Axalta Coating Systems Ltd. (Form: 10-Q, Received: 04/25/2019 07:00:20)

Three months ended March 31,

Effective Tax Rate

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-36733

AXALTA COATING SYSTEMS LTD.

(Exact name of registrant as specified in its charter)



Bermuda	2851	98-1073028
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

Two Commerce Square

2001 Market Street

Suite 3600

Philadelphia, Pennsylvania 19103

(855) 547-1461

(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:



Common Shares, $1.00 par value				New York Stock Exchange
(title of class)				(Exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

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 ý 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 ý No ¨

Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ý Non-accelerated filer ¨ Accelerated filer ¨ Smaller reporting company ¨ Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of April 18, 2019, there were 234,601,688 shares of the registrant’s common shares outstanding.

Table of Contents



PART I		Financial Information
	ITEM 1.	Financial Statements (Unaudited)	3
		Condensed Consolidated Statements of Operations	3
		Condensed Consolidated Statements of Comprehensive Income (Loss)	4
		Condensed Consolidated Balance Sheets	5
		Condensed Consolidated Statement of Cash Flows	6
		Notes to Condensed Consolidated Financial Statements	7
	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	41
	ITEM 4.	Controls and Procedures	41
PART II		Other Information
	ITEM 1.	Legal Proceedings	42
	ITEM 1A.	Risk Factors	42
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
	ITEM 3.	Defaults Upon Senior Securities	42
	ITEM 4.	Mine Safety Disclosures	42
	ITEM 5.	Other Information	42
	ITEM 6.	Exhibits	43
		Signatures	44

Table of Contents

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

AXALTA COATING SYSTEMS LTD.

Condensed Consolidated Statements of Operations (Unaudited)

(In millions, except per share data)



	Three Months Ended March 31,
	2019			2018
Net sales	$	1,119.3		$	1,172.0
Cost of goods sold	751.3			776.0
Selling, general and administrative expenses	217.5			227.8
Loss on assets held for sale	5.2			—
Research and development expenses	18.2			19.3
Amortization of acquired intangibles	28.5			28.9
Income from operations	98.6			120.0
Interest expense, net	41.3			39.4
Other income, net	(1.0		)	(2.2		)
Income before income taxes	58.3			82.8
Provision for income taxes	14.2			11.8
Net income	44.1			71.0
Less: Net income attributable to noncontrolling interests	0.7			1.1
Net income attributable to controlling interests	$	43.4		$	69.9
Basic earnings per share	$	0.19		$	0.29
Diluted earnings per share	$	0.18		$	0.28

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AXALTA COATING SYSTEMS LTD.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In millions)



	Three Months Ended March 31,
	2019			2018
Net income	$	44.1		$	71.0
Other comprehensive (loss) income, before tax:
Foreign currency translation adjustments	13.3			43.1
Unrealized (loss) gain on derivatives	(14.6		)	7.9
Unrealized gain on pension plan obligations	0.5			0.3
Other comprehensive (loss) income, before tax	(0.8		)	51.3
Income tax (benefit) provision related to items of other comprehensive (loss) income	(1.7		)	1.3
Other comprehensive income, net of tax	0.9			50.0
Comprehensive income	45.0			121.0
Less: Comprehensive (loss) income attributable to noncontrolling interests	1.2			2.0
Comprehensive income attributable to controlling interests	$	43.8		$	119.0

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AXALTA COATING SYSTEMS LTD.

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except per share data)



	March 31, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	501.1		$	693.6
Restricted cash	2.8			2.8
Accounts and notes receivable, net	920.5			860.8
Inventories	626.8			613.0
Prepaid expenses and other current assets	210.4			139.4
Total current assets	2,261.6			2,309.6
Property, plant and equipment, net	1,274.4			1,298.2
Goodwill	1,216.1			1,230.8
Identifiable intangibles, net	1,310.8			1,348.0
Other assets	610.5			489.1
Total assets	$	6,673.4		$	6,675.7
Liabilities, Shareholders’ Equity
Current liabilities:
Accounts payable	$	530.9		$	522.8
Current portion of borrowings	43.5			42.2
Other accrued liabilities	447.1			475.6
Total current liabilities	1,021.5			1,040.6
Long-term borrowings	3,809.0			3,821.8
Accrued pensions	257.6			261.9
Deferred income taxes	138.5			140.8
Other liabilities	167.2			100.1
Total liabilities	5,393.8			5,365.2
Commitments and contingencies (Note 6)
Shareholders’ equity
Common shares, $1.00 par, 1,000.0 shares authorized, 247.8 and 246.7 shares issued at March 31, 2019 and December 31, 2018, respectively	247.0			245.3
Capital in excess of par	1,431.6			1,409.5
Retained earnings	241.3			198.6
Treasury shares, at cost 13.6 and 11.1 shares at March 31, 2019 and December 31, 2018, respectively	(378.0		)	(312.2		)
Accumulated other comprehensive loss	(335.7		)	(336.1		)
Total Axalta shareholders’ equity	1,206.2			1,205.1
Noncontrolling interests	73.4			105.4
Total shareholders’ equity	1,279.6			1,310.5
Total liabilities and shareholders’ equity	$	6,673.4		$	6,675.7

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AXALTA COATING SYSTEMS LTD.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)



	Three months ended March 31,
	2019			2018
Operating activities:
Net income	$	44.1		$	71.0
Adjustment to reconcile net income to cash used for operating activities:
Depreciation and amortization	91.6			91.9
Amortization of deferred financing costs and original issue discount	2.2			1.9
Deferred income taxes	0.4			(4.9		)
Realized and unrealized foreign exchange (gains) losses, net	0.9			(1.3		)
Stock-based compensation	6.7			8.4
Loss on assets held for sale	5.2			—
Interest income on swaps designated as net investment hedges	(3.5		)	—
Other non-cash, net	(0.3		)	(5.3		)
Changes in operating assets and liabilities:
Trade accounts and notes receivable	(90.4		)	(52.3		)
Inventories	(22.2		)	(42.9		)
Prepaid expenses and other assets	(60.5		)	(30.2		)
Accounts payable	35.4			33.9
Other accrued liabilities	(69.2		)	(87.0		)
Other liabilities	1.7			(4.2		)
Cash used for operating activities	(57.9		)	(21.0		)
Investing activities:
Acquisitions, net of cash acquired	(1.7		)	(78.2		)
Purchase of property, plant and equipment	(20.5		)	(39.5		)
Interest proceeds on swaps designated as net investment hedges	3.5			—
Other investing activities, net	(0.1		)	—
Cash used for investing activities	(18.8		)	(117.7		)
Financing activities:
Payments on short-term borrowings	(11.3		)	(9.3		)
Payments on long-term borrowings	(7.3		)	(6.9		)
Financing-related costs	(0.9		)	—
Purchase of treasury stock	(65.7		)	(3.3		)
Proceeds from option exercises	11.4			6.2
Dividends paid to non-controlling interests	(1.1		)	(1.0		)
Investment in non-controlling interest	(26.9		)	(26.9		)
Cash used for financing activities	(101.8		)	(41.2		)
Decrease in cash	(178.5		)	(179.9		)
Effect of exchange rate changes on cash	0.8			10.3
Cash at beginning of period	696.4			772.9
Cash at end of period	$	518.7		$	603.3

Cash at end of period reconciliation:
Cash and cash equivalents	$	501.1		$	600.4
Restricted cash	2.8			2.9
Cash and restricted cash held for sale	14.8			—
Cash at end of period	$	518.7		$	603.3

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The interim condensed consolidated financial statements included herein are unaudited. In the opinion of management, these statements include all adjustments, consisting only of normal, recurring adjustments, necessary for a fair statement of the financial position of Axalta Coating Systems Ltd., a Bermuda exempted company limited by shares, and its consolidated subsidiaries ("Axalta," the "Company," "we," "our" and "us") at March 31, 2019 and December 31, 2018, the results of operations and comprehensive income (loss) for the three months ended March 31, 2019 and 2018, and its cash flows for the three months then ended. All intercompany balances and transactions have been eliminated.

These interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The interim unaudited condensed consolidated financial statements include the accounts of Axalta and its subsidiaries, and entities in which a controlling interest is maintained. Certain of our joint ventures are accounted for on a one-month lag basis, the effect of which is not material.

The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for a full year.

Reclassifications

During the three months ended March 31, 2019, the condensed consolidated statements of operations were updated to combine "Net sales" and "Other revenue" into "Net sales". The 2018 condensed consolidated statements of operations have been updated for comparability with the current year presentation.

Correction of Immaterial Errors to Prior Period Financial Statements

During the three months ended March 31, 2019, the Company identified and corrected an error that affected the 2018 previously-issued consolidated and condensed financial statements. Specifically, the financial statements reflected an investment in noncontrolling interest payment of $26.9 million within investing activities as opposed to its appropriate classification within financing activities. The Company determined that these corrections were immaterial to the previously-issued financial statements. However, given the significance of the error and for comparability purposes, we have revised the condensed consolidated statements of cash flows for the three months ended March 31, 2018, and will revise annual and interim periods in future filings. This revision has no impacts on the consolidated or condensed statements of operations or balance sheets.



	Three months ended March 31, 2018
	As Reported			Revised
Cash used for investing activities	$	(144.6	)	$	(117.7	)
Cash used for financing activities	$	(14.3	)	$	(41.2	)

Recently Adopted Accounting Guidance

In February 2016, the FASB issued ASU 2016-02, "Leases," which, together with amendments comprising ASC 842, requires lessees to identify arrangements that should be accounted for as leases and generally 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. Early adoption is permitted prior to this date. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either the adoption date or the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We elected to adopt the new standard on January 1, 2019 and use the adoption date as our date of initial application. As a result, historical financial information will not be updated, and the disclosures required under the new standard will not be provided as of and for periods before January 1, 2019. See Note 7 for further information on the implementation of the standard.

The new standard provides a number of optional practical expedients in transition. We have elected the package of practical expedients, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We have also elected the practical expedient pertaining to land easements which permits entities to forgo the evaluation of existing land easement arrangements in transition to determine if they contain a lease. We did not elect the use-of-hindsight practical expedient. The new standard also provides practical expedients for an entity’s ongoing accounting. We have elected the short term lease exception and we will not recognize ROU assets or lease liabilities for qualifying leases (leases with a term of less than 12 months from lease commencement). We also elected the accounting policy election to not separate lease and non-lease components for all asset classes.

The Company implemented an outsourced software solution to support the ongoing accounting requirements that this standard will have on our consolidated financial statements. We have evaluated the completeness and accuracy of lease data entered into the software solution and updated our processes, policies and internal controls. Changes to our internal controls covered the identification, accounting and disclosure of leases both upon adoption and subsequent to adoption. Adoption of the new standard at January 1, 2019 resulted in a one-time loss to retained earnings of $0.7 million on our condensed consolidated balance sheets and consolidated statement of changes in shareholders’ equity related to the net difference of derecognition of existing assets and debt obligations associated with our leases currently accounted for as sale-leaseback financings, for which the ASU requires accounting for as a lease at the date of initial application.

