit Facility remains undrawn, which may or may not reflect future events.
|
(2)
|
Other borrowings excludes debt associated with a lease treated as indebtedness, discussed within end-note 4, below, and a build-to-suit lease arrangement, as these amounts do not reflect the contractual cash obligations of the Company.
|
(3)
|
Future interest payments include commitment fees on the unused portion of the Revolving Credit Facility, and reflect the interest payments on our Current Term Loans and New Senior Notes. Future interest payments assume June 30, 2017 variable interest rates will prevail throughout all future periods. Amounts represent the timing of interest accruals. Actual interest payments and repayment amounts may change depending on impact of interest rates on variable rate indebtedness.
|
(4)
|
During the year ended December 31, 2016 we began treating one of our leases as a sale-leaseback financing obligation, which was previously treated as a build-to-suit lease. The cash rental costs to be paid over the term of the lease are reflected within the table above.
|
(5)
|
We expect to make contributions to our defined benefit pension plans beyond 2017; however, the amount of any contributions are dependent on the future economic environment and investment returns, and we are unable to reasonably estimate the pension contributions beyond 2017.
|
(6)
|
During 2016 and 2017, we completed business acquisitions which require certain commitments, including to acquire remaining interests and pay contingent consideration. At June 30, 2017 we are committed to pay $2.1 million during the remainder of 2017 and $69.6 million during the years ended December 31, 2018 and 2019. Commitments related to contingent consideration arrangements are subject to change based on future performance.
|
(7)
|
At June 30, 2017, we had approximately $16.1 million of gross uncertain tax positions, including interest and penalties that could result in potential payments. Due to the high degree of uncertainty regarding future timing of cash flows associated with these liabilities, we are unable to estimate the years in which settlement will occur with the respective taxing authorities.
|
(In millions)
|
|
||
Remainder of 2017
|
$
|
23.4
|
|
2018
|
26.2
|
|
|
2019
|
25.4
|
|
|
2020
|
25.3
|
|
|
2021
|
25.2
|
|
|
Thereafter
|
3,750.8
|
|
|
Total
|
$
|
3,876.3
|
|
(in millions, except per share data)
|
|
|
|
|
||||||
Month
|
Total Number of Shares Purchased
|
Average Price Paid per Share
|
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 Agreement
1
|
||||||
April 2017
|
—
|
|
—
|
|
—
|
|
|
|||
May 2017
|
0.3
|
|
$
|
30.95
|
|
0.3
|
|
$
|
666.7
|
|
June 2017
|
—
|
|
—
|
|
—
|
|
—
|
|
||
Total
|
0.3
|
|
$
|
30.95
|
|
0.3
|
|
$
|
666.7
|
|
|
||
|
|
AXALTA COATING SYSTEMS LTD.
|
|
|
|
Date: August 3, 2017
|
|
By: /s/ Charles W. Shaver
|
|
|
Charles W. Shaver
|
|
|
Chairman of the Board and Chief Executive Officer
|
|
|
|
Date: August 3, 2017
|
|
By: /s/ Robert W. Bryant
|
|
|
Robert W. Bryant
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
|
|
|
Date: August 3, 2017
|
|
By: /s/ Sean M. Lannon
|
|
|
Sean M. Lannon
|
|
|
Vice President, Corporate Finance and Global Controller
|
|
|
(Principal Accounting Officer)
|
EXHIBIT NO.
|
DESCRIPTION OF EXHIBITS
|
|
|
2.1
|
Amendment to Asset Purchase Agreement, dated as of May 31, 2017, by and between The Valspar Corporation, Axalta Coating Systems Ltd. and, solely for purposes of Section 5.1(a), 5.1(b), 5.3, 5.8, 5.13 and 10.13, The Sherwin-Williams Company
|
|
|
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1††
|
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
|
|
|
32.2††
|
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
|
|
|
101†
|
INS - XBRL Instance Document
|
|
|
101†
|
SCH - XBRL Taxonomy Extension Schema Document
|
|
|
101†
|
CAL - XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
101†
|
DEF - XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
101†
|
LAB - XBRL Taxonomy Extension Label Linkbase Document
|
|
|
101†
|
PRE - XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
†
|
In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections.
|
|
|
††
|
This certificate is being furnished solely to accompany the report pursuant to 18 U.S.C. Section 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
|
a.
|
Section 1.1(b) of the Seller Disclosure Schedule is hereby amended and restated in the form attached hereto as
Exhibit A
.
|
b.
|
The definition of “
Target Working Capital
” is hereby amended by replacing “$20,550,000” with “$8,550,000”.
|
c.
|
Section 2.4(b)(i) of the Seller Disclosure Schedules is hereby amended and supplemented by adding the following:
|
d.
|
Item 2 of Section 2.5(b) of the Seller Disclosure Schedules is hereby amended and restated as follows:
|
e.
|
Section 2.7(d) of the Seller Disclosure Schedules is hereby amended and supplemented by adding a new item 6 as follows:
|
f.
|
Section 2.9 of the Seller Disclosure Schedules is hereby amended and supplemented by adding the information set forth in
Exhibit B
at the end of the Sample Closing Statement.
|
g.
|
Section 3.5 of the Seller Disclosure Schedules is hereby amended and supplemented by adding the information set forth in
Exhibit C
.
|
h.
|
Section 3.5
is hereby amended and supplemented by adding the following sentence:
|
i.
|
The second sentence of
Section 3.15(h)
is hereby amended by deleting the reference to Section 3.15(k)(ii) and 3.15(k)(iii) of the Seller Disclosure Letter and replacing them with 3.15(h)(ii) and 3.15(h)(iii), respectively.
|
j.
|
A new Section 3.23 is hereby added as follows:
|
k.
|
The first sentence of
Section 10.2
is hereby amended and restated as follows:
|
l.
|
ARTICLE X is hereby amended and supplemented by adding a new Section 10.14 as follows:
|
a.
|
ARTICLE X of the Agreement is incorporated by reference into this Amendment and will apply to the Seller, Purchaser and Parent
mutatis mutandis
.
|
b.
|
Except as specifically provided for in this Amendment, the Agreement will remain unmodified and in full force and effect.
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Axalta Coating Systems Ltd.;
|
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.
|
By:
|
/s/ Charles W. Shaver
|
Name:
|
Charles W. Shaver
|
Title:
|
Chairman of the Board and Chief Executive Officer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Axalta Coating Systems Ltd.;
|
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.
|
By:
|
/s/ Robert W. Bryant
|
Name:
|
Robert W. Bryant
|
Title:
|
Executive Vice President and Chief Financial Officer
|
(1)
|
The Quarterly Report on Form 10-Q of the Company for the quarterly period ended
June 30, 2017
(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.
|
By:
|
/s/ Charles W. Shaver
|
Name:
|
Charles W. Shaver
|
Title:
|
Chairman of the Board and Chief Executive Officer
|
(1)
|
The Quarterly Report on Form 10-Q of the Company for the quarterly period ended
June 30, 2017
(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.
|
By:
|
/s/ Robert W. Bryant
|
Name:
|
Robert W. Bryant
|
Title:
|
Executive Vice President and Chief Financial Officer
|