Of the accounting standards we have adopted in 2019, the below standard did not have a material impact:



ASU		Effective Date
2018-16	Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes	January 1, 2019

(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.

For certain customer arrangements within our light vehicle, industrial and commercial vehicle end-markets, revenue is recognized upon shipment, as this is the point in time we have concluded that control of our product has transferred to our customer based on our considerations of the indicators of control in the contracts, including right of use and risk and reward of ownership. For consignment arrangements, revenue is recognized upon actual consumption by our customers, as this represents the point in time that control is determined to have transferred to the customer based on the contractual arrangement.

In our refinish end-market, our product sales are typically supplied through a network of distributors. Control transfers and revenue is recognized when our products are delivered to our distribution customers. Variable consideration in the form of price, less discounts and rebates, are estimated and recorded, as a reduction to net sales, upon the sale of our products based on our ability to make a reasonable estimate of the amounts expected to be received or incurred. The estimates of variable consideration involve significant assumptions based on the best estimates of inventory held by distributors, applicable pricing, as well as the use of historical actuals for sales, discounts and rebates, which may result in changes in estimates in the future.

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 on the balance sheet. The contract asset balances at March 31, 2019 and December 31, 2018 were $45.2 million and $47.2 million, respectively.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

We provide certain customers with incremental up-front consideration, subject to clawback provisions, including Business Incentive Plan assets ("BIPs"), which is capitalized as a component of other assets and amortized over the estimated life of the contractual arrangement as a reduction of net sales. At March 31, 2019 and December 31, 2018, the total carrying value of BIPs were $190.5 million and $190.8 million, respectively, and are presented within other assets on the condensed consolidated balance sheets. For the three months ended March 31, 2019 and 2018, $17.1 million and $16.3 million, respectively, were amortized and reflected as reductions of net sales in the condensed consolidated statements of operations. The total carrying value of BIPs exclude other upfront incentives made in conjunction with long-term customer commitments of $81.9 million and $56.0 million at March 31, 2019 and December 31, 2018, respectively, which will be repaid in future periods.

See Note 18 for disaggregated net sales by end-market.

(3) ACQUISITIONS AND DIVESTITURES

During the three months ended March 31, 2019, we entered into an agreement to sell our 60.0% interest in a consolidated joint venture within our Performance Coatings segment. The results of operations of the portion of the business to be sold is included in continuing operations within the condensed consolidated statements of operations. All assets and liabilities of the disposal group have been classified as held for sale on our condensed consolidated balance sheet and recorded at the lower of carrying value and fair value less cost to sell, which resulted in a loss of $5.2 million for the three months ended March 31, 2019. The carrying amounts of the major classes of assets and liabilities that were classified as held for sale at March 31, 2019, within prepaid and other current assets and other accrued liabilities, respectively, as follows:



	March 31, 2019
Assets
Cash and cash equivalents	$	7.3
Restricted cash	7.5
Accounts and notes receivable, net	30.4
Inventories	7.3
Property, plant and equipment, net	8.4
Goodwill	5.6
Identifiable intangibles, net	1.8
Other assets	5.2
Loss on assets held for sale	(5.2		)
Assets held for sale	$	68.3
Liabilities
Accounts payable	16.5
Other accrued liabilities	6.5
Other liabilities	4.4
Liabilities held for sale	$	27.4

Other Activity

In addition, during the three months ended March 31, 2019, pursuant to the stock purchase agreement for a joint venture acquired during the year ended December 31, 2016, we were required to purchase the remaining interest in our consolidated entity of 24.5% for $26.9 million, increasing our total ownership percentage to 100.0%.

At March 31, 2019, for any business combination completed after March 31, 2018, we have not finalized the related purchase accounting and the amounts recorded represent preliminary values. We expect to finalize our purchase accounting during the respective measurement periods which will be no later than one year following the closing dates.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

(4) GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

Goodwill

The following table shows changes in the carrying amount of goodwill from December 31, 2018 to March 31, 2019 by reportable segment:



	Performance Coatings			Transportation Coatings			Total
December 31, 2018	$	1,151.5		$	79.3		$	1,230.8
Purchase accounting adjustments	0.7			—			0.7
Held for sale adjustment	(5.6		)	—			(5.6		)
Foreign currency translation	(9.1		)	(0.7		)	(9.8		)
March 31, 2019	$	1,137.5		$	78.6		$	1,216.1

Identifiable Intangible Assets

The following tables summarize the gross carrying amounts and accumulated amortization of identifiable intangible assets by major class:



March 31, 2019	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Weighted average amortization periods (years)
Technology	$	541.5	$	(271.4	)	$	270.1	10.4
Trademarks - indefinite-lived	265.8		—			265.8		Indefinite
Trademarks - definite-lived	100.2		(25.5		)	74.7		15.8
Customer relationships	924.4		(233.8		)	690.6		19.1
Other	15.7		(6.1		)	9.6		5.1
Total	$	1,847.6	$	(536.8	)	$	1,310.8



December 31, 2018	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Weighted average amortization periods (years)
Technology	$	545.7	$	(260.7	)	$	285.0	10.4
Trademarks—indefinite-lived	269.0		—			269.0		Indefinite
Trademarks—definite-lived	100.6		(24.0		)	76.6		15.8
Customer relationships	929.9		(222.9		)	707.0		19.1
Other	15.7		(5.3		)	10.4		5.1
Total	$	1,860.9	$	(512.9	)	$	1,348.0

The estimated amortization expense related to the fair value of acquired intangible assets for the remainder of 2019 and each of the succeeding five years is:



Remainder of 2019	$	87.5
2020	113.5
2021	112.9
2022	110.7
2023	71.5
2024	66.6

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

(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.

We have incurred costs in connection with involuntary termination benefits associated with our corporate-related initiatives and cost-saving opportunities associated with our Fit For Growth and Axalta Way initiatives. These amounts are recorded within selling, general and administrative expenses in the condensed consolidated statements of operations. The payments associated with these actions are expected to be completed within 12 to 24 months from the balance sheet date.

The following table summarizes the activities related to the restructuring reserves and expenses from December 31, 2018 to March 31, 2019:



	2019 Activity
Balance at December 31, 2018	$	102.7
Expenses, net of changes to estimates	1.3
Payments made	(14.0		)
Foreign currency translation	(1.5		)
Balance at March 31, 2019	$	88.5

The impacts to pre-tax earnings from incremental accelerated depreciation resulting from the previously announced closure of our manufacturing facility in Mechelen, Belgium site, for the three months ended March 31, 2019 were $6.1 million, which were recorded to cost of goods sold. There was no accelerated depreciation recorded during the three months ended March 31, 2018.

(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 March 31, 2019 and December 31, 2018, we had outstanding bank guarantees of $12.1 million and $12.7 million, respectively, which expire between 2019 and 2022. We monitor the obligations to evaluate whether we have a liability at the balance sheet date, for which none existed at March 31, 2019 and December 31, 2018.

Other

We are subject to various pending lawsuits, legal proceedings and other claims in the ordinary course of business, including civil, regulatory and environmental matters. These litigation matters may involve third-party indemnification obligations and/or insurance covering all or part of any potential damage against us. All of these matters are subject to many uncertainties and, accordingly, we cannot determine the ultimate outcome of the proceedings and other claims at this time, although management does not believe that such proceedings, individually or in the aggregate, will have a material adverse effect on the unaudited condensed consolidated financial statements of Axalta. The potential effects, if any, on such condensed consolidated financial statements will be recorded in the period in which these matters are probable and estimable.

(7) LEASES

We have operating and finance leases for certain warehouses, office spaces, land, and equipment. As described within Note 1, we adopted ASU 2016-02, "Leases," on January 1, 2019 requiring, among other changes, operating and finance leases with terms exceeding twelve months to be recognized as ROU assets and lease liabilities on the balance sheet.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

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 which 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.

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.

Supplemental balance sheet information related to leases is summarized as follows:



		March 31, 2019
Assets	Classification
Operating lease assets	Other assets ⁽¹⁾	$	95.5
Finance lease assets	Property, plant and equipment, net ⁽²⁾	70.3
Total leased assets		$	165.8
Liabilities
Current
Operating	Other accrued liabilities	$	28.1
Finance	Current portion of borrowings	2.9
Noncurrent
Operating	Other liabilities	71.8
Finance	Long-term borrowings	64.0
Total lease liabilities		$	166.8

⁽¹⁾Operating lease assets are recorded net of accumulated amortization of $5.0 million as of March 31, 2019.

⁽²⁾Finance lease assets are recorded net of accumulated amortization of $1.4 million as of March 31, 2019.

Components of lease expense are summarized as follows:



	Three months ended March 31
	2019
Finance lease cost
Amortization of right-of-use assets	$	1.0
Interest on lease liabilities	0.9
Operating lease cost	8.9
Variable lease cost	0.8
Short-term lease cost	0.3
Net lease cost	$	11.9

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

Supplemental cash flow information related to leases is summarized as follows:



	Three months ended March 31
	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	9.1
Operating cash flows from finance leases	$	0.9
Financing cash flows from finance leases	$	1.2
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	5.9
Finance leases	$	—

Lease term and discount rate information is summarized as follows:



	March 31, 2019
Weighted-average remaining lease term (years)
Operating leases	5.5
Finance leases	17.7
Weighted-average discount rate
Operating leases	3.6	%
Finance leases	5.3	%

Maturities of lease liabilities as of March 31, 2019 is as follows:



	Operating Leases		Finance Leases
Year
Remainder of 2019	$	23.8	$	3.4
2020	25.9		5.5
2021	19.2		5.6
2022	13.0		5.7
2023	10.9		5.8
Thereafter	22.0		79.3
Total lease payments	$	114.8	$	105.3
Less: imputed interest	14.9		38.4
Present value of lease liabilities	$	99.9	$	66.9

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

As discussed in Note 1, we have elected the transition methodology to apply the standard at the beginning of the period of adoption, January 1, 2019, through a cumulative-effect adjustment to retained earnings. Under this transition method, the application date of the new standard shall begin in the reporting period in which we have adopted the standard. For comparability purposes, the following table reflects the total remaining cash payments related to all transactions during the rental term at December 31, 2018 associated with three lease arrangements that were treated as sale-leaseback financing transactions under ASC 840 and disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018:



	Sale-leaseback obligations
2019	$	5.3
2020	5.4
2021	5.4
2022	5.7
2023	5.7
Thereafter	77.1
Total minimum payments	$	104.6

At December 31, 2018, future minimum payments under non-cancelable operating leases under ASC 840 were as follows:



	Operating Leases
2019	$	34.6
2020	23.5
2021	17.1
2022	13.2
2023	11.5
Thereafter	16.6
Total minimum payments	$	116.5

(8) LONG-TERM EMPLOYEE BENEFITS

Components of Net Periodic Benefit Cost

The following table sets forth the components of net periodic benefit cost for the three months ended March 31, 2019 and 2018:



	Three Months Ended March 31,
	2019			2018
Components of net periodic benefit cost:
Net periodic benefit cost:
Service cost	$	1.9		$	2.3
Interest cost	3.2			3.4
Expected return on plan assets	(3.5		)	(4.2		)
Amortization of actuarial loss, net	0.5			0.3
Net periodic benefit cost	$	2.1		$	1.8

(9) STOCK-BASED COMPENSATION

During the three months ended March 31, 2019 and 2018, we recognized $6.7 million and $8.4 million, respectively, in stock-based compensation expense which was allocated between costs of goods sold and selling, general and administrative expenses on the condensed consolidated statements of operations. We recognized tax benefits of $1.3 million and $1.5 million for the three months ended March 31, 2019 and 2018, respectively. Forfeitures are recorded in the period they occur.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

2019 Activity

In February 2019, we granted non-qualified service-based stock options, restricted stock units and performance share units to certain employees and directors. All awards were granted under the Company's Amended and Restated 2014 Incentive Award Plan. The performance share units are subject to certain performance and market conditions, in addition to the service-based vesting conditions. A summary of award activity by type for the three months ended March 31, 2019 is presented below.



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, 2019	7.2		$	19.32
Granted	0.8		27.01
Exercised	(1.2	)	10.04
Forfeited	(0.1	)	28.52
Outstanding at March 31, 2019	6.7		$	21.64
Vested and expected to vest at March 31, 2019	6.7		$	21.64	$	38.9	6.08
Exercisable at March 31, 2019	5.2		$	19.72	$	38.9	5.17

Cash received by the Company upon exercise of options for the three months ended March 31, 2019 was $11.4 million. Excess tax benefits on these exercises were $3.7 million.

At March 31, 2019, there is $7.6 million of unrecognized expense relating to unvested stock options that is expected to be amortized over a weighted average period of 1.7 years.



Restricted Stock Awards and Restricted Stock Units	Awards (millions)		Weighted-Average Fair Value
Outstanding at January 1, 2019	1.6		$	29.12
Granted	0.6		27.01
Vested	(0.6	)	27.99
Forfeited	—		26.89
Outstanding at March 31, 2019	1.6		$	28.76

Tax shortfall expenses on the vesting of restricted stock and restricted stock units during the three months ended March 31, 2019 was $0.1 million.

At March 31, 2019, there is $29.5 million of unamortized expense relating to unvested restricted stock and restricted stock units that is expected to be amortized over a weighted average period of 1.7 years.



Performance Stock Awards and Performance Share Units	Awards (millions)		Weighted-Average Fair Value
Outstanding at January 1, 2019	0.8		$	31.82
Granted	0.3		29.28
Vested	—		—
Forfeited	(0.3	)	25.66
Outstanding at March 31, 2019	0.8		$	33.47

At March 31, 2019, there is $16.5 million of unamortized expense relating to unvested performance stock awards and performance share units that is expected to be amortized over a weighted average period of 2.2 years. The forfeitures include performance stock awards and performance share units that did not meet the performance target required for vesting.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

(10) OTHER INCOME, NET



	Three Months Ended March 31,
	2019			2018
Foreign exchange losses, net	$	2.4		$	—
Other miscellaneous income, net	(3.4		)	(2.2		)
Total	$	(1.0	)	$	(2.2	)

(11) INCOME TAXES

Our effective income tax rates for the three months ended March 31, 2019 and 2018 are as follows:

The higher effective tax rate for the three months ended March 31, 2019 was primarily due to the unfavorable impact of net currency exchange losses in 2019 and the one-time favorable impact related to the reduction of the U.S. Tax Cuts and Jobs Act tax charge which lowered the effective tax rate in 2018. These adjustments were partially offset by an increase in net excess tax benefits related to stock-based compensation of $3.6 million compared with $2.4 million for the three months ended March 31, 2019 and 2018, respectively.

The effective tax rate for the three months ended March 31, 2019 differs from the U.S. Federal statutory rate due to various items that impacted the effective rate both favorably and unfavorably. We recorded the unfavorable impact of pre-tax losses attributable to jurisdictions where a tax benefit is not expected to be realized, net currency exchange losses and the unfavorable impact associated with the loss on assets held for sale. These adjustments were offset by the favorable adjustments for earnings in jurisdictions where the statutory rate is lower than the U.S. Federal statutory rate, and current year net excess tax benefits related to stock-based compensation.

(12) EARNINGS PER COMMON SHARE

Basic earnings 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 earnings per common share includes the effect of potential dilution from the hypothetical exercise of outstanding stock options and vesting of restricted shares and performance shares. A reconciliation of our basic and diluted earnings per common share is as follows:



	Three Months Ended March 31,
(In millions, except per share data)	2019		2018
Net income to common shareholders	$	43.4	$	69.9
Basic weighted average shares outstanding	234.1		240.9
Diluted weighted average shares outstanding	236.6		245.8
Earnings per common share:
Basic earnings per share	$	0.19	$	0.29
Diluted earnings per share	$	0.18	$	0.28

The number of anti-dilutive shares that have been excluded in the computation of diluted earnings per share for the three months ended March 31, 2019 and 2018 were 2.9 million and 2.5 million, respectively.

(13) ACCOUNTS AND NOTES RECEIVABLE, NET



	March 31, 2019		December 31, 2018
Accounts receivable - trade, net ⁽¹⁾	$	809.9	$	739.9
Notes receivable	26.2		36.1
Other	84.4		84.8
Total	$	920.5	$	860.8

(1) Allowance for doubtful accounts was $13.9 million and $15.4 million at March 31, 2019 and December 31, 2018, respectively.

Bad debt expense of $1.0 million and $0.2 million was included within selling, general and administrative expenses for the three months ended March 31, 2019 and March 31, 2018.

(14) INVENTORIES



	March 31, 2019		December 31, 2018
Finished products	$	349.3	$	334.0
Semi-finished products	110.0		108.0
Raw materials	146.4		149.9
Stores and supplies	21.1		21.1
Total	$	626.8	$	613.0

(15) PROPERTY, PLANT AND EQUIPMENT, NET

Depreciation expense amounted to $45.4 million and $46.4 million for the three months ended March 31, 2019 and March 31, 2018, respectively.



	March 31, 2019			December 31, 2018
Property, plant and equipment	$	2,224.8		$	2,218.8
Accumulated depreciation	(950.4		)	(920.6		)
Property, plant, and equipment, net	$	1,274.4		$	1,298.2

(16) BORROWINGS

Borrowings are summarized as follows:



	March 31, 2019			December 31, 2018
2024 Dollar Term Loans	$	2,405.7		$	2,411.8
2024 Dollar Senior Notes	500.0			500.0
2024 Euro Senior Notes	376.9			383.3
2025 Euro Senior Notes	506.3			514.9
Short-term and other borrowings	111.4			103.8
Unamortized original issue discount	(12.1		)	(12.6		)
Unamortized deferred financing costs	(35.7		)	(37.2		)
	$	3,852.5		$	3,864.0
Less:
Short-term borrowings	$	19.2		$	17.9
Current portion of long-term borrowings	24.3			24.3
Long-term debt	$	3,809.0		$	3,821.8

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

Senior Secured Credit Facilities, as amended

On December 15, 2016, Axalta Coating Systems Dutch B B.V. (“Dutch B B.V.”) and its indirect 100% owned subsidiary, Axalta Coating Systems U.S. Holdings Inc. (“Axalta US Holdings”) executed the fourth amendment (the "Fourth Amendment") to the credit agreement (the “Credit Agreement”) governing our Senior Secured Credit Facilities (as defined below). The Fourth Amendment (i) converted all of the outstanding U.S. Dollar term loans ($1,775.3 million) into a new tranche of term loans issued at par with principal of $1,545.0 million (the "2023 Dollar Term Loans"), (ii) converted all of the outstanding Euro term loans (€199.0 million) into a new tranche of term loans issued at par with principal of €400.0 million (the "2023 Euro Term Loans" and, together with the 2023 Dollar Term Loans, the "2023 Term Loans").

On June 1, 2017, Dutch B B.V. and Axalta US Holdings executed the fifth amendment to the Credit Agreement (the "Fifth Amendment"). The Fifth Amendment converted all of the outstanding 2023 Dollar Term Loans ($1,541.1 million) into a new upsized tranche of term loans with principal of $2,000.0 million (the "2024 Dollar Term Loans"). The 2024 Dollar Term Loans were issued at 99.875% of par, or a $2.5 million discount.

On April 11, 2018, Dutch B B.V. and Axalta US Holdings executed the sixth amendment to the Credit Agreement (the "Sixth Amendment"). The Sixth Amendment repriced the 2024 Dollar Term Loans and increased the aggregate principal balance by $475.0 million to $2,430.0 million. The increased principal balance of the 2024 Dollar Term Loans under the Sixth Amendment was issued at 99.750% of par or a $6.0 million discount. Proceeds from the Sixth Amendment, along with cash on the balance sheet, were used to extinguish the existing 2023 Euro Term Loans. The 2024 Dollar Term Loans together with the Revolving Credit Facility, as defined herein, are referred to as the "Senior Secured Credit Facilities."

On October 31, 2018, Dutch B B.V. and Axalta US Holdings, the Company, and certain other subsidiaries of the Company as guarantors entered into the seventh amendment to the Credit Agreement (the "Seventh Amendment"). The Seventh Amendment amended the Credit Agreement to, among other things, (i) allow for the Company and certain wholly owned subsidiaries of the Company to be added as guarantors under the Credit Agreement, (ii) provide that (A) the covenants in the Credit Agreement generally apply to the Company and its restricted subsidiaries and (B) upon election at any time thereafter, a successor holdings guarantor may be designated and, upon the effectiveness of the guarantee of such successor parent guarantor, the covenants in the Credit Agreement will generally apply to such successor holdings guarantor and its restricted subsidiaries, (iii) otherwise amend the Credit Agreement in order to effect certain corporate transactions as part of a potential internal reorganization of certain of the Company's subsidiaries and certain potential future reorganizations involving the Company and (iv) update guarantee limitations for certain of the guarantors.

Interest was and is payable quarterly on both the 2023 Term Loans and 2024 Dollar Term Loans.

The 2024 Dollar Term Loans are subject to a floor of zero plus an applicable rate of 1.75% per annum for Eurocurrency Rate Loans as defined in the Credit Agreement and 0.75% per annum for Base Rate Loans as defined in the Credit Agreement.

Prior to the Sixth Amendment, interest on the 2024 Dollar Term Loans was subject to a floor of zero, plus an applicable rate. The applicable rate for such 2024 Dollar Term Loans was 2.00% per annum for Eurocurrency Rate Loans as defined in the Credit Agreement and 1.00% per annum for Base Rate Loans as defined in the Credit Agreement.

Prior to the Fifth Amendment, interest on the 2023 Dollar Term Loans was subject to a floor of 0.75%, plus an applicable rate. The applicable rate for such 2023 Dollar Term Loans was 2.50% per annum for Eurocurrency Rate Loans as defined in the Credit Agreement and 1.50% per annum for Base Rate Loans as defined in the Credit Agreement. The 2023 Euro Term Loans were also subject to a floor of 0.75%, plus an applicable rate of 2.25% per annum for Eurocurrency Rate Loans. The 2023 Euro Term Loans may not be Base Rate Loans.

Any indebtedness under the Senior Secured Credit Facilities may be voluntarily prepaid in whole or in part, in minimum amounts, subject to the provisions set forth in the Credit Agreement. Such indebtedness is subject to mandatory prepayments amounting to the proceeds of asset sales over $75.0 million annually, proceeds from certain debt issuances not otherwise permitted under the Credit Agreement and 50% (subject to a step-down to 25.0% or 0% if the First Lien Leverage Ratio falls below 4.25:1.00 or 3.50:1.00, respectively) of Excess Cash Flow.

The Senior Secured Credit Facilities are secured by substantially all assets of the Company and the other guarantors. The 2024 Dollar Term Loans mature on June 1, 2024. Principal is paid quarterly based on 1% per annum of the original principal amount outstanding on the most recent amendment date with the unpaid balance due at maturity.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

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 March 31, 2019, the Company is in compliance with all covenants under the Senior Secured Credit Facilities.

Revolving Credit Facility

On August 1, 2016 (the "Third Amendment Effective Date"), Dutch B B.V. and Axalta US Holdings executed the third amendment to the Credit Agreement (the "Third Amendment"). The Third Amendment impacted the revolving credit facility under the Senior Secured Credit Facilities (the "Revolving Credit Facility") by (i) extending the maturity of the Revolving Credit Facility to five years from the Third Amendment Effective Date, or August 1, 2021, provided that such date will be accelerated to the date that is 91 days prior to the maturity of the term loans borrowed under the Credit Agreement if the maturity of such term loans precedes the maturity of the Revolving Credit Facility, (ii) decreasing the applicable interest margins, and (iii) amending the financial covenant applicable to the Revolving Credit Facility to be applicable only when greater than 30% (previously 25%) of the Revolving Credit Facility (including letters of credit not cash collateralized to at least 103%) is outstanding at the end of the fiscal quarter. If such conditions are met, the First Lien Net Leverage Ratio (as defined by the Credit Agreement) at the end of the quarter is required to be greater than 5.50:1.00. At March 31, 2019, the financial covenant is not applicable as there were no borrowings.

Under the Third Amendment, interest on any outstanding borrowings under the Revolving Credit Facility is subject to a floor of zero for Adjusted Eurocurrency Rate Loans (as defined in the Credit Agreement) plus an applicable rate of 2.75% (previously 3.50%) subject to an additional step-down to 2.50% or 2.25%, if the First Lien Net Leverage Ratio falls below 3.00:1.00 or 2.50:1.00, respectively. For Base Rate Loans, the interest is subject to a floor of the greater of the federal funds rate plus 0.50%, the Prime Lending Rate or an Adjusted Eurocurrency Rate plus 1%, plus an applicable rate of 1.75% (previously 2.50%), subject to an additional step-down to 1.50% or 1.25%, if the First Lien Net Leverage Ratio falls below 3.00:1.00 and 2.50:1.00, respectively.

Under circumstances described in the Credit Agreement, we may increase available revolving or term facility borrowings by up to $700.0 million plus an additional amount subject to the Company not exceeding a maximum first lien leverage ratio described in the Credit Agreement.

There have been no borrowings on the Revolving Credit Facility since the issuance of the Senior Secured Credit Facilities. At March 31, 2019 and December 31, 2018, letters of credit issued under the Revolving Credit Facility totaled $43.9 million and $44.8 million, respectively, which reduced the availability under the Revolving Credit Facility. Availability under the Revolving Credit Facility was $356.1 million and $355.2 million at March 31, 2019 and December 31, 2018, respectively.

Significant Terms of the Senior Notes

On August 16, 2016, Axalta Coating Systems, LLC (the "U.S. Issuer") issued $500.0 million in aggregate principal amount of 4.875% senior unsecured notes (the “2024 Dollar Senior Notes”) and €335.0 million in aggregate principal amount of 4.250% senior unsecured notes (the “2024 Euro Senior Notes”), each due August 2024 (collectively the “2024 Senior Notes”).

On September 27, 2016, Dutch B B.V. (the "Dutch Issuer" and together with the U.S. Issuer, the "Issuers"), issued €450.0 million in aggregate principal amount of 3.750% Euro Senior Unsecured Notes due January 2025 (the “2025 Euro Senior Notes” and together with the 2024 Senior Notes, the "Senior Notes").

The indentures governing the Senior Notes contain covenants that restrict the ability of the Issuers and their subsidiaries to, among other things, incur additional debt, make certain payments including payment of dividends or repurchase equity interest of the Issuers, make loans or acquisitions or capital contributions and certain investments, incur certain liens, sell assets, merge or consolidate or liquidate other entities, and enter into transactions with affiliates.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

On October 26, 2018, the U.S. Issuer and the party thereto entered into a seventh supplemental indenture (the “2024 Seventh Supplemental Indenture”) to the 2024 Senior Notes. In addition, on October 26, 2018, the Dutch Issuer and the new guarantors party thereto entered into a seventh supplemental indenture (the “2025 Seventh Supplemental Indenture” and, together with the 2024 Seventh Supplemental Indenture, the “October 2018 Supplemental Indentures”) to the 2025 Euro Senior Notes. The October 2018 Supplemental Indentures permit the Company and its subsidiaries to effect certain corporate transactions as part of a potential internal reorganization of certain of the Company's subsidiaries (the "Proposed Restructuring") and certain potential future reorganizations involving the Company. Each of the October 2018 Supplemental Indentures amended the applicable indenture in order to, among other things, (i) add the Company and certain wholly owned subsidiaries of the Company as guarantors of the applicable Senior Notes, (ii) provide that (A) the covenants of the applicable Indenture generally apply to the Company and its restricted subsidiaries and (B) upon an election by the relevant Issuer at any time thereafter, a successor parent guarantor may be designated and, upon the effectiveness of the guarantee of such successor parent guarantor, the covenants of the applicable Indenture will generally apply to such successor parent guarantor and its restricted subsidiaries, (iii) otherwise amend the applicable Indenture in order to effect the Proposed Restructuring (as defined below) and (iv) update guarantee limitations for certain of the guarantors.

In connection with the October 2018 Supplemental Indentures above, the Company became the parent guarantor of the Senior Notes.

(i) 2024 Dollar Senior Notes

The 2024 Dollar Senior Notes were issued at 99.951% of par, or $2.0 million discount, and are due August 15, 2024. The 2024 Dollar Senior Notes bear interest at 4.875% which is payable semi-annually on February 15 and August 15. We have the option to redeem all or part of the 2024 Dollar Senior Notes at the following redemption prices (expressed as percentages of principal amount) on or after August 15 of the years indicated:



Period	2024 Dollar Senior Notes Percentage
2019	103.656	%
2020	102.438	%
2021	101.219	%
2022 and thereafter	100.000	%

Notwithstanding the foregoing, at any time and from time to time prior to August 15, 2019, we may at our option redeem in the aggregate up to 40% of the original aggregate principal amount of the 2024 Dollar Senior Notes with the net cash proceeds of one or more Equity Offerings (as defined in the indenture governing the 2024 Dollar Senior Notes) at a redemption price of 104.875% plus accrued and unpaid interest, if any, to the redemption date. At least 50% of the original aggregate principal of the notes must remain outstanding after each such redemption.

Upon the occurrence of certain events constituting a change of control, holders of the 2024 Dollar Senior Notes have the right to require us to repurchase all or any part of the 2024 Dollar Senior Notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the repurchase date.

The 2024 Dollar Senior Notes, subject to local law limitations, are jointly and severally guaranteed on a senior unsecured basis by 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 issued through the 2024 Dollar Senior Notes is senior unsecured indebtedness of the U.S. Issuer, is senior in right of payment to all future subordinated indebtedness of the U.S. Issuer and guarantors and is equal in right of payment to all existing and future senior indebtedness of the U.S. Issuer and guarantors. The 2024 Dollar Senior Notes are effectively subordinated to any secured indebtedness of the U.S. Issuer and guarantors (including indebtedness outstanding under the Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

(ii) 2024 Euro Senior Notes

The 2024 Euro Senior Notes were issued at par and are due August 15, 2024. The 2024 Euro Senior Notes bear interest at 4.250% which is payable semi-annually on February 15 and August 15. We have the option to redeem all or part of the 2024 Euro Senior Notes at the following redemption prices (expressed as percentages of principal amount) on or after August 15 of the years indicated:



Period	2024 Euro Senior Notes Percentage
2019	103.188	%
2020	102.125	%
2021	101.063	%
2022 and thereafter	100.000	%

Notwithstanding the foregoing, at any time and from time to time prior to August 15, 2019, we may at our option redeem in the aggregate up to 40% of the original aggregate principal amount of the 2024 Euro Senior Notes with the net cash proceeds of one or more Equity Offerings (as defined in the indenture governing the 2024 Euro Senior Notes) at a redemption price of 104.250% plus accrued and unpaid interest, if any, to the redemption date. At least 50% of the original aggregate principal of the notes must remain outstanding after each such redemption.

Upon the occurrence of certain events constituting a change of control, holders of the 2024 Euro Senior Notes have the right to require us to repurchase all or any part of the 2024 Euro Senior Notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the repurchase date.

The 2024 Euro Senior Notes, subject to local law limitations, 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 issued through the 2024 Euro Senior Notes is senior unsecured indebtedness of the U.S. Issuer, is senior in right of payment to all future subordinated indebtedness of the U.S. Issuer and guarantors and is equal in right of payment to all existing and future senior indebtedness of the U.S. Issuer and guarantors. The 2024 Euro Senior Notes are effectively subordinated to any secured indebtedness of the U.S. Issuer and guarantors (including indebtedness outstanding under the Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness.

(iii) 2025 Euro Senior Notes

The 2025 Euro Senior Notes were issued at par and are due January 15, 2025. The 2025 Euro Senior Notes bear interest at 3.750% which is payable semi-annually on January 15 and July 15. 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 15 of the years indicated:



Period	2025 Euro Senior Notes Percentage
2019	102.813	%
2020	101.875	%
2021	100.938	%
2022 and thereafter	100.000	%

Notwithstanding the foregoing, at any time and from time to time prior to January 15, 2020, we may at our option redeem in the aggregate up to 40% of the original aggregate principal amount of the 2025 Euro Senior Notes with the net cash proceeds of one or more Equity Offerings (as defined in the indenture governing the 2025 Euro Senior Notes) at a redemption price of 103.750% plus accrued and unpaid interest, if any, to the redemption date. At least 50% of the original aggregate principal of the notes must remain outstanding after each such redemption.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

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 the Dutch Issuer). Under certain circumstances, the guarantors may be released from their guarantees without the consent of the holders of the applicable series of notes.

The indebtedness issued through the 2025 Euro Senior Notes is senior unsecured indebtedness of the Dutch Issuer, is senior in right of payment to all future subordinated indebtedness of the Dutch Issuer and guarantors and is equal in right of payment to all existing and future senior indebtedness of the Dutch Issuer and guarantors. The 2025 Euro Senior Notes are effectively subordinated to any secured indebtedness of the Dutch Issuer and guarantors (including indebtedness outstanding under the Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness.

Future repayments

Below is a schedule of required future repayments of all borrowings outstanding at March 31, 2019.



Remainder of 2019	$	35.8
2020	26.9
2021	26.8
2022	54.3
2023	27.1
Thereafter	3,729.4
	$	3,900.3

(17) FINANCIAL INSTRUMENTS, HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENTS

Fair value of financial instruments

Equity securities with readily determinable fair values - Balances of equity securities are recorded within other assets, with any changes in fair value recorded within other expense, net. The fair values of available for sale securities are based upon Level 1 inputs when the securities are actively traded with quoted market prices.

Long-term borrowings - The estimated fair values of these notes are based on recent trades, as reported by a third-party pricing service. Due to the infrequency of trades, these inputs are considered to be Level 2 inputs.

Derivative instruments - The Company’s interest rate caps, interest rate swaps and cross-currency swaps are valued using broker quotations, or market transactions in either the listed or over-the-counter markets. As such, these derivative instruments are considered to be Level 2 inputs.

Fair value of contingent consideration

The fair value of contingent consideration associated with acquisitions completed in prior years are valued at each balance sheet date, until amounts become payable, with adjustments recorded within selling, general and administrative expenses on the condensed consolidated statement of operations. Due to the significant unobservable inputs used in the valuations, these liabilities are categorized within Level 3 of the fair value hierarchy. Adjustments made to fair value were immaterial for both the three months ended March 31, 2019 and March 31, 2018.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(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 March 31, 2019 and December 31, 2018.



	March 31, 2019								December 31, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Prepaid expenses and other current assets:
Interest rate caps ⁽¹⁾	$	—	$	2.3	$	—	$	2.3	$	—	$	4.5	$	—	$	4.5
Cross-currency swaps ⁽²⁾	—		14.3		—		14.3		—		14.1		—		14.1
Other assets:
Interest rate caps ⁽¹⁾	—		—		—		—		—		1.4		—		1.4
Cross-currency swaps ⁽²⁾	—		0.6		—		0.6		—		—		—		—
Investment in equity securities	0.8		—		—		0.8		0.7		—		—		0.7
Liabilities:
Other accrued liabilities:
Interest rate swaps ⁽¹⁾	—		1.2		—		1.2		—		—		—		—
Other liabilities:
Interest rate caps ⁽¹⁾	—		0.1		—		0.1		—		—		—		—
Interest rate swaps ⁽¹⁾	—		12.8		—		12.8		—		2.9		—		2.9
Cross-currency swaps ⁽²⁾	—		—		—		—		—		8.8		—		8.8
Long-term borrowings:
2024 Dollar Senior Notes	—		502.1		—		502.1		—		474.9		—		474.9
2024 Euro Senior Notes	—		392.9		—		392.9		—		381.1		—		381.1
2025 Euro Senior Notes	—		527.3		—		527.3		—		497.5		—		497.5
2024 Dollar Term Loans	—		2,354.6		—		2,354.6		—		2,276.1		—		2,276.1

(1) Cash flow hedge

(2) Net investment hedge

Derivative Financial Instruments

We selectively use derivative instruments to reduce market risk associated with changes in foreign currency exchange rates and interest rates. The use of derivatives is intended for hedging purposes only, and we do not enter into derivative instruments for speculative purposes. A description of each type of derivative used to manage risk is included in the following paragraphs.

Derivative Instruments Qualifying and Designated as Cash Flow and Net Investment Hedges

Interest Rate Caps Designated as Cash Flow Hedges

During the year ended December 31, 2017, we entered into four 1.5% interest rate caps with aggregate notional amounts totaling $850.0 million to hedge the variable interest rate exposures on our 2024 Dollar Term Loans. Three of these interest rate caps, comprising $600.0 million of the notional value, expire December 31, 2019 and had a deferred premium of $8.6 million at inception. The fourth interest rate cap, comprising the remaining $250.0 million of the notional value, expires December 31, 2021 and had a deferred premium of $8.1 million at inception. All deferred premiums are paid quarterly over the term of the respective interest rate caps. These interest rate caps are marked to market at each reporting date and any unrealized gains or losses are included in accumulated other comprehensive (loss) income ("AOCI") and reclassified to interest expense in the same period or periods during which the hedged transactions affect earnings.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

Interest Rate Swaps Designated as Cash Flow Hedges

During the three months ended June 30, 2018, we entered into three interest rate swaps with aggregate notional amounts totaling $475.0 million to hedge interest rate exposures related to variable rate borrowings under the Senior Secured Credit Facilities. Under the terms of the interest rate swap agreements, the Company is required to pay the counter-parties a stream of fixed interest payments at a rate of 2.72% and in turn, receives variable interest payments based on 3-month LIBOR from the counter-parties. The interest rate swaps are designated as cash flow hedges and expire on March 31, 2023. These interest rate swaps are marked to market at each reporting date and any unrealized gains or losses are included in AOCI and reclassified to interest expense in the same period or periods during which the hedged transactions affect earnings.

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.

Cross-Currency Swaps Designated as Net Investment Hedges

During the three months ended June 30, 2018, we entered into three fixed-for-fixed cross-currency swaps with aggregate notional amounts totaling $475.0 million to hedge the variability of exchange rate impacts between the U.S. Dollar and Euro. Under the terms of the cross-currency swap agreements, the Company has notionally exchanged $475.0 million at a weighted average interest rate of 4.47% for €387.2 million at a weighted average interest rate of 1.95%. The cross-currency swaps 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, 2018, we settled three fixed-for-fixed cross-currency swaps previously executed in 2018 resulting in cash proceeds of $22.5 million. Concurrently, we notionally exchanged $475.0 million at a weighted average interest rate of 4.47% for €416.6 million at a weighted average interest rate of 1.44%. The cross-currency swaps are designated as net investment hedges and expire on March 31, 2023. These cross-currency swaps are marked to market at each reporting date and any unrealized gains or losses are included in unrealized currency translation adjustments, within AOCI.

The following table presents the location and fair values using Level 2 inputs of derivative instruments that qualify and have been designated as cash flow and net investment hedges included in accumulated other comprehensive (loss) income:



	March 31, 2019			December 31, 2018
Accumulated other comprehensive (loss) income (AOCI):
Interest rate caps (cash flow hedges)	$	0.3		$	(3.4	)
Interest rate swaps (cash flow hedges)	14.0			3.0
Cross-currency swaps (net investment hedges)	(14.9		)	(27.7		)
Total accumulated other comprehensive (loss) income	$	(0.6	)	$	(28.1	)

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.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

The following tables set forth the locations and amounts recognized during the three months ended March 31, 2019 and 2018 for these cash flow and net investment hedges.



		For the Three Months Ended March 31,
		2019						2018
Derivatives in Cash Flow and Net Investment Hedges	Location of (Gain) Loss Recognized in Income on Derivatives	Net Amount of (Gain) Loss Recognized in OCI on Derivatives			Amount of (Gain) Loss Recognized in Income			Net Amount of (Gain) Loss Recognized in OCI on Derivatives			Amount of (Gain) Loss Recognized in Income
Interest rate caps	Interest expense, net	$	2.5		$	(1.1	)	$	(8.0	)	$	0.1
Interest rate swaps	Interest expense, net	11.0			(0.1		)	—			—
Cross-currency swaps	Interest expense, net	(13.3		)	(3.6		)	—			—

Over the next 12 months, we expect gains of $0.6 million pertaining to cash flow hedges to be reclassified from accumulated other comprehensive income into earnings, related to our interest rate caps and interest rate swaps.

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, net in the consolidated statement of operations.

During the year ended December 31, 2017, we purchased a 1.25% interest rate cap with a notional amount of €388.0 million to hedge the variable interest rate exposures on our 2023 Euro Term Loans. We paid a premium equal to $0.6 million for the interest rate cap which is effective through December 31, 2019. Changes in the fair value of the derivative instrument are recorded in current period earnings and are included in interest expense. The fair value of this interest rate cap at March 31, 2019 was zero.

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:



		Three Months Ended March 31,
Derivatives Not Designated as Hedging Instruments under ASC 815	Location of (Gain) Loss Recognized in Income on Derivatives	2019		2018
Interest rate caps	Interest expense, net	$	—	$	—
Foreign currency forward contracts	Other income, net	1.5		1.4

(18) SEGMENTS

The Company identifies an operating segment as a component: (i) that engages in business activities from which it may earn revenues and incur expenses; (ii) whose operating results are regularly reviewed by the Chief Operating Decision Maker ("CODM") to make decisions about resources to be allocated to the segment and assess its performance; and (iii) that has available discrete financial information.

We have two operating segments, which are also our reportable segments: Performance Coatings and Transportation Coatings. The CODM reviews financial information at the operating segment level to allocate resources and to assess the operating results and financial performance for each operating segment. Our CODM is identified as the Chief Executive Officer because he has final authority over performance assessment and resource allocation decisions. Our segments are based on the type and concentration of customers served, service requirements, methods of distribution and major product lines.

Through our Performance Coatings segment, we provide high-quality liquid and powder coatings solutions to a fragmented and local customer base. We are one of only a few suppliers with the technology to provide precise color matching and highly durable coatings systems. The end-markets within this segment are refinish and industrial.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

Through our Transportation Coatings segment, we provide advanced coating technologies to OEMs of light and commercial vehicles. These increasingly global customers require a high level of technical support coupled with cost-effective, environmentally responsible coatings systems that can be applied with a high degree of precision, consistency and speed. The end-markets within this segment are light vehicle and commercial vehicle.

During the three months ended March 31, 2019, Axalta transitioned to using Adjusted EBIT as 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.



	Three Months Ended March 31,
	2019			2018
Net sales ⁽¹⁾:
Refinish	$	405.5		$	414.2
Industrial	307.8			316.8
Total Net sales Performance Coatings	713.3			731.0
Light Vehicle	315.9			353.2
Commercial Vehicle	90.1			87.8
Total Net sales Transportation Coatings	406.0			441.0
Total Net sales	1,119.3			1,172.0
Equity in earnings (losses) in unconsolidated affiliates:
Performance Coatings	0.1			0.1
Transportation Coatings	(0.4		)	(0.1		)
Total	$	(0.3	)	$	—
Investment in unconsolidated affiliates:
Performance Coatings	2.5			3.3
Transportation Coatings	12.3			12.7
Total	$	14.8		$	16.0


(1)	The Company has no intercompany sales between segments.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

The following table reconciles our segment operating performance to income before income taxes for the periods presented:



	Three Months Ended March 31,
	2019		2018
Segment Adjusted EBIT ⁽¹⁾:
Performance Coatings	$	78.6	$	76.0
Transportation Coatings	34.2		45.0
Total ⁽²⁾	112.8		121.0
Interest expense, net	41.3		39.4
Termination benefits and other employee related costs ^(a)	1.3		(1.3		)
Offering and transactional costs ^(b)	0.6		—
Accelerated depreciation ^(c)	6.1		—
Loss on assets held for sale ^(d)	5.2		—
Change in fair value of equity investments ^(e)	—		0.1
Income before income taxes	$	58.3	$	82.8

(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 Axalta’s Adjusted EBIT referenced elsewhere by the Company.



(a)	Represents expenses and associated changes to estimates related to employee termination benefits and other employee-related costs. Employee termination benefits are associated with Axalta Way initiatives. These amounts are not considered indicative of our ongoing operating performance.

(b)	Represents acquisition and divestiture-related expenses, all of which are not considered indicative of our ongoing operating performance.

(c)	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.

(d)	Represents the loss recognized on the anticipated sale of our interest in a joint venture business determined to be held for sale, which is not considered indicative of our ongoing operating performance.

(e)	Represents mark to market impacts of our equity investments, which we do not consider to be indicative of our ongoing operating performance.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

(19) SHAREHOLDERS' EQUITY

The following tables present the change in total shareholders’ equity for the three months ended March 31, 2019 and 2018, respectively.



	Total Axalta			Noncontrolling Interests			Total
Balance at December 31, 2018	$	1,205.1		$	105.4		$	1,310.5
Cumulative effect of an accounting change	(0.7		)	—			(0.7		)
Balance at January 1, 2019	$	1,204.4		$	105.4		$	1,309.8
Net income	43.4			0.7			44.1
Other comprehensive loss, net of tax	0.4			0.5			0.9
Recognition of stock-based compensation	6.7			—			6.7
Exercise of stock options	11.4			—			11.4
Treasury share repurchases	(65.8		)	—			(65.8		)
Non-controlling interests of acquired subsidiaries	5.7			(32.1		)	(26.4		)
Dividends paid to noncontrolling interests	—			(1.1		)	(1.1		)
Balance at March 31, 2019	$	1,206.2		$	73.4		$	1,279.6



	Total Axalta			Noncontrolling Interests			Total
Balance at December 31, 2017	$	1,276.1		$	131.7		$	1,407.8
Cumulative effect of an accounting change	12.1			0.1			12.2
Balance at January 1, 2018	$	1,288.2		$	131.8		$	1,420.0
Net income	69.9			1.1			71.0
Other comprehensive income, net of tax	49.1			0.9			50.0
Recognition of stock-based compensation	8.4			—			8.4
Exercise of stock options	6.2			—			6.2
Treasury share repurchases	(3.3		)	—			(3.3		)
Noncontrolling interests of acquired subsidiaries	2.9			(29.8		)	(26.9		)
Dividends paid to noncontrolling interests	—			(1.0		)	(1.0		)
Balance at March 31, 2018	$	1,421.4		$	103.0		$	1,524.4

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions, unless otherwise noted)

(20) ACCUMULATED OTHER COMPREHENSIVE LOSS



	Unrealized Currency Translation Adjustments			Pension Adjustments			Unrealized Gain (Loss) on Derivatives			Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2018	$	(299.4	)	$	(36.4	)	$	(0.3	)	$	(336.1	)
Current year deferrals to AOCI	12.8			—			(11.4		)	1.4
Reclassifications from AOCI to Net income	—			—			(1.0		)	(1.0		)
Net Change	12.8			—			(12.4		)	0.4
Balance at March 31, 2019	$	(286.6	)	$	(36.4	)	$	(12.7	)	$	(335.7	)

The income tax provision related to the changes in pension benefits for the three months ended March 31, 2019 was $0.5 million. The cumulative income tax benefit related to the adjustments for pension benefits at March 31, 2019 was $13.9 million. The income tax benefit related to the change in the unrealized loss on derivatives for the three months ended March 31, 2019 was $2.2 million. The cumulative income tax benefit related to the adjustments for unrealized loss on derivatives at March 31, 2019 was $1.7 million.



	Unrealized Currency Translation Adjustments			Pension Adjustments			Unrealized Gain (Loss) on Securities			Unrealized Gain (Loss) on Derivatives			Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2017	$	(208.8	)	$	(31.4	)	$	0.8		$	(1.6	)	$	(241.0	)
Cumulative effect of an accounting change	—			—			(0.8		)	—			(0.8		)
Balance at January 1, 2018	(208.8		)	(31.4		)	—			(1.6		)	(241.8		)
Current year deferrals to AOCI	42.2			—			—			6.4			48.6
Reclassifications from AOCI to Net income	—			0.6			—			(0.1		)	0.5
Net Change	42.2			0.6			—			6.3			49.1
Balance at March 31, 2018	$	(166.6	)	$	(30.8	)	$	—		$	4.7		$	(192.7	)

The income tax benefit related to the changes in pension benefits for the three months ended March 31, 2018 was $0.3 million. The cumulative income tax benefit related to the adjustments for pension benefits at March 31, 2018 was $13.3 million. The income tax expense related to the change in the unrealized loss on derivatives for the three months ended March 31, 2018 was $1.6 million. The cumulative income tax expense related to the adjustments for unrealized loss on derivatives at March 31, 2018 was $1.0 million.

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ITEM 2. 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 the interim unaudited condensed consolidated financial statements and the condensed notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

FORWARD-LOOKING STATEMENTS

Many statements made in the following discussion and analysis of our financial condition and results of operations and elsewhere in this Quarterly Report on Form 10-Q 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," "suggests," "plan," "believe," "intend," "estimates," "targets," "projects," "should," "could," "would," "may," "will," "forecast" and other similar expressions. We base these forward-looking statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at such time. As you read and consider this Quarterly Report on Form 10-Q, 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" and you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections. Factors that may materially affect such forward-looking statements and projections include:


•	adverse developments in economic conditions and, particularly, in conditions in the automotive and transportation industries;


•	volatility in the capital, credit and commodities markets;


•	our inability to successfully execute on our growth strategy;


•	increased competition;


•	reduced demand for some of our products as a result of improved safety features on vehicles, insurance company influence, new business models or new methods of travel


•	risks of the loss or change in purchasing levels of any of our significant customers or the consolidation of MSOs, distributors and/or body shops;


•	our reliance on our distributor network and third-party delivery services for the distribution and export of certain of our products;


•	credit risk exposure from our customers;


•	price increases or business interruptions in our supply of raw materials;


•	failure to develop and market new products and manage product life cycles;


•	business disruptions, security threats and security breaches, including security risks to our information technology systems;


•	risks associated with our outsourcing strategies;


•	risks associated with our non-U.S. operations;


•	currency-related risks;


•	terrorist acts, conflicts, wars and natural disasters that may materially adversely affect our business, financial condition and results of operations;


•	risks associated with the United Kingdom’s withdrawal from the European Union;


•	failure to comply with the anti-corruption laws of the United States and various international jurisdictions;


•	failure to comply with anti-terrorism laws and regulations and applicable trade embargoes;

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•	risks associated with protecting data privacy;


•	significant environmental liabilities and costs as a result of our current and past operations or products, including operations or products related to our business prior to our acquisition of DuPont Performance Coatings;


•	transporting certain materials that are inherently hazardous due to their toxic nature;


•	litigation and other commitments and contingencies;


•	ability to recruit and retain the experienced and skilled personnel we need to compete;


•	unexpected liabilities under any pension plans applicable to our employees;


•	work stoppages, union negotiations, labor disputes and other matters associated with our labor force;


•	our ability to protect and enforce intellectual property rights;


•	intellectual property infringement suits against us by third parties;


•	our ability to realize the anticipated benefits of any acquisitions and divestitures;


•	our joint ventures’ ability to operate according to our business strategy should our joint venture partners fail to fulfill their obligations;


•	risk that the insurance we maintain may not fully cover all potential exposures;


•	risks associated with changes in tax rates or regulations, including unexpected impacts of the new U.S. TCJA legislation, which may differ with further regulatory guidance and changes in our current interpretations and assumptions;


•	our substantial indebtedness;


•	our ability to obtain additional capital on commercially reasonable terms may be limited;


•	any statements of belief and any statements of assumptions underlying any of the foregoing;


•	other factors disclosed in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2018 and our other filings with the Securities and Exchange Commission; and


•	other factors beyond our control.

These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

OVERVIEW

We are a leading global manufacturer, marketer and distributor of high performance coatings systems. We have over a 150-year heritage in the coatings industry and are known for manufacturing high-quality products with well-recognized brands supported by market-leading technology and customer service. Our diverse global footprint of 50 manufacturing facilities, four technology centers, 47 customer training centers and approximately 14,000 employees allows us to meet the needs of customers in over 130 countries. We serve our 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 Transportation Coatings. Our segments are based on the type and concentration of customers served, service requirements, methods of distribution and major product lines.

Through our Performance Coatings segment we provide high-quality liquid and powder coatings solutions to a fragmented and local customer base. We are one of only a few suppliers with the technology to provide precise color matching and highly durable coatings systems. The end-markets within this segment are refinish and industrial.

Through our Transportation Coatings segment we provide advanced coating technologies to OEMs of light and commercial vehicles. These increasingly global customers require a high level of technical support coupled with cost-effective, environmentally responsible, coatings systems that can be applied with a high degree of precision, consistency and speed. The end-markets within this segment are light vehicle and commercial vehicle.

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BUSINESS HIGHLIGHTS

General Business Highlights

Our net sales decreased 4.5% for the three months ended March 31, 2019 compared with the three months ended March 31, 2018, primarily driven by the impacts of unfavorable currency translation which contributed to a decrease in net sales of 4.8%. Further contributing to the decrease in net sales was a net decline in volumes of 1.8%, primarily within our Transportation Coatings segment, including the positive impacts of acquisitions which contributed 0.3% to volumes. Partially offsetting these declines were increases in average selling prices across both segments, resulting in an increase of 2.1%. The following trends have impacted our segment and end-market sales performance:


•	Performance Coatings: Net sales decreased 2.4% driven primarily by the impacts of unfavorable foreign currency translation of 4.8%, as well as a decline in volumes across both end-markets of 0.9%, inclusive of the positive impacts of acquisitions of 0.5%. Partially offsetting these declines were increases in average selling prices across both end-markets of 3.3%.


•	Transportation Coatings: Net sales decreased 7.9% driven primarily by the impacts of unfavorable foreign currency translation of 4.8%, as well as a decline in volumes of 3.3%. Partially offsetting these declines were higher average selling prices of 0.2%.

Our business serves four end-markets globally with net sales for the three months ended March 31, 2019 and 2018, as follows:



(In millions)	Three Months Ended March 31,				2019 vs 2018
	2019		2018		% change
Performance Coatings
Refinish	$	405.5	$	414.2	(2.1	)%
Industrial	307.8		316.8		(2.8	)%
Total Net sales Performance Coatings	713.3		731.0		(2.4	)%
Transportation Coatings
Light Vehicle	315.9		353.2		(10.6	)%
Commercial Vehicle	90.1		87.8		2.6	%
Total Net sales Transportation Coatings	406.0		441.0		(7.9	)%
Total Net sales	$	1,119.3	$	1,172.0	(4.5	)%

Acquisitions and Divestitures Highlights

During the three months ended March 31, 2019, pursuant to the stock purchase agreement for a consolidated joint venture acquisition during the year ended December 31, 2016, we were required to purchase an additional 24.5% interest for $26.9 million, increasing our total ownership percentage to 100.0%.

During the three months ended March 31, 2019, we entered into an agreement to sell our 60.0% interest in a consolidated joint venture within our Performance Coatings segment. The results of operations of the portion of the business to be sold is included in continuing operations within the condensed consolidated statements of operations. All assets and liabilities of the disposal group have been classified as held for sale on our condensed consolidated balance sheet and recorded at the lower of carrying value and fair value less cost to sell, which resulted in a loss of $5.2 million for the three months ended March 31, 2019. See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Capital and Liquidity Highlights

During the three months ended March 31, 2019, we repurchased 2.5 million shares for total consideration of $65.8 million as we continue to execute against our previously approved share repurchase program.

FACTORS AFFECTING OUR OPERATING RESULTS

There have been no changes in the factors affecting our operating results previously reported in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018.

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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 Quarterly Report on Form 10-Q. Our historical results of operations summarized and analyzed below may not necessarily reflect what will occur in the future.

Net sales



	Three months ended March 31,				2019 vs 2018
	2019		2018		$ Change			% Change
Net sales	$	1,119.3	$	1,172.0	$	(52.7	)	(4.5	)%
Volume effect								(2.1	)%
Impact of acquisitions								0.3	%
Price/product mix effect								2.1	%
Exchange rate effect								(4.8	)%

Net sales decreased due to the following:

ⁿUnfavorable impacts of currency translation, due primarily to the weakening of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar

ⁿLower sales volumes across both segments, partially offset by an increase within our commercial vehicle end-market

Partially offset by:

ⁿHigher average selling prices across both our segments, primarily within our Performance Coatings segment

ⁿImpacts of acquisitions within our Performance Coatings segment

Cost of sales



	Three months ended March 31,						2019 vs 2018
	2019			2018			$ Change			% Change
Cost of sales	$	751.3		$	776.0		$	(24.7	)	(3.2	)%
% of net sales	67.1		%	66.2		%

Cost of sales decreased due to the following:

ⁿFavorable impacts of currency translation of 3.7%, due primarily to the weakening of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar

ⁿLower sales volumes across both segments

Partially offset by:

ⁿIncreased raw material costs across both segments

ⁿIncremental accelerated depreciation expense of $6.1 million, for which there were no costs in the comparable period

Cost of sales as a percentage of net sales increased due to the following:

ⁿLower sales volume covering fixed costs and the incremental accelerated depreciation expense of $6.1 million, as well as increased raw material costs, partially offset by increase in price recapture in net sales

Selling, general and administrative expenses



	Three months ended March 31,				2019 vs 2018
	2019		2018		$ Change			% Change
SG&A	$	217.5	$	227.8	$	(10.3	)	(4.5	)%

Selling, general and administrative expenses decreased due to the following:

ⁿFavorable impacts of currency translation of 4.7% due primarily to the weakening of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar

Partially offset by:

ⁿAxalta Way cost savings initiatives and acquisition-related costs of $1.9 million and $0.3 million for the three months ended March 31, 2019 and 2018, respectively, resulting in a $1.6 million increase over the comparable period

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Loss on assets held for sale



	Three months ended March 31,				2019 vs 2018
	2019		2018		$ Change		% Change
Loss on assets held for sale	$	5.2	$	—	$	5.2	100.0	%

Loss on assets held for sale increased due to the following:

ⁿDuring the three months ended March 31, 2019, we recorded a loss on the anticipated sale of our interest in a joint venture business determined to be held for sale as discussed above in "Business Highlights - Acquisitions and Divestitures"

Research and development expenses



	Three months ended March 31,				2019 vs 2018
	2019		2018		$ Change			% Change
Research and development expenses	$	18.2	$	19.3	$	(1.1	)	(5.7	)%

Research and development expenses decreased due to the following:

ⁿFavorable impacts of currency translation, which reduced expenses by 1.0% due primarily to the weakening of the Euro and Chinese Renminbi compared to the U.S. dollar

Amortization of acquired intangibles



	Three months ended March 31,				2019 vs 2018
	2019		2018		$ Change			% Change
Amortization of acquired intangibles	$	28.5	$	28.9	$	(0.4	)	(1.4	)%

Amortization of acquired intangibles decreased due to the following:

ⁿFavorable impacts of foreign currency of 1.9%, primarily related to the weakening of the Euro and Chinese Renminbi compared to the U.S. dollar

Interest expense, net



	Three months ended March 31,				2019 vs 2018
	2019		2018		$ Change		% Change
Interest expense, net	$	41.3	$	39.4	$	1.9	4.8	%

Interest expense, net increased due to the following:

ⁿIncreases in average interest rates due to LIBOR increases on our variable rate debt over the comparable period, mostly offset by impacts of our derivative instruments

ⁿIncreases in interest costs associated with finance leases under the new standard, of which certain leases were historically treated as sale-leaseback financing transactions

Other income, net



	Three months ended March 31,						2019 vs 2018
	2019			2018			$ Change		% Change
Other income, net	$	(1.0	)	$	(2.2	)	$	1.2	(54.5	)%

Other income, net decreased due to the following:

ⁿIncrease in miscellaneous expenses, including increased net foreign exchange losses

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Provision for income taxes



	Three months ended March 31,
	2019			2018
Income before income taxes	$	58.3		$	82.8
Provision for income taxes	14.2			11.8
Statutory U.S. Federal income tax rate	21.0		%	21.0		%
Effective tax rate	24.3		%	14.3		%
Effective tax rate vs. statutory U.S. Federal income tax rate	3.3		%	(6.7		)%



	(Favorable) Unfavorable Impact
Items impacting the effective tax rate vs. statutory U.S. federal income tax rate	2019			2018
Earnings generated in jurisdictions where the statutory rate is lower than the U.S. Federal rate ⁽¹⁾	$	(9.2	)	$	(4.3	)
Changes in valuation allowance	2.6			1.3
Foreign exchange gain (loss), net	5.9			(4.0		)
Stock-based compensation net excess tax benefits	(3.6		)	(2.4		)
Non-deductible expenses and interest	1.6			3.1
Increase in unrecognized tax benefits ⁽²⁾	0.8			6.4
U.S. tax reform ⁽³⁾	—			(12.4		)

(1) Primarily related to earnings in Bermuda, Germany, Luxembourg, and Switzerland.

(2) The 2018 unrecognized tax benefit is primarily associated with the financial impacts surrounding the announced closure of our manufacturing facility at our Mechelen, Belgium site.

(3) Primarily related to the realizability of certain tax attributes.

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SEGMENT RESULTS

The Company's products and operations are managed and reported in two operating segments: Performance Coatings and Transportation Coatings. During the three months ended March 31, 2019, the primary measure of performance used to review the operating segments was transitioned to Adjusted EBIT from Adjusted EBITDA. See Note 18 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Performance Coatings Segment



	Three months ended March 31,						2019 vs 2018
	2019			2018			$ Change			% Change
Net sales	$	713.3		$	731.0		$	(17.7	)	(2.4	)%
Volume effect										(1.4	)%
Impact of acquisitions										0.5	%
Price/product mix effect										3.3	%
Exchange rate effect										(4.8	)%

Adjusted EBIT	$	78.6		$	76.0		$	2.6		3.4	%
Adjusted EBIT Margin	11.0		%	10.4		%

Net sales decreased due to the following:

ⁿUnfavorable currency translation primarily related to the weakening of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar

ⁿDecreases in organic volumes across both end-markets

Partially offset by:

ⁿHigher average selling prices across both end-markets and all regions

ⁿBenefits from acquisitions in the refinish end-market

Adjusted EBIT increased due to the following:

ⁿHigher average selling prices across both segments and all regions

Partially offset by:

ⁿUnfavorable currency translation primarily related to the weakening of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar

ⁿHigher raw material costs across both end-markets

ⁿLower organic volumes, offset partially by the impacts of our recent acquisitions

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Transportation Coatings Segment



	Three months ended March 31,						2019 vs 2018
	2019			2018			$ Change			% Change
Net sales	$	406.0		$	441.0		$	(35.0	)	(7.9	)%
Volume effect										(3.3	)%
Price/product mix effect										0.2	%
Exchange rate effect										(4.8	)%

Adjusted EBIT	$	34.2		$	45.0		$	(10.8	)	(24.0	)%
Adjusted EBIT Margin	8.4		%	10.2		%

Net sales decreased due to the following:

ⁿUnfavorable currency translation primarily related to the weakening of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar

ⁿVolume decreases primarily in our light vehicle end-market

Partially offset by:

ⁿIncreases in average selling price in our light vehicle end-market, primarily in our North America and EMEA regions

Adjusted EBIT decreased due to the following:

ⁿHigher raw materials costs across both end-markets and all regions

ⁿDecreases in sales volumes across all regions in our light vehicle end-market

ⁿUnfavorable currency translation primarily related to the weakening of the Euro, Chinese Renminbi and Brazilian Real compared to the U.S. dollar

Partially offset by:

ⁿIncreases in average selling price in our light vehicle end-market, primarily in our North America and EMEA regions

ⁿReductions in costs due to operational efficiencies associated with our cost savings initiatives

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash on hand, cash flow from operations and available borrowing capacity under our Revolving Credit Facility.

At March 31, 2019, availability under the Revolving Credit Facility was $356.1 million, net of $43.9 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 March 31, 2019, we had $16.7 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 $3.8 million.

We or our affiliates, at any time and from time to time, may purchase shares of our common stock, the Senior Notes or other indebtedness. Any such purchases may be made through the open market or privately negotiated transactions with third parties or pursuant to one or more redemption, tender or exchange offers or otherwise, upon such terms and at such prices, as well as with such consideration, as we, or any of our affiliates, may determine.

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Cash Flows

Three months ended March 31, 2019 and 2018



	Three months ended March 31,
(In millions)	2019			2018
Net cash provided by (used for):
Operating activities:
Net income	$	44.1		$	71.0
Depreciation and amortization	91.6			91.9
Amortization of deferred financing costs and original issue discount	2.2			1.9
Deferred income taxes	0.4			(4.9		)
Realized and unrealized foreign exchange (gains) losses, net	0.9			(1.3		)
Stock-based compensation	6.7			8.4
Loss on assets held for sale	5.2			—
Interest income on swaps designated as net investment hedges	(3.5		)	—
Other non-cash, net	(0.3		)	(5.3		)
Net income adjusted for non-cash items	147.3			161.7
Changes in operating assets and liabilities	(205.2		)	(182.7		)
Operating activities	(57.9		)	(21.0		)
Investing activities	(18.8		)	(117.7		)
Financing activities	(101.8		)	(41.2		)
Effect of exchange rate changes on cash	0.8			10.3
Net decrease in cash and cash equivalents	$	(177.7	)	$	(169.6	)

Three months ended March 31, 2019

Net Cash Used for Operating Activities

Net cash used for operating activities for the three months ended March 31, 2019 was $57.9 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $147.3 million. This was more than offset by net uses of working capital of $205.2 million. The most significant drivers of the uses of working capital were increases in accounts receivable of $90.4 million, prepaid expenses and other assets of $60.5 million and inventories of $22.2 million during the three months ended March 31, 2019, as well as a decrease in other accrued liabilities of $69.2 million. These outflows were primarily driven by customer incentive payments and payments of normal seasonal operating activities, including interest payments on our long-term indebtedness and timing of cash payments for annual employee performance related benefits. Partially offsetting these outflows were increases in accounts payable of $35.4 million.

Net Cash Used for Investing Activities

Net cash used for investing activities for the three months ended March 31, 2019 was $18.8 million. The primary uses were for business acquisitions of $1.7 million and purchases of property, plant and equipment of $20.5 million.

Net Cash Used for Financing Activities

Net cash used for financing activities for the three months ended March 31, 2019 was $101.8 million. This change was driven by payments of $18.6 million on short-term and long-term borrowings, purchases of treasury stock totaling $65.7 million, an investment in a non-controlling interest of $26.9 million and dividends to noncontrolling interests. These payments were partially offset by cash received from stock option exercises of $11.4 million.

Other Impacts on Cash

Currency exchange impacts on cash for the three months ended March 31, 2019 were favorable by $0.8 million, which was driven primarily by the Chinese Renminbi.

Three months ended March 31, 2018

See Note 1 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for information related to the revisions of net cash used for investing and financing activities for the three months ended March 31, 2018.

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Net Cash Used for Operating Activities

Net cash used for operating activities for the three months ended March 31, 2018 was $21.0 million. Net income before deducting depreciation, amortization and other non-cash items generated cash of $161.7 million. This was partially offset by net increases in working capital of $182.7 million. The most significant drivers in working capital were increases in accounts receivable of $52.3 million related to the seasonal timing of sales, and decreases in other accrued liabilities of $87.0 million related to payments of normal seasonal operating activities, including interest payments on our long-term indebtedness and timing of cash payments for annual employee performance related benefits. In addition, there were increases in inventory of $42.9 million to support ongoing operational demands.

Net Cash Used for Investing Activities

Net cash used for investing activities for the three months ended March 31, 2018 was $117.7 million. This use was primarily comprised of acquisitions of $78.2 million and purchases of property, plant and equipment of $39.5 million.

Net Cash Used for Financing Activities

Net cash used for financing activities for the three months ended March 31, 2018 was $41.2 million. This change was driven by repayments of short-term borrowings and quarterly principal payments on our term loans of $9.3 million and $6.9 million, respectively. Other payments include purchases of treasury stock of $3.3 million, an investment in a non-controlling interest of $26.9 million and dividends to non-controlling interests of $1.0 million. Offsetting these payments was cash received from stock option exercises for $6.2 million.

Other Impacts on Cash

Currency exchange impacts on cash for the three months ended March 31, 2018 were $10.3 million, which was driven by favorable exchange impacts primarily from the Euro and Chinese Renminbi.

Financial Condition

We had cash and cash equivalents at March 31, 2019 and December 31, 2018 of $501.1 million and $693.6 million, respectively. Of these balances, $365.1 million and $417.1 million were maintained in non-U.S. jurisdictions as of March 31, 2019 and December 31, 2018, respectively, which excludes cash in assets held for sale of $7.3 million at March 31, 2019. We believe our organizational structure allows us the necessary flexibility to move funds throughout our subsidiaries to meet our operational working capital needs.

Our business may not generate sufficient cash flow from operations and future borrowings may not be available under our Senior Secured Credit Facilities in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs, including planned capital expenditures. In such circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. Our primary sources of liquidity are cash on hand, cash flow from operations and available borrowing capacity under our Senior Secured Credit Facilities. Based on our forecasts, we believe that cash flow from operations, available cash on hand and available borrowing capacity under our Senior Secured Credit Facilities and existing lines of credit will be adequate to service debt, fund our cost saving initiatives, meet liquidity needs and fund necessary capital expenditures for the next twelve months.

Our ability to make scheduled payments of principal or interest on, or to refinance, our indebtedness or to fund working capital requirements, capital expenditures and other current obligations will depend on our ability to generate cash from operations. Such cash generation is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

If required, our ability to raise additional financing and our borrowing costs may be impacted by short and long-term debt ratings assigned by independent rating agencies, which are based, in significant part, on our performance as measured by certain credit metrics such as interest coverage and leverage ratios. Our highly leveraged nature may limit our ability to procure additional financing in the future.

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The following table details our borrowings outstanding at the end of the periods indicated:



(In millions)	March 31, 2019			December 31, 2018
2024 Dollar Term Loans	$	2,405.7		$	2,411.8
2024 Dollar Senior Notes	500.0			500.0
2024 Euro Senior Notes	376.9			383.3
2025 Euro Senior Notes	506.3			514.9
Short-term and other borrowings	111.4			103.8
Unamortized original issue discount	(12.1		)	(12.6		)
Unamortized deferred financing costs	(35.7		)	(37.2		)
	$	3,852.5		$	3,864.0
Less:
Short-term borrowings	$	19.2		$	17.9
Current portion of long-term borrowings	24.3			24.3
Long-term debt	$	3,809.0		$	3,821.8

Our indebtedness, including the Senior Secured Credit Facilities and Senior Notes, is more fully described in Note 16 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We continue to maintain sufficient liquidity to meet our requirements, including our leverage and associated interest as well as our working capital needs. Availability under the Revolving Credit Facility was $356.1 million and $355.2 million at March 31, 2019 and December 31, 2018, 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.

In April 2018, we entered into the Sixth Amendment, which repriced the 2024 Dollar Term Loans and increased the aggregate principal balance of our 2024 Dollar Term Loans by $475.0 million to $2,430.0 million.

Concurrent with the refinancing, we executed interest rate and cross-currency swaps to convert $475.0 million of the 2024 Dollar Term Loans principal into Euro fixed-rate debt at an interest rate of 1.44%, which matures in 2023. The combined effect of the refinancing and the swaps are expected to result in annual cash interest savings of approximately $14.0 million.

Contractual Obligations

Information related to our contractual obligations can be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes in the Company's contractual obligations since December 31, 2018.

Off-Balance Sheet Arrangements

See Note 6 "Commitments and Contingencies" to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for disclosure of our guarantees of certain customers’ obligations to third parties.

Recent Accounting Guidance

See Note 1 "Basis of Presentation and Summary of Significant Accounting Policies" to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a summary of recent accounting guidance.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are those accounting policies that can have a significant impact on the presentation of our financial condition and results of operations, and that require the use of complex and subjective estimates based upon past experience and management’s judgment. Because of the uncertainty inherent in such estimates, actual results may differ materially from these estimates. The policies applied in preparing our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q are those that management believes are the most dependent on estimates and assumptions. There have been no material changes to our critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018. For a description of our critical accounting policies and estimates as well as a listing of our significant accounting policies, see “Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” and “Note 1 - Basis of Presentation and Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the market risks previously disclosed in our financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 4. 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 the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. 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 as of March 31, 2019.

Changes in internal control over financial reporting

There were no other changes in the Company’s internal control over financial reporting that occurred during the three months ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except with regard to the implementation of ASU 2016-02 "Leases" (See Note 1 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information).

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are from time to time party to legal proceedings that arise in the ordinary course of business. We are not involved in any litigation other than that which has arisen in the ordinary course of business. We do not expect that any currently pending lawsuits will have a material effect on us.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from the risks previously reported in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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 March 31, 2019:



(in thousands, 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
January 2019	—	$	—	—	$	366,455.5
February 2019	1,916.3	26.11		1,916.3	316,417.2
March 2019	631.2	24.93		631.2	300,682.7
Total	2,547.5	$	25.82	2,547.5	$	300,682.7

¹ Shares were repurchased through the $675.0 million share repurchase program announced in March 2017. We repurchased $65.8 million of our common shares during the three months ended March 31, 2019 and $308.5 million in prior periods. At March 31, 2019, the Company had remaining authorization to repurchase $300.7 million of shares. There is no expiration date on the share repurchase program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS



EXHIBIT NO.	DESCRIPTION OF EXHIBITS

10.58	Form of Performance Share Unit Agreement for U.S. Employees

10.59	Form of Performance Share Unit Agreement for Non - U.S. Employees

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. The document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL 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.

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SIGNATURES

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.




		AXALTA COATING SYSTEMS LTD.

Date:	April 25, 2019	By: /s/ Robert W. Bryant
		Robert W. Bryant
		Chief Executive Officer and President
		(Principal Executive Officer)

Date:	April 25, 2019	By: /s/ Sean M. Lannon
		Sean M. Lannon
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)



Participant:
Grant Date:
Target Number of PSUs (the “Target PSUs”):	[____] Notwithstanding the number of Target PSUs, the number of PSUs that are eligible to vest pursuant to this Agreement range from zero to 200% of the Target PSUs.
Type of Shares Issuable:	Common Stock
Vesting Schedule:	The PSUs will vest in accordance with the vesting schedule set forth in Appendix 1.



AXALTA COATING SYSTEMS LTD. HOLDER:		PARTICIPANT
By:		By:
Print Name:		Print Name:
Title:


1.	If the Company achieves an Adjusted EPS between the “Threshold” and “Target” amounts in the table below for any fiscal year during the Performance Period, a number of PSUs equal to between 3.5% and 14% of the Target PSUs, using straight-line interpolation (rounded up to the nearest whole PSU), shall be designated “Banked PSUs.”



ADJUSTED EPS	Fiscal Year 2019	Fiscal Year 2020	Fiscal Year 2021	Performance Period (cumulative 3-year)
Metric Target	$1.39	$1.48	$1.63	$4.55
Threshold (% of metric target)	$1.251 (90%)	$1.258 (85%)	$1.304 (80%)	$3.8675 (85%)
Target (% or metric target)	$1.39 (100%)	$1.48 (100%)	$1.63 (100%)	$4.55 (100%)
Maximum (% of metric target)	$1.529 (110%)	$1.702 (115%)	$1.956 (120%)	$5.2325 (115%)


1.	If the Company achieves an ROIC between the “Threshold” and “Target” amounts in the table below for any fiscal year during the Performance Period, a number of PSUs equal to between 1.5% and 6% of the Target PSUs, using straight-line interpolation (rounded up to the nearest whole PSU), shall be designated “Banked PSUs.”


3.	If the Company achieves an ROIC greater than the “Maximum” amount in the table below for any fiscal year during the Performance Period, a number of PSUs equal to 12% of the Target PSUs (rounded up to the nearest whole PSU), shall be designated “Banked PSUs.”



ROIC	Fiscal Year 2019	Fiscal Year 2020	Fiscal Year 2021	Performance Period (cumulative 3-year)
Metric Target	13.5%	14.2%	15.3%	14.4%
Threshold (% of metric target)	12.15% (90%)	12.07% (85%)	12.24% (80%)	12.24% (85%)
Target (% or metric target)	13.5% (100%)	14.2% (100%)	15.3% (100%)	14.4% (100%)
Maximum (% of metric target)	14.85% (110%)	16.33% (115%)	18.36% (120%)	16.56% (115%)


1.	If the Company achieves a TSR over the Performance Period that is at or below the 25^th percentile of the TSRs of the component members of the Company’s Peer Group over the Performance Period, a number of PSUs equal to 75% of the Banked PSUs shall vest.


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


(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:	Chief Executive Officer and President



By:	/s/ Sean M. Lannon
Name:	Sean M. Lannon
Title:	Senior Vice President and Chief Financial Officer


(1)	The Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2019 (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.